Big 5 Sporting Goods Corp. (BGFV) posted robust fourth-quarter 2012 results with earnings rising nearly four-fold to 19 cents per share against 5 cents reported in the comparable year-ago quarter. The year-over-year increase was primarily driven by strong sales growth and improved margins. Moreover, the quarterly earnings of this Zacks Rank #2 (Buy) company came a penny ahead of the Zacks Consensus Estimate.
Quarter in Detail
Net sales for the quarter increased approximately 7.4% to $243.6 million compared with $226.7 million in the fourth quarter of 2011 and surpassed the Zacks Consensus Estimate of $242.0 million. Sales in the quarter mainly benefited from favorable weather conditions during winter as well as the company’s ongoing merchandise and marketing initiatives.
Same-store sales increased 6.5% over the year-ago quarter, driven by improvement across all geographies as well as all major product categories of apparel, footwear and hard goods.
The company witnessed a high-single-digit growth in average ticket and demonstrates efficient expense leverage, which aided it to boost merchandise and operating margins, ultimately driving earnings growth. However, Big 5 observed a fall in customer traffic of low-single digit.
Gross profit in the quarter increased 10.9% to $78.4 million, while gross profit margin expanded 100 basis points (bps) to 32.2% due to a 20 bps improvement in merchandise margins, coupled with the leveraging of store occupancy and distribution expenses.
Selling and administrative expense, as a percentage of net sales, contracted 210 bps to 29.2%. However, in dollar terms, selling and administrative expenses increased $0.4 million to $71.2 million. The escalation is primarily attributable to increased store-related expenses due to higher store count and elevated employee benefit-related costs, which were somewhat offset by reduced advertising expenses.
Operating income for the quarter stood at $7.2 million against a loss of $0.2 million reported in the fourth quarter of 2011. Consequently, operating margin came at 2.9%. The year-over-year improvement in operating margin was primarily driven by increased gross profit margin and reduced selling and administrative expenses as a percentage of sales.
Financial Update
Big 5 ended the year with cash and cash equivalents of $7.6 million compared with $4.9 million in 2011. The company’s inventory levels at the end of 2012 remained flat year over year at $270.4 million on a per-store basis.
During the fiscal, the company generated a cash flow of $39.6 million from its operational activity. The improved cash flow facilitated it to reduce credit facility by 25% to $47.5 million, invest in store opening and remodeling activities, and distributed $10.0 million to shareholders in the form of share repurchase and dividend payments. Shareholders’ equity at the end of the year stood at $164.4 million.