It has been about a month since the last earnings report for Big 5 Sporting Goods (BGFV). Shares have lost about 3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Big 5 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 Down on Loss in Q2 and Sales Miss
Big 5 Sporting reported dismal second-quarter 2018 results, wherein it incurred loss per share and sales missed estimates. Both top and bottom line also declined on a year-over-year basis. This apart, management issued third-quarter guidance, which was below the analysts’ expectations.
Q2 in Detail
Big 5 Sporting incurred loss of 1 cent per share against the Zacks Consensus Estimate of earnings of 11 cents. Also, the reported figure compares unfavorably with earnings of 13 cents per share in the prior-year quarter. Management had projected second-quarter earnings per share in the range of 4-12 cents.
Results were hurt by lower sales, decline in comparable store sales (comps) in various categories, contraction in margins and unfavorable weather in the company’s key markets.
Net sales dipped 1.5% to $240 million and missed the Zacks Consensus Estimate of $250 million. Further, comps dropped 2.1% against an increase of 0.9% in the year-ago quarter. Month-wise, comps were up in low single-digits in April, including gains from the Easter calendar shift. However, the metric dipped in low single-digits in May and mid-single-digits in June. Comps were mainly hurt by softness witnessed in the back half of the reported quarter. In addition, unfavorable weather in the company’s key markets during the highest summer selling season impacted comps.
Big 5 Sporting witnessed a mid-single digits decline in the number of customer transactions, while its average sales increased in low single-digits in the quarter under review.
On a categorical basis, comps improved in low-single digits for apparel, while the same declined in low-single digits for footwear and low mid-single digits for hard goods in the second quarter. Comps dipped in 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 $75.3 million, down nearly 5% from the prior-year quarter. Further, gross margin contracted 110 basis points (bps) to 31.4% due to increased distribution and store occupancy costs, as a percentage of net sales. This was somewhat offset by a 42 bps increase in merchandise margins.
Selling and administrative expenses, as a percentage of sales, increased 70 bps to 31.1%. Also, total selling and administrative expenses grew $0.5 million to $74.7 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 $0.6 million compared with $5.1 million in the year-ago quarter.
Big 5 Sporting had cash of $5.9 million, long-term debt of $90.7 million and total stockholders’ equity of $180.1 million as of Jul 1, 2018.
Management’s capital expenditures, excluding non-cash acquisitions, totaled $5.2 million in the first six months of 2018. For 2018, the company expects capital expenditures in the $14-$18 million band compared with $16-$20 million projected earlier.
Concurrently, the company announced a quarterly cash dividend of 15 cents per share, payable on Sep 14 to shareholders of record as of Aug 31, 2018.
In the second quarter, Big 5 Sporting opened two stores while simultaneously shutting down two outlets, including one relocation. As of Jul 1, 2018, the company operated 435 namesake stores.
In 2018, management plans to introduce nearly five and close three stores. Moreover, it intends to introduce one store in the third quarter.
Following the quarterly results, management issued guidance for third-quarter 2018. Comps are now projected in the range of flat to up low-single digits. Earnings per share are anticipated in the band of 14-24 cents compared with 28 cents in third-quarter 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -57.78% due to these changes.
At this time, Big 5 has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our style scores.
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.
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