Big 5 bets on smaller, easily accessible stores
Sometimes smaller is better.
That’s the philosophy of Big 5 Sporting Goods Corp., which owns 415 sporting-goods stores in 12 states, about half of them in California.
The El Segundo company believes that operating a large number of easily accessible, smaller stores is more profitable than offering fewer big ones. The average size of its stores is 11,000 square feet, less than a quarter the size of its big-box competitors.
“It allows us to be more convenient in metropolitan markets,” said Steven G. Miller, Big 5’s chief executive and son of co-founder Robert W. Miller. “With more stores, we’re easier to get to, and that’s important with the price of gas.”
Founded in 1955 as a chain of five California stores selling World War II surplus goods, Big 5 became a household name in Southern California by offering quality sporting goods at discount prices.
The company spends heavily on advertising because, as Miller said, “We don’t just open our doors and hope the wind blows customers in.”
Store offerings include baseball bats, snowboards, and yoga mats and less common items such as lacrosse balls and hand-held metal detectors.
The latest
Big 5 has started using data analysis software to determine consumer trends and help the company make merchandising decisions that lead to higher profits, Miller said.
For instance, customer preferences for color and sizes of clothing vary by region, and data analysis helps the company stock individual stores with merchandise that will sell better.
“It’s really just taking the type of information we’ve used to operate our business and putting it on steroids,” Miller said.
The company opened its 415th store Thursday in South Lake Tahoe, where it hopes to capitalize on the region’s variety of outdoor sports, Miller said.
“We’ve grown steadily, but at a controlled pace,” he said.
Accomplishments
The company has had a recent run of good news for investors.
Big 5’s firearms and ammunition sales helped boost first-quarter financial results. This year, firearms users, fearing possible gun-control legislation, flocked to Big 5 and other weapons retailers.
Although Big 5 does not disclose the percentage of sales from firearms, Miller said the company did benefit from “the national increase in the demand for ammunition and firearms products.”
The company smashed analysts’ expectations for the first three months, earning 34 cents a share — 70% more than the 20 cents analysts had predicted.
The unexpected gain fueled the momentum of Big 5 stock, which has skyrocketed about 250% in the last 11 months. The company’s shares traded as high as $22.50 on Tuesday, its highest point in nearly six years.
Last year’s profit was nearly $15 million, a 28% increase from the previous year. In the first quarter, Big 5 reported sales of $246.3 million, a 13% increase from the same period last year. And its same-store-sales, a key measure that compares stores open at least a year, was up 10.5%.
The company benefited from “a perfect storm of favorable winter and spring weather, a surge in firearm sales and longer term improvements to merchandise assortment and planning,” said analyst David Schick at financial services firm Stifel, Nicolaus & Co.
Challenges
Big 5’s recent success brings with it some challenges, particularly its ability to issue big year-over-year gains in earnings.
Schick said in a research memo that he’s concerned about a “deceleration in the remainder of the year.” He recommends holding the stock.
And there’s also concern about competition.
Dick’s Sporting Goods Inc. is expanding its presence on the West Coast, beginning this year, Schick said. That company has said it plans to open 40 stores this year. A Consumer Reports reader survey published this month rated Dick’s and Big 5 equally, with Dick’s getting a better score for selection and Big 5 for value.
Analyst views
Three analysts recommend buying the stock, four suggest holding it and one said investors should sell it. Their average one-year target price for the stock is $20.58.
“Big 5 is clearly executing better than it has in years past, and the stock should continue to work nicely in the near term,” said David G. Magee, an analyst with investment banking firm SunTrust Robinson Humphrey.
Schick said: “We give Big 5 credit for running the business one way for years and then deciding to change,” noting the company’s new emphasis on data-based merchandising decisions.
