Sporting Goods Chain’s Shares Take Bad Bounce

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Big 5 Sporting Goods Corp.’s announcement last week that it more than doubled its profit and grew revenue by 6 percent in the second quarter should have looked like a grand slam to investors.

But it didn’t. That’s because for nearly a year now, the El Segundo sporting goods retailer had been posting double-digit sales gains and clobbering analyst estimates. Investors responded by more than tripling the company’s stock over the last 52 weeks to nearly $25, as of late last month.

Then analysts set the bar a little higher: They estimated Big 5 would grow revenue nearly 8 percent to $244 million and they projected third quarter net income of 45 cents a share. Instead, the company reported second quarter revenue of $240 million and gave third quarter guidance of between 40 cents and 45 cents a share.

Shares plummeted 16 percent for the week to close at $20.27 on July 31, the day after the earnings announcement, making it one of the biggest losers on the LABJ Index. (See page 30).

“Expectations had gotten ahead of the fundamentals,” said Sean Naughton, analyst with Piper Jaffray Cos. of Minneapolis.

The key metric of same-store sales increased 4.4 percent from last year, even though the annual Fourth of July holiday spending surge fell mostly outside the second quarter. And second quarter earnings of 28 cents a share actually beat street estimates of 26 cents.

Writing for the Motley Fool website, analyst Jeremy Bowman reached a similar conclusion.

“Despite the market’s reaction, this was far from a terrible report,” Bowman wrote. “Shares seem to have crashed mostly because they had been bid up so much in the first place.”

Big 5 sells athletic gear, sports apparel and camping, fishing and hunting equipment. The company operates 416 stores in California and 11 other Western states.

Naughton said a nationwide slowdown in sales of ammunition and firearms may be one reason why second quarter sales didn’t match expectations. Gun and ammunition sales spiked earlier in the year amid concern over the possibility of new laws after the December school shooting in Newton, Mass.

Looking ahead, Big 5 Chief Executive Steven Miller told analysts in last week’s earnings conference call that the lowered guidance resulted from expenses of roughly 2 cents a share associated with the launch of the chain’s e-commerce platform. Online sales were supposed to launch late this year; Miller told analysts last week the site would launch “during 2014.”

He also noted that third quarter revenue and earnings growth will likely appear modest compared with recent quarters.

“We’re competing against last year, our strongest third quarter in our 11-year history as a public company,” he said.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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