Big 5 Sporting Goods Corporation BGFV has been struggling with multiple headwinds like weak comparable-store sales (comps), sluggishness across the hard goods category and margin pressures. The company has dismal top- and bottom-line trends as well.
These factors have largely hurt investors’ confidence in the stock, as this Zacks Rank #5 (Strong Sell) company’s shares have plunged 31.4% in the past three months. Meanwhile, the industry rallied 10.6%. The stock’s dismal run on bourses is also well reflected by a VGM Score of F. Let’s have a detailed look.
Factors Weighing on the Stock
Lower customer transactions, coupled with fall in sales at various product categories — hard goods, in particular, have been marring comps, which has witnessed a decline in the recent quarters. Comps dropped 2.1% in second-quarter 2018 against an increase of 0.9% in the year-ago quarter. Unfavorable weather in the company’s key markets during the highest summer selling season also hurt comps. Comps fell in a low-mid-single digit at hard goods due to weakness across camping and water sports products besides persistent softness in firearm-related products. Sluggish hard goods category remains a deterrent to comps and top-line growth.
Additionally, Big 5 Sporting is witnessing margin constraints for a while now due to lower sales and higher costs. Gross margin contracted 110 basis points (bps) in the second quarter, on increased distribution and store occupancy costs as a percentage of net sales. This marked the third straight quarter of gross margin contraction, with a 200 bps and 280 bps decline witnessed in first-quarter 2018 and fourth-quarter 2017, respectively.
Though it reported operating income in the second quarter, it recorded operating loss in the prior two quarters. Contraction in margins has been significantly weighing on the company’s profitability, which is evident from its loss per share recorded in the last three quarters.
We note that Big 5 Sporting has delivered an average negative bottom-line surprise of 8.9% in the trailing four quarters. Also, the top line has lagged estimates in three of the last five quarters, including second-quarter 2018. Earnings per share are anticipated to be 14-24 cents for the third quarter, down from 28 cents earned in the year-ago period. The Zacks Consensus Estimate for the impending quarter is pegged at 19 cents.
Intense competition from key players of sporting goods and other retailers on grounds of size, availability of financial and marketing resources, pricing strategies, among others might result in the loss of market share and adversely impact its business. Big 5 Sporting also remains exposed to the risks related to seasonal business.
Is There any Hope for a Turnaround?
Though the above-mentioned headwinds cannot be ignored, Big 5 Sporting's store-growth initiatives, technological advancements and merchandising strategy are encouraging. As part of its store-expansion strategy, it opened two stores in the second quarter and simultaneously shuttered two outlets, including one relocation. It expects to open nearly five stores and close three in 2018.
Additionally, the company’s exclusive merchandise strategy helped it retain a solid inventory position. Inventories improved 10.1% at the end of second-quarter 2018 from Dec 31, 2017.
Despite these positives, the company will surely take time to address the above headwinds and return to growth trajectory.
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