Markets

Will Soft Margins Hurt Big 5 Sporting's (BGFV) Q3 Earnings?

Big 5 Sporting Goods CorporationBGFV is slated to report third-quarter 2018 results on Oct 30. In the last reported quarter, the company witnessed a negative earnings surprise, after beating estimates twice. In the trailing four quarters, it delivered an average miss of 8.9%.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 19 cents, reflecting a year-over-year plunge of 32.1%. Notably, the consensus mark remained stable over the last 30 days. Management anticipates earnings per share in the band of 14-24 cents for the impending quarter.

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

Let's see how things are shaping up prior to this announcement.

What You Should Know Before 3Q18 Earnings

Big 5 Sporting is grappling with strained margins for last few quarters due to lower sales as well as comparable store sales (comps). Higher costs have also been weighing on margins. In second-quarter 2018, gross margin contracted 110 basis points (bps) on increased distribution and store occupancy costs, as a percentage of net sales. The company recorded operating income of $0.6 million in the second quarter of 2018, down from $5.1 million in the year-ago quarter. The downturn can be attributed to higher selling and administrative expenses. Notably, this marked the third straight quarter of gross margin contraction.

Further, Big 5 Sporting incurred operating loss in the prior two quarters. Soft margins have been largely hurting the company's profitability, which is quite evident from the losses incurred in the past three quarters.

Apart from an unimpressive bottom-line trend, the company missed sales estimates in three of the trailing five quarters, including the second quarter. Also, sales dipped 1.5% year over year due to decline in comps. In fact, Big 5 Sporting has been witnessing soft comps for the last few quarters now. Comps were mainly hurt by softness witnessed in the back half of the second quarter. Unfavorable weather in the company's key markets during the highest summer selling season too impacted comps. Additionally, sluggishness across its hard goods category remains a headwind. Comps at this category fell in low mid-single digits due to weakness across camping and water sports products coupled with persistent softness in firearm related products. For the quarter to be reported, management projects comps in the range of flat to up low-single digits.

Consequently, shares of this sporting goods retailer have lost 26.3% in the past three months, against the industry 's 4.3% growth.

Nevertheless, Big 5 Sporting's commitment toward expanding store base and introducing technological advancements to enhance services is quite encouraging. The company intends to open one store in the third quarter. Also, its efficient merchandising strategy helps the company to retain a solid inventory position. These initiatives are expected to boost third-quarter results.

Notably, the Zacks Consensus Estimate for quarterly revenues stands at $277.6 million, up 2.7% from the year-ago period.

Zacks Model

Our proven model does not conclusively show that Big 5 Sporting is likely to beat estimates in the third quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Big 5 Sporting has an Earnings ESP of 0.00% and a Zacks Rank #3, which make surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat estimates:

Ralph Lauren Corporation RL has an Earnings ESP of +0.23% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +9.76% and a Zacks Rank #3.

The Michaels Companies, Inc. MIK has an Earnings ESP of +3.41% and a Zacks Rank #3.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report

Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report

The Michaels Companies, Inc. (MIK): Free Stock Analysis Report

Ralph Lauren Corporation (RL): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BGFV RL AEO

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More