Q2 2020 Big 5 Sporting Goods Corp Earnings Call

Once again, thank you for standing by our conference propaganda just a couple of.

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And gentlemen, welcome to the Big five sporting goods second quarter 2020 earnings results Conference call.

Today's call is being recorded.

With us today are Mr., Steve Miller, President and Chief Executive Officer, Mr., Barry I must say Chief financial Officer.

Sporting goods.

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

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Thank you operator, good afternoon, everyone welcome to our 2022nd quarter Conference call. Today, We will review our financial results for the second quarter fiscal 2026, well to provide an outlook for the third quarter.

Now turning the call heard about right to read our safe Harbor statement.

Thanks, Steve except for 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 to 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, and our other filings with the Securities Exchange Commission.

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

Thank you Barry we're pleased to report an exceptional second quarter earnings performance, along with an outstanding start to our third quarter.

Although the first half of the second quarter was heavily impacted by the cobot 19 pandemic with widespread temporary store closures, we successfully manage through the disruption in many of our markets. Our stores were recognized as the central and we developed and implemented new social dispensing and safety protocols in order to continue.

Due to serve our customers safely.

As our shores reopened we gained tremendous traction or business and over the back half of the second quarter for same store sales were up 15.5%.

In the third quarter, our sales trajectory has accelerated with same store sales up 31.9% for fiscal July period, which ended this past Sunday.

Our strong recent performance is reflected in our balance sheet, which now has zero debt and a very healthy cash position.

As a result, we are reinstating our quarterly cash dividends, which Barry will comment on further in his remarks.

Now I'll take a few moments the touch on our second quarter results and then provide some color on our third quarter to date friendly.

As previously reported net sales for the fiscal 2022nd quarter were $227.9 billion compared to net sales of 241 million for the second quarter fiscal 2019.

Same store sales decreased 4.2% for the second quarter fiscal 2020 compare to a 0.7% increase for the second quarter of fiscal 2019.

Our merchandise margins increased 173 basis points from the second quarter versus the prior year period.

Strong margin performance in May and June.

Favorable product mix shifts and a reduction in promotional activity, where the key drivers of the margin gains.

As a result of the temporary store closures due to cope with 19, we experienced a substantial decrease in customer transactions year over year in the second quarter, but this was nearly offset by a significant increase in our average sale.

Our product category performance for the second quarter was heavily skewed by the store closures as well as significant shifts in product demand due to covert 19th.

Same store sales for our apparel and footwear categories, each decreased by more than 20%.

However, sales in our hard goods category increased in the low teens, it's a pandemic drove demand for certain hardgoods products, which I will elaborate on in a moment.

In terms of store activity, we did not open any new stores for close any stores for the quarter other than the temporary impacts associated with the pandemic and four stores that were impacted by civil unrest.

As of the ended the second quarter all stores that had been temporarily closed due to cope with 19 at reopened for in store shopping subject to appropriate social distancing protocols and with reduced operating hours.

Additionally, three of the four stores that have experienced extended closures due to damage incurred in connection with civil unrest reopened by quarter end with the fourth store reopened early in the third quarter.

Late in the second quarter, we did reopened our Pasadena, California store that had been closed for an extended period for renovation following a fire last year.

We're currently operating 431 stores with one store temporarily closed due to a recent state of California order impacting indoor mall stores.

For the full year, we currently anticipate permanently closing one additional store, which we had decided to close prior to the cobot 19 and depth.

Now I'll speak to the trends that we've experienced during our third quarter to date.

I mentioned the momentum that we saw in our business over the back half of the second quarter has accelerated through the third quarter with our fiscal July same store sales up 31.9%.

The strength, we are experiencing has been broad based across many of our product categories and throughout our geographic markets.

For our July fiscal period sales in each of the 11 states in which we operate comped positively in excess of 20%.

We are particularly encouraged by the fundamental retail metrics underlying our sales trends.

For the current period, we have seen meaningful year over year increases in the number of sales transactions as well as a higher average transaction size.

The higher average ticket, it's being driven both by an increase in the number of items in each basket and by a higher average unit retail.

Our fiscal July merchandise margins increased in excess of 200 basis points versus the prior year.

It's noteworthy that we're generating these results why operating or source with fewer hours and with substantially reduced advertising.

We believe that the fundamental operating principles that have guided big five for over 60 years.

Convenient service value inflection.

Perhaps never been more relevant than they are today as people are trying to adjust and adapt to new challenges, resulting from the cobot 19 pandemic.

The convenience of our stores is attracting customers seeking a safe.

He in easy out shopping experience close to their homes.

Our emphasis on customer service and new safety protocols help customers more safely shop, our stores and quickly fight the products. They are looking for.

We have built a longstanding reputation in our markets for delivering value at compelling price points.

And that reputation has continued to resonate with customers throughout the cobot 19 pandemic, particularly given the financial challenges that so many are facing right now.

And perhaps most importantly to our recent success is our product selection.

Our product assortment is well situated to appeal to today's consumers.

Pandemic unfolded, our experienced buying team quickly recognize significant shifts in consumer demand and work closely with our vendors to secure inventory in key product categories.

Our experience an opportunistic buys and the flexibility of our product mix has served us well in responding to the needs of customers impacted by the pandemic.

People are seeking new ways to stay active and healthy consistent with the current social distancing norms.

As a result, we have seen incredible strength in categories, such as home fitness and individual sports, especially as gems and health clubs have been particularly impacted by the pandemic.

What's people spending more time at home.

They are also seeking products to help them play at home.

And the travel plans are being replaced with Staycations and other family activities people are increasingly looking for ways right to recreate locally and outdoors.

These customers are attracted to our broad selection of outdoor and recreation products.

Partially offsetting these positive trends the softness in our team sports sales, which has been negatively impacted by widespread suspension of leak seasons and reduce school activity.

As we approached the remainder of the third quarter team sports and back to school sales would normally represent a meaningful portion of our business.

Although demand in those categories will likely be very weak this year.

We expect to more of the make up for the way that weakness with strength in the other categories that I just mentioned.

One of our biggest challenges in recent months has been keeping up with a robust consumer demand.

Pandemic has caused some disruption from the retail supply chain, but our team is working very hard every day to find inventory in key categories and to distribute it optimally throughout our stores across our markets.

We remain incredibly grateful for the tremendous contribution so the entire big five team to help us navigate the challenges as a pandemic to this point.

As we previously announced we recognize these efforts by awarding special recognition bonuses earlier this month to most of our associates other than senior executives.

We are so fortunate to have such a dedicated team.

Although we recognize the ongoing uncertainty surrounding the future impacts of the pandemic and we know the conditions can change quickly. We are excited about the current trajectory of our business.

Looking forward, we believe our businesses in a vastly improved position both operationally and financially.

Over the past few months, we've engaged new customers and enhanced our product mix.

We have implemented cost reduction measures that certainly have helped us in the short term, but aspects of which we believe could be sustainable going forward.

And by paying down debt and increasing our cash position, we are well positioned to benefit from opportunities that arise and from the ongoing competitive rationalization that is occurring in the retail sector.

I will now turn it over to Barry to provide more information about the strength of our overall financial condition and some additional detail about the second third quarters.

Thanks, Dave.

Gross profit for the fiscal 2022nd quarter was 72.2 million compared to 73.1 million for the second quarter at the prior year.

The company is gross profit margin was 31.7% in the fiscal 2022nd quarter versus 30.3%.

In the second quarter last year.

The increase in gross profit margin largely reflects the increase in merchandise margins year over year of 173 basis points that Steve mentioned.

Our higher gross profit margin also reflects reduced warehousing and store occupancy cost attributable to our cost containment efforts, partially offset by lower distribution cost capitalized into inventory for the quarter.

Selling and administrative expense decreased 13.8 million in the fiscal 2022nd quarter versus the prior year period, primarily due to a combination of lower employee labor costs, reflecting reduced to store operating hours and lower advertising expense during the period.

As a percentage of net sales selling and administrative expense decreased 440 basis points to 25.6% versus 30% in the prior year.

Despite lower sales volume in the second quarter, we were able to leverage expenses as result of our cost reduction efforts.

Now looking at our bottom line net income for the second quarter fiscal 2020 was 11.1 million or 52 cents per diluted share, including a net benefit of approximately 13 cents per diluted share related to rent abatements savings.

And then recovery of eminent domain litigation, partially offset by the expense associated with our previously announced special employee recognition bonus.

This compares to breakeven net income for the second quarter fiscal 2019.

Zero cents per diluted share, including a three cents per diluted share benefit for the termination of a software contract.

Briefly reviewing our 2021st half results.

Net sales were 445.7 million compared to net sales of 486 point Threemillion during the first six months of fiscal 2019.

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 31 cents per diluted share, including the net benefit in the second quarter that I previously noted.

This compares to net income for the first 26 weeks the fiscal 2019, a 1.7 million or eight cents per diluted share, including a net benefit of one cents per diluted share primarily related to the termination of a software contracts.

Our merchandise inventory at the end of the second quarter fiscal 2020 was down 15% compared to the prior year.

This reduction in inventory was despite the carryover of a significant amount of last season's winter product because of warm weather and also higher baseball related inventory due to the suspension of league seasons as result of Cobot 19.

We expect to reintroduce this carryover inventory next season as we have done with similar carryover product in prior years.

Looking at our capital spending.

Capex, excluding noncash acquisitions totaled 3.4 million in the first half this year, primarily representing investments in store related remodeling distribution center equipment, and computer hardware and software purchases.

Initially scaled back our capital spending in response to Cobot 19, and now expect to resume our investment plans considering the current strength of our financial condition.

Excluding noncash acquisitions fiscal 2020, Capex is expected to be in the range of five to 9 million.

The combination of very positive trends in sales and margins expense savings and lower inventory allowed us to generate strong cash flow for the second quarter.

Cash flow from operations was a positive 58.2 million in the first half of fiscal 2020 compared to a positive 5.6 million in the prior year period.

Our strong cash flow certainly has had a meaningful positive impact on our balance sheet.

Our revolving credit borrowings at the end of the fiscal 2022nd quarter declined to 35 million with a cash balance a 16.7 million.

As of the end of our July fiscal period, we had zero revolving credit borrowings with a cash position of approximately 38 million.

Compared to revolver borrowings outstanding 57.7 million for July last year, and 66.6 million as of the end of 2019.

In light of the current strength of our business and financial condition, we are reinstating our quarterly cash dividend of five cents per share.

For the third quarter, we have declared a cash dividend of 10 cents per share which includes an additional five cents per share in recognition of the second quarter dividend that we previously suspended given the uncertainties of cobot 19.

Our favorable sales and margin trends have continued into the third quarter.

And we also expect to further benefit from certain aspects of our expense reduction initiatives that were implemented in response to the uncertainties of cobot 19.

These initiatives are contributing to labor extent expense savings due to reduced store operating hours and advertising expense savings among other cost reductions.

We're still evaluating the extent to which these expense reductions are sustainable without impacting sales over the long term, but our third quarter, but in the third quarter, we expect our lower cost structure structure to help produce meaningful operating leverage.

As we have discussed our business has experienced dramatic swings in sales trends due to the widespread closure of stores and other disruptions related to call. The 19.

While sales trends have been decidedly positive since our stores reopened.

The same store sales up 31.9% for our July fiscal period, so dramatic shifts in consumer 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 to accurately.

Forecast the months ahead.

In light of the uncertainty in the current environment.

For the third quarter fiscal 2020, the company is providing wide sales and earnings guidance ranges and expects earnings to reflect expense savings as I previously mentioned.

So long as conditions relating to the covered 19 pandemic, including any regulations issued in response to the pandemic do not materially impact the company's ability to continue to operate our stores. We believe it is reasonable to expect same store sales over the remainder of the fiscal 2023rd.

Quarter to increase in the range of 5% to 15%.

From the comparable period during fiscal 2019.

Based on that performance over the balance of the quarter. We would expect same store sales for the full third quarter to increase in the range of 14% to 20% on a year over year basis and earnings for the quarter to be in the range of a dollar to $1.30 per diluted share.

This compares to a same store sales increase of 0.3% and earnings per diluted share of 30 says in the third quarter fiscal 2019.

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

Thank you Barry in closing, while we are certainly mindful of the potential future impacts the cobot 19 pandemic. We're extremely pleased with our recent performance and excited about the future of big five sporting goods. Thank you for joining us on todays conference call. We look forward to speaking with you again after the comes.

Conclusion of our third quarter.

[noise]. This concludes todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a great evening.