Big 5 Sporting Goods (BGFV -2.57%) is a relatively small sports retailer, with a market cap of around $300 million. It had an incredible year in 2021, as people flocked to its stores in the search for "something to do" during the pandemic and after social distancing rules were eased.
Investors reacted as you might expect, bidding up the shares. Now things are starting to come back down to Earth.
Big results from Big 5 Sporting Goods
In 2021, Big 5 Sporting Goods reported sales of $1.16 billion, up from $1.04 billion in 2020. Helping to drive that number was an incredible same-store sales gain of 13.9%. What makes these numbers even more impressive is that 2020 was a year that included a 53rd week, so 2021's results not only beat 2020 but did it with seven fewer selling days. That's an impressive feat for a retailer.
Image source: Getty Images.
On the bottom line, Big 5 Sporting Goods posted full-year 2021 earnings of $4.55 per share, up from $2.58 in 2020. Any way you slice it, this sports retailer had a great year in 2021. But management ended the year with a not-so-subtle warning: "Our outlook for the 2022 first quarter reflects very difficult comparisons to our record 2021 first quarter."
Right on target
The company's results lived up to that warning, with first-quarter 2022 revenue coming in at $242 million, down from $272.8 million in the first quarter of 2021. Same-store sales fell 11.4%. Perhaps more troubling, same-store sales were flat compared to the first quarter of 2019, a pre-pandemic period. That suggests that the massive same-store sales growth Big 5 Sporting Goods witnessed in 2021 could have been a one-time event.
In fairness, the company's $0.41 per share in first-quarter 2022 earnings was above its guidance range of $0.30 to $0.40 per share. But it was still well lower than the $0.96 per share it earned in the first quarter of 2021. The first-quarter 2022 earnings results, however, were well above the $0.08 profit in the same quarter of 2019. So there was, perhaps, some improvement in the business itself, even if same-store sales growth was nonexistent when comparing 2019 to 2022.
The company's warning early in the year has clearly played out, and the trend isn't set to change, with management calling for second-quarter same-store sales to decrease "in the high teens" compared to 2021. That's not unreasonable, given the unusual strength in the business, driven by pent-up demand related to the coronavirus.
But the more important figure here will be the comparison to 2019, with management calling for same-store sales compared to the pre-pandemic period to be up in the high single digits. That would be a material improvement over the first quarter's same-store sales figures across those two time periods.
If the company can live up to its same-store sales growth projection relative to pre-pandemic 2019 results, there could be more opportunity here than the weak year-over-year results suggest. That said, the stock hit a peak in late 2021 and the price has since fallen nearly 70%.
The problem is that the stock price is still higher by more than 300% compared to where it started out in 2020, so there appears to be a lot of good news built-in. But if the notable 4.6-percentage point improvement in merchandise margins between first quarter 2022 and first quarter 2019 stick, there is reason for long-term optimism. Margin improvement, though, could be tough to keep up in an inflationary environment.
More bad numbers to come
Big 5 Sporting Goods was a hot stock in 2021 as the world started to move past coronavirus-related restrictions. But the picture from here is a lot more nuanced, and investors are clearly in a "show me" mood. That makes complete sense, given the year-over-year drop-off in the business. And there may be more negative numbers to come as 2022 progresses.
Investors, however, might want to pay closer attention to the comparisons to 2019, which will help to show whether Big 5 Sporting Goods was able to use its one-year windfall to actually improve its long-term outlook. If it can get same-store sales growth rising again and maintain profit margins, perhaps the stock advance since the start of 2020 isn't unreasonable.
If it doesn't do those two things, well, there's probably a lot more downside here. Overall, this might not be the best choice for risk-averse investors right now.
