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We have maintained our long-term Neutral recommendation on Big 5 Sporting Goods Corporation (BGFV - Analyst Report). Our recommendation is based on the company’s strategy of resuming the store expansion program along with improved earnings outlook for the third quarter of fiscal 2012.

Lately, Big 5 reported a better-than-expected bottom-line performance for the second-quarter of fiscal 2012. The company’s earnings of 15 cents per share for the second quarter of fiscal 2012 came ahead of the Zacks Consensus Estimate of 10 cents but fell short of the prior-year quarter’s earnings by a penny. The company’s sales grew 3.2% year over year to $226.6 million primarily benefiting from its initiatives implemented to improve merchandise and marketing.

Following better earnings result, Big 5 anticipates its earnings for the third quarter to grow year over year in the range of 3.5%–26% to 28–34 cents per share compared with the earnings of 27 cents in the year-ago period.

Further, we believe the company’s top line will further augment in future with the strategy of resuming the store expansion program. Big 5 intend to open 9 new stores in the fourth quarter of fiscal 2012 and close one store, which relates to the relocation. For fiscal 2012, the company targets to open nearly 13 new stores, relocate about 3 stores and close 3 stores. At year-end, the company’s total store count is expected to reach 416.

Moreover, we consider the company’s new business intelligence system and distribution channel to significantly reduce the operating expenses.

However, intense competition with national chains such as Dick’s Sporting Goods Inc. (DKS) and Foot Locker Inc. (FL) and mass merchandisers such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT) may hurt the company’s future operating performance.

Further, we believe that the seasonal nature of business and risks associated with sourcing from foreign countries may have an adverse impact on the company’s future growth prospect.

Big 5 Sporting Goods Corp. operates as a sporting goods retailer in the western U.S. The company offers athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding, and in-line skating. At the end of second quarter of fiscal 2012, the company operated 407 stores across 12 states in the U.S. supported by a 953,000 square feet distribution center located in California.

Currently, the company retains a Zacks #2 Rank, implying a short-term Buy rating on the stock.

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