Why Is Big 5 Sporting (BGFV) Down 5.1% Since the Last Earnings Report?

It has been about a month since the last earnings report for Big 5 Sporting Goods Corporation BGFV. Shares have lost about 5.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 drivers.

Big 5 Sporting Tops Q1 Earnings & Sales

Big 5 Sporting Goods Corp. posted solid first-quarter 2017 results, wherein both sales and earnings topped estimates and improved year over year. This also marked the company’s fourth straight earnings beat.

Results benefited from significant competitive rationalization in the markets where the company operates due to the recent liquidation of rivals Sports Authority and Sport Chalet. Notably, Big 5 Sporting witnessed strong comparable store sales (comps) and merchandise margins in the quarter.

Q1 Numbers

Adjusted earnings of $0.24 per share compared with an adjusted loss per share of $0.02 in the prior-year quarter. Additionally, the bottom line substantially surpassed the Zacks Consensus Estimate of $0.14.

Net sales rose 7.7% to $252.6 million and beat the Zacks Consensus Estimate of $244.3 million. Sales gained primarily from a 7.9% increase in comparable store sales (comps) that benefited from the closure of several rival stores and favorable weather. Further, top-line growth was aided by a calendar shift of the Easter holiday, when the company’s stores are closed, in to the second quarter this year compared with the first quarter in the prior-year.

Comps also benefited from improvements in both customer transactions and average sale. Looking at product categories, the company delivered comps growth in all major categories including apparel, footwear and hardgoods.

Costs & Margins

Gross profit came in at $83.6 million, up 17.7% from the comparable year-ago level. Moreover, gross profit margin expanded 280 bps to 33.1% in first-quarter 2017. Gross margin growth was driven by a 228 bps improvement in merchandise margins and lower store occupancy, and distribution costs, as a percentage of sales.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, declined 90 bps to 29.5%. On a dollar basis, SG&A expenses increased about 4.8% to $74.6 million, owing to higher employee labor and benefit expense.

Consequently, the company’s operating profit of $9 million compared favorably with an operating loss of $254 in the prior-year quarter.

Financial Position

Big 5 Sporting had cash of $5.9 million, long-term debt of $21.8 million, and total shareholders’ equity of $206.8 million as of Apr 2, 2017.

Dividend

Big 5 Sporting remains committed to returning cash to share holders by paying dividends and share repurchases. Concurrent to the earnings release, management announced a quarterly cash dividend of $0.15 per share, payable on Jun 15 to shareholders on record as of Jun 1.

Store Update

During the quarter, Big 5 Sporting opened one relocated store and shuttered two stores, one of which was relocation. The company ended first-quarter 2017 with 431 stores. Further, in second-quarter 2017, the company opened one store and plans to open one more store through the rest of the quarter. In fiscal 2017, Big 5 Sporting expects to open roughly eight new stores, while closing down three.

Outlook

Management remains impressed with the solid start to the second quarter and believes it is well positioned for the summer selling season driven by efforts to capitalize on the rationalization in the sporting goods industry.

For second-quarter 2017, the company anticipates comps to increase in the mid-single digit range. Further, it envisions earnings in the range of $0.14–$0.20 per share compared with earnings of $0.10 in the prior-year quarter. The company expects results for the second quarter to include a negative impact from the calendar shift of Easter and Fourth of July holidays into the second quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter In the past month. The consensus estimate has shifted up by 7.1% due to these changes.

Big 5 Sporting Goods Corporation Price and Consensus

 

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

VGM Scores

At this time, the stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock sports a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.

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