Q3 2019 Earnings Call

Greetings and welcome to the Big five sporting goods third quarter 2019 earnings results Conference call.

Well. This today are Mr., Steve Miller, President and Chief Executive Officer, and Mr., Barry Emerson, Chief Financial Officer, a big five sporting goods.

At this time for opening remarks, an introduction I'd like to turn the conference over to Mr. Miller. Please go ahead Sir.

Thank you operator, good afternoon, everyone welcome to our 2019 third quarter Conference call today, We will review our financial results for the third quarter fiscal 2019, like general update our business as well to provide guidance for the fourth quarter.

Now I'll turn the call over to Barry to read our Safe Harbor statement.

Thanks, Dave Schaeffer statements of historical fact, any remarks that we may make about our future expectations plans and prospects constitute forward looking statements 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 that may cause our actual results and current and future periods differ materially from forecasted results.

These risks and uncertainties include those more fully described in our annual reports on Form 10-K , our quarterly reports on Form 10-Q , <unk> other filings with the Securities Exchange Commission.

Undertake no obligation to revise or update any forward looking statements that may be made from time to time by us well on our behalf.

Thank you Barry.

We're pleased to report third quarter earnings significantly ahead of our guidance and more than doubled the earnings we posted in the prior year.

These results were driven by our fourth consecutive quarter of same store sales growth.

Actually strong merchandise margins are successful efforts to mitigate expense pressures.

Third quarter net sales were $266.2 million with our same store sales increasing 0.3% for the period.

Looking at the rollout of the quarter as we noted our last call. We had a slow start in July as we comped down in the negative low single digit range.

There are two significant headwinds works like sales.

I will start to summer related products sales due to a relatively cool start to summer weather, particularly in the Pacific northwest and significant softness in our ammunition category resulted from the pull forward of sales into the second quarter due to regulatory changes in California that became effective at the beginning.

July .

Although ammunition sales remain challenged over the balance of the quarter. Our overall sales picked up in August and September when we produced positive low single digit comps benefiting from straight across a broad array of product categories.

For the quarter, our apparel category Comped up low single digits.

Good work category comp slightly down or hard goods category comp slightly hawk, even with the challenging ammunition sales.

Overall for the third quarter, we experienced a small increase that our average sales versus the prior year Korea, a slight decrease in customer transactions.

That's why I mentioned, our merchandise margins for the quarter word strong contributor to our earnings performance, increasing 94 basis points year over year.

Our merchandise margins were the strongest any third quarter since we became a publicly traded company in 2002.

Multiple factors contributed to the margin gains, including the benefit of a product mix shift, reflecting reduced sales of lower margin of firearms and ammunition products, an increase sales higher margin opportunistic buys.

Additionally, and quite significantly.

Margins benefited from a favorable response to our strategic efforts to optimize our pricing and promotions.

Now commenting on store activity.

We closed one store in the third quarter, ending with 433 stores in operation.

Additionally, we have one store that it's been temporary late close censure like due to a fire, which we expect to be in a position three open early next year.

During the fourth quarter, we anticipate old main two stores, including a relocation of a store that closed during the quarter.

For the 2019 full year, it's hard to tell me threed stores and closing five stores, including one relocation, reflecting our continuous effort to improve our store base.

Turning now to the fourth quarter.

Our business continues to perform well with year over year sales and merchandise margin trends celebrating from the third quarter.

Although please with the started the quarter and the momentum in our business. We should note that October and November pretty much until black Friday are generally the lowest volume periods of our year.

That's the real feed to the fourth quarter will be the holiday period.

Which is always influenced by the overall retail consumer environment, along with what for weather.

As a reminder, last year, our holiday sales were relatively soft until the last week of the year. When we took advantage of the arrival very favorable winter weather in our markets, which drove extraordinary sales and ultimately pushcarts things first sales up 1.1% for the full quarter.

That one or momentum continued throughout virtually the entire winter season, which resulted in a remarkable sell through of our winter product.

This enabled us to bring a fresh winter products for this year that we believe will resonate with customers over the winter selling season.

To the expected we have had early glimpses of winter weather in a few of our markets. We're very encouraged by early reads.

We're also encouraged by our team's progress in mitigating the expense pressures that we are facing throughout our markets.

As part of these efforts we've been testing adjustments to our store staffing models to eat the impact of ongoing wage pressures without compromising customer service levels.

A positive impact of these adjustments is reflected in our favorable F G and they results.

Moving forward, we will look to expand these adjustments that are broader scale as part of our ongoing focus actively managing our cost structure.

Now I will turn the call where to Barry will provide more information about the quarter as well speak to our balance sheet cash flows and provide fourth quarter guidance.

Thanks, Steve our gross profit margin for the fiscal 2019 third quarter was 32.3% of sales versus 31% of sales for the third quarter fiscal 2018.

The expansion in gross profit margin versus the prior year period, primarily reflects our 94 basis point increase in merchandise margins and the favorable impact of distribution cost capitalized into inventory.

Our selling and administrative expense, that's a percentage of sales decreased to 28.9% and the fiscal 2019 third quarter from 29.2% and the third quarter of the <unk> per year overall, selling and administrative expenses for the quarter decline 0.8 million year over year, providing meaningful.

That's leverage for the period.

Now looking at our bottom line for the third quarter reported net income of 6.4 million or 30 cents per diluted share.

This compares to net income for the third quarter fiscal 2018 of 3.1 million or 15 cents per diluted share.

Briefly reviewing our 2019 year to date results net sales increased to 752.4 million compared to net sales of 740.5 million during the first nine months of fiscal 2018.

Same store sales increased 1.8% during the first nine months of fiscal 2019 versus the comparable period last year.

Net income for the period was 8.1 billion or 38 cents per diluted share, including a two cents per diluted share charge the write off of deferred tax assets.

This compared to net income for the first nine months for fiscal 2018 of 1.6 million or seven cents per diluted share, which included a one cents per diluted share charge for the write off of deferred tax assets.

Operating cash flow for the 2019 year to date period was a positive 13.7 million compared to a negative 8.1 million in the prior year period.

This 21.7 million improvement in cash flow, primarily reflects reduced funding of merchandise inventory at higher net income.

Turning to the balance sheet, our substantial improvement in cash flow contributed to reduced revolving credit borrowings year over year.

60.6 million in borrowings at the end of the third quarter, reflecting a reduction of 22.9 million or 27.4% compared to the same period in the prior year.

This reduction in our borrowing level since it's a substantially strengthen our balance sheet. We continue to focus on maintaining a healthy financial condition to ensure that we have the flexibility to invest appropriately in our business.

Our chain wide inventory was 310.5 million at the end of the third quarter, which reflects a year over year reduction in our inventory of 4.3 million or 1.4%.

Importantly, as Steve mentioned in his remarks, our winter product inventories are fresh and we believe well positioned for this upcoming winter season.

Looking at our capital spending.

Our capex, excluding noncash acquisitions totaled 6.1 billion for the first 39 weeks fiscal 2019, primarily representing store related to the modeling distribution center investments new store investments.

And computer hardware and software purchases.

We expect total capital expenditures for fiscal 2019, excluding noncash acquisitions of approximately nine to 12 million.

For the third quarter, we paid a quarterly cash dividend of five cents per share and our board of directors also declared a quarterly cash dividend of five cents per share for the fourth quarter fiscal 2019.

Now, let's spend a minute on our guidance, which all process with a reminder, that our fourth quarter typically represents the lowest quarterly earnings performance of our fiscal year.

This is due to a number of factors, including our relatively low sales volume in October and much of November before Black Friday.

Our normally lower merchandise margins during the promotional holiday period in the back half a quarter compared to the rest of the year.

Well it increased expenses during the holidays for store labor and advertising.

That said for the fiscal 2019 fourth quarter, we expect same store sales to be into positive low single digit range and we expect to realize a loss per share in the range of Four Q1 6 sets.

Our earnings guidance for the quarter reflects an anticipated increase in merchandise margins over the prior year period.

For comparison purposes for the fiscal 2018 fourth quarter same store sales increased 1.1% with a loss per share up 24 cents, including eight cents per share.

Charges, primarily related to asset impairment and contract termination costs.

Given our fourth quarter guidance, we expect fiscal 2019 full year earnings to be in the range of 22 to 34 cents per diluted share.

Steve I'll now turn the call back to you for some closing remarks. Thank.

Thank you Barry our team is working hard to build on the current momentum in our business by continuing to improve sales margin sales and margins and it's always prudently managing our cost structure. Thank you for joining us on today's conference call. We look forward to speaking with you again after the conclusion of our fourth quarter.

This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.

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