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Big 5 Sporting's Earnings Beat, Rev Lags

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Big 5 Sporting Goods Corp. (BGFV - Free Report) posted strong bottom-line results for second quarter 2013 with earnings rising to 28 cents per share against 12 cents reported in the year-ago quarter, and came a penny ahead of the Zacks Consensus Estimate. The previous fiscal quarter results excluded a charge of 3 cents per share related to store closing and non-cash impairment.

The year-over-year increase was primarily driven by strong sales growth and improved margins. Moreover, the quarterly earnings of this Zacks Rank #2 (Buy) company surpassed its own guidance range of 20–26 cents per share.

Quarter in Detail

Net sales increased approximately 5.9% to $239.9 million, compared with $226.6 million in the second quarter of 2012. Sales in the quarter mainly benefited from a shift in Easter timing to the first quarter, compared with second quarter in 2012 when the company’s stores were closed on Easter. Apart from this, Big 5 Sporting’s top-line also benefited from its ongoing merchandise and marketing initiatives. This was partially offset by a shift of the Fourth of July holiday sales to third quarter. However, revenues for the quarter came below the Zacks Consensus Estimate of $244.0 million.

Same-store sales rose 4.4% over the year-ago quarter, slightly below the mid single-digit increase that the company had forecasted. Improvement in same-store sales came on the back of increased customer traffic and higher average sale.

Gross profit in the quarter increased 9.0% to $79.7 million, while gross profit margin expanded 100 basis points (bps) to 33.2% due to a 34 bps improvement in merchandise margins, and reduced store occupancy and distribution expenses as a percentage of sales.

Selling and administrative expense, as a percentage of net sales, contracted 150 bps to 28.8%. However, in dollar terms, selling and administrative expenses increased $0.6 million to $69.2 million. This was primarily due to increased store-related expenses due to a rise in store count as well as employee benefit-related costs, which were offset by reduced advertising expenses. The previous fiscal quarter include charges of $0.7 million and $0.2 million related to store closing and non-cash impairment.

Operating income for the quarter was $10.5 million against $4.5 million reported in the second quarter of 2012. Consequently, operating margin came in at 4.4% against 2.0% in the comparable year-ago quarter. The year-over-year improvement in operating margin was primarily driven by increased gross profit margin and reduced selling and administrative expenses as a percentage of sales.

Financial Update

Big 5 Sporting ended the quarter with cash and cash equivalents of $5.9 million. The company’s inventory level at the end of the second quarter was up 8.6% to $293.6 million, compared with $270.4 million at the end of fiscal 2012. However, on a per-store basis, inventory was down 0.8% year over year.

During the first six months of 2013, the company generated a cash flow of $10.4 million from its operating activities versus $6.4 million during the comparable period in 2012. The increase in operating cash flow was primarily driven by higher net income, partially offset by increased funding of accounts payable related to inventory purchases.

Long-term debt as of Jun 30, 2013 was $44.9 million, down 37.1% from $71.4 million at the end of second quarter 2012. Shareholders’ equity at the quarter-end was $178.5 million.

The company continues to enhance shareholders’ value by returning cash in the form of dividends and share repurchases. Following the earnings result, Big 5 Sporting declared a quarterly cash dividend of 10 cents per share, payable on Sep 13, 2013 to shareholders of record as of Aug 30, 2013.

Store Update

In the reported quarter, Big 5 Sporting inaugurated 2 stores, bringing the total store count to 416 stores at the quarter-end.

Looking ahead, Big 5 Sporting plans to open 4 new stores and close 1 store the third quarter of 2013. For full-year 2013, the company targets to open nearly 15 new outlets.


Management expects third quarter same-store sales growth in low single digits. Further, the company anticipates earnings for the quarter to range from 40–45 cents per share. Currently, the Zacks Consensus Estimate is 45 cents per share, which dovetails with the company’s higher-end guidance range. The earnings guidance for the third 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 considering this earnings season include The Children (PLCE - Free Report) , Pacific Sunwear of California Inc. and The Gap, Inc. (GPS - Free Report) . The Children carries a Zacks Rank #2 (Buy), while Pacific Sunwear and Gap carry a Zacks Rank #1 (Strong Buy).

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Big 5 Sporting Goods Corporation (BGFV) - free report >>

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Children's Place, Inc. (The) (PLCE) - free report >>

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