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Big 5 Sporting (BGFV) Stock Up on Q3 Earnings & Sales Beat

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Shares of Big 5 Sporting Goods Corp. (BGFV - Free Report) climbed 4.4% in after-hours trading on Nov 2, after the company reported better-than-expected top- and bottom-line results for third-quarter 2016. During the quarter, comparable store sales (comps) and earnings primarily benefitted from significant competitive rationalization in the markets where the company operates due to the recent liquidation of rivals Sports Authority and Sport Chalet.

Adjusted earnings of 41 cents per share in the third quarter were substantially ahead of the Zacks Consensus Estimate of 30 cents. Including one-time items, the company’s earnings per share of 38 cents, rose 35.7% from 28 cents earned in the prior-year quarter.

Net sales increased 3.3% to $279 million and surpassed the Zacks Consensus Estimate of $274.7 million. Top-line growth was attributed to increased customer transactions and average sale, along with the overall industry consolidation due to the closure of rival stores.

Despite the beat, top line results for the quarter were somewhat hurt by the calendar shift due to 53 weeks in fiscal 2015, which led 2016 to start a week later. This resulted in the pre-Fourth of July holiday sales moving from third-quarter last year to second-quarter in 2016.

The aforementioned calendar shift had no impact on the company’s comps, which jumped 6.8% and were within management’s expected range. Comps gained from a mid single-digit improvement in customer transactions along with a low single-digit rise in average ticket.

Looking at product categories, all major categories gained from the aforementioned competitive store closures with apparel rising low double-digits, hard goods business up high single-digits and the footwear category increasing in the solid low single-digit range.

Costs & Margins

Gross profit came in at $89.9 million, surging 5.5% from the comparable year-ago level. Moreover, gross profit margin expanded 70 basis points (bps) to 32.2% in third-quarter 2016 due to a 39 bps improvement in merchandise margins and lower store occupancy costs, as a percentage of sales.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, declined 40 bps to 27.3%. On a dollar basis, SG&A expenses inched up 1.9% to $76.3 million due to a pre-tax charge related to store closing expenses as well as higher employee labor costs.

Consequently, the company’s operating profit of $13.6 million soared 32% year over year. Further, operating margin expanded 110 bps to 4.9%.

Financial Position

Big 5 Sporting had cash of $8.1 million, long-term debt of $5.5 million, and total shareholders’ equity of $199.2 million as of Oct 2, 2016.

During the first nine months of 2016, the company’s operating cash flows totaled $55 million. Strong cash flows during the quarter helped lower borrowings by 65% under its credit facility as well as return value to shareholders in the form of dividends and share repurchases. Capital expenditure in the first nine months of 2016 was $10.2 million, excluding non-cash acquisitions.

For 2016, the company currently anticipates capital expenditures, excluding non-cash acquisitions, in the range of $14–$16 million.

Dividend & Share Repurchase

Big 5 Sporting remains committed to returning cash to share holders by paying dividends and share repurchases. Evidently, the company raised quarterly cash dividend by 20%, marking its second dividend hike in 2016. Additionally, the dividend hike represented a 50% increase in dividend since the beginning of 2016. This clearly testifies the company’s sound financial position and its ability to stay afloat in various economic and competitive cycles.

The raised dividend rate now stands at 15 cents compared to the previous rate of 12.5 cents. The dividend is payable on Dec 15, 2016, to shareholders on record as of Dec 1.

During the quarter, the company bought back about 122,999 shares for about $1.6 million. As of Oct 2, the company had about $23.4 million remaining under its current share repurchases authorization of $25 million.

Store Update

During the quarter, Big 5 Sporting opened two new stores in Espanola, NM and Banning, CA, while it shut down five stores. As of Oct 2, 2016, the company’s total store count was 432.

During the fourth quarter, the company plans to open one new store, while it will also shut down one store. This will mean 432 stores in operation as of the end of 2016.

Outlook

The company revealed that the fourth quarter has started on a strong note, evident from a quarter-to-date comps growth in the high single-digit range. Comps are mainly gaining from the closing of several rival stores in its markets, which has led customers to acknowledge the ease of shopping at Big 5 Sporting given its wide range of product assortments and value. That said, the company is confident of delivering reasonably good fourth-quarter results, even amid an uncertain consumer spending environment in its markets during the upcoming holiday selling and winter seasons.

For fourth-quarter 2016, the company anticipates comps to increase in the mid single-digit range. Further, it envisions earnings in the range of 25–35 cents per share.

BIG 5 SPORTING Price, Consensus and EPS Surprise

BIG 5 SPORTING Price, Consensus and EPS Surprise | BIG 5 SPORTING Quote

Stocks to Consider

Big 5 Sporting currently sports a Zacks Rank #1 (Strong Buy). Other favorably-placed stocks in the same industry include ULTA Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) , DICK’S Sporting Goods Inc. (DKS - Free Report) and Hibbett Sports Inc. (HIBB - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ULTA Salon, with a long-term EPS growth rate of 19.5%, has seen positive estimate revisions for fiscal 2016, over the past 30 days. Additionally, the company has topped earnings in the trailing four quarters, with an average beat of 7.7%.

DICK’S Sporting, with a long-term EPS growth rate of 12.3%, has seen estimates for the current fiscal trend upward in the last 60 days. Further, the company has recorded an average beat of 4.7% in the trailing four quarters.

Hibbett Sports has to its credit an encouraging earnings surprise trend as the company delivered a beat of 3.9% in the trailing four quarters. Moreover, its long-term EPS growth rate of 11.1% helps it stand strong against the industry.

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