Earnings Scorecard: Big 5

Zacks

Big 5 Sporting Goods Corp. (BGFV), an operator of a sporting goods retailer in the western U.S., posted its first-quarter 2012 results on May 1. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Review of the Last Quarter

Big 5 reported disappointing first-quarter 2012 results, below the Zacks Consensus Estimate. The dismal results were mainly due to unfavorable winter weather in most markets, where the company operates.

The quarterly earnings of 1 cent per share were below the Zacks Consensus Estimate of 3 cents per share. However, earnings for the quarter dropped 92.3% from 13 cents per share reported in the comparable quarter last year and were near the lower end of the company’s guidance range of break-even to 6 cents per share.

Big 5’s net sales of $218.5 million in the reported quarter slipped 1.2% from the prior-year quarter’s sales of $221.1 million, missing the Zacks Consensus Estimate of $221 million. In the first quarter, same-store sales dropped 2.9%.

Guidance

Management now expects earnings per share in second-quarter 2012 to range from 5 cents to 11 cents per share compared with 14 cents per share reported in the comparable quarter last year. Same-store sales are expected to be up by a single-digit percentage rate.

(Read our full coverage on this earnings report: Big 5’s 1Q Disappoints)

Agreement of Estimate Revisions

Out of seven analysts covering the stock, five lowered their estimates, whereas one raised the same for the second quarter of 2012, in the last 30 days. For the third quarter, two analysts made downward revisions while three moved in the upward direction, in the last 30 days.

For fiscal year 2012, six out of seven analysts trimmed their estimates and the remaining one made an upward revision, in the last 30 days. For fiscal 2013, out of seven analysts, four moved downward whereas two revised their estimates upwards in the last 30 days.

What Drives Estimate Revision

For second-quarter 2012 and fiscal year 2012 & 2013, most of the analysts maintained a similar stance following Big 5's first-quarter 2012 results. Clearly, a negative sentiment is observed among most of the analysts who are pessimistic on the stock.

Due to mild winter weather, the company's comparable-store sales declined 2.9%, leading to a 1.2% dip in total revenue. Moreover, gross margin remained under pressure due to increased cost of goods sold. This led to a 92.3% drag in Big 5’s earnings to one cent per share during the quarter. We believe that the significant downside in earnings has induced the analysts to lower their estimates for the upcoming quarter.

However, mixed sentiments were palpable among the analysts for the third quarter of 2012.

Magnitude of Estimate Revisions

The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.      

The Zacks Consensus Estimate for the second quarter of 2012 have dropped to 10 cents per share from 14 cents per share, in the last 30 days. However, for the third quarter, earnings improved by a penny to 30 cents per share from 29 cents, in the last 30 days.

For the fiscal year 2012 and 2013, the Zacks Consensus Estimate has dropped by 6 cents and 3 cents to 56 cents and 73 cents, respectively, in the last 30 days.

Closing Comment

Big 5 offers athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating.

Big 5 Sporting is planning to introduce a business intelligence system, which will help in taking a 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 the Pacific Northwest. The new distribution channel is expected to save about $800,000 in transportation expense annually.

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.

Currently, Big 5 carries a Zacks #3 Rank, which translates into a Hold rating. However, we retain our long-term Neutral recommendation.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education

Read the Full Research Report on BGFV

Read the Full Research Report on WMT

Read the Full Research Report on TGT

Read the Full Research Report on DKS

Read the Full Research Report on HIBB

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