We Called It: Big 5 Sporting Goods Corp. Cuts Its Dividend 67%

Peter Sayles |

Investors are a bit upset with Big 5 Sporting Goods (BGFV).

BGFV is a sporting goods retailer. It operates 435 stores in 11 states across the Western United States.

Its brands include Golden Bear, Pacifica, Beach Feet, BearPaw, and more.

Investors who owned this stock weren’t happy.

We were wondering why investors owned the stock in the first place…

You see, Big 5 Sporting Goods (BGFV) reported earnings October 31.

BGFV’s revenue dropped 1.5%. It blamed weather as a culprit.

Earnings and gross profit dropped too. There was no excuse for this other than lower foot traffic.

It’s hard to pay out a consistent dividend when a company’s revenues and earnings decline.

This forced BGFV to cut its dividend by 67%.

We told investors this would happen in our August 28 post – Three Stocks With Unsustainable Dividends.

Here’s what we said:

BFGV’s dividend yield is over 11% right now. Anyone can see that and get distracted that the company itself is struggling…

First, the company’s revenues haven’t moved in four years. Americans are flush with cash. They’re spending up across the board.

Yet somehow BFGV couldn’t find a way to increase their top line at all in four years…

The second red flag was BGFV’s Selling General & Administrative costs eat almost 100% of its gross profit.

That means BGFV is paying its CEO, board, and employees all of its gross profit. And not leaving anything leftover for growing the business… a second red flag.

The third red flag was its balance sheet. It has only $7 million in cash. But $330 million in inventory. Yet it has over $160 million in short term debt (debt due within 12 months) and accounts payable.

Where is BGFV going to get the money to pay for its short term debt and its merchants when it has $7 million in cash and makes $0 in net income?

BGFV was down 50% for the year when we wrote about it in August.

It’s down another 32% since.

Investors might see value or a 5+% dividend yield today. But we think it’s only going to get worse for investors who continue to hold.

Management has done nothing to right the ship.

Avoid at all costs. Or consider buying long dated put options as this company flirts with going to $0 in the coming years (even months).