Big Five Sports Stock is Still Cheaply Valued and Under the Radar

Sporting goods retailer Big 5 Sporting Goods NASDAQ: BGFV shares have been both a pre and post-pandemic winner as shares ground to multiyear highs $37.75 on June 3, 2021 and has since been pulling back. The pullbacks have dropped its price-earnings (P/E) ratio to just under 6. Sports and athleisure apparel stocks have been strong both during and post-pandemic. The return to work and school along with the reopening trend has yet to dent the underlying strength in these stocks with the acceleration of COVID 19 vaccinations. With that said, the price pullbacks on Big 5 could be presenting opportunistic pullbacks for prudent investors still looking for exposure at a discount.

Q2 FY 2021 Earnings Release

On Aug. 3, 2021, Big 5 released its fiscal second-quarter 2021 results for the quarter ending June 2021. The Company reported an earnings-per-share (EPS) profit of $1.63 or $36.8 million net income up over 300% from the year-ago same period. Revenues for Q2 2021 grew to $326 million compared to $227.9 million in the same quarter year ago. The Company expects flat same-store sales in Q3 2021 and EPS in the range of $0.95 to $1.15. Big 5 CEO Steven Miller commented, “Our second-quarter results exceeded expectations, as we achieved another quarter of record sales and earnings results. Same-store sales for the fiscal 2021 second quarter were up 31.2% versus the prior-year period and were up 33.4% versus the fiscal 2019 second quarter, reflecting a continuation of strong broad-based demand across our product mix. For the second quarter, we generated record net income of $36.8 million with $88.7 million of operating cash flow. Our bottom-line results benefitted from further expansion of our merchandise margins, as well as operating with a cost structure that is meaningfully enhanced compared to pre-pandemic. Although we are cycling the peak of the 2020 COVID-19 related sales surge and we are being impacted by the widely reported supply chain disruptions and staffing challenges in the retail industry, we have continued to produce strong sales growth and margins versus historical pre-pandemic levels. In light of the overall strength of our business, our Board of Directors has declared a 39% increase in our regular cash dividend to an annual rate of $1.00 per share, which is our fourth dividend increase over the past four quarters.”

Conference Call Takeaways

Big 5 Sporting Goods CEO, Steve Miller set the tone, “Turning to the bottom line, for the second quarter, we earned net income of $36.8 million or $1.63 per share. This was the highest net income for any quarter in our company's history. As I previously mentioned, these results reflect strong broad-based demand for sporting goods and recreational products throughout our markets. Although sales performed at a very high level, we were still constrained by the widely reported supply chain disruptions facing many retailers. Our team is managing through a wide variety of issues throughout the supply chain, including staffing issues at our distribution center, which have caused delays in delivering products to our store shelves. As I noted in our call last quarter, I suspect it will be some time before supply catches up to demand for many categories. Looking now at our third quarter, our same-store sales are currently running down high-single digits versus last year, and up in the high-teens versus 2019. We anticipated sales running down over this period compared to last year, given the sales in July last year were up approximately 30% for the comparable days, which represented the absolute peak of our 2020 sales surge. Compared to July's comps, the comps over the remainder of the quarter will ease considerably, as a comparable period last year was significantly impacted by the lack of back-to-school sales and team sports, which we believe should largely return this year. From a broader perspective, we are very pleased with the sustained strength of our business. While we certainly still face challenges related to the pandemic, including supply constraints and staffing issues, to date, we have been able to navigate these challenges and leverage tremendous recreational trends that have translated to sales and margin strength across our product categories. With an increased focus on staying healthy over the past year, people have been engaging or re-engaging in more recreational activities than before. Our assortment of fitness and recreation products is very well situated for these trends, which are enduring beyond the peak impacts of the pandemic. Over our many years, we have established Big 5 as a well-recognized and trusted sporting goods destination for our markets, and we have further expanded our customer base over the course of the pandemic.”

BGFV Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for BGFV stock. The weekly rifle chart peaked out near the $37.91 Fibonacci (fib) level. The weekly uptrend stalled with a flat 5-period moving average (MA) at $26.90 as the weekly stochastic bounce also starts to stall. This is setting up a mini pup on the break back up through the 5-period MA at $26.90 or a breakdown if the 5-period MA crosses down through the 15-period MA at $24.60. The daily rifle chart has been downtrending with a falling 5-period MA at $25.19 since the breakdown through the market structure high (MSH) sell trigger at $29.25. The daily stochastic also crossed back down at the 30-band but is stalling for either a mini inverse pup through the 20-band targeting the daily lower Bollinger Bands (BBs) at the $20.97 fib or a cross up to reverse the downtrend. The bulls need to defend the market structure low (MSL) buy trigger at $21.90 to deflect further price erosion. Prudent investors can look for opportunistic pullback levels at $22.63 fib, $20.97 fib, $19.27 fib, $17.75, $16.95 fib, and the $15.55 fib. The upside trajectories range from the $30.29 fib to the $39.27 fib.