Sporting products retailer,
Big 5 Sporting Goods Corp.
) posted third-quarter 2012 earnings per share of 38 cents,
surpassing the Zacks Consensus Estimate of 32 cents. Quarterly
earnings also outnumbered the year-ago quarter earnings of 32
cents per share, augmenting 40.7% year over year.
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Net sales of $251.8 million rose 7.3% from the prior-year quarter
sales of $234.7 million and surpassed the Zacks Consensus
Estimate of $247 million. Sales in the quarter mainly benefited
from the calendar shift of the 4th July holiday into the third
quarter as well as the company's ongoing merchandise and
Third quarter same-store sales increased 5.0% over the prior-year
quarter, driven by same-store sales improvement across all
geographies as well as all major product categories of apparel,
footwear and hard goods.
Quarter at Length
During the quarter, the company witnessed growth in both customer
traffic and average sale, while simultaneously demonstrating
efficient expense leverage. This aided the company to boost its
merchandise and operating margins, ultimately driving earnings
Gross profit in the quarter increased 9% to $83.9 million, while
gross profit margin expanded 50 basis points to 33.3% due to a 25
basis points improvement in merchandise margins coupled with the
leveraging of store occupancy and distribution expenses.
Selling and administrative expense, as a percentage of net sales,
contracted 90 basis points to 27.9%, with the expense growing
4.3% year over year to $70.4 million in dollar terms. The
escalation in selling and administrative expense is attributable
to increased store related expenses, including increased store
count, higher employee benefit-related costs and a $0.4 million
pre-tax expense associated with the closing of one store.
Consequently, operating income elevated 42.1% to $13.5 million,
while operating margin expanded 140 basis points to 5.4%.
Big 5 ended third quarter 2012 with cash and cash equivalents of
$5.0 million. During the quarter, the company lowered its
inventory levels per-store by 3.7% compared to the year-ago
quarter, with inventory as of September 30, 2012, coming in at
Further, the company managed to improve operating cash flows by
over $40 million through the nine months of 2012. Simultaneously,
the company cut down its debt levels by 23.9% year over year, as
of September 30, 2012. Long-term debt as of the quarter end was
$52.6 million, down from $63.5 million in the year-ago comparable
period. Shareholders' equity at quarter-end stood at $160.3
Additionally, the company continues to enhance shareholder value
by returning cash in the form of dividends and share repurchases.
Big 5 declared a quarterly cash dividend of 7.5 cents a share,
payable on December 14, 2012 to shareholders of record as of
November 30, 2012.
In the third quarter, the company bought back 105,100 shares
valued at $0.9 million. As of September 30, 2012, the company had
nearly $10.0 million available for buyback under its $20.0
million authorization, approved in the fourth quarter of fiscal
In the third quarter, Big 5 inaugurated two stores and closed two
others, retaining its store count at the end of the quarter to
407 stores. Of those opened and closed in the quarter, one was
related to relocation.
Management expects earnings per share in the fourth quarter to
range from 13 cents to 21 cents per share, with same store sales
coming in the positive mid-single-digit range.
Looking ahead, Big 5 plans to open 8 new stores in the fourth
quarter of fiscal 2012, of which one relates to relocation, and
one store will be shut down. For fiscal 2012, the company targets
to open nearly 14 new stores, of which three will be relocations.
Further, the company plans to close 6 stores, two of which will
be relocations. At year-end, the company's total store count is
currently expected to reach 414.
Big 5 faces intense competition from national players, mass
merchandisers as well as regional and local sporting goods
stores. Some of the company's prime competitors include
Dick's Sporting Goods Inc.
Wal-Mart Stores Inc.
Hibbett Sports Inc.
Big 5 currently retains a Zacks #1 Rank, which translates into a
Strong Buy rating. Our long-term Neutral recommendation is guided
by the company's strategy of resuming the store expansion program
to boost its top line, offset by the sluggish top- and
bottom-line performances in the recent quarters.