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It's Time To Sell Big 5 Sporting Goods

Detroit Bear profile picture
Detroit Bear


  • Big 5 looked like a decent risk/reward net-net in September of 2017.
  • The trade has worked out well, but I think it is time to exit.
  • Big 5 has revenue and cost challenges and a rapidly declining balance sheet.
  • Big 5 is a sell.

One of the key attributes to success in distressed equity investing is to know when to sell. After horrible quarterly results last week, I believe Big 5 Sporting Goods (NASDAQ:BGFV) should be sold after a nice run.

Ultimately, Big 5 has delivered about a 10% return, including dividends, since I recommended the stock as a net-net play in September of 2017, good for an IRR of roughly 13%. However, I believe the fundamental scenario has worsened, but more importantly, I think the stock currently reflects an optimistic valuation. Big 5 is likely doomed in the long-term, and it appears that short-term headwinds could accelerate the process. Let's look at the results in the latest quarter, and I'll explain why I've exited the stock.

Revenue Trends are Terrible

Big 5's revenue trends in Q1 were horrible across all categories. Total same-store sales declined 7.5% y/y, driving a total decline of 7.3% y/y to $234.2 million. This puts the two-year stacked comp at 0.4%. This trend demonstrates that Big 5's underlying business is basically flattish, with some annual volatility driven by weather and gun fundamentals.

At the category level, hard goods sales declined 5.7% y/y to $104.5 million. This segment represented roughly 45% of total revenue in the quarter, underlying the durability of the hard goods category relative to other categories where online buying is more prevalent. Athletic apparel declined a whopping 10.3% y/y to $58.4 million, and though management blamed weather, I believe Big 5 is likely losing share in this category to online retailers. Footwear revenue also declined significantly, dropping 6.5% y/y to $69.4 million. I think this segment will continue erode, especially if consumers start to trade-up to nicer Nike (NKE) and adidas (OTCQX:ADDYY) footwear or continue to shift to Skechers (SKX) on the low-end.

With sales declining significantly, gross

This article was written by

Detroit Bear profile picture
A bear out in the woods.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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