Earnings Preview: Big 5 Sporting


Sporting products retailer, Big 5 Sporting Goods Corp. (BGFV), is scheduled to report its first-quarter 2012 financial results after the market closes on May 1, 2012. The current Zacks Consensus Estimate for the quarter is 3 cents per share. For the quarter under review, revenue is expected to be $221 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2011, a Synopsis

Big 5 reported better-than-expected fourth-quarter 2011 results. The quarterly adjusted earnings of 5 cents per share came a penny ahead of the Zacks Consensus Estimate of 4 cents per share. The results also met the higher end of the company’s recently revised guidance range of 2–5 cents. However, adjusted earnings dropped 80% from 25 cents per share reported in the same quarter last year.

Big 5’s net sales of $226.7 million in the fourth quarter were flat compared with the year-earlier quarter. Quarterly sales almost came in line with the Zacks Consensus Estimate of $227 million. Same store sales in the fourth quarter were down 2.1% on a year-over-year basis. Soft same store sales results in the quarter, affected by unfavorable winter weather in most markets, where the company operates as well as heightened promotional activities, impacted the quarter’s sales.

Guidance for Fiscal 2012

For the first quarter of 2012, management expects earnings per share to range from break-even to 6 cents per share compared with 13 cents per share in the first quarter of fiscal 2011. Same store sales are pegged in the negative low-single digit range.

The company’s outlook for first quarter is based on expectations of merchandising margins, which continue to struggle due to impacts of higher promotional and product costs, as well as shift in the product sales mix resulting from unfavorable winter weather.

Looking ahead, Big 5 targets to open nearly 10 new stores and relocate about 7 stores during fiscal 2012.

Zacks Consensus

The analyst covered by Zacks expects Big 5 to post first-quarter 2012 earnings of 3 cents a share, lower than 13 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 2 cents and 6 cents a share.

For fiscal 2012, the Zacks Consensus Estimate stood at 61 cents per share, higher than its previous fiscal earnings of 46 cents. The current Zacks estimate ranges between 44 cents and 75 cents per share.

Agreement of Estimates

In the last 7 and 30 days, no movement in estimates has been noticed in either direction, either for first-quarter 2012 or fiscal 2012.

Magnitude of Estimate Revisions

In the last 30 days, the Zacks Consensus Estimates for first-quarter as well as for fiscal 2012 has been lowered by a penny to 3 cents and 61 cents per share.

Surprise History

With respect to earnings surprises, Big 5 has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 31.6% to positive 60%. The average remained at positive 28.1%, indicating that Big 5 has missed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Our Recommendation

Big 5 Sporting is in midst of its store expansion strategy in the emerging markets. During the period of recession in 2009, the company slowed down its store expansion program. Big 5 have now resumed its strategy of store expansion, which we believe will boost its top and bottom line in future.Looking ahead, Big 5 targets to open nearly 10 new stores and will relocate about 7 stores in fiscal 2012.

Further,Big 5 Sporting is introducing a business intelligence system, which will help in making decision for merchandising and assortment selection at the store level. Moreover, the company has opened a new distribution center in Oregon, which will service about 75 stores in Pacific Northwest. The new distribution channel is expected to save about $800,000 in transportation expense annually.

However, Big 5 faces intense competition from national players, such as Dick's Sporting Goods Inc. (DKS) and Hibbett Sports Inc. (HIBB); mass merchandisers, such as Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT), as well as regional and local sporting goods stores. Consequently, this may dent the company’s future operating performance.

Big 5 currently retain a Zacks #5 Rank, which translates into a ‘Strong Sell’ rating. However, we are maintaining a long-term ‘Neutral’ recommendation on the stock.

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