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Big 5 (BGFV) Topples on Soft Q4 Sales, Lowers EPS View
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Big 5 Sporting Goods Corp. (BGFV - Free Report) reported dismal sales numbers for fourth-quarter and full-year 2017, due to an extremely challenging performance in December. The company’s sales in December were largely hurt by nearly 50% decline in core winter product categories due to warmer than normal and dry weather conditions in most of its markets. This led to decline in sales of cold weather and snow-related products. Furthermore, the company continued to witness awfully soft sales for firearm-related products. The weak sales in the aforementioned categories significantly hurt customer traffic across the company’s store fleet, which weighed on comparable store sales (comps) and merchandise margins.
Consequently, the company slashed earnings guidance for both the fourth quarter and full-year 2017. This in turn caused the share price to fall by a significant 17.8% in the after-hours trading session on Jan 8.
Overall, the Big 5 Sporting stock has gained 2.6% in the last three months, underperforming the industry’s growth of 12.6%.
Q4 Sales Performance
Net sales for the quarter declined 8.7% to $243.2 million from $266.3 million last year and lagged the Zacks Consensus Estimate of $262.3 million. Moreover, comps dipped 9.4% against a 3.1% increase in the prior-year quarter. Comps decline was also wider than the company’s guidance of low-single digit fall.
The soft comps performance can mainly be attributed to comps decline in all three months of the quarter, with greatest decline witnessed in December. Month-wise, comps dipped in the low-mid single digit range in October, followed by a low-single digit decline in November, where positive comps during the Black Friday weekend aided performance. However, comps declined in the low-double digit range in December due to the aforementioned weakness in winter and firearm related products. Excluding these, comps for the fourth quarter were down low-single digits.
On a categorical basis, the company witnessed comps decline in the low-double digit range for apparel, high single-digit range for hardgoods and mid-single digit range for footwear. Further, merchandise margins contracted nearly 130 basis points (bps) compared with a 68 bps improvement in the prior-year quarter. A shift in sales mix away from the high-margin winter products, increased promotions to drive traffic and sales, as well as tough comps comparisons with the prior-year quarter affected merchandise margins.
2017 Sales & Comps
Big 5 reported net sales of $1.01 billion for 2017, nearly 1% decline from $1.02 billion in 2016. Further, sales for the full year were short of the Zacks Consensus Estimate of $1.03 billion. Comps for the year dropped 1.02%, while merchandise margins improved about 45 bps.
Earnings Outlook for Q4 & 2017
Given the soft sales performance, the athletic goods retailer revised earnings outlook for the fourth quarter and provided earnings guidance for 2017. The company now anticipates reporting loss per share of 8-13 cents in the fourth quarter, significantly below the previously forecasted earnings per share of 16-28 cents. Further, the company’s earnings view compares unfavorably with prior-year quarter’s earnings of 35 cents per share.
For 2017, the company anticipates earnings to range from 52-57 cents per share compared with 77 cents per share in 2016.
The company’s guidance for the quarter and full-year excludes charges related to the recent tax legislation and potential asset impairment. The company plans to adjust deferred tax assets based on the recent tax legislation, which is likely to attract one-time non-cash expense of nearly $5-$6 million (25-30 cents per share) in the fourth quarter.
A Peek into First-Quarter 2018
Big 5 Sporting notes that the dismal winter weather conditions have continued into the first quarter of 2018, making comparisons from the prior-year period very tough. Notably, the company has displayed very strong during this period in the past few years. Looking back, the company reported comps growth in the low-double digit or high-single digit range for the January period during each of the past three years. Growth was primarily backed by strength of favorable winter product sales.
While the company hopes the weather conditions and winter products sales to improve in coming weeks, it remains encouraged by the performance of its various core product categories. Though merchandise inventories were hurt by the slow start to the winter selling season, the company is content with inventory position at the start of first quarter. Preliminary per-store inventories at the end of fourth quarter rose about 6.2% mainly due to the winter products.
While fourth-quarter performance and the initial view for the first quarter are not very encouraging, the company’s impressive growth strategies and solid financials underscore strength in operations and augur well for its future. Currently, this California-based company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though Big 5 Sporting did not gain much, the holiday season this year was overwhelming for retailers backed by an increase in consumer spending. This has lifted the overall outlook for the Retail-Wholesale sector, which is currently placed at top 19% (3 of 16) of the Zacks Classified sectors. According to MasterCard SpendingPulse, sales (excluding automobiles) during Nov 1 to Dec 24, 2017 jumped 4.9% compared with 3.7% rise in the prior-year period. This marked the biggest year-over-year increase in holiday spending since 2011. Further, this data has also beat the National Retail Federation’s (“NRF”) projection of 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) and eMarketer’s forecast of 3.1% jump in holiday sales.
Some of the gainers during the period included American Eagle Outfitters Inc. (AEO - Free Report) , J. C. Penney Company, Inc. and Macy’s Inc. (M - Free Report) , which reported comps growth of 8%, 3.4% and 1.1%, respectively, during the holiday season.
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Big 5 (BGFV) Topples on Soft Q4 Sales, Lowers EPS View
Big 5 Sporting Goods Corp. (BGFV - Free Report) reported dismal sales numbers for fourth-quarter and full-year 2017, due to an extremely challenging performance in December. The company’s sales in December were largely hurt by nearly 50% decline in core winter product categories due to warmer than normal and dry weather conditions in most of its markets. This led to decline in sales of cold weather and snow-related products. Furthermore, the company continued to witness awfully soft sales for firearm-related products. The weak sales in the aforementioned categories significantly hurt customer traffic across the company’s store fleet, which weighed on comparable store sales (comps) and merchandise margins.
Consequently, the company slashed earnings guidance for both the fourth quarter and full-year 2017. This in turn caused the share price to fall by a significant 17.8% in the after-hours trading session on Jan 8.
Overall, the Big 5 Sporting stock has gained 2.6% in the last three months, underperforming the industry’s growth of 12.6%.
Q4 Sales Performance
Net sales for the quarter declined 8.7% to $243.2 million from $266.3 million last year and lagged the Zacks Consensus Estimate of $262.3 million. Moreover, comps dipped 9.4% against a 3.1% increase in the prior-year quarter. Comps decline was also wider than the company’s guidance of low-single digit fall.
The soft comps performance can mainly be attributed to comps decline in all three months of the quarter, with greatest decline witnessed in December. Month-wise, comps dipped in the low-mid single digit range in October, followed by a low-single digit decline in November, where positive comps during the Black Friday weekend aided performance. However, comps declined in the low-double digit range in December due to the aforementioned weakness in winter and firearm related products. Excluding these, comps for the fourth quarter were down low-single digits.
On a categorical basis, the company witnessed comps decline in the low-double digit range for apparel, high single-digit range for hardgoods and mid-single digit range for footwear. Further, merchandise margins contracted nearly 130 basis points (bps) compared with a 68 bps improvement in the prior-year quarter. A shift in sales mix away from the high-margin winter products, increased promotions to drive traffic and sales, as well as tough comps comparisons with the prior-year quarter affected merchandise margins.
2017 Sales & Comps
Big 5 reported net sales of $1.01 billion for 2017, nearly 1% decline from $1.02 billion in 2016. Further, sales for the full year were short of the Zacks Consensus Estimate of $1.03 billion. Comps for the year dropped 1.02%, while merchandise margins improved about 45 bps.
Earnings Outlook for Q4 & 2017
Given the soft sales performance, the athletic goods retailer revised earnings outlook for the fourth quarter and provided earnings guidance for 2017. The company now anticipates reporting loss per share of 8-13 cents in the fourth quarter, significantly below the previously forecasted earnings per share of 16-28 cents. Further, the company’s earnings view compares unfavorably with prior-year quarter’s earnings of 35 cents per share.
For 2017, the company anticipates earnings to range from 52-57 cents per share compared with 77 cents per share in 2016.
The company’s guidance for the quarter and full-year excludes charges related to the recent tax legislation and potential asset impairment. The company plans to adjust deferred tax assets based on the recent tax legislation, which is likely to attract one-time non-cash expense of nearly $5-$6 million (25-30 cents per share) in the fourth quarter.
A Peek into First-Quarter 2018
Big 5 Sporting notes that the dismal winter weather conditions have continued into the first quarter of 2018, making comparisons from the prior-year period very tough. Notably, the company has displayed very strong during this period in the past few years. Looking back, the company reported comps growth in the low-double digit or high-single digit range for the January period during each of the past three years. Growth was primarily backed by strength of favorable winter product sales.
While the company hopes the weather conditions and winter products sales to improve in coming weeks, it remains encouraged by the performance of its various core product categories. Though merchandise inventories were hurt by the slow start to the winter selling season, the company is content with inventory position at the start of first quarter. Preliminary per-store inventories at the end of fourth quarter rose about 6.2% mainly due to the winter products.
While fourth-quarter performance and the initial view for the first quarter are not very encouraging, the company’s impressive growth strategies and solid financials underscore strength in operations and augur well for its future. Currently, this California-based company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though Big 5 Sporting did not gain much, the holiday season this year was overwhelming for retailers backed by an increase in consumer spending. This has lifted the overall outlook for the Retail-Wholesale sector, which is currently placed at top 19% (3 of 16) of the Zacks Classified sectors. According to MasterCard SpendingPulse, sales (excluding automobiles) during Nov 1 to Dec 24, 2017 jumped 4.9% compared with 3.7% rise in the prior-year period. This marked the biggest year-over-year increase in holiday spending since 2011. Further, this data has also beat the National Retail Federation’s (“NRF”) projection of 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) and eMarketer’s forecast of 3.1% jump in holiday sales.
Some of the gainers during the period included American Eagle Outfitters Inc. (AEO - Free Report) , J. C. Penney Company, Inc. and Macy’s Inc. (M - Free Report) , which reported comps growth of 8%, 3.4% and 1.1%, respectively, during the holiday season.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
Click here for Zacks' private trades >>