BGFV reported last night and the 4th quarter went exactly how all of the stockholders expected...poorly. Year-over-year (YoY) 4th quarter net sales decreased by almost 10%. If you think that is discouraging how about a quarter that actually rang up a loss of 0.62 per share.

But why? Well the continued discussion was about the mild winter weather, a 50% decline in the cold weather/snow products, and comps that were negative for the month of December. Next they went on how more merchandise sales were lower due to the weather. Then went on to talk more about the weather, and the weather, and the weather... 

You get the point here. For a management company that leads a so-called dying sector, you would think that there would be much more focus on what is going to lead them to greener pastures. This unfortunately was not the case.

That being said, where does BGFV go from here?

The Good

The brightest spot for investors though has been the continued use of money for share buybacks at appropriate times. BGFV actually repurchased 118,619 shares in Q4 2017j and almost 800k in 2017 as a whole. At the current price of $5.70, BGFV can still repurchase almost 3 million of their ~22 million shares, or ~ 13%. This, if done correctly, could lead to large EPS gains in the 2018 fiscal year. 

Along with the buybacks is the continued 0.15 quarterly dividend that BGFV seems content on dealing out to investors. This is no doubt safe with operating revenues for the year covering the dividend, even with the rough 4th quarter earnings. This currently places BGFV at above a 10% yield. This is very nice for the dividend income investor.

The Neutral

Well there are a few  things that were noted in the conference call that aren't necessarily a slam dunk but should be considered. The first being that BGFV is set up to have sizable EPS gains from the new tax legislation, and they actually made some moves in this quarter to make it even sweeter. 

Another  is that the company is currently projecting that almost all of the winter inventory that did not sell because of the winter weather problems can actually be restocked and sold without markdown in Q4 of 2018. This leads to a lower cost of inventory next year and should help to drive the EPS.

FInally, (this was not in the CC but is something to look at) firearms are currently a very disappointing department for BGFV and continues to look pretty soft. But now with President Trump calling for some changes to gun restrictions we could see the public heading to stores to stock up on ammo and firearms. California is actually trying to add some new legislation as well. Honestly from a quick scan of the proposals I don't think it will majorly affect the ability for the general public to purchase guns, but usually the public overreacts and you see sales increase nonetheless.

The Bad

Let's just get to what the market will be judging this on over the short term.

In terms of forward guidance, management is projecting a negative comp for Q1 2018 in the low teens. This isn't great considering they are coming off of a rough year where the stock price continues to fall. Management is also projecting -0.06-0.14 EPS for the quarter (wow what a large range). This is compared to a 0.24 EPS for Q1 2017.  This continues to not look great. 

Also in the Q&A portion it was noted by management that there was an affect on sales from Dick's Sporting Goods (DKS) opening up stores in the area (mainly where Sport's Authorities used to be). This led to a more promotional quarter, which in turn led to a margin that was hurt. Unfortunately this is one problem that cannot be solved by snow.

Another thing to look at is the continued pressure that wage increases are going to have on the company. California is slated for another 50 cent wage increase, which management estimates will cost the company about 700k dollars per quarter.

Conclusion

I wish I could say that I still love my position in BGFV, one that has lost me about 30% since taking it at a time that I thought was favorable in 2017, but instead I am scratching my head at the management decisions.

This probably should have been something to consider when they spoke about continuing with paper advertisements in mid-2017 but I did not heed warning. Now the stock that management loaded up on due to great Q4 2016, has not sold and 2017 has been more than disappointing for shareholders.

So I'm going to sell right? Actually, wrong. With a very sustainable 10%+ dividend yield and a guidance that I believe will send the stock to levels of 12% yield ($5 per share), I may just sit back and buy more. This company is not going to win a beauty contest anytime soon, but I find a repeat of 2017 hard to imagine.

I think that BGFV is an great risk/reward to take on at these levels at a ~10% yield, room for large amounts of buybacks, and the worst quarter (EPS) in history. This still makes it a hold for me currently and a buy if it reaches over a 12% yield.