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Big 5 Sporting Goods: Pandemic Boost To Wane

Summary

  • Big 5 is still expected to report strong results in Q3'21 before facing some major headwinds.
  • The sporting goods retailer doesn't appear to have a strong e-commerce focus.
  • The stock is cheap at 8x '22 EPS estimates, but supply chain issues and pulled forward demand will keep the stock gains capped.
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Big 5 Sporting Good store front

sanfel/iStock Editorial via Getty Images

After an initial dip, the sporting goods retail sector got a massive boost from Covid lockdowns in the U.S. Big 5 Sporting Goods (NASDAQ:BGFV) was one of the biggest beneficiaries as the relatively unknown sporting goods retailer got

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This article was written by

Stone Fox Capital profile picture
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Stone Fox Capital (aka Mark Holder) is a CPA with degrees in Accounting and Finance. He is also Series 65 licensed and has 30 years of investing experience, including 10 years as a portfolio manager.

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Comments (99)

L
I mean this aricle, doesn’t sound neutral to me
L
85% up from the date of publication 🤣
S
Sgav
11 Nov. 2021
Share price up almost 100% since this article was published
h
Don't you get tired of being wrong. You're a classic do the opposite.
S
Sgav
04 Nov. 2021
Stocks up 40% since this article was published...
Stone Fox Capital profile picture
@Sgav
Odd stuff b/c $BGFV missed as forecast. The market has a tendency to be wrong in the short term.
S
Sgav
04 Nov. 2021
@Stone Fox Capital Or BGFV investors don’t care about minor earnings misses from targets created by analysts who are wrong most of the time — the overall trend is positive — that’s the 5th consecutive quarter of solid earnings

The company declared $1.25 in dividends and repurchased shares. Investors are pleased with a shareholder oriented management, as well.
@Stone Fox Capital it’s obvious you just read the headline. They did not miss forecast and were above midpoint of guidance.
Stone Fox Capital profile picture
Interesting to see how the market parses the more normal numbers going forward.

-Big 5 Sporting Goods Corporation shares slide as the company fails to meet earnings or revenue expectations.
-Net sales fell to $289.6M from $305.0M a year ago, which the company said was due to a calendar shift that resulted in pre-Fourth of July holiday sales moving from the Q3 in FY2020 to Q2 in FY2021.
-Gross profit rose 120 bps to 37.3% due to an increase in merchandise margins, partially offset by higher store occupancy expense as a percent of net sales.
Jamm Systems profile picture
@Stone Fox Capital The market seems to have liked them.
I've been really upbeat about select US retailers for a few months now. GOOS, URBN, ANF in particular. There are others. Retailers with house brands who strengthened themselves during Covid. They are... just... so... cheap (actually a little less cheap these last few days).

How can one not like BGFV at recent valuations?
Stone Fox Capital profile picture
@Jamm Systems
b/c they have a limited future w/o an ecommerce focus.
Jamm Systems profile picture
@Stone Fox Capital Hate to say it, but TBH I don't care so much. This stock was a trade for me, not a long term hold. I'm plenty happy with my gain. Took profits this AM. Maybe left a bunch on the table.
Stone Fox Capital profile picture
Exactly why e-commerce matters.

-Macy's (M +12.9%) stock soars on news that rival Saks Fifth Avenue is preparing to undergo an initial public offering for its e-commerce unit. The IPO could occur in the first half of 2022.
-Saks Fifth Avenue is reportedly seeking a valuation of $6B, triple its value in March. The high-end retailer's owner, Hudson's Bay Company, had already taken steps to split the company's e-commerce segment into a standalone business, and an IPO would be the next logical step.
-Earlier in October, Jana Partners called for a spinoff of Macy's e-commerce business, saying that the online segment could be worth $14B and a split would raise shareholder value.
georgefelix75 profile picture
@Stone Fox Capital If they can return 8% to shareholders they don't have to do any more than that. If they earn $2 and payout 8% with no debt then its no different than MO without the smell.
@georgefelix75 Exactly. SFC is misunderstanding the buy thesis entirely
georgefelix75 profile picture
@Gallahad Looks like a massive short squeeze going down.
Hoi-polloi profile picture
Here in NoCal, you can go to REI and drop $300 on a cooler designed for the space shuttle or $40 for one from BGFV and your ice will last 2 days instead of 3. I love the place.
Stone Fox Capital profile picture
@Hoi-polloi
Glad to see you love the place, but what is the catalyst for the growth? An investor might prefer they sell the cooler for $300.
s
absolutely. people will not stop to go out and shop. ammo and guns as well. big5 will be the last one to survive and will kick ass. no need for going down the e-commerce road for them.
Stone Fox Capital profile picture
@315sierra
$BGFV will die a slow death without e-commerce.
a
I'll put this last part in a separate comment since it could get taken down...

Covid is like a religion where I live. We have an OUTDOOR mask mandate still in effect in Oregon. The Governor is still getting badgered on Facebook and by the media at press conferences to do even more and put down more restrictions. I don't think we'll get back to regular economics any time soon.
d
@aos0357 Where in Oregon do you live? I'm in the Portland area. Checked out two Big Five's recently. They seem to be keeping product on their shelves and have doubled their recent shipments into the stores...
Stone Fox Capital profile picture
@aos0357
Just pure madness, though was shocked to see 40% of parents recently vote for kids to wear masks at school. At least 60% of parents want to get back to normal. Spent the last couple of months traveling around soccer fields and hotels/restaurants in 3 states with live mostly back to normal. Just crazy how parts of the country are still stuck in major covid restrictions.
a
@dr22love I'm in Eugene at U of O law school right now, but I am from Hood River, about 60 miles to your east.
a
I'm a BGFV bull, but I appreciate this article and the critical eye it takes to Big Five's growth. I am sorry that you've received some aggressive negative comments.

Here's my bull case.

If BGFV was trying to become a $40bn market cap company I would be concerned about their lack of e-commerce, but as I mentioned below in the comments I really think there is room for an in-person retail store, and that the design of their stores makes it enticing for consumers to buy a few extra items while they're looking for something else.

The last time I was in a Big Five (located very near to my large university) I bought an $80 pair of shoes. While I hadn't planned on spending that much, for the great quality of the shoes I felt like I had to take that deal because I probably wouldn't get another bargain that nice for a while. Assuming they're profiting off of such sales (and they almost definitely are) I think they can sell even more than what's demanded. Despite knowing how businesses operate and that they intentionally set up the store so that people will run into more products and buy more, I still feel very satisfied with the purchase I made and feel a degree of brand loyalty to the store (though part of that is from stockholding).

The company has shown they want to get money back to shareholders, like with that special dividend, and their excellent balance sheet should also allow them to expand if an opportunity presents itself. I think that a line of no return has been crossed where they will not likely fall back to 2019 sales levels because of their success in the past year. Even the 3$ EPS would be much better than what they were doing before. And if they were to give $1.5 back in dividends they could add to their cash stockpile while giving us a great dividend yield. I am very bullish on BGFV.
O
Doesn’t Big Five also have a big presence in Texas? I have commented before that sporting goods seems to be partial to in person shopping. Further, the company has a big customer base in the provision of high school sports uniforms. I don’t think that this area is that dependent on e commerce, once established. Price is a big driver and if this is competitive with on line purchases, then it should be okay. Don’t know how much gun sales it’s done on line, but this area should be prosperous, especially in Texas.
Stone Fox Capital profile picture
@Old Wizard
A lot of items are conducive to in-person shopping, but a lot of items aren't. Not to mention, it's almost impossible for a store to hold all of the inventory in each individual store. A lot of times I'll go online to $DKS and find the local store that has the volleyball shoes that my girls need. Look at the huge ecommerce numbers from Dicks and tell me Big 5 isn't donating market share in areas where stores overlap.

-eCommerce sales increased 111% compared to the second quarter of 2019 and as planned, decreased 28% compared to the second quarter of 2020, which included a period of temporary store closures. eCommerce penetration has grown from 12% of total net sales in the second quarter of 2019 to 18% for the second quarter of 2021. eCommerce penetration was approximately 30% in the second quarter of 2020.
Stone Fox Capital profile picture
@Old Wizard
Store counts by state with only 3 stores in TX as of 1/3/21:

CA - 223, 52%
WA - 46, 11%
AZ - 41
OR - 29
CO - 22
NM - 19
NV - 18
UT - 17
ID - 11
TX - 3
WY - 1
Total - 430
d
@Stone Fox Capital Good info thanks for this.
d
"As supply chain disruptions end next year, the sector will probably face more promotional activity as new entrants enter into the space making for more competition while the demand environment likely dissipates."

New entrants? Like who? I don't think you understand. If people were buying more of Big Five DURING a pandemic, why do they need to boost their online presence? Sure, their online platform sucks, I agree with that. But again, during a pandemic when people are told not to be around others, Big Five was highly successful. The business model is clearly working.
They are discount sporting goods store, unlike Dick's. People come in to check the PHYSICAL sporting good items they want, and then purchase them.
Stone Fox Capital profile picture
@dr22love
They were successful b/c people were desperate to buy items for outdoor activities and those people weren't so concerned about ineffective CDC rules. What happens when the march towards e-commerce returns in 2022? $DKS wins, $BGFV loses.
d
@Stone Fox Capital You've got good points, but I think you're missing the demographic of Big Five customers. What I was getting at is, I don't think they want to buy online.
Stone Fox Capital profile picture
@dr22love
What if you are correct about 95% of the customers and the other 5% shift online each year. Maybe a few % stay with Big 5 and a % leave. The end result is that Big 5 only retains 97% or 98% of customers each year and they aren't likely to gain many new customers not have a strong e-commerce presence. Its not a bad business, but it won't be a good stock.
S
Sgav
06 Oct. 2021
"E-commerce sales for fiscal 2020 and 2019 were not material." 2020 10-K

"Big 5 has major e-commerce concerns and any investor should question their lack of focus on shifting away from in-store purchases." the article

Stone Fox Capital is trying to create an issue where one doesn't exist.

Big 5's immaterial e-commerce business is likely why the company has been profitable every year for the past 10 years. Why would a small brick and mortar compete with the likes of Amazon in e-commerce. Smaller retailers cannot compete with larger retailers in regards shipping, fulfillment, and all the other support costs needed for effective e-commerce.

Clearly Big 5 chooses its spots. Immaterial e-commerce business is a strength. Not a weakness.
Stone Fox Capital profile picture
@Sgav
Not having an e-commerce business is why the stock traded at $2 pre-covid. Did you miss that part of how much $BGFV struggled?
f
@Stone Fox Capital it was trading at $2 and change pre-pandemic exactly $2.80 because Big 5 was 140% short Google it. More failures to deliver then any other stock in history. Shorts we're talking Big 5 worse than they were GameStop at the time. Pull up finra failures to deliver at the time you will be shocked and would not believe but you would be seeing it with your own eyes. Go ahead and try and short it like that in this market with the Apes they will make Big 5 legendary stock keep shorting it's past 40% right now
f
@frankegenaro the shorts at the time we're depending on California going from $10 to $15 wages sense Big 5 is primarily located in California where they got their start. The shorts were saying that Big 5 cannot afford to pay $15 an hour. So they went on to short 140% of the stock. Since the stock was a micro cap and they they were violating the failures to deliver Claus pulling every trick in the book they were able to manipulate the stock which was an incredible buying opportunity. Obviously covid-19 happen and the stock went down the $0.65 which was a better opportunity. In any event looks like employers can afford to pay $15 an hour. And as for online presence went to Big 5 to buy they're awesome shoes. Add a great price they did not have three pairs so I ordered them online right there in the store and they were delivered to me two days later. I guess with prices like this similar to Ross stores which doesn't have an online website at all go figure. Go back to your hedge fund friends and ask them if they'll give you any more money for writing another negative article
U
I shop at Big 5 every time is visit SOCal. Their discontinued goods like footwear are great value. Was
Glad to get the stock perspective from this article.
Stone Fox Capital profile picture
@User 39720196
As a regular shopper, do you see any reason for the company to thrive going forward?
a
@Stone Fox Capital I can sort of answer this. They really have good deals on a number of things, and even if you go into a big 5 thinking you only need one thing you can often end up leaving with more. The fact that they sell guns and ammo should also help them, as ammo has been obscenely expensive and hard to get in the PNW recently. Here in Oregon Covid fears aren’t going away, and I wouldn’t be surprised to see more restrictions honestly. Add to all of this the fact that Big 5 is the only retailer to carry certain kinds of gear like wrestling shoes and I see them being able to carve out a niche in the market. They also serve a number of places that don’t have other sporting goods options.
Stone Fox Capital profile picture
@aos0357
But how much is a niche with no growth worth? Before covid, it was worth $2. What has Big 5 done that makes the stock now worth $24 today.
S
Sgav
06 Oct. 2021
It appears my first post hurt the authors feelings so he reported it and it got removed.

Big 5’s quarter over quarter revenues have been increasing by double digits since the pandemic started. It’s q2 2020 (peak lock downs) revenues we’re steady. The company’s margins have increased significantly since as well. The company has no debt, $5/share cash on hand, and a PE of 5.

The author is misguided in spreading unfounded fear, uncertainly, and doubt (FUD) about e-commerce because e-commerce is a small percentage of this company’s sales and almost irrelevant.
Stone Fox Capital profile picture
@Sgav
Moderators remove comments, not authors. You must've written something inappropriate to have it removed, so don't blame an author that has only requested a couple of comments be removed over a period of a decade.

The whole issue with Big 5 is the lack of a real e-commerce platform. The path to survival is using stores as distribution centers.
J
@Stone Fox Capital I agree with e-commerce issue but there site is okay but no real advertising.
georgefelix75 profile picture
@Sgav I think the point was they are lacking an e-commerce business. As for the author. He is not one to have a thin skin and while he and I have butted heads I respect his opinion and his follow up on articles he writes. Many publish and disappear...that has no value to me.
J
Undervalued, no debt, lots of cash, and opening new stores. Also a dividend with a huge short position. Stock reports good earnings and improved guidance for 2022 stock will take off. Vietnam is back at work so clothing supply chains should get better
Stone Fox Capital profile picture
@Job316
Anything made in Vietnam won't hit the shelves in the US until after the holidays. $NKE just talked about 80 day transit times, up from 40 days.
@Stone Fox Capital No?! Not 80 days? Surely this means bankruptcy.
D
@Stone Fox Capital Not just 2x-3x the time to take delivery, but shipping cost has gone crazy. My friend imports from China and just told me that getting a container shipped here (transportation only) was about $6000 a year ago, but the last container cost her $82,000, and that didn't include customs fees.
O
I think this company will thrive regardless of its e-commerce position. Good mix of product for sale, high school team sports, guns and ammunition are staples. Shorts will be in a tough spot when next quarter earnings are revealed.
Stone Fox Capital profile picture
@Old Wizard
$BGFV had limited growth prior to covid, why will it be any different in 2022 when covid is gone and demand was pulled forward?
b
@Stone Fox Capital Should we rely on pre-pandemic growth rates to be indicative of future growth rates?? This past 20 months has changed perspectives enough that it may take a few more years before the new found popularity of outdoors & more active lifestyles fade away.
d
@b_lookingglass Or maybe people realized what is important in life during the pandemic and getting outside and involved in sports was one of them?
AssetFlower profile picture
Wait for kid and adult team sports to return to pre-pandemic levels. Huge diminished revenue stream. I like several other outdoor names also: CWH, LAZY and VSTO.
Stone Fox Capital profile picture
@AssetFlower
What teams aren't back to pre-pandemic levels? In my area, it's been full speed ahead since all the way back last May.
d
@Stone Fox Capital It's going to be a blockbuster Q3 revenues and earnings. I for one, have seen how many soccer teams are back in the Portland metro area. Fall baseball (what?!), football, etc. All of these people have to buy gear for their teams, not to mention back-to-school AND hunting. Plus, there is still an ammo shortage and Big Five is making bank on that!
AssetFlower profile picture
@Stone Fox Capital in CA many kids and adults have yet to return to team sports which remain cancelled or open with lower participation. I think this quarter will see a lot of increased demand coming back, but I don’t think we’ll be back at 100% of pre pandemic levels for awhile. We could also get a new variant / surge again. In CA team apparel and gear is a HUGE part of Big 5’s product mix. Parents come in for all the necessary gear.
William777 profile picture
IMHO. This stock is far too cheap. It is very difficult to find outdoors equipment they sell. Margins will not deteriorate yet. With the fed printing money it seems there will always be more money than goods. That seems to ensure more growth for $BGFV until the money printer slows down a lot. I have liked this one since 5$ a share 17 months ago. The shorts picked the wrong stock.
OverTheHorizon profile picture
BGFV sporting goods and outdoor will remain strong. 5 has viable omni/channel presence, 420 stores in major Western markets and firearms/ammo. All this and a dividend too—what’s not to like?

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