Q4 2020 Big 5 Sporting Goods Corp Earnings Call
Good day, ladies and gentlemen, welcome to the Big five sporting goods fourth quarter 2020 earnings results Conference call. Today's call is being reported with US today are Mr. Steve Miller, President and Chief Executive Officer, and Mr. Barry Emerson, Chief Financial Officer, Big five sporting goods at this time for opening remarks, and introductions I'd like to turn the conference over to Ms.
Miller. Please go ahead Sir.
Thank you good afternoon, everyone welcome to our 2024th quarter Conference call. The day, we will review our financial results for the fourth quarter of fiscal 2020 assets will also provide an outlook for the first quarter of fiscal 2021, I will now turn the call over to Barry 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.
Looking statements involve known and unknown risks and uncertainties that may cause our actual results in 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 and 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.
Our behalf.
Thank you Barry.
What day 'twenty was a remarkable year for big five sporting goods, our strong fourth quarter results highlight an exceptional 2020 in which we achieved record earnings driven by top line sales growth merchandise margin expansion and an improved cost structure.
This year's performance enabled us to meaningfully strengthen our balance sheet, which is reflected in increases in our dividend over the past year, including the most recently we announced today.
While 2020 presented a unique set of challenges we successfully navigated the evolving environment by focusing on executing our bonds, which is built on offer at a broad assortment of sporting goods products with a convenient shopping experience.
Customers certainly recognize the value of our offerings and the convenience of familiarity of our stores as they look for ways to stay active and healthy in the face of the pandemic.
We are pleased with all we accomplished in 2020.
And we are even more excited by the prospect than many of the recreational of product trends initially driven by the pandemic will prove to be sustainable even at the disruption of the pandemic subsides.
These trends are working in our favor now and we believe that many aspects will continue into the future.
Demand for home fitness products and other outdoor recreational activities remained strong.
People have made significant investments in equipment for whole gyms and of newly engaged but perhaps re engaged in activities such as golf tennis hiking camping fishing amongst others we.
We believe that even once the world begins to normalize many customers will continue to pursue these activities and shop with us as they look to make further investments and their equipment.
Importantly over the past year, we have expanded our customer base and we believe we are very much in the forefront of customers' minds when it comes to sporting goods.
Now I'll take a moment to review the results of our fourth quarter I.
I should note that due to our fiscal calendar, our 2024th quarter at full year. Each included one extra week compared to 2019 that said our same store sales results reflect comparable year over year period.
Looking at our fourth quarter net sales were $296 million compared to $244 1 million for the fourth quarter of fiscal 2019 same.
Same store sales increased 10, 5% for the fourth quarter compared to a 0.6% decrease for the fourth quarter of fiscal 2019.
Our sales were solid throughout the quarter.
In the mid teens in October sales were up at the high single digits in November which included a comparatively challenging black Friday, we did not seek to create a doorbuster crowd given the COVID-19 environment sales.
Sales for December we're up low double digits.
From a product category standpoint during the fourth quarter, we continued to see tremendous momentum in our hard goods category, which increased nearly 40% driven by extraordinary demand for products related to whole fitness, along with outdoor and whole recreation.
Additionally, hard goods sales reflect continued strong demand for firearms related products.
Same store sales for our apparel category decreased in the mid to high single digits and our footwear category decreased in the high teens.
Both apparel and footwear were negatively impacted by ongoing suspensions of team sports seasons due to COVID-19.
Additionally, apparel was negatively impacted by generally unfavorable winter weather until the end of the fourth quarter when winter related product sales responded positively to favorable weather.
On a year over year basis, we realized at approximately 20% increase at our average sale.
Driven by increases both in the number of units per sale and then the average price per unit, which was partially offset by a high single digit decrease in customer transactions.
The lower traffic reflects the impact of less of team sports activity due to COVID-19, along with the fact that customers are choosing to make fewer shopping trips.
With larger purchase.
We also continued to expand merchandise margins in the fourth quarter, increasing 243 basis points compared to the fourth quarter of 2019, when margins were up 239 basis points over the prior year.
A reduction in promotional activity along with favorable product mix shifts what are the key drivers of the margin gains.
Our strong sales and margin performance along with at an improved cost structure enabled us to achieve our third successive quarter of record net income.
For the fourth quarter was $21 million for 95 per share, including 12 in non reoccurring recurring benefits.
Turning now to current trends.
We are very pleased at the strong 2020 momentum has continued.
The first quarter of 2021 is off to a very strong start with sales running up approximately 20%.
Virtually all categories that drove last year's results have continued to perform at a high level.
Additionally, sales of winter related products of responded exceptionally well to favorable winter weather in our western markets.
Literally customers continue to look for opportunities to recreate outdoors.
Our strong winter season has led to very positive sell through of our winter inventory.
Which should position that category of nicely with a fresh assortment for next season.
Partially offsetting these categories of strength is the significant impact from the continued loss of team sports, particularly baseball, which is historically a huge contributor to Q1 sales.
That said, we are excited to see restrictions starting to ease and many of our markets, which should lead to more school openings at a start up of various youth sports programs.
Before I turn the call over to Barry to provide more information about the quarter, our balance sheet and first quarter guidance I want to take this time to express how extremely proud I am of the entire big five team and thankful for their dedication and focus of over the course of 2020.
With their contributions not only were we able to weather the pandemic, but we also posted a year of.
Our record of record year of earnings for the company.
A very challenging environment.
Looking forward, we are very enthusiastic about our future and feel well positioned to continue to leverage our product momentum at improved cost structure to deliver another banner year Barry.
Thanks, Steve.
Let me take a moment to discuss the year over year fiscal fiscal calendar differences at Steve noted at the onset of our fourth quarter of fiscal 2020 included 14 weeks, while the fourth quarter of fiscal 2019 included 13 weeks Similarly for the full year our <unk>.
Fiscal 2020 included 53 weeks and our fiscal 2019 included 52 weeks. However, same store sales comparisons for the fourth quarter are reported on a comparable 14 week basis and for the full year are reported on a comparable 53 week basis.
Gross profit for the fiscal 2024th quarter increased 33% to of $102 4 million compared to 77 point of $1 million in the fourth quarter of the prior year.
Our gross profit margin was 35, 2% in the fiscal 2024th quarter compared to 31, 6% in the fourth quarter of last year.
The increase in gross profit margin largely reflects the higher merchandise margins at Steve mentioned, which increased 143 basis points versus the prior year period of 200.
243 basis points versus the prior year period.
The gross profit margin improvement also reflects reduced store occupancy and warehousing costs as a percentage of net sales and to a lesser degree the favorable impact of an insurance settlement, partially offset by lower distribution costs capitalized into inventory for the quarter.
Selling and administrative expenses decreased $1 1 million in the fiscal 2024th quarter versus the prior year period, primarily due to lower print advertising expense and the favorable impact of an insurance settlement, partially offset by higher performance based incentive compensation accruals.
Selling and administrative expenses as a percentage of net sales was 25, 6% representing a decrease of 530 basis points versus last year due to the combination of expense reductions and higher sales volume.
Now looking at our bottom line net income for the fourth quarter of fiscal 2020 increased to $21 million or 95 per diluted share, including a benefit of <unk> <unk> per diluted share related to a favorable insurance settlement and a benefit of <unk> <unk> per diluted share related to a reduction in deferred tax assets.
Valuation allowance.
This compares to net income of <unk> 4 million or <unk> <unk> per diluted share in the fourth quarter of fiscal 2019, which included charges of <unk> <unk> per diluted share.
Now briefly reviewing our fiscal 2020 full year results.
As a reminder, these full year results include the negative impact of periods of significant store closures during the year associated with the COVID-19 pandemic.
As previously reported net sales were one point O 4 billion compared to net sales of $996 5 million for the fiscal 2019 full year same store sales increased three 8% in fiscal 2020 versus the prior year. Despite the pandemic related.
Store closures.
Net income for fiscal 2020 was $55 9 million or $2 58 per diluted share, which compares to net income for fiscal 2019 of $8 4 million or <unk> 40 per diluted share.
Turning to the balance sheet, our merchandise inventory at the end of fiscal 2020 was down 19, 2% compared to the prior year.
This reduction of inventory reflects a strong sell through of summer products combined with the dynamic.
Net demand continues to outpace supply for many of our high performing product categories.
Our buying team works closely with our vendors to obtain key merchandise, but like many other retailers. We are managing through widely reported disruptions in the supply chain.
As Steve noted during the first quarter to date, we have had a strong sell through of our winter related product inventory as a result, our inventory levels continued to trend lower on a year over year basis.
Looking at our capital spending our capex, excluding noncash acquisitions totaled $7 3 million in fiscal 2020 our.
Our capital spending for the year was lower than what we spent traditionally because we reduced our 2020 capital expenditures to maintain flexibility at the onset of the pandemic.
For fiscal 2021, we expect a higher level of Capex in the range of $12 million to $16 million, primarily representing investments in store related remodeling, new stores distribution center equipment, and computer hardware and software purchases.
The combination of sales growth merchandise margin expansion and improved cost structure allowed us to generate substantial operating cash flow for the year.
Our cash flow from operations was a positive $148 7 million for fiscal 2020 compared to a positive $14 3 million in 2019.
Our strong operating results for the year of course also positively impacted our balance sheet.
We ended fiscal 2020 with zero borrowings under our credit agreement credit facility at a cash balance of $64 7 million. This compares to $66 6 million of borrowings and $8 2 million of cash at the end of fiscal 2019, representing a $123 one.
Improvement in our net cash visit position on a year over year basis.
Also as announced last week, we have further enhanced our financial flexibility by recently entering into a new loan agreement with bank of America.
The new revolving credit facility has a five year term maturing in February 2026, and provides an aggregate committed availability of up to $150 million.
In consideration of the strength of the Companys business cash flow and balance sheet. Our board of directors has declared of 50% increase in our quarterly cash dividend from <unk> 10 per share of outstanding common stock to <unk> 15 per share, which will be paid on March 26, 2021 to store.
Holders of record as of March 12, 2021.
We have a long history of returning capital to shareholders and we are pleased at the momentum of our business provides the financial flexibility to increase our dividend, while continuing to invest in the business.
Now I'll spend a moment on our guidance.
As Steve discussed our quarter to date sales are off to a strong start through February.
For the fiscal 2021 first quarter, we expect same store sales to increase approximately 20% and expect to realize earnings per diluted share in the range of 47% to 53.
Which includes expected non operational benefits of approximately <unk> <unk> per diluted share related to an insurance claim and elimination of a liability for an employment agreement.
This compares to a same store sales decrease of 10, 8% at a loss per basic share of <unk> 22 cents in the first quarter of fiscal 2020.
Our first quarter guidance reflects anticipated continued expansion of merchandise margins compared to the prior year period due to a favorable product mix shift along with less promotional activity. We also.
Expect to continue to achieve operating leverage in the first quarter due to reduced store operating hours and a significant reduction in print advertising expense versus last year.
That concludes our prepared prepared remarks.
Operator, we are now ready for any questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue from participants using speaker equipment at may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
And our first question is from Mark Smith with Lake Street Capital Partners.
Hi, guys.
I wanted to ask first just a little bit about the comps as we look at this quarter versus a year ago.
You know at comps are obviously very strong right now through the first two months can you walk us through <unk>.
Last year in the March quarter kind of how would the sequential comps moved month to month last year.
Of you say through the through the quarter.
Through the quarter last year, just I assume that March you get pretty easy comps.
Yeah, Yeah compares well we at.
Additional starts last year, because we essentially had no winter weather in January and February. So we were Comping down mine at minus seven four in January minus 13, even in February.
February Yeah, then our business started you know rebounded as weather sort of normalized finally fall I think the first snow flake last year.
Early March.
Our team business was responding positively that we entered into a period.
Really probably the second week of March that I would call the pre pandemic of phase.
When there was a surge of by not that different than people hoarding of toilet paper of the grocery stores when people were buying.
Oh.
Wildly I guess in anticipation of the.
Pandemic end potential store closures of whatever they saw cash.
And then around the sort.
Towards the back half of March of around March 20th of <unk>.
Roughly half of our stores were closed overnight in California, and then over the subsequent remainder of the quarter.
A number of those stores were able to reopen as we were designated essential of while other stores.
And so we wound up the quarter.
Approximately 200 of our stores are slightly less than half of half of our stores closed at the end of the quarter.
So there was a lot of moving parts.
The last year and certainly there's lots of moving parts of this year as we think.
Think about what's in front of us over the balance of the quarter.
Bottom line, we were I think for the March period last year, we were down about 10%, Yes, we were down $11 five last year of 11 five.
Okay.
Perfect. Thank you and then you gave.
Give us some guidance on new openings in 2021.
Any guidance you can give us on kind of the timing of these I think you said potentially five stores that will open.
Yes.
Non non Q1, we think could be.
So it could be.
Evenly distributed through the remainder of the.
The quarter could be one or two in the second and then similarly in the third and the fourth at this at this time would be our best call.
Okay, and then Steve you talked about at a little bit in your <unk>.
Commentary, but just walk us through your comfort today on an inventory of it sounds like you've cleared through pretty well on the winter inventory.
If you can just kind of confirm that and how much of that was really apparel and soft goods driven and then kind of how you feel about inventory and shipments that youre getting into stores today for in some of these high demand categories.
Sure sure in terms of of winter, we've had of extraordinary sell through of our of our winter product.
And our winter product I mean apparel is the largest component of winter, but theres a footwear component as.
As well of hard goods component in the sell through has been.
Significant at all of those categories. So we're coming out.
It gets cleaned from of winter as we perhaps ever have in force that bodes well for next season when we can.
Bring all new products.
At <unk>.
Into the play.
In terms of the other categories were still chasing inventory and some of the some of the hot categories.
There's certainly I think it's been widely reported significant.
Supply chain disruptions.
So we're obviously, we're getting lots of inventory, we couldnt be generating of the positive sales without inventory, but it's.
It's been.
A bit of rather uneven flow at a number of categories.
<unk> from whether it's factory issues with raw material shortages or vessel issues are certainly significant issues getting products through the port.
Paul.
We're seeing a number of.
Deliveries that are later than ideal, but we're working hard with our vendors and managing through this at certainly optimistic that conditions will improve over the coming months.
Okay and then the last one from me just just curious of your views as we look at potential for another round of stimulus checks coming out how much you feel like maybe you benefited end got any bump in.
Prior stimulus packages that were given out of checks to consumers.
Honestly, Mark it's hard to quantify I mean, it's sort of at certainly can hurt, but it's as strong as our sales have been off.
And so many strong categories certainly positive positive whether in the.
Start of the first quarter, it's very difficult to parse out how much of that is.
Related to stimulus, but yes, obviously at.
It can't hurt at Scott I'll be helping us somewhat.
Okay perfect. Thank you guys.
Thank you Mark Thanks, Mark.
Thank you and ladies and gentlemen, we've reached the end of our question and answer session I would like to turn the call back over to Steven Miller for closing remarks.
Alright, Thank you operator, and thank you all for joining us on today's call. We appreciate your interest of Big five sporting goods and look forward to speaking with you again after the conclusion of our first quarter of of Great afternoon.