Big 5 Earnings Dismal, Dips on Weak Q2 Outlook - Analyst Blog
April 30 2014 - 11:00AM
Zacks
Shares of the athletic goods retailer, Big 5 Sporting
Goods Corp. (BGFV) tumbled 5.54% in the afterhours trading
session yesterday as the company hinted at continued troubles ahead
due the weak sales trends so far in the second quarter given the
lower-than-expected demand for firearms and ammunition products, a
shift of the Easter holiday period into the second quarter this
year and a soft consumer environment.
Though beaten up by tougher year-ago comparison, we believe Big 5’s
first-quarter results were not the primary culprit for the market’s
negative reaction as the company’s results came fairly in line with
analysts’ expectations and the company forecast. Earnings per share
of 10 cents in the first quarter came a penny ahead of the Zacks
Consensus Estimate and towards the higher end of the company’s
projected range of 5 – 11 cents.
However, earnings for the quarter were substantially below 34 cents
per share earned in the prior-year quarter. As anticipated, the
decline resulted from a diminished demand for firearms and
ammunition products and unfavorably warm and dry conditions in the
western markets zone throughout the winter season that hindered the
demand for winter products.
Net sales for the first quarter fell 6.1% to $231.3 million from
$246.3 million last year and were marginally short of the Zacks
Consensus Estimate of $230 million. However, comparable store sales
(comps) slipped 7.9% against a 10.5% increase recorded in the
prior-year quarter. Comps decline for the quarter was almost in
parity with the company’s projection of a high single-digit
decline.
The probable reason that hurt market sentiment on yesterday’s
after-market results is the company’s comments on a soft start to
the second-quarter driven by the factors discussed earlier. As a
result, the company formulated a disappointing second-quarter
guidance that projects a low negative to low positive single-digit
comps along with earnings in the 12 cents to 20 cents range. This
compares to comps growth of 4.4% and earnings of 28 cents per share
in the second quarter of 2013.
With the weak demand for firearm and ammunition products continuing
into the second quarter coupled with other factors mentioned above,
we believe the troubles are not over for Big 5.
Quarter in Detail
Comps performance in the first quarter depicted a low single-digit
comps decline in the apparel category, a low mid-single-digit
decline in footwear comps and a low double-digit comps decline in
hardgoods. The dismal category-wise performance reflected from the
soft sales of winter products that impacted all three major
merchandise categories, while the reduced sales of firearm-related
products slowly impacted the hardgoods category.
Gross profit came in at $72.7 million, down 9.7% from the
comparable year-ago level. Gross profit margin for the quarter
contracted 130 basis points (bps) to 31.4% from 32.7% in
first-quarter fiscal 2013. Margin contraction primarily resulted
from a 28 bps decline in merchandise margins and an increase in
store occupancy costs as a percentage of net sales.
Selling, general and administrative (SG&A) expenses increased
1.5% to $68.9 million on the back of higher expense in new stores
and costs associated with the development of a new e-Commerce
platform. As a percentage of sales, it expanded 220 bps to
29.8%.
Consequently, operating margin expanded about 350 bps to 1.6% from
the prior-year quarter. In dollar terms, operating profit declined
69.6% to $3.8 million.
Financial Position
Big 5 ended first-quarter 2014 with cash and cash equivalents of
$5.9 million compared with $9.4 million at the end of fiscal 2013.
The company’s total merchandise inventory at quarter end was $294.1
million down from $301.0 million at the end of fiscal 2013. On a
per-store basis, inventory was up 5.7% year over year.
Long-term debt was $54.2 million as of Mar 30, 2014 compared with
$43.0 million as of Dec 29, 2013. Shareholders’ equity as of Mar
30, 2014, stood at $189.6 million versus $190.8 million as of Dec
29, 2013.
During the first quarter, the company generated operating cash
flows of $3.4 million versus $23.8 million in the comparable period
of 2013. The decrease was primarily due to funding of higher
merchandise inventory levels as well as increased prepaid expenses
related to rents and income taxes, along with lower net income for
the first quarter.
Capital expenditures, excluding non-cash acquisitions, were $3.8
million in the first quarter, primarily towards store maintenance
and remodeling of existing stores, and computer hardware and
software purchases including investments related to the development
of the new e-Commerce platform. For fiscal 2014, the company
currently anticipates capital expenditures in the range of $26 –
$30 million.
Dividend and Share Repurchase
The company continues to enhance shareholders’ value by returning
cash in the form of dividends and share repurchases. The company
declared a quarterly cash dividend of 10 cents per share, payable
on Jun 13, 2014 to shareholders of record as of May 30, 2014.
Moreover, the company bought back 28,512 shares for an aggregate
value of $0.4 million during the quarter. As of the quarter-end,
the company had about $9.2 million remaining under its current $20
million share repurchase program.
Store Update
In the first quarter, Big 5 Sporting shut down 4 stores, of which 2
were related to previously announced relocations. As of Mar 30,
2014, the company operated 425 stores in 12 states.
During the second quarter, the company plans to inaugurate two new
stores, with about 12 to 15 new stores planned to be opened in
fiscal 2014.
Other Stocks to Consider
Big 5 currently holds a Zacks Rank #3 (Hold). Better-ranked stocks
in the related industry include Skechers USA Inc.
(SKX), Brown Shoe Co. Inc. (BWS) and
Carter’s Inc. (CRI). Of these, Skechers carries a
Zacks Rank #1 (Strong Buy), while Brown Shoe and Carter’s hold a
Zacks Rank #2 (Buy).
BIG 5 SPORTING (BGFV): Free Stock Analysis Report
BROWN SHOE CO (BWS): Free Stock Analysis Report
CARTERS INC (CRI): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
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