Big 5 Sporting Goods Corp.’s (BGFV) fourth-quarter 2014 earnings of 19 cents a share not only fell short of the Zacks Consensus Estimate of 16 cents but also slumped 20.8% year over year primarily due to soft holiday season sales.
As previously reported, net sales for the fourth quarter rose less than 1% to $250.3 million from $248 million last year. Meanwhile, quarterly sales were almost in line with the Zacks Consensus Estimate of $250 million.
However, comparable-store sales (comps) slipped 0.5% mainly due to comps decline in December selling period, which more than offset positive October and November comps. Comps in December were soft because of lower-than-expected sales of firearm and related products as well as the impact of unfavorable weather conditions on the sale of winter-related products in almost all of its serving markets, just before Christmas. Additionally, comps were impacted by the highly promotional retail environment during the holiday season.
During the quarter, the company’s apparel and footwear categories reported comps increase in the low single-digit range, while comps for hardgoods dipped in the low single-digit range, mainly accounting for the weak sales of firearm-related products.
Though the holiday season was a challenging one for Big 5, owing to relatively warmer weather in the areas it serves, the company benefited from favorable winter weather in the last few days of the fourth quarter. Further, continuation of the favorable weather into the New Year holiday period has led to a positive start for Big 5 in 2015.
Throwing light on first-quarter fiscal 2015, so far, this California-based company revealed that its January comps grew in the low double-digit range backed by excellent winter weather during the New Year shopping period. However, the company’s comps for February have been on the negative side, reflecting a low single-digit range decline, as the weather turned extremely unfavorable over the last few weeks, which included the President’s Day holiday, largely impacting winter products sales.
Moving on to March, the company expects positive comps results for the month, but remains concerned about a possible shipping backlog due to the tentatively resolved labor disruption at the West Coast ports. This is likely to raise questions about the availability of products and sales as most of Big 5’s products are transported via this coast.
The anticipated effect of this disruption and the resultant product shortage along with soft sales are well reflected in the company’s first-quarter guidance. The company expects comps for the quarter to grow in the low to mid-single-digit range. Earnings per share are projected in the range of 6–13 cents.
Q4 in Detail
Gross profit came in at $79.1 million, down 2.1% from the comparable year-ago level. Gross profit margin contracted 100 basis points (bps) to 31.6% from fourth-quarter 2013. Margin contraction mainly reflects a 13 bps decline in merchandise margins and an increase in store occupancy and distribution costs as a percentage of net sales.
Selling, general and administrative (SG&A) expenses, including one-time items, increased 3.6% to $74.4 million on account of higher labor and benefit-related costs as well as increased expenses associated with new stores, partly compensated by decline in advertising expenses. As a percentage of sales, SG&A expanded 80 bps to 29.7%.
Fiscal 2014, in Brief
Big 5 reported net sales of $977.9 million for fiscal 2014, which fell 1.6% year over year from $993.3 million. Top line was almost at par with the Zacks Consensus Estimate of $978 million. Further, comps for the year declined 2.9% unlike a 3.9% increase reported in fiscal 2013. Earnings of 77 cents per share fell 42.1% from $1.33 per share reported in fiscal 2013 but were ahead of the Zacks Consensus estimate of 72 cents per share.
Financial Position
Big 5 Sporting ended 2014 with cash of $11.5 million and net merchandise inventory of $310.1 million. Long-term debt was $66.3 million and shareholders’ equity was $195 million as of Dec 28, 2014.
The company’s operating cash flows totaled $28.5 million in fiscal 2014 versus $26.3 million in fiscal 2013.
Capital expenditures, excluding non-cash acquisitions, were $22.6 million for fiscal 2014, primarily invested in store maintenance and remodeling of existing stores, opening of new ones, and computer hardware and software purchases, including the development of the new eCommerce platform. For fiscal 2015, the company currently anticipates capital expenditures in the range of $28–$32 million.
Dividend and Share Repurchase
The company continues to enhance shareholder value by returning cash in the form of dividends and share repurchases. It declared a quarterly cash dividend of 10 cents per share, payable on Mar 16, 2015 to shareholders of record as of Mar 2.
Moreover, this Zacks Rank #3 (Hold) company bought back 223,051 shares for an aggregate value of $2.5 million in fiscal 2014. Since the start of fiscal 2015 till Feb 20, the company has repurchased 74,873 shares for nearly $0.9 million. As a result, the company had about $6.2 million remaining under its current $20 million share repurchase program as of Feb 20.
Store Update
During the fourth quarter, Big 5 opened 10 stores, bringing the total store count to 439 as of Dec 28, 2014.
In first-quarter fiscal 2015, the company shut down three stores, one as part of a repositioning that started in fiscal 2014. The company expects to open one store during the first quarter and a total of 10 new stores in fiscal 2015.
Stocks to Consider
Better-ranked stocks in the same industry include CST Brands Inc. (CST), Build-A-Bear Workshop Inc. (BBW) and Marine max Inc. (HZO), all carrying a Zacks Rank #1 (Strong Buy).
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