Sporting products retailer,Big 5 Sporting Goods Corp. (BGFV) reported better-than-expected fourth-quarter and fiscal 2011 results. The quarterly adjusted earnings of 5 cents per share came a penny ahead of the Zacks Consensus Estimate of 4 cents per share. The results also met the higher end of the company’s recently revised guidance range of 2-5 cents. However, adjusted earnings trailed 80% from 25 cents per share reported in the same quarter last year.

For fiscal 2011, Big 5 reported adjusted earnings of 60 cents per share, which was above the Zacks Consensus Estimate of 58 cents per share and the company’s January 2012 guidance range of 55-58 cents per share. Fiscal year earnings, however, lagged behind the year-ago earnings of $1.01 per share.

Sales

As announced in January 2012, Big 5’s net sales of $226.7 million in the fourth quarter were flat compared with the year-earlier quarter. Quarterly sales almost came in line with the Zacks Consensus Estimate of $227 million. Same store sales in the fourth quarter were down 2.1% on a year-over-year basis. Soft same store sales results in the quarter, affected by unfavorable winter weather in most markets, where the company operates as well as heightened promotional activities, impacted the quarter’s sales.

For the full year, Big 5 reported net sales of $902.1 million, a marginal increase of 0.6% from $896.8 million reported in fiscal 2010, but fell short of the Zacks Consensus Estimate of $903 million. Comps for the full year edged down 1.2% compared to last year.

Quarter at Length

Fourth quarter gross profit moved down 6.7% to $70.7 million while gross profit margin shrunk 220 basis points to 31.2% as a result of lower merchandise margins due to impacts of promotional activities and increased product costs as well as product mix shift due to unfavorable winter weather.

Selling and administrative expense as a percentage of net sales increased 80 basis points to 31.3% in the quarter attributable to flat sales results compared with the last year, increased store-related expenses on a higher store count and rise in advertisement costs.

Financial Update

At year-end, Big 5 had cash and cash equivalents of $4.9 million, long-term debt of $63.5 million and shareholders’ equity of $156.6 million.

The company also continues to enhance shareholder value by returning cash in the form of dividend and share repurchases. Big 5 declared a quarterly cash dividend of 7.5 cents a share to be paid on March 22, 2012 to shareholders of record as of March 8, 2012.

In the fourth quarter, the company bought back 109,550 shares valued at $1.0 million. As of January 1, 2012, the company had nearly $13.2 million availableto be bought back under $20.0 million authorization, approved in the fourth quarter of fiscal 2007.

Store Update

During the fourth quarter, Big 5 opened eight new stores, bringing its store count at the end of fiscal 2011 to 406 stores from 398 stores at the end of fiscal 2010.

Guidance

For the first quarter of 2012, management expects earnings per share to range from break-even to 6 cents per share, compared with 13 cents iper share n the first quarter of fiscal 2011 . Same store sales are pegged in the negative low single-digit range.

The company’s outlook for first quarter is based on expectations of merchandising margins continuing to struggle affected by impacts of higher promotional and product costs, as well as a shift in the product sales mix due to unfavorable winter weather.

Looking ahead, Big 5 plans to open one new store in the first quarter of fiscal 2012, which will replace an existing store in a new location. For fiscal 2012, the company targets to open nearly 10 new stores and will relocate about 7 stores.

Our Take

Big 5 faces intense competition from national layers, such as Dick’s Sporting Goods Inc. (DKS) and Hibbett Sports Inc. (HIBB); mass merchandisers, such as Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT), as well as regional and local sporting goods stores.

Big 5 currently retains a Zacks #4 Rank, which translates into a ‘Sell’ rating. Our long-term ‘Underperform’ recommendation is guided by the company’s sluggish top- and bottom-line performance in the recent quarters as well as a soft first quarter 2012 outlook.

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