Big 5 Sporting Goods: A Takeover Target?

11/28/2017 5:00 am EST


Bill Mathews

Editor & Founder, The Cheap Investor

Big 5 Sporting Goods (BGFV) is a leading sporting goods retailer in the western United States, operating 432 stores, offering a full-line of products in a traditional sporting goods store format that averages 11,000 square feet, notes Bill Matthews, editor of The Cheap Investor.

Big 5’s product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation and roller sports.

The company sells private label merchandise under its own trademarks comprising Golden Bear, Harsh, Pacifica, and Rugged Exposure; and licensed trademarks, including Beach Feet, Bearpaw, Body Glove, Morrow, and The Realm.

The company has a good balance sheet with $6.6 million ($0.31 per share) in cash, a book value of $9.51 per share and debt of $53 million.

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Insiders own about 7% of the total 21 million shares outstanding, and 194 institutions own 113% of the float (shares in public hands). For the quarter ended June 30, 2017, institutions sold three million more shares than they bought.

The negative factor is revenues and earnings are down slightly for the latest quarter. In addition, Big 5 is in the brick and mortar retail sector, and that segment has been suffering. On the plus side, Big 5 pays a dividend. Because the price has fallen, the dividend is now equivalent to 9% of the stock price.

During the third quarter of fiscal 2017, the company closed one store, ending the quarter with 432 stores in operation. Big 5 Sporting Goods anticipates opening three stores in the fourth quarter. For the fiscal 2017 full year, the Company currently anticipates opening six new stores and closing three stores.

For the fiscal 2017 fourth quarter, the company expects same store sales to be in the negative low single-digit range and earnings per diluted share to be in the range of $0.16 to $0.28, compared to a same store sales increase of 3.1% and earnings per diluted share of $0.35.

Even though Big 5’s revenues and earnings are lower than last year, its price is significantly lower than the $20 per share it was selling at a year ago, so we think it’s time to start accumulating shares. The stock has a history of volatility, and with a market cap of just $138 million, it could be an acquisition target.

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