Big 5 Sporting Goods Sports a 12% Dividend But…

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Regional sporting goods retailer Big 5 Sporting Goods Corporation (NASDAQ:BGFV) The stock has fallen since its November 2021 high of $41.33 as both sales and earnings continue to shrink. The company enjoyed a major boost during the post-pandemic reopening as team sports and live events resumed. However, 2022 was a challenging year for comps as inflationary pressures and economic uncertainty prompted consumers to tighten their discretionary spending habits. This headwind is expected to continue. The Big 5 continue to experience normalization as the top and bottom are deflated. This increases the dividend yield at the expense of falling share prices.

Sticking out like a sore thumb

Among sports retailers, the underperforming Big 5 stands out like a thumbnail. The sports retail industry has been mostly strong heading into 2023. The Big 5 have fallen over the past year (50%) while the competition has posted double-digit gains. It continues to fare significantly worse than sports retailers like DICK’S Sporting Goods Inc. (NYSE:DKS) increased by 33%, Dilliard’s Inc. (NYSE:DDS) increased by 30% Hibbett Inc. (NASDAQ:HIBB) up 38%, and Foot Locker Inc. (NYSE:FL) up 38% over the past year.

Big 5 could be ousted by its competitors. The company issued downward guidance on its earnings estimates for the fourth quarter of 2022 on January 17, 2023. It cut EPS estimates to between $0.07 and $0.08 from analysts’ estimate of $0.13 and well below its previous guidance of $0.29 at the end of Q2 2022.

shrinkage continues

On February 28, 2022, Big 5 released its third quarter 2022 results for the quarter ended September 2022. The company reported earnings per share (EPS) of $0.08, beating estimates by $0.01. Net income was $1.7 million compared to $19.9 million in the same period last year. Revenue decreased year-on-year (YoY) to $238.3 million (-9.7%) compared to $273.4 million in the same period last year. Same-store sales declined (-13.2%) year-on-year. Merchandise margins in Q4 fell 129 basis points year-on-year but are still up 300 basis points compared to Q4 2019.

Steven Miller, CEO of Big 5 commented, “Looking at our current trend, while our seasonal winter products have performed well in the first quarter to date, macroeconomic conditions have continued to impact our customers’ discretionary spending.” The company will continue Prioritize margins and stay flexible to fight inflationary pressures.

Is the dividend at risk?

The dividend yield of over 12% looks enticing, but revenue growth continues to normalize, nearly declining (10%). With earnings per share also shrinking, it’s draining the company’s cash with the hefty dividend payout. If earnings per share continue to fall, the Big 5 may have to cut their dividends. However, as of March 10, 2023, ex-dividend date, it continues to pay the dividend of $0.25 per share.

Weekly Descending Triangle Breakdown

The weekly candlestick chart on BGFV forms a second lower descending triangle. A descending triangle is characterized by having a flat bottom with successively lower highs intersecting trendlines at the apex. Stocks are expected to break through the lower flat trendline or break out through the falling diagonal trendline.

This weekly descending triangle started after a high of $12.27 in November 2022. BGFV fell over the next four weeks and reached a low of $8.08. It triggered a weekly market structure low (MSL) that bounced above $9.02 to a high of $10.52 in January 2023.

Each weekly candle made lower highs on the rebound attempts, eventually causing stocks to tumble back down to retest the flat-bottomed trendline at $8.12. The weekly stochastic has crossed down to test the 20-band.

The weekly exponential moving average (EMA) resistance falls further to $9.87, followed by the weekly 50-period MA resistance at $11.18. Pullback support levels are at $7.46, $6.82, $6.32 and $5.45.

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