Big 5 Sporting Goods Corporation (Nasdaq: BGFV) (the “Company,”
“we,” “our,” “us,” “Big 5”), a leading sporting goods retailer,
today reported financial results for the fiscal 2020 second quarter
ended June 28, 2020, and provided an update on fiscal 2020 third
quarter results to date.
Steven G. Miller, the Company’s Chairman,
President and Chief Executive Officer, said, “We produced strong
second quarter earnings while managing the business through extreme
disruption caused by COVID-19, which included widespread store
closures and significant shifts in consumer demand. Our
ability to successfully navigate this fluid environment speaks to
the strength of our team and the fundamental principles that have
guided Big 5 for decades – convenience, value, service and
selection. Customers are engaging with us in their local
neighborhoods in a safe and inviting manner, attracted to our
diverse merchandise assortment and compelling values. Our
buying and distribution teams have done an incredible job
recognizing and rapidly responding to the shifts in consumer
demand, and our store and field operations teams have worked
tirelessly to adapt to the changing environment so we could
continue to serve our customers safely as an essential business
during this critical period.”
Mr. Miller continued, “The momentum that we saw
in our business over the back half of the second quarter has
accelerated in the third quarter, with same store sales increasing
31.9% for our fiscal July period, which ended on July 26.
Strong sales across a broad array of categories and throughout our
geographic markets, combined with the continuation of certain cost
reductions that we implemented in response to the pandemic, have
positioned us to drive significant operating leverage and earnings
per share for the third quarter. The improved financial
performance has carried over to our balance sheet, reflecting our
very healthy capital structure, with no debt and a cash position of
approximately $38 million as of the end of our fiscal July
period. We are pleased that our strong recent performance and
solid financial condition have positioned us to reinstate our
quarterly dividend. While the circumstances created by
COVID-19 are unprecedented, we are confident in our ability to
respond to future challenges by applying lessons learned from our
recent experience and success.”
Second Quarter Fiscal 2020As
previously reported, same store sales decreased 4.2% for the second
quarter of fiscal 2020, compared to a 0.7% increase for the second
quarter of fiscal 2019. Over the first half of the second
quarter, same store sales decreased by 28.2%, primarily due to the
impacts of the COVID-19 pandemic, which forced the Company to
operate with a highly reduced store count. Over the second
half of the second quarter, as the Company reopened its stores,
same store sales increased by 15.5% compared to the prior year
period. Net sales for the fiscal 2020 second quarter were
$227.9 million compared to net sales of $241.0 million for the
second quarter of fiscal 2019.
Gross profit for the fiscal 2020 second quarter
was $72.2 million, compared to $73.1 million in the second quarter
of the prior year. The Company’s gross profit margin was
31.7% in the fiscal 2020 second quarter versus 30.3% in the second
quarter of the prior year. The increase in gross profit
margin largely reflects higher merchandise margins, which increased
173 basis points versus the prior year period, with strong margin
performance in May and June as the Company’s product mix favored
higher margin categories and promotional activity was more limited.
Gross profit margin also reflects reduced warehousing and
store occupancy costs attributable to the Company’s cost
containment efforts, partially offset by lower distribution costs
capitalized into inventory for the quarter.
Selling and administrative expense decreased
$13.8 million in the fiscal 2020 second quarter versus the prior
year period primarily due to a combination of lower employee labor
expense reflecting reduced store operating hours and lower
advertising expense during the period. As a percentage of net
sales, selling and administrative expense decreased to 25.6%,
versus 30.0% in the prior year, as a result of the cost containment
measures and despite lower sales volume in the second
quarter.
Net income for the second quarter of fiscal 2020
was $11.1 million, or $0.52 per diluted share, including a net
benefit of approximately $0.13 per diluted share related to rent
abatement savings and a recovery in eminent domain litigation,
partially offset by the expense associated with the special
employee recognition bonus awards previously announced. This
compares to break-even net income for the second quarter of fiscal
2019 of $0.00 per diluted share, including a $0.03 per diluted
share benefit for the termination of a software contract.
For the 26-week period ended June 28, 2020, net
sales were $445.7 million compared to net sales of $486.3 million
in the first 26 weeks of last year. Same store sales
decreased 7.5% in the first half of fiscal 2020 versus the
comparable period last year. Net income for the first 26
weeks of fiscal 2020 was $6.5 million, or $0.31 per diluted share,
including the net benefit in the second quarter as noted above.
This compares to net income for the first 26 weeks of fiscal
2019 of $1.7 million, or $0.08 per diluted share, including a net
benefit of $0.01 per diluted share for the software contract
termination, partially offset by the write-off of deferred tax
assets.
As previously announced, the Company’s
merchandise inventories at the end of the fiscal 2020 second
quarter decreased 15.0% compared to the prior year. The Company
completed the fiscal 2020 second quarter with borrowings under its
revolving credit facility, net of cash, of approximately $18
million, reflecting a $38 million improvement on a year-over-year
basis and a $62 million improvement compared to the end of the
fiscal 2020 first quarter.
Third Quarter UpdateSame store
sales for the Company’s fiscal July 2020 period increased 31.9%
versus the prior year period. Merchandise margins continue to
trend positively for the fiscal 2020 third quarter-to-date period
compared to the prior year period, reflecting less promotional
activity and shifts in the product mix.
The Company is benefiting in the third quarter
from certain aspects of its expense reduction initiatives that were
implemented in response to the uncertainties of COVID-19, including
continued labor expense savings due to reduced store operating
hours and advertising expense savings due to significantly reduced
advertising activity. The Company expects these savings to
contribute to significant operating leverage potential for the
third quarter.
As of the end of its July 2020 fiscal period,
the Company had zero revolving credit borrowings, while holding a
cash position of approximately $38 million, reflecting a $57.7
million reduction in borrowings on a year-over-year basis and a
$35.0 million reduction compared to the end of the fiscal 2020
second quarter. Inventory levels have decreased approximately
20% as of the end of its July 2020 fiscal period compared to the
prior year.
Cash Dividend In light of the
current strength of the Company’s business, cash flow generation,
and balance sheet, the Company’s Board of Directors is reinstating
its quarterly cash dividend at the previous rate of $0.05 per share
of outstanding common stock. The Company has declared a cash
dividend of $0.10 per share of outstanding common stock, which will
be paid on September 15, 2020 to stockholders of record as of
September 1, 2020. This $0.10 cash dividend reflects the
Company’s reinstated quarterly cash dividend of $0.05 per share for
the third quarter, and also includes an additional $0.05 per share
in recognition that the Company did not pay a dividend in the
second fiscal quarter as it engaged in various efforts to conserve
cash in response to the uncertainties of COVID-19.
Third Quarter OutlookAs
discussed in this release and the Company’s other public filings,
the Company has experienced dramatic swings in its sales trends due
to the widespread closure of its stores and other disruptions
related to COVID-19. While sales trends have been decidedly
positive since the Company’s stores reopened, with same store sales
up 31.9% for its July 2020 fiscal period, the dramatic shifts in
customer demand and the uncertainties of these unprecedented
circumstances, including any future impact on consumer spending
from the potential expiration of stimulus benefits, make it
difficult for the Company to accurately forecast the months
ahead. In light of the uncertainty in the current
environment, for the third quarter of fiscal 2020 the Company is
providing wide sales and earnings guidance ranges and expects
earnings to reflect expense savings primarily from reductions in
advertising and store operating hours. So long as conditions
relating to the COVID-19 pandemic, including any regulations issued
in response to the pandemic, do not materially impact the Company’s
ability to continue to operate its stores, the Company believes it
is reasonable to expect same store sales over the remainder of the
fiscal 2020 third quarter to increase in the range of 5% to 15%
compared to the comparable period during fiscal 2019.
Assuming the Company achieves sales within that range over the
remainder of the quarter, the Company would expect same store sales
for the full third quarter of fiscal 2020 to increase in the range
of 14% to 20% compared to the comparable period during fiscal 2019
and for earnings per diluted share for the quarter to be in the
range of $1.00 to $1.30, compared to a same store sales increase of
0.3% and earnings per diluted share of $0.30 in the third quarter
of fiscal 2019.
Store OpeningsAs previously
announced, the Company did not open any new stores or permanently
close any stores during the second quarter, ending with 431 stores
in operation. However, beginning on March 20, 2020, the
Company temporarily closed approximately one-half of its stores in
response to state and local shelter orders related to the COVID-19
outbreak. At the end of April, approximately one-quarter of
the Company’s stores remained temporarily closed. As of the
end of May, all of the Company’s stores that were temporarily
closed due to COVID-19 had reopened in some capacity, with less
than 10% of the open stores operating for curbside business only in
compliance with local regulations. As of the end of the
second quarter all of the Company’s stores that were temporarily
closed due to COVID-19 had reopened for in-store shopping, subject
to appropriate social distancing restrictions and with reduced
operating hours. Additionally, during the second quarter,
four of the Company’s stores were temporarily closed due to damage
incurred in connection with civil unrest, three of which reopened
prior to the end of the second quarter and one of which reopened in
the third quarter. During the second quarter, the Company
also reopened its Pasadena, California store, which had been closed
for an extended period due to a fire. During the third
quarter, the Company has temporarily closed one store due to indoor
mall closures required in California in response to COVID-19.
Including that temporarily closed store, the Company currently has
431 stores in operation, which compares to 434 stores in operation
at the same time in the prior year. For the fiscal 2020 full
year, the Company does not currently anticipate opening any new
stores and expects to permanently close approximately four stores,
including three stores that were permanently closed during the
first quarter, all of which were previously selected for closure
prior to the COVID-19 pandemic.
Conference Call InformationThe
Company will host a conference call and audio webcast today, July
28, 2020, at 2:00 p.m. Pacific (5:00 p.m. Eastern), to discuss
financial results for the second quarter fiscal 2020. To
access the conference call, participants in North America may dial
(877) 407-9039 and international participants may dial (201)
689-8470. Participants are encouraged to dial in to the
conference call ten minutes prior to the scheduled start
time. The call will also be broadcast live over the Internet
and accessible through the Investor Relations section of the
Company’s website at www.big5sportinggoods.com. Visitors to
the website should select the “Investor Relations” link to access
the webcast. The webcast will be archived and accessible on
the same website for 30 days following the call. A telephonic
replay will be available through August 4, 2020 by calling (844)
512-2921 to access the playback; the passcode is 13705945.
About Big 5 Sporting Goods
CorporationBig 5 is a leading sporting goods retailer in
the western United States, operating 431 stores under the “Big 5
Sporting Goods” name as of the fiscal quarter ended June 28,
2020. Big 5 provides a full-line product offering in a
traditional sporting goods store format that averages 11,000 square
feet. Big 5’s product mix includes athletic shoes, apparel
and accessories, as well as a broad selection of outdoor and
athletic equipment for team sports, fitness, camping, hunting,
fishing, tennis, golf, winter and summer recreation and roller
sports.
Except for historical information contained
herein, the statements in this release are forward-looking and made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
known and unknown risks and uncertainties and other factors that
may cause Big 5’s actual results in current or future periods to
differ materially from forecasted results. These risks and
uncertainties include, among other things, the economic impacts of
COVID-19 on Big 5’s business operations, including as a result of
regulations that may be issued in response to COVID-19, changes in
the consumer spending environment, fluctuations in consumer holiday
spending patterns, increased competition from e-commerce retailers,
breach of data security or other unauthorized disclosure of
sensitive personal or confidential information, the competitive
environment in the sporting goods industry in general and in Big
5’s specific market areas, inflation, product availability and
growth opportunities, changes in the current market for (or
regulation of) firearm-related products, disruption in product
flow, seasonal fluctuations, weather conditions, changes in cost of
goods, operating expense fluctuations, increases in labor and
benefit-related expense, changes in laws or regulations, including
those related to tariffs and duties, public health issues
(including those caused by COVID-19), impacts from civil unrest or
widespread vandalism, lower than expected profitability of Big 5’s
e-commerce platform or cannibalization of sales from Big 5’s
existing store base which could occur as a result of operating the
e-commerce platform, litigation risks, stockholder campaigns and
proxy contests, risks related to Big 5’s leveraged financial
condition, changes in interest rates, credit availability, higher
expense associated with sources of credit resulting from
uncertainty in financial markets and economic conditions in
general. Those and other risks and uncertainties are more fully
described in Big 5’s filings with the Securities and Exchange
Commission, including its Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q. Big 5 conducts its business in a highly
competitive and rapidly changing environment. Accordingly, new risk
factors may arise. It is not possible for management to predict all
such risk factors, nor to assess the impact of all such risk
factors on Big 5’s business or the extent to which any individual
risk factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statement.
Big 5 undertakes no obligation to revise or update any
forward-looking statement that may be made from time to time by it
or on its behalf.
FINANCIAL TABLES FOLLOW
|
|
|
|
|
BIG 5 SPORTING GOODS CORPORATION |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
(In thousands, except share amounts) |
|
|
|
|
|
|
|
June 28, |
|
December 29, |
|
|
2020 |
|
2019 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
Cash |
$ |
16,735 |
|
$ |
8,223 |
|
Accounts receivable, net of allowances of $61 and $58,
respectively |
|
14,900 |
|
|
13,646 |
|
Merchandise inventories, net |
|
270,924 |
|
|
309,315 |
|
Prepaid expenses |
|
8,513 |
|
|
9,680 |
|
Total current assets |
|
311,072 |
|
|
340,864 |
|
|
|
|
|
|
Operating lease right-of-use assets, net |
|
270,999 |
|
|
262,588 |
|
Property and equipment, net |
|
62,483 |
|
|
68,414 |
|
Deferred income taxes |
|
12,782 |
|
|
13,619 |
|
Other assets, net of accumulated amortization of $2,216 and $2,043,
respectively |
|
3,123 |
|
|
3,315 |
|
Total assets |
$ |
660,459 |
|
$ |
688,800 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
74,218 |
|
$ |
83,655 |
|
Accrued expenses |
|
61,986 |
|
|
64,935 |
|
Current portion of operating lease liabilities |
|
70,998 |
|
|
71,542 |
|
Current portion of finance lease liabilities |
|
2,602 |
|
|
2,678 |
|
Total current liabilities |
|
209,804 |
|
|
222,810 |
|
|
|
|
|
|
Operating lease liabilities, less current portion |
|
215,668 |
|
|
206,806 |
|
Finance lease liabilities, less current portion |
|
3,440 |
|
|
4,787 |
|
Long-term debt |
|
35,000 |
|
|
66,559 |
|
Other long-term liabilities |
|
9,943 |
|
|
7,466 |
|
Total liabilities |
|
473,855 |
|
|
508,428 |
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
Common stock, $0.01 par value, authorized 50,000,000 shares; issued
25,551,421 and 25,314,289 shares, respectively; outstanding
21,901,208 and 21,664,076 shares, respectively |
|
255 |
|
|
252 |
|
Additional paid-in capital |
|
120,835 |
|
|
120,054 |
|
Retained earnings |
|
108,041 |
|
|
102,593 |
|
Less: Treasury stock, at cost; 3,650,213 shares |
|
(42,527 |
) |
|
(42,527 |
) |
Total stockholders' equity |
|
186,604 |
|
|
180,372 |
|
Total liabilities and stockholders' equity |
$ |
660,459 |
|
$ |
688,800 |
|
|
|
|
|
|
BIG 5 SPORTING GOODS CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(Unaudited) |
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
|
June 28, |
|
June 30, |
|
June 28, |
|
June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
227,935 |
|
$ |
240,965 |
|
$ |
445,671 |
|
$ |
486,251 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
155,742 |
|
|
167,848 |
|
|
308,923 |
|
|
337,258 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
72,193 |
|
|
73,117 |
|
|
136,748 |
|
|
148,993 |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense |
|
58,333 |
|
|
72,179 |
|
|
129,703 |
|
|
144,790 |
|
Other income |
|
(2,500 |
) |
|
- |
|
|
(2,500 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
16,360 |
|
|
938 |
|
|
9,545 |
|
|
4,203 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
749 |
|
|
738 |
|
|
1,484 |
|
|
1,514 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
15,611 |
|
|
200 |
|
|
8,061 |
|
|
2,689 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
4,475 |
|
|
172 |
|
|
1,536 |
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
11,136 |
|
$ |
28 |
|
$ |
6,525 |
|
$ |
1,692 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.52 |
|
$ |
0.00 |
|
$ |
0.31 |
|
$ |
0.08 |
|
Diluted |
$ |
0.52 |
|
$ |
0.00 |
|
$ |
0.31 |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
21,252 |
|
|
21,118 |
|
|
21,200 |
|
|
21,074 |
|
Diluted |
|
21,358 |
|
|
21,143 |
|
|
21,356 |
|
|
21,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Contact:
Big 5 Sporting Goods Corporation Barry EmersonSr. Vice
President and Chief Financial Officer(310) 536-0611
ICR, Inc.John MillsManaging Partner(646) 277-1254
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