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Big 5 Sporting Goods (BGFV) Down 8.9% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Big 5 Sporting Goods Corporation (BGFV - Free Report) . Shares have lost about 8.9% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is BGFV due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Big 5 Sporting Incurs Narrower-Than-Expected Q1 Loss

Big 5 Sporting incurred narrower-than-expected loss in the first quarter of 2018. However, the company’s top line slightly missed the Zacks Consensus Estimate. Further, management issued guidance for second-quarter 2018.

Quarterly results marked second straight quarter of positive earnings surprise, while it delivered fourth consecutive sales miss.

Q1 in Detail

Big 5 Sporting incurred adjusted loss of 5 cents per share, narrower than the Zacks Consensus Estimate of a loss of 14 cents. This compares unfavorably with earnings of 24 cents per share in the prior-year quarter. Management projected first-quarter loss per share in the band of 6-14 cents.

Including one-time items, loss per share came in at 6 cents in the first quarter of 2018.

Net sales dipped 7.3% to $234.2 million, marginally below the Zacks Consensus Estimate of $235.1 million. The downside can be mainly attributed to an extremely challenging environment. Record warm as well as dry weather conditions in its markets have severely hurt the company’s top line this year, mainly in the first seven weeks of the first quarter. However, the arrival of core and winter weather in late February and March drove winter product sales substantially but at the cost of the spring-related product category.

Further, comparable store sales (comps) dropped 7.5% against an increase of 7.9% in the year-ago quarter. In fact, comps were down in all three months of the quarter, with the highest decline witnessed in January. Month-wise, comps dipped high-teens in January due to soft sales of winter products. However, it improved every week in February but declined in low mid-single digits. In March, comps were down in low-single digits due to the shift of the Easter holiday in comparison with last year.

Big 5 Sporting witnessed greater winter-related sales in March than in January this year, which was largely compensated by the loss of higher traditional spring-related sales.

On a categorical basis, the company witnessed comps decline in low-double digits for apparel and in mid to high single-digit range for both hard goods and footwear in the first quarter.

 Costs & Margins

Gross profit was $72.7 million, down nearly 13% from the prior-year quarter. Further, gross margin contracted 200 bps to 31.1% in the first quarter due to 58 bps decline in merchandise margins coupled with increased store occupancy costs, as a percentage of net sales.

Selling and administrative expenses, as a percentage of sales, increased 190 bps to 31.4%. However, total selling and administrative expenses were down $1.1 million to $73.5 million, courtesy of lower advertising costs.

Nonetheless, the company incurred operating loss of $0.8 million compared to operating profit of $8.9 million in the year-ago quarter.

Financial Position

Big 5 Sporting had cash of $4.9 million, long-term debt of $68.9 million and total stockholders’ equity of $183 million as of Apr 1, 2018.

Management incurred capital expenditures excluding non-cash acquisitions of $2.5 million in the first quarter. For 2018, it expects to spend $16-$20 million for capital expenditures.

Dividend & Share Repurchase

Big 5 Sporting remains committed toward returning cash to shareholders by paying dividends and share repurchases. Management announced a quarterly cash dividend of 15 cents per share, payable on Jun 15 to shareholders on record as of Jun 1, 2018.

In the first quarter, the company repurchased 75,748 shares for a total of $0.4 million.  As of Apr 1, 2018, the company had $15.3 million outstanding under its $25 million share repurchase program.

Store Update

Big 5 Sporting did not inaugurate or shut down any store in the first quarter. As of Apr 1, 2018, the company operated 435 namesake stores.

In 2018, management plans to introduce nearly eight stores and close three stores. Moreover, it intends to open two stores while simultaneously shutting down two stores including a relocation in the second quarter.

Guidance

Management notes that the improving sales trend witnessed from January to March, along with enhanced product margins continued in the second quarter. Further, it expects to gain from the key spring selling season in the second quarter.

Consequently, comps are now projected to be flat to up low-single digits. Further, second-quarter earnings per share are anticipated in the band of 4-12 cents compared with 13 cents in second-quarter 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, BGFV has a poor Growth Score of F. Its Momentum is doing a lot better with an A. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, BGFV has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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