SPAR Group, Inc. :SGRP-US: Earnings Analysis: Q1, 2017 By the Numbers : May 25, 2017

SPAR Group, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of SPAR Group, Inc. – Autobytel Inc. and Insignia Systems, Inc. (ABTL-US and ISIG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 39.89 million, Net Earnings of USD -0.24 million.
  • Gross margins narrowed from 21.35% to 18.91% compared to the same period last year, operating (EBITDA) margins now 2.48% from 2.47%.
  • Year-on-year change in operating cash flow of 42.79% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 0.62% to 1.49%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 39.89 44.54 33.44 29.73 26.61
Revenue Growth (%YOY) 49.89 38.01 18.29 0.9 -9.07
Earnings (mil) -0.24 0.09 -0.06 0.28 -0.14
Earnings Growth (%YOY) -75.54 -91.54 36.96 875.86 -87.84
Net Margin (%) -0.61 0.2 -0.17 0.95 -0.52
EPS -0.01 0 -0 0.01 -0.01
Return on Equity (%) -4.03 1.39 -0.94 4.69 -2.3
Return on Assets (%) -1.79 0.62 -0.46 2.58 -1.29

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Market Share Versus Profits

Revenues History
Earnings History

SGRP-US‘s change in revenue this period compared to the same period last year of 49.89% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SGRP-US is holding onto its market share. Also, for comparison purposes, revenues changed by -10.46% and earnings by -380.46% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 21.35% to 18.91%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 2.47% to 2.48%. For comparison purposes, gross margins were 18.92% and EBITDA margins were 3.29% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SGRP-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 23.86 days from 52.47 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SGRP-US‘s change in operating cash flow of 42.79% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 0.63% to 1.22% and pretax margins widened from 0.62% to 1.49%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for SPAR Group, Inc.

Company Profile

SPAR Group, Inc. engages in the business of retail merchandising and field marketing. Its services help customers to improve their sales, operation and profits in the field of retail. The company offers merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandisers, office supply, grocery, drug store, dollar, independent, convenience, toy, home improvement and electronics stores. It also provides furniture and other product assembly services, audit services, in-store events, technology services and marketing research. Product services relates to restocking and adding new products, removing spoiled or outdated products, resetting categories in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, providing in-store event staffing and providing assembly services in stores, homes and offices. Audit services include price audits, point of sale audits, out of stock audits, intercept surveys and planogram audits. Other merchandising services covers whole store or departmental product sets or resets (including new store openings), new product launches, in-store demonstrations, special seasonal or promotional merchandising, focused product support and product recalls. It operates through the Domestic Division and International Division segments. SPAR was founded by Robert G. Brown and William H. Bartels in 1967 and is headquartered in White Plains, NY.

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