Big 5 Sporting (BGFV) Gains 12% in a Month: Will it Sustain?

Big 5 Sporting Goods Inc. BGFV is regaining strength driven by store penetration strategies, impressive growth plans and financial strength. However, the company is not immune to the troubles in the sporting goods industry.

The cumulative effect of this El Segundo, CA-based company’s strategies and a decent third-quarter fiscal 2017 is visible in its stock performance. Notably, the stock has gained 12.1% in the past month, outperforming the industry’s growth of 9%. Additionally, it has improved 20.9% since reporting third-quarter fiscal 2017 results on Oct 31.

Aptly, the stock currently retains a Zacks Rank #3 (Hold) and a VGM Score of A. That said, let’s find out the reasons behind the upsurge and possible deterrents.

Growth Initiatives – Store Expansion

Big 5 Sporting has been focused on expanding store base and introducing technological advancements to enhance services for patrons. The company leverages an extensive network of stores to effectively penetrate into its target markets, directed toward generating healthy sales and capturing market share. As part of its store expansion strategy, Big 5 Sporting expects to open three new stores in the fourth quarter, resulting in roughly six new stores in 2017. We believe that these moves will place it well for future growth.

Efficient Merchandising Strategy

Big 5 Sporting’s unique strategy of offering exclusive branded merchandise sourced from leading manufacturers 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 achieve the dual objectives of boosting gross margin while offering compelling value to customers.

Owing to efficient merchandise strategy, the company delivered 51 basis points (bps) improvement in merchandise margins in the third quarter, resulting in a gross margin expansion of 20 bps. Further, management expects merchandise margins to continue gaining from the closure of rival firms.

Deterrents – Dismal Sales Surprise Trend & Outlook

Big 5 Sporting has displayed a dismal sales surprise trend. While the company posted in-line earnings in the third quarter, the top line lagged estimates for the second straight quarter. Sales were mainly hurt by negative comparable store sales (comps), a tough and promotional retail backdrop, and weakness in its firearm related business. Further, cycling of benefits from the closure of nearly 200 rival stores in third-quarter 2016, impacted top-line growth.

Big 5 Sporting Goods Corporation Price, Consensus and EPS Surprise

Big 5 Sporting Goods Corporation Price, Consensus and EPS Surprise | Big 5 Sporting Goods Corporation Quote

Looking ahead, the company anticipates the holiday season to be characterized by a tough and highly promotional retail environment. The company notes that comps have declined in the low-mid single digit so far in the fourth quarter due to a slow start to fall-related product sales as the weather remains warmer in its key markets, as well as low demand for firearm related products. The company anticipates this weakness to persist, projecting fourth-quarter comps to decline in the low-single digit range. It also envisions earnings in the band of 16-28 cents per share compared with 35 cents earned in the prior-year quarter.

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