Big 5 Sporting Goods Corp. (BGFV - Analyst Report) posted strong bottom-line results for third-quarter 2013, with adjusted earnings rising 15.4% to 45 cents per share from the year-ago quarter figure of 39 cents, and came a penny ahead of the Zacks Consensus Estimate. Notably, the quarterly results excluded a charge of 4 cents per share related to legal settlements while the previous fiscal quarter results excluded expenses of one cent related to store closures.
The robust results were aided by sales growth and improved margins. Moreover, the reported earnings of this Zacks Rank #3 (Hold) company met the higher end of its own guidance range of 40–45 cents per share.
Further, including the one-time charges, Big 5 Sporting’s earnings for the said quarter came in at 41 cents per share versus 38 cents in the comparable quarter last year.
Highlights of the Quarter
Net sales increased 2.9% to $259.1 million from $251.8 million in the third quarter of 2012. The rise was driven by a shift of the Fourth of July holiday sales into the third quarter. Apart from this, Big 5 Sporting’s top line benefited from its merchandise and marketing initiatives. However, revenues for the quarter came below the Zacks Consensus Estimate of $265.0 million.
Same-store sales rose 1.4% over the year-ago quarter, in line with the low single-digit increase that the company had forecasted. The benefits of a mid-single-digit rise in average ticket were partially offset by a low-single-digit decline in customer traffic.
Gross profit in the quarter increased 4.7% to $87.8 million, while gross profit margin expanded 60 basis points (bps) to 33.9% due to a 12 bps improvement in merchandise margins and lower distribution expenses as a percentage of sales.
Operating income for the quarter was $15.4 million compared with $13.5 million in the year-ago quarter. Consequently, operating margin rose year over year to 5.9% from 5.4%. The improvement came on the back of an increased gross profit margin.
Big 5 Sporting ended the quarter with cash and cash equivalents of $4.9 million. The company’s inventory level at the quarter-end was $287.9 million. On a per-store basis, inventory was up 0.7% year over year.
During the first nine months of 2013, the company generated a cash flow of $25.2 million from its operating activities versus $28.5 million in the comparable period of 2012. The decrease was primarily due to increased funding related to inventory purchases, partially offset by higher net income.
Long-term debt was $37.9 million and shareholders’ equity was $187.3 million as of Sep 29, 2013.
The company continues to enhance shareholders’ value by returning cash in the form of dividends and share repurchases. Following the earnings release, Big 5 Sporting declared a quarterly cash dividend of 10 cents per share, payable on Dec 13, 2013 to shareholders of record as of Nov 29, 2013.
In the reported quarter, Big 5 Sporting shuttered one store and inaugurated 5 stores, including 2 stores that were relocated. As of Sep 29, the company operated 420 stores.
So far in the fourth quarter, Big 5 Sporting has opened a store in Gallup, Mexico. It also intends to open an outlet in Coachella, Calif. by the end of this week. Looking ahead, Big 5 Sporting plans to open 7 more stores. If this target is achieved, the company’s net new stores in 2013 will be 15.
Management expects fourth quarter same-store sales growth in low single digits. Further, the company anticipates earnings for the quarter to range from 20–28 cents per share. Currently, the Zacks Consensus Estimate is 25 cents per share, which is in between the company’s guidance range. The earnings guidance for the fourth quarter includes a charge of approximately 2 cents per share related to the development of an e-Commerce platform.
Other Stocks to Consider
Apart from Big 5 Sporting, other stocks worth a look this earnings season include Five Below, Inc. (FIVE - Snapshot Report), Marinemax Inc. (HZO - Snapshot Report) and Express Inc. (EXPR - Snapshot Report). All of these carry a Zacks Rank #2 (Buy).