Barrington Initiates Johnson Outdoors At Outperform; Big 5 Sporting Goods At Market Perform

Barrington Research analysts initiated

with an Outperform rating and a price target of $39, saying that the company is likely to achieve "at least low-single digit" sales growth for the next several years. The analysts expect innovation at the company to drive growth. "The introduction of products that are highly innovative, are of high quality, are higher margin, and make the recreational experience better for consumers is important to future growth," the analysts said, while adding that the company has achieved a strong market position on the back of its proprietary expertise and patented technology. Although innovation is never easy, Johnson Outdoors is able to "leverage technology across its brands and leverage its brands across adjacent categories," the report mentioned. New products contribute about 30 percent of the sales forecast over the next couple of years. Despite being in a mature industry, now characterized by sluggish growth, the company has been able to gain market share by focusing on its growth strategy. The analysts expect Johnson Outdoors to grow in line with or faster than the industry, which has been recording low- to mid-single digit growth. "Most of the company's growth will be derived organically, but management will seize opportunities to enhance its portfolio through complementary acquisitions," Barrington Research added. "We believe the company's ability to drive product margins higher, further tighten its cost structure and gain operating leverage should allow it to achieve high-single digit operating margins, up from 3.9% in FY/14," the analysts commented. In a separate report, Barrington Research initiated

with a Market Perform rating, mentioning that the company has a strong position in a highly competitive market due to its unique store model and merchandising strategy. "The store formats offer consumers brand name sporting goods merchandise, skewed toward hardlines, in a convenient smaller store format at a value proposition." The analysts expect the company to achieve revenue growth in mid-single digits, backed by 2-4% comp growth. This would drive mid-to-high teens EPS growth for the next several years. Barrington Research highlighted that the company has a differentiated merchandise strategy, which has evolved over the last two years, with a "shift to higher price-point items and more branded products in an effort to appeal to a broader audience." Despite this, Big 5 Sporting Goods continues to serve its core customers by focusing on "offering great prices and exclusive merchandise, which is driven by aggressive advertising." "We believe the company still has significant unit growth potential as it is underpenetrated in many states where it has existing stores and it has the opportunity to build a store presence outside of the 12 states which it currently operates. The company is flexible with store locations as it does not take a cookie cutter approach and box sizes are typically much smaller than its competition, which allows it to move into less dense markets, opening doors to new markets," the analysts wrote, while projecting mid-single digit new store growth every year for the next several years. The company has recently launched its ecommerce site and is "taking a conservative approach" with a keen focus on "operating a profitable website," the analysts commented. Ecommerce could contribute sales and profitability in FY16.