Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has emerged an unlikely favorite in the sports retail space, trading higher by 215% over the last year. Meanwhile, competitors Hibbett Sports, Inc. (NASDAQ:HIBB) and Dicks Sporting Goods Inc (NYSE:DKS) have traded slightly lower over the last year. Therefore, with Big 5 currently trading lower by 17%, here are three reasons that Big 5 is a post-earnings buy!
I’ve said on many occasions, in retail, same-store sales are golden. A company can easily throw up new stores to boost revenue, but the growth of existing stores is what drives margin growth, which, therefore, creates shareholder value.
Looking at the last quarter alone, Big 5 Sporting Goods Corporation (NASDAQ:BGFV) increased its same store sales by 4.4% year-over-year, which is consistent with the company’s full-year outlook. Dick’s, the largest sports retailer in the space, saw a 3.8% same store sales decline in its last quarter, and is expected to see a rise of just 2% in 2013. Moreover, Hibbett Sports, Inc. (NASDAQ:HIBB) grew its sales less than 1% in its quarter, and also expects a 2% rise in 2013.
Therefore, Big 5 Sporting Goods Corporation (NASDAQ:BGFV)’s same-store sales growth is more than double that of its competitors. This means that Big 5 is attracting new consumers at a rate that exceeds the industry’s growth.
Bottom line growth
As I said, one of the reasons that you want to see same-store sales growth is because it impacts margins. For example, if a company’s costs to operate a store with staff, utility bills, and taxes remain the same, but a company’s revenue per store rises, then profits are naturally going to be higher.
This is what Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has accomplished. During the last quarter, the company’s net income grew 135% year-over-year. This income growth is far greater than the company’s 6% revenue growth in the same period, indicating significant margin improvements.
In the same period, Hibbett grew revenue 3%, but the company’s net income growth was flat. Hibbett has an operating margin of 14%, which many believe is near peak margins for this particular space.
Dicks Sporting Goods Inc (NYSE:DKS) did a little better than Hibbett, but not nearly as well as Big 5 Sporting Goods Corporation (NASDAQ:BGFV). Dick’s grew revenue 4% and its net income increased nearly 15%. This reflects healthy growth, and once again, we can revert back to its operating margins of 9% to find the reason why Dick’s has improved.
Hence, if Hibbett’s 14% operating margin is ideal efficiency in the space, then Dick’s’ 9% has room to improve. With that said, Big 5’s operating margin of 3.9% easily has the most to gain, and is the reason that the company’s bottom line is growing so rapid.
The most important measure to any investment is a company’s valuation relative to its peers. I have discussed this aspect in great detail, and when looking at Big 5 Sporting Goods Corporation (NASDAQ:BGFV) relative to its competitors, you can definitely see Big 5’s value.