Big 5 Sporting Goods Company (NASDAQ: BGFV) stock has declined since reaching a high of $41.33 in November 2021, as both top and bottom lines continue to decline. Once team sports and live events resumed following the epidemic, the firm experienced a significant upswing. Nonetheless, 2022 was a difficult year for comparable sales, as inflationary pressures and economic uncertainties led consumers to reduce their discretionary spending. It is anticipated that these headwinds will persist moving forward. Big 5 continues to normalize while the top and bottom continue to collapse. This increases the dividend yield at the expense of falling share prices.
As conspicuous as a sore thumb
Big 5’s underperformance stands out like a sore thumb among the sports shops. Going into 2023, the sports retailing business has been primarily robust. In the past year, the Big 5 has decreased by fifty percent, while its contemporaries have witnessed double-digit growth. Throughout the last year, it has underperformed sports stores such as DICK’S Sporting Goods Inc. (NYSE: DKS) by 33%, Dilliard’s Inc. (NYSE: DDS) by 30%, Hibbett Inc. (NASDAQ: HIBB) by 38%, and Foot Locker Inc. (NYSE: FL) by 38%.
Big Five might be forced out by its competitors. On January 17, 2023, the business released downward guidance for Q4 2022 profit expectations. By the conclusion of the second quarter of 2022, it expects earnings per share to be between $0.07 and $0.08, compared to the $0.13 analyst expectation and much below its earlier prediction of $0.29.
Reduction Continues
Big Five reported their fiscal third-quarter 2022 earnings for the period ending September 2022 on February 28, 2022. The firm announced an earnings-per-share (EPS) result of $0.08, which was $0.01 more than anticipated. The net income was $1,7 million compared to $19.9 million in the same period last year. The revenue decreased (-9.7%) year-over-year (YoY) to $238.3 million from $273.4 million in the previous year’s comparable quarter. Same-store sales declined (-13.2%) YoY. Q4 merchandise margins decreased by 129 basis points year-over-year but are still up 300 basis points compared to Q4 2019.
Big 5 CEO Steven Miller stated, “Although our seasonal winter items have fared well thus far in the first quarter, macroeconomic conditions have continued to impair our consumers’ discretionary spending.” The firm will continue to place an emphasis on margins and maintain its agility to resist inflationary pressures.
Is the Dividend at Risk?
The dividend yield of over 12 percent is enticing, but sales growth continues to normalise, decreasing by roughly 10 percent. When EPS decreases, the company’s cash reserves are depleted by the substantial dividend payment. If EPS continues to decline, Big 5 might be forced to reduce its dividend. Yet, it continues to pay the $0.25 per share dividend as of the ex-dividend date of March 10, 2023.
Weekly Declining Triangle Reversal
The weekly candlestick chart for BGFV indicates the formation of a second lower falling triangle. A falling triangle is characterised by a flat base and successively decreasing highs that cross trendlines at the triangle’s apex. It is anticipated that the stock price will either decline through the lower flat trendline or break out through the falling diagonal trendline.
This weekly declining triangle began with the November 2022 high of $12.27. In the subsequent four weeks, BGFV reached an all-time low of $8.08. It precipitated a weekly market structure low (MSL) rebound through $9.02 to a January 2023 high of $10.52.
Each weekly candle’s rebound efforts produced lower highs, leading shares to retest the $8.12 trendline near the flat bottom once again. The weekly stochastic has crossed below the 20-band to test it.
The resistance of the weekly exponential moving average (EMA) continues to decline at $9.87, followed by the barrier of the weekly 50-period MA at $11.18. The levels of pullback support are $7.46, $6.82, $6.32, and $5.50.
These thoughts and opinions are those of the author and do not necessarily represent those of Nasdaq, Inc.