A month has gone by since the last earnings report for Big 5 Sporting Goods (BGFV - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Big 5 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Big 5 Sporting Q3 Earnings & Sales Miss, Q4 View Soft
Big 5 Sporting Goods Corporation reported dismal third-quarter 2018 results, wherein both earnings and sales missed estimates. Further, both top and bottom lines declined year over year. In fact, this marked the company’s fourth consecutive quarter of bottom-line miss. Additionally, management expects to incur loss and soft sales in the fourth quarter.
Q3 in Detail
Big 5 Sporting’s adjusted earnings of 15 cents per share lagged the Zacks Consensus Estimate of 19 cents. The bottom line also compared unfavorably with earnings of 28 cents per share in the prior-year quarter. Results were hurt by lower sales, decline in comparable store sales (comps) in various categories, contraction in margins and unfavorable weather conditions.
Net sales dipped 1.5% to $266.4 million and missed the Zacks Consensus Estimate of $277.6 million. Further, comps dropped 2% compared with a decline of 2.9% in the year-ago quarter.
Big 5 Sporting witnessed a low-single-digit decline in the number of customer transactions while its average sales increased in a low-single digit in the quarter under review. Comps for the quarter reflected gains in July, which were offset by lower-than-expected sales in August and September.
On a categorical basis, comps in the third quarter improved in a low-single digit for apparel while the same declined in a mid-single digit for footwear, driven by weakness in the company’s main athletic footwear assortment. Comps dipped in a low-single-digit range for hard goods category due to softness across camping and water sports products coupled with persistent weakness in firearm-related products.
Costs & Margins
In the reported quarter, gross profit totaled $82.5 million, down nearly 6% from the prior-year quarter. Further, gross margin contracted 140 basis points (bps) to 31% due to increased distribution and store occupancy costs, as a percentage of net sales, as well as slight decrease in merchandise margins.
Selling and administrative expenses, as a percentage of sales, rose 60 bps to 29.2%. Further, total selling and administrative expenses grew $0.3 million to $77.7 million, backed by rise in employee labor and benefit-related costs, partly offset by a decline in advertising costs.
Additionally, the company recorded operating income of $4.8 million compared with $10.2 million in the year-ago quarter.
Big 5 Sporting had $5 million in cash, long-term debt of $83.5 million and total stockholders’ equity of $180.5 million as of Sep 30, 2018. The company used $8.1 million for operating activities in the first nine months of 2018. The decrease in operating cash flow mainly reflects lower income, offset by reduced funding in merchandise inventory.
The company’s capital expenditures, excluding non-cash acquisitions, totaled $8.4 million in the first nine months of 2018. For 2018, it expects capital expenditure of $15-$17 million compared with $14-$18 million projected earlier.
Concurrently, the company announced a quarterly cash dividend of 5 cents per share, payable on Dec 14 to shareholders of record as of Nov 30, 2018. This represents a decline from 15 cents in the prior quarter, reflecting the company’s intent to utilize its capital.
In the third quarter, Big 5 Sporting opened one store. As of Sep 30, 2018, the company operated 436 namesake stores.
In 2018, management plans to introduce nearly four stores and close two. Moreover, it intends to introduce one store in the fourth quarter.
Following the quarterly results, management issued guidance for fourth-quarter 2018. Comps are now projected in the range of negative low-single digit to positive low-single digit. Loss per share is anticipated to be 15-25 cents compared with loss of 10 cents in fourth-quarter 2017. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 16 cents per share, which is likely to witness downward revisions.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -225% due to these changes.
Currently, Big 5 has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Big 5 has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.