Back-to-back quarters of positive earnings surprises along with an encouraging guidance for the fourth quarter helped Big 5 Sporting Goods Corporation (BGFV - Analyst Report) achieve a Zacks #1 Rank (Strong Buy).
Since the release of its third-quarter results on Nov 1, 2012, shares of this sporting goods retailer have increased about 40.9%. Moreover, considering its robust growth and the history of beating quarterly earnings estimates (including an average beat of 7.6% over the trailing four quarters), it can be stated that this stock offers an attractive investment opportunity.
The Rank Driver
Strong same-store sales momentum, continued share gains, the pricing power and margin improvement are the rank drivers for this stock.
On Nov 1, 2012, Big 5 Sporting, which competes with Dicks Sporting Goods Corporation (DKS - Analyst Report), posted third-quarter earnings per share of 39 cents, surpassing the Zacks Consensus Estimate by 21.9%.
Net sales of $251.8 million rose 7.3% from the year-ago quarter and also beat the Zacks Consensus Estimate of $247 million. Sales mainly benefited from the calendar shift of the 4th July holiday into the third quarter, as well as the company’s ongoing merchandise and marketing initiatives.
Same-store sales increased 5.0% over the comparable year-ago quarter, driven by improvement across all geographies and all the major product categories of apparel, footwear and hard goods.
Gross profit increased 9% to $83.9 million, while gross profit margin expanded 50 basis points to 33.3%. Selling and administrative expenses grew 4.3% to $70.4 million driven by an increase in store related expenses. Consequently, operating income advanced 42.1% to $13.5 million, while operating margin expanded 140 basis points to 5.4%.
Management expects earnings per share in the fourth quarter to be in the range of 13–21 cents per share, with same store sales in the mid-single digits. For fiscal 2012, the company plans to open nearly 14 new stores, of which 3 will be relocations. At the end of the year, the company’s total store count is expected to reach 414.
Earnings Estimate Revisions
Earnings estimate revisions of the company is exhibiting a positive trend for fiscal 2012 and 2013. The Zacks Consensus Estimate for fiscal 2012 climbed 16.7% to 70 cents per share in the past 60 days, as all 5 estimates were revised upwards. This represents a year-over-year surge of 52.2%. The Zacks Consensus Estimate for fiscal 2013 grew 11.5% to 87 cents over the same time frame as all 6 estimates were raised, reflecting a year-over-year increase of 24.3%.
Big 5 Sporting currently trades at a forward P/E of 17.61x, below its peer group average of 20.62x. On a price-to-book and price-to-sales basis, the shares are trading at 1.67x and 0.29x, respectively. This represents a 15.23% and 61.84% discount to the peer group average of 1.97x and 0.76x, respectively. Based on the company’s fundamentals and projected long-term earnings growth of 11.3%, we expect the company’s discount to narrow in the coming quarters.
About the Company
Based in El Segundo, California, 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. Big 5 stores have nationally recognized brands, such as Nike, Reebok, Adidas, New Balance, Coleman, Rollerblade, Spalding and Wilson. The company also offers private label merchandise manufactured exclusively for its stores. Founded in 1955, the company currently operates 407 stores across 12 states in the U.S. The company has a current market cap of $265.9 million.