There are five reasons to like sporting goods retailer Big 5 Sporting Goods
Unlike rivals Hibbett Sports
Those repeat customers also boosted Big 5's total sales by almost 5% to $217 million. Winter sales were strong. Higher product margins and lower costs associated with moving to its new distribution facility increased the gross margin by 60 basis points and helped profits rise to $7.6 million, 28% higher than last year's quarter.
As good as all this seems, there are some areas investors need to watch out for. According to management, the second quarter is showing softness, and while it will be investigating what exactly the issues are, guidance came in under analysts' new forecasts. It said it is expecting earnings in the range of $0.25 to $0.33 per share for the quarter, whereas analysts had expected $0.37 per share.
The sporting goods industry has had its share of fits and starts, and K2
With locations in just 10 western states, Big 5 benefits at times from regional climates that it finds favorable, as happened last quarter. Yet the smaller footprint is also a limiting factor in gaining even better growth numbers.
Big 5 Sporting Goods currently sells at a discount to the competition. On both a trailing and forward basis, its market value is less than Dick's Sporting Goods
However, if the sporting goods retailer could find ways to expand its P/E ratio to be more in line with its rivals' average, building on the gains in sales, profits, and comps, investors might find themselves enjoying a near 30% increase in its share price.
While the second quarter looks to be off to a slower start, it also includes some major holiday selling dates including Memorial Day, Father's Day, and pre-Fourth of July sales. While the market seemingly doesn't like what it sees, selling off Big 5 shares by some 8% so far, sales for those dates could eventually firm up those soft initial numbers and give us more than just five reasons to like this retailer.
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Fool contributor Rich Duprey owns shares of K2 but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.