Solid Growth at SPAR Group Thanks to Strategic Plan and Multiple Acquisitions

We’ve had SPAR Group (SGRP – $1.47), which provides a broad array of services that help companies improve their sales, operating efficiency and profits at retail locations, on our radar for many years. The reason why we’re recommending it today is because there’s a new wind blowing through the Company since current CEO Jill Blanchard took over the helm late 2013.

SPAR implemented a strategic plan, which focuses on five corporate objectives: growth, customer value, employee development, productivity & efficiency and earnings per share.

To do so, it expanded its national and international business development and sales activities. It advanced its role with customers from being a merchandising vendor to being a retail partner, which allowed it to renew contracts with expanded service offerings and in new territories.

SPAR is also focusing more on technology to provide solutions that optimize the efficiency and reliability of their services and to separate it from its competitors. The Company, for example, manages thousands of handheld computers along with smart phones and tablets to collect vast amounts of real-time data including pictures, out of stocks, voids, and returns.

Lastly, the Company is expanding both domestically and internationally, as it’s targeting two or three acquisitions per year.

All these efforts are starting to pay off as the Company experienced double digit revenue growth in the first nine months of 2014, while more than doubling its net income.


Historically, retailers staffed their stores to ensure there were adequate inventory levels, an advantageous display of new items on shelves, and that product placements were properly merchandised. But retailers, in an effort to improve their margins, decreased their own store personnel and relied more on manufacturers to perform such services.

Initially, manufacturers attempted to satisfy the need for merchandising and marketing services in retail stores by utilizing their own sales representatives. However, also manufacturers soon discovered this was expensive and inefficient.

As a result, most manufacturers and retailers are now outsourcing their merchandising and marketing service needs to third parties such a SPAR Group. They’re able to operate at a lower cost because they serve multiple manufacturers simultaneously. In addition, they provide these services more effectively as they have skilled and specialized personnel.

SPAR Group in particular provides the following services:

  • Product services include restocking and adding new products, removing spoiled or outdated products, resetting categories “on the shelf” 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 include 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.

The Company has been in business since 1979 and currently is active in 9 countries that encompass approximately 50% of the total world population through its operations in the United States, Canada, Japan, South Africa, India, China, Australia, Mexico and Turkey.

Double Digit revenue Growth

SPAR’s financial results for the three and nine month periods ended September 30, 2014 improved considerably over the prior year.

Net sales for the third quarter, ended September 30, 2014, reached $31 million, compared to $27.8 million in the same quarter last year, an increase of 12%. Net income in the third quarter of 2014 rose by 16% to $383,000, or $.02 per diluted share, versus $331,000, or $.02 per diluted share, in the comparable quarter last year. The increase in net revenue was primarily due to increased revenue in China, Mexico, India and South Africa.

For the nine months, ended September 30, 2014, net sales were $90 million, compared to $80.2 million in the same period in 2013, an increase of 12%. Net income for the nine months ended September 30, 2014 was $590,000 or $.03 per diluted share, compared to $244,000 or $.01 per diluted share in the comparable period last year, a 141% increase in net income.

Three Months Ended
September 30
Nine Months Ended
September 30
Amounts in $000’s
Net Sales
Cost of Goods Sold
S, G & A Expenses
Income From Operations
Other Income (Expense)
Pre-Tax Income
Income Tax Expense (benefit)
Net Income
Earnings Per Share – Diluted
Shares Out. – Diluted
Most important income statement data for the quarters and nine months ending September 30, 2014 and September 30, 2013. Source: Company Press Release

Domestic gross profit margins increased 2 percentage points to 32% of net revenue for the three months ended September 30, 2014, compared to 30% of net revenue for the three months ended September 30, 2013. The increase in gross profit margins was due primarily to a more favorable mix of higher margin project work compared to last year. Internationally, the gross profit margins declined 1 percentage point to 18% of net revenue for the three months ended September 30, 2014, compared to 19% of net revenue for the three months ended September 30, 2013. The decrease in gross profit margin was primarily due to slight margin declines in China, Canada and Turkey partially offset by margin improvements in South Africa and Mexico compared to last year. The Company does foresee that margins overall will improve in 2015.

As of September 30, 2014, cash and cash equivalents increased to $5.6 million as compared to $2.8 million as of December 31, 2013. Working capital was $14.8 million and current ratio was 2.1 to 1. Total current assets and total assets were $28.4 million and $38.2 million, respectively. Current and total liabilities were $13.6 million and $17.7 million respectively, total equity was $20.5 million as of September 30, 2014.

Acquisition Strategy

SPAR Group explores both domestic and international acquisition opportunities. In fact, in the United States it has ongoing discussions with several strategic candidates that could expand the Company’s current service offering. And internationally, SPAR is specifically focused on expansion in South America and in Asia.

For its international expansion, the Company looks for a mixture of client interest, marketplace opportunity and the ability to, within an existing country, provide some new services or provide additional coverage.

SPAR’s most recent acquisition, in July 2014, was the China based company Unilink, which provides integrated marketing services to its clients in China. Over the past decades, Unilink has worked with brands that include McCormick, Clorox, BIC, Shiseido, Meiji Dairy, UHA, COFCO and Bright Dairy. Unilink’s established merchandising teams execute more than 300,000 in store visits annually, currently covering almost all hyper markets, supermarkets and convenience stores in Shanghai and East China, Beijing, Guangzhou and Shenzhen.

The combination of Unilink’s resources and expertise with SPAR’s existing Shanghai business immediately contributed nicely to the Company’s third quarter results.


SPAR Group’s year-over-year revenue growth of 12%, it achieving profitability and maintaining stable gross profit margins all fall in line with its expectations, and are a direct result of the strategic initiatives which it is successfully implementing.

The Company expects to achieve continued international growth. Countries such as Mexico, South Africa and China present very exciting opportunities and SPAR aims to close two to three more acquisitions this year.

SPAR Group believes the current trend in business toward globalization fits well with its expansion model. As companies expand into foreign markets they will need assistance in merchandising or marketing of their products. This environment has created an opportunity for the Company to exploit its Internet, hand-held computers, tablets and smart phone based technology and business model worldwide. Buy recommendation.

SPAR only has around 20.5 million shares outstanding and its stocks 52-week range is $1.27 to $2.15.

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