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Big 5 Sporting (BGFV) Looks Good: What's Driving the Stock?

Zacks Equity Research

Big 5 Sporting Goods Corporation BGFV seems to be one of the most talked about company in the retail space, as reflected by its solid share price momentum. Evidently, this Zacks Rank #1 (Strong Buy) stock has surged a whopping 41.5% in the last one year, crushing the Zacks categorized Retail – Miscellaneous/Diversified industry, which dipped 0.2%.
 



Well, this sporting goods retailer has been more in the limelight with its shares gaining 16% since it reported fourth-quarter fiscal 2016 results. Moreover, the company has witnessed robust estimate revisions after its quarterly report, which has been discussed below. Clearly, this gives enough reasons for this company to be in investors’ portfolio.

So, let’s delve deeper into Big 5 Sporting’s driving factors.

Despite a tough holiday season, the company reported strong fourth-quarter fiscal 2016 earnings, which soared year over year and marked its third straight beat. Results primarily benefited from significant competitive rationalization in the markets where the company operates due to the recent liquidation of rivals Sports Authority and Sport Chalet. This aided margins and comps, with comps rising 3.1% in the quarter.

Going forward, the company expects results to continue gaining from the closing of several rival stores in its markets that has led customers to acknowledge the ease of shopping at Big 5 Sporting given its wide range of product assortments and value. This was visible from the company’s strong start to the first quarter with comps up in the mid single-digit range, as of Feb 28, 2017.

Apart from industry consolidation, first-quarter comps gained from robust demand for winter products. However, as management expects non-winter categories to gain additional significance in the remaining quarter, it is gearing up for the spring selling season with solid merchandise offerings. These factors keep Big 5 Sporting well placed to enrich customer experience. Consequently, management projected comps in the first quarter to increase in the mid single-digit range.

We believe that the superb quarter and optimistic outlook has led to an uptrend in the Zacks Consensus Estimate for the first quarter and fiscal 2017. Incidentally, while earnings estimate for the fiscal first quarter increased by 8 cents to 14 cents per share, for fiscal 2017 it has improved by 15.6% to $1.11, over the last 30 days.

Big 5 Sporting Goods Corporation Price and Consensus
 

Big 5 Sporting Goods Corporation Price and Consensus | Big 5 Sporting Goods Corporation Quote

Apart from this, we commend Big 5 Sporting’s unique strategy of offering exclusive branded merchandise sourced from leading manufacturers, which provides it with a competitive edge over its rivals in a cut-throat specialty retailing industry. Further, the company leverages its strong vendor relationships to source overstock and closeout merchandise at substantial discounts. This helps it to achieve the dual objectives of boosting the gross margin while offering compelling value to customers.

Thanks to its efficient merchandise strategy, the company managed to deliver 68 basis points (bps) improvement in merchandise margins in the fourth quarter, resulting in a gross margin expansion of 160 bps.

Big 5 Sporting also remains committed toward enhancing shareholder returns, as evident from its regular practice of returning value to stockholders in the form of dividends and share buybacks. Evidently, the company, which recently raised its quarterly cash dividend by 20%, returned nearly $13 million to shareholders in the form of dividends and share repurchases, in 2016. This clearly testifies the company’s sound financial position and its ability to stay afloat in various economic and competitive cycles.

Moreover, the stock looks to be an inspired choice for value investors, as it flaunts a Value Style Score of ‘A,’ backed by its incredible lineup of statistics. As evidence, Big 5 Sporting has a trailing 12-month PE ratio of 18.80, which compares pretty favorably with the market at large, as the PE for the S&P 500 is about 20.48. Further, the company has a forward PE ratio (price relative to this year’s earnings) of just 14.05, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.

Given its solid fundamentals and recent performance, Big 5 Sporting clearly appears to be a compelling pick. So, it is time you take a look at this California-based retailer and take some advantage of its solid bull run.
 
Other Stocks to Consider


Other favorably placed stocks in the retail space include The Children's Place, Inc. PLCE, flaunting a Zacks Rank #1, Kate Spade & Company KATE and Foot Locker, Inc. FL, each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1  Rank stocks here.

Children's Place has an average positive earnings surprise of 39% for the trailing four quarters. The stock also has a long-term growth rate of 10.3%.

Kate Spade, with long-term earnings per share (EPS) growth rate of 28.3%, has delivered positive earnings surprise in the last two quarters.

Foot Locker’s long-term EPS growth rate of 9.7% and impressive earnings surprise history bode well.

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Foot Locker, Inc. (FL): Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report
 
Kate Spade & Company (KATE): Free Stock Analysis Report
 
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