Big 5 Sporting Goods (BGFV) posted a 0.5% decline in same-store sales during the second quarter of 2010, missing its own prediction of low-single digit growth. Consequently, the company slashed its earnings guidance for the second quarter to $0.20 – $0.23 per share from the earlier forecast of $0.24 – $0.30 per share.
Big 5 Sporting also encounters intense competition from national chains, mass merchandisers and regional stores, which exerts severe pressure on its profitability. Moreover, the seasonal nature of its business and risks associated with sourcing from foreign countries also undermine the company’s future operating performance.
Accordingly, we downgrade our recommendation on Big 5 Sporting Goods to Underperform from Neutral as we anticipate it to perform well below the broader market.