Gun, Ammo Sales Fire Up Sporting Goods Chain

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Fears that new laws would restrict sales of guns and ammunition triggered big sales of both. And that helped shoot profit at Big 5 Sporting Goods Corp. way up.

The El Segundo retailer has been one of the companies to benefit from this sudden blast of gun sales, said Sean McGowan, an analyst at Needham & Co. in New York who covers the company. “It accounted for a bigger increase than I would have thought.”

Better-than-expected earnings last month boosted the company’s stock price. Shares of Big 5 rose 20 percent to $18.35 for the week ended May 1, making it one of the biggest gainers on the LABJ Stock Index. (See page 30.)

McGowan raised his target price to $26 from $20 last week after the earnings report and maintained his “strong buy” rating.

Big 5 reported first quarter net income of $7.5 million (34 cents a share), a 47-fold increase from the same period a year earlier. Revenue for the El Segundo retailer rose 13 percent to $246 million. The results were much better than expected; analysts estimated earnings would equal only 21 cents a share.

The uptick in gun sales followed a series of recent deadly mass shootings, including the massacre at Sandy Hook Elementary School in Newtown, Conn., that prompted calls for tougher gun control laws. Those proposals, including the expansion of background checks and limiting the size of ammunition magazines, were shot down.

“Firearms were certainly significant to our results,” Chief Executive Steven Miller said in a conference call with analysts. “But were we to exclude all firearms and ammunition sales from our business, we would have still comped up a very solid midsingle digit for the quarter.”

Big 5 executives did not respond to requests for comment.

The company’s shares have advanced more than 130 percent in the last 12 months. For comparison, the average increase of publicly traded sports retailers was more than 30 percent in the last year, according to a Bloomberg industry analysis.

Big Five has 9,000 employees and 414 stores, about half of which are in California. Its competitors include La Canada-Flintridge’s Sport Chalet Inc.; Dick’s Sporting Goods Inc. in Coraopolis, Pa.; and Sports Authority Inc. in Englewood, Colo.

Piper Jaffray analyst Sean Naughton in Minneapolis said that FBI background checks in states where Big 5 has stores surged 46 percent in the quarter. That indicates an increase in gun purchases in the retailer’s markets.

“The acceleration in same-store sales trends at Big 5 is a combination of factors and not solely related to firearms, although this has clearly helped,” he said in a note to clients.

The company believes that gun sales will likely not play as big a role in Big 5’s earnings next quarter. Firearm purchases slowed in February and March, Naughton said.

Other improvements

But the company now is also increasing revenue by improving merchandise offerings, marketing and deals on higher-end gear, said Needham’s McGowan. Improving employment rates have helped, too.

“Even without the guns and ammo, we’re still seeing growth, and guns will contribute less for the balance of the year,” McGowan said.

David Magee, an analyst at SunTrust Robinson Humphrey in Atlanta, agreed, writing in a research report that the company has introduced higher-price merchandise and improved its business analytics tools.

“Big 5 is clearly executing better than it has in years past and the stock should continue to work nicely in the near term,” he wrote.

The company is also strengthening its balance sheet. It has reduced its debt by 47 percent, or $28 million, from last year.

Piper Jaffray’s Naughton said growth in construction employment, in particular, is improving the company’s outlook. He added that Big 5’s market in the western United States is benefitting from warmer weather this year, so customers are buying summer products earlier than usual.

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