SPAR Group, Inc. :SGRP-US: Earnings Analysis: Q3, 2017 By the Numbers : November 24, 2017

SPAR Group, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of SPAR Group, Inc. – AutoWeb Inc (AUTO-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 48.75 million, Net Earnings of USD 0.25 million.
  • Gross margins narrowed from 20.31% to 17.04% compared to the same period last year, operating (EBITDA) margins now 2.70% from 3.17%.
  • Year-on-year change in operating cash flow of 54.58% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

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

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 48.75 42.72 39.89 44.54 33.44
Revenue Growth (%YOY) 45.8 43.69 49.89 38.01 18.29
Earnings (mil) 0.25 0.34 -0.24 0.09 -0.06
Earnings Growth (%YOY) 524.14 21.2 -75.54 -91.54 36.96
Net Margin (%) 0.5 0.8 -0.61 0.2 -0.17
EPS 0.01 0.02 -0.01 0 -0
Return on Equity (%) 0.98 1.42 -1.01 0.35 -0.23
Return on Assets (%) 1.72 2.55 -1.79 0.62 -0.46

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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 45.80% 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 14.11% and earnings by -28.28% 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 earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 17.04% to 20.31% for the same period last year, while operating margins (EBITDA margins) went from 2.70% to 3.17% over the same time frame.

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 are now 23.09 days from 34.20 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 54.58% 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 operating (EBIT) margins contracted from 1.72% to 1.70%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 1.37% to 1.63%.

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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