Big 5 (BGFV) not feeling so ‘Big’ today

Big 5 Sporting Goods Corporation (BGFV) reported earnings yesterday and here are the highlights:

• Their first-quarter profit rose 28%
• Q1 earnings increased to $7.6 million, or 33 cents per share, from $5.9 million, or 26 cents per share during the same period last year
• Revenue grew 5% to $217 million from $207.2 million
• Same-store sales rose 1%, again, that’s only 1%

Thomson Financial was looking for Big 5 to post a profit of 32 cents per share on revenue of $218.6 million. Thus the reason why shares of BGFV are down almost 8% today to $24 and change.

On April 17th Credit Suisse said Big 5 potentially faces lower consumer spending due to continued declines in the housing industry and a faltering subprime mortgage market. They downgraded the stock to "Underweight" from "Neutral," noting that "70% of Big 5 stores are in states heavily exposed to subprime problems — particularly California." Kudos to them for pointing out and tossing in the "subprime" reference. I’ve been crying out loud about it for the past month but no one seems to be listening. Still, if you can’t buy a house, your probably not going to stop buying sneakers. Let’s see, $500,000 for this condo or $45 for these Nike’s, I’ll take the Nike’s. I wonder if that analyst’s boss told him to work in "subprime" in his analysis?
" Jim, if you can work in "subprime", I’ll buy you those Nike’s at Big 5"
"You got yourself a deal Tom!"

On Monday (4/30) CIBC World Markets initiated coverage of Big 5 with a "sector outperform" rating and set a target price at $33. There is some hope for Big 5 investors, yesterday they declared a regular quarterly dividend of 9 cents per share. If you buy shares of BGFV before June 1st, you’ll get that 9 cents, so hurry, buy now, supplies may not last and batteries are not included.

Big 5’s guidance for the rest of 2007 fell short of Wall Street’s expectations. They expect earnings this year of between $1.47 per share and $1.57 per share, but added that lower-than-anticipated sales beginning in the second half of April and higher administrative expenses would result in a second-quarter profit of between 25 cents per share and 33 cents per share.

The company has high hopes for the second half of the quarter, which includes Memorial Day, Father’s Day and pre-Fourth of July sales. That’s all fine and dandy, but all I care about it, is for them to improve same-store sales. Big 5 sells some great stuff at low prices, but until the company can get it together, I’ll be buying their running shoes and running from their stock.

Prove me wrong Big 5, improve same-store sales and beat your guidance, otherwise, expect more downgrades to follow. Happy Friday.

Frank Lara Jr.

Frank Lara Jr. can be reached at [email protected]; he does not own securities in the companies he covers.