This company, which is primarily a traditional retailer of sport goods selling hardline (more than 45% of total sales) and shoes& apparels, has been grouped into traditional sporting goods retailer sector in sport goods & service industry.
It seems that the demand for sports goods has been weak and declining in the past several years as indicated by the decreasing same store sales in the typical retailers during the same period of time. The downward trend seems to be speeding up as indicated by the average growth in the same store sales (down 3.4 and 1.7% for 2018 and 2017 respectively). The decrease in the same store sales has been reflected primarily in some of equipment categories such as hunting and skiing and apparels generally. We have seen strong demand for footwear products, especially branded products.
Due to intensive promotion and deleveraging of store related expenses as a result of expansion of new stores, companies’ margin went worse in the past several years. As revenue went down, their EBI/share went down by 25% and 27% in 2018 and 2017 respectively. The typical gross margin for retailers in this sector is about 31% in 2018, the SG&A as percentage of sales is 27%, and the operating margin was down to about 4% in 2018. And the EBI/sales ratio was about 3% in 2018.
It seems that the demand for sport goods of this company has been weak in the past two years as indicated by the declining same store sales. The downward trend seems to be influenced by hunting and electronics categories.
The first three months of fiscal 2019 compared with the same period of the 2018 (ended April 30 2018)
Net revenue (excluding extra weeks) increased about 3%.
Same store sales decreased 2.5% due to the decrease of 3.7% in transactions offset by increase of 1.2% in transaction size. The decrease was reflected in hunt and electronics offset by increase in fitness.
Fiscal 2017 compared with fiscal 2016
Net revenue (excluding extra weeks) increased about 7%.
Same store sales decreased 0.3% due to the decrease of 0.5% in transactions offset by increase of 0.2% in transaction size. The decrease was reflected in hunt and electronics offset by increase in golf and shoes.
Fiscal 2016 compared with fiscal 2015
Net revenue increased about 9%.
Same store sales increased 3.5% due to the increase of 2.1% in transactions and increase of 1.6% in transaction size. The increase was reflected in all of categories.
Its gross margin (including merchandise and occupancy) was down slightly to about 29% due to promotion, deleverage of expenses of new stores and ecommerce shipping costs. With the increased SG&A as percentage of sales (up to about 23% in 2018), its operating margin went down to about 6% currently. Due to slightly decrease in gross margin but large increase in sales, its EBI/share actually went up in the past two years.
Stock performance
This company is having an enterprise price/EBI ratio of 12. We think that its stock was relatively undervalued COMPARED similar sport good retailer - Big 5 Sporting Goods Corporation and HIBBETT SPORTS, INC.
