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We have upgraded our long-term recommendation on Big 5 Sporting Goods Corporation (BGFV - Analyst Report) to Outperform, based on the company’s back-to-back quarters of positive earnings surprises along with an encouraging guidance for the fourth quarter of fiscal 2012.

Positive Earnings Surprise & Upbeat Guidance

Big 5 Sporting has surpassed the Zacks Consensus Estimate in 3 of the trailing 4 quarters, with an average earnings surprise of 7.6%. The company has consecutively beaten the Zacks Consensus Estimate in the fiscal third and second quarter, posting earnings surprise of 21.9% and 50.0%, respectively.

Driven by strong top-line performance along with effective cost management, Big 5 Sporting’s earnings of 38 cents  per share for third-quarter 2012 came 44.4% higher than the year-ago quarter earnings and handily surpassed the Zacks Consensus Estimate of 32 cents . The quarterly earnings include a store closing charge of 1 cent a share.

Net sales of $251.8 million rose 7.3% from the prior-year quarter sales of $234.7 million and surpassed the Zacks Consensus Estimate of $247 million. Sales in the quarter 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.

The company now anticipates earnings per share in the range of 13 cents - 21 cents in fourth-quarter fiscal 2012 on the back of a mid-single-digit growth expectation in comparable-store sales.

Earnings Estimates on the Rise

Following strong quarterly performance for the third quarter of fiscal 2012, the Zacks Consensus Estimates has been showing an upward trend. In the last 60 days, the Zacks Consensus Estimate for both fiscal 2012 and 2013 were raised by 9 cents, to 70 cents and 87 cents per share, respectively.

Growth Catalysts

This leading sporting goods retailer in the western U.S. has a unique strategy of offering exclusive branded merchandise sourced from leading manufacturers that provide it with a competitive edge over its rivals like Dick’s Sporting Goods Corporation (DKS - Analyst Report). The company also leverages its strong vendor relationships to source overstock and closeout merchandise at substantial discounts, achieving dual objectives of boosting gross margin while offering compelling value to customers.

Further, we believe Big 5 Sporting continues to progress well with its growth initiatives, which include expanding its store base and bringing in technological advancements to better serve its patrons. The company leverages an extensive network of stores to effectively penetrate into its target markets, which in turn, enables it to generate healthy sales and gain market share. The company’s fourth quarter store plans include opening of 8 locations thereby bringing the total store count to 414 by the end of fiscal 2012.
 
The above mentioned positives have induced us to retain a Zacks # 1 Rank on the stock, implying a short-term Strong Buy rating, which is in sync with our long-term recommendation.

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