Q2 2021 Big 5 Sporting Goods Corp Earnings Call
[music].
Good day, ladies and gentlemen.
Welcome to the Big 5 sporting goods second quarter 2021 earnings results Conference call.
Today's call is being recorded.
With us today are Mr. Steve Miller, President and Chief Executive Officer, and Mr. Barry Emerson, Chief Financial Officer of Big 5 sporting goods.
At this time for opening remarks, and introductions I'd like to turn the conference over to Mr. Miller. Please go ahead Sir.
Thank you operator, good afternoon, everyone welcome to our 2021 second quarter Conference call today, We will review our financial results for the second quarter of fiscal 2021, So all of the white and outlook for the third quarter 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 $19.95 forward 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 behalf.
Thank you Barry we are excited to report second quarter results that exceeded our expectations as we achieved another quarter of record sales at earnings.
This is now our fifth consecutive quarter delivering record earnings with respective quarter.
Our performance once again.
Once again, driven by a combination of broad base of sales trade merchandise margin expansion as well as operating with a cost structure that has meaningfully enhanced compared to pre pandemic period.
We generated $52.9 million of EBITDA for the quarter.
With these results we increased the cash for our balance sheet to $118.9 million.
This represented an $18.8 million dollar improvement over the course of the quarter.
And we did this while paying shareholders cash dividends of $25.8 million during the period, including a $1 per share special dividend. In addition to increased regular quarterly dividend.
Additionally, given the continued strength of our business and financial condition, we announced another increase today in our regular quarterly dividend, which will move it up 39% from 18.
For 25 cents.
We have now increased our regular quarterly dividend each of the last 4 quarters.
Now I would like to provide an overview of our second quarter results and then touch on our continued strength in the third quarter to date.
Second quarter net sales were $326 million, the highest sales for any quarter in our company's history.
This compares to compared to net sales of $227.9 million for the second quarter of fiscal 2020, which was negatively impacted by significant pandemic related temporary store closures over the first half of the quarter.
Given the unusual circumstances last year, we believe it is perhaps more relevant to compare this year's second quarter performance with the comparable period in 2019.
Which was obviously not impacted by the pandemic.
On that basis, this year's second quarter net sales of $326 million compared.
Compared to net sales of tour at $41 million for the second quarter of fiscal 2019.
In addition to Comping against last year's Covid related temporary store closures. The increase of net sales also reflects the benefit of a calendar shift related to our 53 week fiscal 2020 that resulted in pre fourth of July holiday sales moving from the third quarter of fiscal 2020.
For the second quarter and fiscal 2021 as.
As well as the benefit of a calendar shift of the Easter holiday.
During which the company stores are closed for us.
For clothes for the second quarter of fiscal 2020 into the first quarter of fiscal 2021.
These net sales comparisons can certainly get muddied with fiscal calendar shift so I'm glad we only have to deal with them every 5 or 6 years.
Looking at our same store sales for the second quarter of fiscal 2021, which were reported on a comparable day basis sales increased 31, 2% versus the prior year period, and 33, 4% versus the 2019 period.
Turning to the cadence of our monthly sales April same store sales increased over 100% versus April of 2020.
April was the month last year, most impacted by temporary store closures on.
On a 2 year basis compared to April of 2019 same store sales were up more than 45%.
May was up over 20% compared to 2020 and more than 30% compared to 2019, driven in part by a return to team sports and most of our markets.
And in June when we were comping against searching of sales last year, we were up high mid single digits for 2020 end up 25% versus the comparable date in 2019.
In the second quarter, we saw strong demand across all 3 of our major merchandise categories.
Apparel was up more than 70% versus 2020 end up more than 35% for 2019.
Footwear was up approximately 40% versus 2020 end up low double digits versus 2019.
Hard goods were up approximately 20% versus 2020 and up more than 40% versus 2019.
The sales strength was broad based across our product offerings, including a healthy return of our team sports business.
On a year over year basis transactions for the second quarter increased by nearly 40% versus last year at were up approximately 8% versus 2019.
Our average sales down approximately 7% compared to last year, but up over 20% versus 2019.
As a reminder of last year during the height of the pandemic, we saw customers, making fewer short trips, but with larger baskets.
We continue to achieve very healthy merchandise margin in the second quarter of.
Over 300 basis points compared for the prior year end up over 500 basis points compared to the 2019 second quarter.
Margin gains primarily reflects favorable product mix shift and reduced promotional activity.
In addition of benefiting from strong sales of merchandise margins. Our results also continued to benefit from at an improved cost structure compared to pre pandemic period.
As we continue to operate with store hours and advertising spend significantly below historical levels.
Turning to the bottom line.
For the second quarter, we earned net income of $36.8 million or of $1.63 per share.
This was the highest net income for for any quarter at our company history.
As I previously mentioned these results reflect strong broad based demand for sporting goods and recreational products throughout our markets.
Although sales performed at a very high level, we were still constrained by the widely reported supply chain disruptions facing many retailers.
Our team is managing through a wide variety of issues throughout the supply chain.
Clothing staffing issues at our distribution center, which have caused delays in delivering product to our store shelves.
As I noted on our call last quarter I suspect at it will be sometime the first before supply catches up to demand for many categories.
Looking now at our third quarter. Our same store sales are currently running down high single digits versus last year and up in the high teens versus 2019.
We anticipate sales running down over this period compare for last year given the sales in July of last year were up approximately 30% for the comparable days.
Which represented at the absolute peak of our 2020 sales surge.
<unk> to July comps the comps over the remainder of the quarter will ease considerably as the comparable period last year was significantly impacted by the lack of back to school sales in team sports.
Which we believe should largely return this year.
From a broader perspective.
We are very pleased with of sustained strength of our business.
While we certainly still face challenges related to the pandemic, including supply constraints and staffing issues to date, we've been able to navigate these challenges and leverage tremendous recreational trends translate at the sales and margin strength across our product categories.
With an increased focus on sustained healthy over the past year people been engaging of Reengage training more recreational activities than before.
Our assortment of fitness and recreation products is very well situated for these trends.
For our enduring beyond the peak impacts of the pandemic.
Over our many years, we have established big 5 as a well recognized and trusted sporting goods destination of our markets.
And we have further expanded our customer base over the course of the pandemic.
In sum, we remain very enthusiastic about our business.
Confident in our ability to continue to capitalize on of our positive trending and improved cost structure to deliver strong bottom line results.
Now I will turn the call over to Barry to provide additional details.
Thanks, Steve.
Net sales for the fiscal 2021 second quarter for $326 million compared to net sales of $227.9 million for the second quarter of fiscal 2020, and net sales of $241 million for the second quarter of fiscal 2019.
The second quarter of fiscal 2020 included significant temporary store closures due to COVID-19, particularly over the first half of the period.
For the second quarter of fiscal 2021 same store sales increased 31, 2% versus the prior year period.
And 33, 4% versus the 2019 period.
In addition to Comping against last year's Covid related temporary store closures.
The increase in net sales also reflects the positive impacts from calendar shifts that Steve mentioned.
Gross profit for the fiscal 2021 second quarter increased at $126.9 million from $72.2 million in the second quarter of the prior year.
Company is gross profit margin was 38, 9% in fiscal 2020, 1 second quarter versus 31, 7% in the second quarter of the prior year.
The increase in gross profit margin largely reflects a 380 basis point increase in merchandise margin significant leveraging of store occupancy costs as a percent of net sales and the favorable impact from higher distribution costs capitalized into inventory for the quarter.
Our higher merchandise margins, primarily reflect lower promotional activities.
A shift in our product sales mix and higher sales prices in response to increases in product purchase costs.
Selling and administrative expense as a percentage of net sales improved to 24% in the fiscal 2021 second quarter versus 25, 6% in the prior year period, and also compared favorably to 30% in the fiscal 2019 second quarter.
SG&A expense for the quarter increased by $21 million from the prior year, primarily due to significant temporary store closures last year as a result of the COVID-19 safety precaution.
2 of lesser degree of year over year increase in selling and administrative expense was also impacted by higher performance based incentive compensation.
SG&A expense in the current year period and the prior year period. Each included a special recognition bonus provision.
For certain store based employees.
Now looking at our bottom line net income for the second quarter of fiscal 2021 was $36.8 million or of $1.63 per diluted share.
This compares to net income for the second quarter of fiscal 2020 of $11.1 million or <unk> 52 cents per diluted share, which included a previously reported net benefit of approximately 13 cents per diluted share.
Briefly reviewing our 2021 first half results net sales were $598.8 million compared to net sales of $445.7 million in the first 26 weeks of last year.
Same store sales increased 31, 5% in the first half of fiscal 2021 versus the comparable period last year.
Net income for the first 26 weeks of fiscal 2021 was $58.3 million or $2.59 per diluted share <unk>.
Including a net benefit in the first quarter of 6 cents per diluted share related to an insurance settlement and the elimination of an employment agreement liabilities.
This compares to net income for the first 26 weeks of fiscal 2020 of $6.5 million for 31 cents per diluted share, including a previously reported net benefit of <unk> 13 per diluted share.
Adjusted EBITDA was a healthy $52.9 million for the second quarter of fiscal 'twenty, 'twenty, 1 and $83.2 million.
For the 26 week period ended July for 'twenty 'twenty 1.
Turning to our balance sheet our.
Our merchandise inventory at the end of the fiscal 2021 second quarter was down 5.6% compared to the prior year after being down 28% year over year at the end of the first quarter.
As Steve indicated we have experienced broad based demand across our product categories, including a return of team sports, which was negatively impacted last year due to COVID-19 at.
Our buying team continues to work closely with our vendors to obtain key merchandise.
In some categories, we are seeing disruptions associated with manufacturing and freight issues, which have caused some delays and shortages.
Looking at our capital spending our capex, excluding noncash acquisitions totaled $4.1 million for the year to date fiscal of 2021period for.
For the full fiscal year, we expect to ramp up our capex to a more normalized level in the range of $11 million to $15 million, primarily representing investments in store related remodeling, new stores distribution center equipment, and computer hardware and software of purchases.
For the year, we expect to open approximately 5 new stores and close approximately 2 stores.
The combination of sales growth merchandise margin expansion and improved cost structure allowed us to generate substantial operating cash flow for the year to date period.
Our operating cash flow for the first half of fiscal 2021 was a positive $88.7 million or an increase of $35 million versus the prior year period.
Our strong operating results continue to positively impact our balance sheet and pride at provide us a great deal of financial flexibility.
We ended the fiscal 2021 second quarter with zero borrowings under our credit facility and with cash and cash equivalents.
$118.9 million.
This compares to zero borrowings at 100 point of $1 million of cash and cash equivalents as of the end of this year's first quarter and $35 million of borrowings and $16.7 million of cash as of the end of the second quarter last year.
This reflects a $137.2 million improvement in net cash on a year over year basis.
We grew our net cash by $18.8 million over the course of the second quarter of fiscal 2020, 1 while also paying shareholders cash dividends of $25.8 million.
During the quarter.
Further as Steve mentioned in light of the continued strength of the company's business cash flow generation enhanced and enhanced balance sheet. The Companys Board of directors has declared of 39% increase in its quarterly cash dividend from <unk> 18 per share of outstanding common stock for 25 cents per share of at.
Outstanding common stock, which will be paid on September 15th 2021 to stockholders of record as of September 1.2021.
In addition to the $1 per share special dividend paid in the second quarter. This represents the fourth increase in our regular quarterly dividend over the last 4 quarters from 5 cents to <unk> 25 per share and demonstrates the board's ongoing commitment to return value to shareholders.
Now I'll spend a minute on our guidance for.
For the fiscal 2021 third quarter, we expect same store sales.
In the flat to positive mid single digit range versus the prior year period and to increase in the low teens to high teens range versus the fiscal 2019 third quarter.
And earnings per diluted share in the range of 95 to $1.15.
This guidance compares to a same store sales increase of 14, 8% and earnings per diluted share of $1.31 in the third quarter of fiscal 2020.
Which until this past quarter of $1.63 of earnings per share for the highest earnings of any quarter in the company's history.
For comparison earnings per diluted share for the third quarter of fiscal 2019 were 30.
Over the remainder of the third quarter, we anticipate continued impact related to the widely reported supply chain disruptions and employment challenges throughout the retail industry.
Additionally guidance relative to the prior year period reflects the unfavorable impact of the calendar shift related to our 53 week fiscal 2020, which moved the fourth of July holiday from the third quarter of fiscal 'twenty 'twenty into the second quarter of fiscal 2020.
1.
As a result, the third quarter of 2021 excludes the historically high volume fourth of July holiday week.
Which is replaced by a historically low volume week end.
Early October.
Because of this calendar shift we anticipate an approximately 20% unfavorable impact to diluted earnings per share for the third quarter.
Our guidance also assumes that any new any new conditions relating to the COVID-19 pandemic will not materially impact our operations during the period.
Additionally, our guidance for the third quarter reflects our expectation that we will continue to achieve merchandise margin gains on a year over year basis.
That concludes our prepared remarks on.
Operator, we are ready for any questions.
Thank you and at this time, we will be conducting a question and answer session.
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1 moment, while we poll for questions.
Our first question comes from Mark Smith with Lake Street Capital. Please go ahead with your question.
Hi, guys first question for me.
Just wanted to ask a little bit about inventory today versus a year ago of sounds like inventories down but can you talk about some of the high demand.
Categories, and where you stand now maybe versus a year ago.
Thinking back a year ago 2 goes on.
I recall at kind of fishing being completely gone on some of the exercise of equipment. You know shooting hunting you know anything that you can give us on on how you stand today.
From a store inventory perspective would be great.
Yeah, there's so many moving parts of it.
This year versus last year, but let me see if I can address some of your issues I mean, where we're seeing strength throw out of our product mix.
All of them.
Some of the categories last year that were ridiculously short of supply we're in the fitness the initial surge works within fitness.
Sure.
And we're certainly at a better position there I don't know that for 100% caught up or not of 100% cargo and from an inventory standpoint, and we're chasing inventory.
In virtually every category of almost almost throughout the stores I mean, we're seeing the supply chain sales, creating disruptions.
Deliveries being late is probably become to some degree the new norm.
It's not that we're not getting inventory, we couldnt produce of sales. So we have if we were at operating out of an empty wagon.
Were produced but we're getting a fair amount of inventory, but we're selling at a very very quickly, which I guess 1 would argue at say a high class problem because of this issue.
But I don't know of Mark does that answer your question I can maybe you can zero at on yeah.
Yeah, no no that that that helps you know 1 category I want to look at it as just team sports, which last year going into the school year kind of didn't didn't exist. This much historically.
Q3 is at you know football soccer or what are kind of of team sports, where you see some benefit that maybe will be better this year versus a year ago.
I mean, there you know we're already seeing very positive indications of the football soccer at it's early it's early on the season, but you.
All of those those sports were almost non existent.
Last last year, you know, we get a little at as of third quarter, we get some more fall baseball that you know fundamentally did not occur last year, we get some.
Volleyball girls volleyball participation.
Also we think we were out of a lot of categories.
That will perform incredibly positively versus last year end.
So that's why we anticipate that our our our sales performance over the balance of the quarter will be.
So much more.
All of it than what it was for the start of the quarter.
Okay, and then looking out of a little bit further here into Q4, no I would assume that we don't have any real timing issues.
At the sheer of sensors that'll be more comparable with Q4 next year this year.
As of year ago.
If you could talk about some of the winter sports and activities and if youre seeing any pre buying.
Soon we should maybe be once you're able to pick anything up last year or maybe how you feel about your inventory and some of those categories going into Q4.
Well, we're certainly not in the hardest summers seen any any pre buying of winter product and the truth of the matter is we pretty much sold to the to the bone at our winter product all of last year. So we've got.
A replay of this type of orders outstanding were no hope for and I think we've given ourselves hopefully enough wiggle room to bring the product in with all of the supply issues.
And in time for the winter season. So we're excited about the refreshment of our winter product, but as far as any indications now I couldn't begin to make a comment on that.
Okay, and nothing from a timing perspective that we should be aware of I assume on Q4.
Well I mean, the only thing I think to be aware of as at last year Q4 was a 14 week.
Pure yet so Q.
Q4 will effectively start for me right Barry 1 week later.
At this year than last year.
But at will.
No.
<unk>, the obviously the Christmas holiday and the.
The week of new yours, as well most of it.
Okay.
At the last 1 for me just to clarify and make sure I heard it right at it.
It sounds like to date.
Comps are down versus a year ago high single digits that you expect kind of continued sequential improvement throughout the third quarter.
For very significantly yes, yes.
Let's start with you last year the July period with absolute peak.
Peak period of.
Of sort of searching for sales we were to give you. Some of some reference point in July last year, we were up a lot.
Proximately, 30% for the the comparable days in July and August last year, we were up 2%.
Because of the large extent.
Peter Sports impact that I just spoke to end in September we were up.
A little over.
A little over 10%.
Maybe I'll squeeze in 1 more of them, we haven't talked about and we havent heard many retailers are on this talking about it yet, but you know with.
With a tax credits coming out of it.
Families with children in July.
Bump that you can call out kind of mid month of some of those checks went out.
And people spending money maybe at your stores.
Yeah on honestly not Mark I mean, obviously it has to help I mean, I think we look at backwards over the second quarter I think we kind of acknowledged some bump from the stimulus checks and that.
I believe contributors of why our April was so strong relative to 2019 all of the months were strong, but so April was the strongest so I assume theres. Some other parts of the cost of effect there.
At the in July.
Again, what product issues.
And comparing to the surge of last year I don't know that we could put our finger on any of those.
Benefit from checks that are being received in July.
Okay, Great. That's helpful. Thank you guys.
Alright, Thank you Mark.
Yeah.
Yeah.
Okay.
Operator, I think.
Are there any other questions.
Hello.
Yeah.
Oh.
Thank you.
Alright, well.
Thank thank you at all for joining us on today's call. We appreciate your interest in big 5 sporting goods and look forward to speaking you with you again after the conclusion of our third quarter.
Thank you.
Thank you apologies for the delay that concludes our conference.
I'll now turn it back to Mr.
To Mr. Miller for closing remarks.