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Big 5 Sporting (BGFV) Q2 Earnings Beat, Slumps on Sales Lag

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Shares of Big 5 Sporting Goods Corp. (BGFV - Free Report) slumped 13.2% in after-hours trading session following the lower-than-expected top-line results in second-quarter 2017 and a soft comps outlook for the third quarter.

However, the company’s earnings topped estimates and improved year over year. This marked its fifth straight earnings beat. Moreover, sales grew year over year driven by market share gains from closure of rival stores last year.

Overall, shares of the company have substantially underperformed the industry in the last three months. Big 5 Sporting lost a significant 36.9%, while the industry dipped 9.1%.



Q2 Numbers

Big 5 Sporting reported adjusted earnings of 13 cents per share, up 18.2% from 11 cents earned in the prior-year quarter. Bottom-line results also topped the Zacks Consensus Estimate of 19 cents.

Big 5 Sporting Goods Corporation Price, Consensus and EPS Surprise

 

Big 5 Sporting Goods Corporation Price, Consensus and EPS Surprise | Big 5 Sporting Goods Corporation Quote

Net sales rose nearly 1% to $243.7 million but lagged the Zacks Consensus Estimate of $251.8 million. Sales in the quarter gained from a 0.8% increase in comparable store sales (comps) due to the closure of several rival stores last year. However, the lag can be attributed to diminished demand for some hardgoods product categories, mainly linked to firearms, camping and water sports. Additionally, top-line results were hurt by the calendar shift of Easter and Fourth of July holidays, when the company’s stores remain closed, into the second quarter this year compared with the first quarter in the prior-year.

While Big 5 Sporting started off strong with low mid-single digit comps increase in April and May, growth was offset by the low-single digit decline witnessed in June driven by soft sales of some outdoor product categories including firearms, camping and water sports. Moreover, cycling of benefits from the increased sales witnessed last year owing to closure of rival stores, impacted results.

Looking at product categories, the company delivered comps growth for its apparel and footwear categories, while the hardgoods category remained soft posting a low-single digit decline.

Costs & Margins

Gross profit came in at $79.3 million, up 3.9% from the prior-year quarter. Moreover, gross profit margin expanded 90 basis points (bps) to 32.5% in second-quarter 2017. Gross margin growth was driven by a 37 bps improvement in merchandise margins and lower distribution costs, as a percentage of sales, ensuing from higher costs capitalized into inventory.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, rose 50 bps to 30.4%. On a dollar basis, SG&A expenses increased about 2.6% to $74.2 million, due to higher employee labor expense as well as information technology and services related costs.

Consequently, the company’s operating profit of $5.1 million increased27.5% from prior-year quarter. Operating margin expanded 40 bps to 2.1%.

Financial Position

Big 5 Sporting had cash of $6.6 million, long-term debt of $47.9 million, and total shareholders’ equity of $206.8 million as of Jul 2, 2017.

Dividend & Share Repurchase

Big 5 Sporting remains committed to returning cash to share holders by paying dividends and share repurchases. Concurrent to the earnings release, management announced a quarterly cash dividend of 15 cents per share, payable on Sep 15 to shareholders on record as of Sep 1.

In the second quarter, the company bought back 6,400 shares for about $0.1 million. Further, the company has repurchased 373,847 shares for nearly $4.3 million since the start of third quarter through Jul 31, 2017.

As of Jul 31, the company had about $19 million remaining to be repurchased under its $25 million share buyback program.

Store Update

During the quarter, Big 5 Sporting opened two stores. The company ended second-quarter 2017 with 433 stores.

Further, in third-quarter 2017, the company plans to close one store. In fiscal 2017, Big 5 Sporting expects to open roughly six new stores, while closing down three.

Outlook

In the third quarter, Big 5 Sporting expects sales comparisons to remain tough due to the cycling of benefits from increased sales witnessed in the prior-year quarter related to the closure of rival stores. Further, the company expects the retail environment to remain challenging.  Going forward, it remains focused on maintaining market share growth from last year. Further, management believes that its inventory position is apt for the rest of summer and the back to school season.

For third-quarter 2017, the company anticipates comps to decline in the low single-digit range. Further, it envisions earnings in the range of 22–32 cents per share compared with earnings of 38 cents in the prior-year quarter. The company expects results for the third quarter to include a slight benefit due to the calendar shift of the Fourth of July holiday.

Zacks Rank

Big 5 Sporting currently carries a Zacks Rank #3 (Hold).  Better-ranked stocks in the retail sector include Barnes & Noble Inc. (BKS - Free Report) , Build-A-Bear Workshop Inc. (BBW - Free Report) and Five Below Inc. (FIVE - Free Report) , all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Barnes & Noble has seen positive estimate revisions for the current fiscal in the last 60 days. The stock has a long-term EPS growth rate of 10%.

Build-A-Bear, with long-term EPS growth rate of 22.5%, has an average positive earnings surprise of 73.7% in the trailing four quarters.

Five Below, with a long-term EPS growth rate of 28.5%, has to its credit a positive earnings surprise of 6.3% in the trailing four quarters.

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