Q4 2021 Big 5 Sporting Goods Corp Earnings Call
Good day, ladies and gentlemen, welcome to the Big five sporting goods fourth 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, and Chief Financial Officer of Big five sporting goods.
At this time for opening remarks introductions.
I'd like to turn the conference over to Mr. Miller. Please go ahead Sir.
Thank you operator.
Afternoon, everyone welcome to our 2021 fourth quarter conference call today, We will review our financial results for the fourth quarter of fiscal 2021, as well as provide an outlook for the first quarter I will now turn the call over to Barry 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 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 finished 2021 with a strong fourth quarter performance delivering a second consecutive record year of sales and earnings for Big five sporting goods.
Each results over the course of the year were driven by a combination of top line sales growth merchandise margin expansion and significant operating leverage.
Our earnings and cash flow, we have generated over the course of the last two years have enhanced our capital structure highlighted by our debt free financial condition with substantial cash reserves.
With that balance sheet strength, we have the flexibility to return more than $69 million of capital back to shareholders through dividends and stock repurchases in fiscal 2021.
Capital allocation and delivering value to shareholders has been a long term priority for our company and today, we announced a new stock repurchase authorization of $25 million.
Now I'll take a moment to review the results of our fourth quarter I should note at the outset that due to our fiscal calendar, our 2021 fourth quarter and full year. Each included one less week than in fiscal 2020.
Net sales for the 13 week fiscal 2021 fourth quarter were $273 4 million.
Compared to net sales of $290 6 million for the 14 week fiscal 2024th quarter.
Same store sales increased 0.2% for the fourth quarter of fiscal 2021 versus the comparable period in the fourth quarter of fiscal 2020.
Given how abnormal the last two years has been we think it provides relevant context to also evaluate our results relative to prepaid debit periods.
On that basis compared to the pre pandemic 2019 fourth quarter same store sales increased 10, 6%.
Looking at the rollout of the quarter.
Our monthly sales were mixed throughout the period October .
October sales were slightly up versus 2020 and up mid teens versus 2019.
And November sales were down in the high single digits versus 2020 and down in the low single digits versus 2019.
The softness in November was primarily due to unseasonably warm weather conditions, coupled with supply chain disruptions that inhibited our ability to fully capitalize on the key black Friday period.
In December sales were up mid single digits versus 2020 and up mid teens versus 2019.
We saw particular strength over the last couple of weeks of the year with very favorable winter weather finally arrived in our markets and growth sales of winter related products.
From a product category standpoint during the fourth quarter, we continued to see relative strength in our apparel and footwear categories.
Which were both up double digits compared to the prior year with both categories have been negatively impacted by pandemic related factors.
Hard goods was down low double digits for 2020, but I should note that in 2020 hard goods was up nearly 40% versus 2019, driven by pandemic related demand for products, such as home fitness and outdoor recreation.
Expansion of our merchandize margins, that's been a major driver of our bottom line growth.
Our merchandise margins were trending positively prior to the pandemic and that positive positive trending continued throughout the pandemic and in the fourth quarter.
So the period merchandise margins increased 194 basis points compared to the fourth quarter of 2020, and increased 437 basis points versus the fourth quarter of fiscal 2019.
And to provide even more historical context, our Q4 margins in 2020, we're up over 600 basis points versus Q4 of 2018.
This margin expansion has been driven in part by an evolution of our promotional strategy that was in place prior to the pandemic and certainly accelerated over the course of the pandemic.
Historically, our model revolved around print advertising that focused on product by product price driven promotions typically on a weekly basis.
As we've reduced our print advertising, we have opened up more flexibility in our purchasing and pricing, which has benefited our product mix and margins not to mention significantly reduced our advertising expense.
With our solid sales strong margin performance and improved cost structure, we delivered very healthy fourth quarter EPS of <unk> 89.
Which punctuated a record setting year with full year EPS of $4 55.
Adjusted EBITDA was $31 5 million for the fourth quarter and $152 million for the full year.
Turning now to current trends.
In this year's first quarter to date, although most categories are performing well against pre pandemic periods. Our same store sales were down roughly 12% compared to the record results with last year's first quarter. When we recorded a same store sales increase of 31, 8%.
Last year in the first quarter, our sales benefited from strong COVID-19 related demand and favorable winter weather in our market.
In January of this year sales were down approximately 20% as we faced a number of headwinds, including unseasonably warm and dry winter weather in our markets the impact of the <unk> surge and ongoing supply chain initiatives.
Our trends improved in February with same store sales was slightly up as omicron impacts ease and last week for the first time. This calendar year. We finally had the benefit of a shot of favorable winter weather in our key markets.
As we look ahead towards March we're facing very challenging comps against last year, where sales benefited greatly as COVID-19 restrictions ease and there was a resumption of in person schooling and sports leagues, along with the distribution of stimulus checks.
I'll now turn it over to Barry to provide additional details regarding our fourth quarter performance and first quarter outlook.
Thanks, Steve just just to clarify.
From a a more historical context, our Q4 margins in 2021 were up over 600 basis points versus Q4 of 2018.
First let me take a moment to expand on the year over year fiscal calendar differences that Steve noted at the onset.
Our fourth quarter of fiscal 2021 included 13 weeks, while our fourth quarter of fiscal 2020 included 14 weeks similar similarly for the full year. Our fiscal 2021 included 52 weeks and our fiscal 2020 included 53 weeks tower.
However, same store sales comparison for the fourth quarter are reported on a comparable 13 week basis and for the full year are reported on a comparable 52 week basis.
Net sales for the 13 week fiscal 2021 fourth quarter for $273 4 million versus net sales of $290 6 million for the 14 week fiscal 2024th quarter and comparing to a pre pandemic period.
The increase from $244 1 million.
For the fourth quarter of fiscal 2019.
Same store sales increased 0.2% for the fourth quarter of fiscal 2021 versus the comparable period in fiscal 2020, and increased 10, 6% versus the comparable period in fiscal 2019.
Gross profit for the fiscal 2021 fourth quarter was $103 million compared to $102 4 million in the fourth quarter of the prior year.
Our gross profit margin was 37, 7% in the fiscal 2021 fourth quarter versus 35, 2% in the fourth quarter of last year and versus 31, 6% in the fourth quarter of 2019.
The increase in gross profit margin largely reflects the tremendous growth in our merchandise margins that Steve spoke to along with lower distribution costs, including costs capitalized into inventory as a percentage of net sales.
Partially offset by the favorable impact from an insurance settlement in the prior year period.
Overall, selling and administrative expense increased $1 8 million in the fiscal 2021 fourth quarter versus last year, primarily due to increased store related costs, along with higher advertising expense, which remained substantially below pre pandemic levels.
The prior year period also benefited from the favorable impact of an insurance settlement.
As a percent of net sales SG&A was 27, 9% in the fiscal 2021 fourth quarter versus 25, 6% in the fiscal 2024th quarter.
While SG&A expense as a percentage of sales increased versus the prior year when compared to the pre pandemic fourth quarter of fiscal 2019, our fourth quarter 2021 expense percentage improved by approximately 300 basis points.
Now looking at our bottom line net income for the fourth quarter of fiscal 2021 was $19 9 million or <unk> 89 per diluted share. This compares to net income of $21 million or <unk> 95 per diluted share in the fourth quarter of fiscal 2020, which included a previously reported benefit of 12.
Per diluted share.
<unk> reviewing our 52 weeks fiscal 2021 full year results net sales were a record one $1 6 billion compared to net sales of one 4 billion for the 53 week fiscal 2020 full year.
Same store sales increased 13, 9% for the fiscal 2021 full year versus the comparable period in fiscal 2020, and increased 17, 5% compared to fiscal 2019.
Net income for fiscal 2021 full year was a record $102 4 million or $4 55 per diluted share, which compares to net income for the fiscal 2020 full year, a $55 9 million or $2 58 per diluted share including.
Previously reported benefit of <unk> 25 per diluted share.
Adjusted EBITDA continues to be a very healthy we generated $31 5 million for the fourth quarter of fiscal 2021 and $152 million for the fiscal 2021 full year.
Turning to the balance sheet, our merchandise inventory at the end of fiscal 2021 was up seven 1% compared to the prior year and down 13, 4% compared to the end of our fiscal 2019 period.
Throughout 2021, our inventory levels were generally a little lower than we would have liked as industry wide supply chain disruptions made it difficult to keep up with elevated demand.
However, one benefit of our reduction in print advertising is that we are now able to operate with less inventory than we have historically carried.
We will continue to manage through the supply chain issues and although there are areas, where we certainly wish we had more inventory. We believe our assortment is generally well positioned for spring.
Our inventory is very fresh and we are operating with considerably less clearance inventory than we have historically.
Looking at our capital spending our capex, excluding noncash acquisitions totaled $10 $9 million for the fiscal 2021 full year during.
During the fourth quarter, we opened new stores in Glenwood Springs, Colorado, Tucson, Arizona, Irvine, California in Fullerton, California of which the latter two relocations of stores that closed in the quarter.
For the full year, we opened five new stores and closed four stores, including the two relocations, bringing us to a year end store count of 431 stores.
For the fiscal 2022 full year, we expect capex in the range of $15 million to $20 million, primarily representing investments in store related remodeling, new stores distribution center equipment, and computer hardware and software purchases.
In fiscal 2022, the company expects to open approximately six stores and close approximately two stores.
Now looking at our cash flow.
The combination of sales growth merchandise margin expansion and improved cost structure allowed us to generate substantial operating cash flow of $115 5 million in the fiscal 2021 full year. This compares to positive operating cash flow of $148 7 million in the prior year period.
The year over year decrease in cash flow, primarily reflects increased funding of merchandise inventory.
Our strong operating results for the year continued to enhance our balance sheet and financial flexibility.
We ended fiscal 2021 with zero borrowings under our credit facility and a cash balance of $97 4 million, which compares to zero borrowings and $64 7 million of cash at the end of fiscal 2020.
This represents a $32 7 million improvement in our cash position over the course of fiscal 2021 during which time, we returned to stockholders over $69 million in value through a combination of regular and special cash dividends as well as share repurchases.
We have a long history of returning capital to shareholders and we are pleased at the momentum of our business has provided the financial flexibility to deliver this value.
To that end the Companys board of directors has authorized a new share repurchase program for the purchase of up to $25 million of the company's common stock. This program replaces our previous share repurchase program under which $7 7 million remained available for repurchases. Additionally, today, we announced that our board of.
<unk> declared a quarterly cash dividend of <unk> 25 per share.
Now I'll spend a minute.
On our guidance for the fiscal 2020 to first quarter.
For the first quarter, we expect same store sales to decrease in the range of 10% to 13% with earnings per diluted share in the range of 30 to 40.
While guidance expectations are lower than the prior year's record first quarter results.
Our guidance range reflects first quarter earnings that would be near or above any pre pandemic first quarter earnings in our history.
Now I will turn it back to Steve for some additional remarks.
Thanks Barry.
Last seven quarters have been the seventh most profitable quarters in our company's history.
While we have set the bar high and without a doubt we and others in the retail sector. We will continue to face many challenges related to the pandemic, including supply constraints with staffing issues. We have a proven track record of successfully adapting to challenges and are confident in our ability to continue to thrive.
In this dynamic environment.
We are a stronger company with an improved operating model and our <unk>.
All positioned to continue to drive healthy bottom line results.
The strength of our company is the strength of our team and I want to take this opportunity to acknowledge and thank our big five team.
Nominal manner in which they have stepped up and dealt with the many challenges that the pandemic has presented.
Clearly our record results could not have been achieved without the team's tremendous commitment dedication and outstanding efforts.
That concludes our prepared remarks, operator, we are now ready for any questions.
We will now begin the question and answer session.
During our question queue. You May Press Star then I'm wondering if your telephone keypad, you'll hear atoning ordering a request.
Speakerphone, please pick up your handset before pressing any teeth.
To withdraw your question. Please press Star then two.
Pause for a moment as callers join the queue.
Yes.
The first question comes from Mark Smith with Lake Street Capital markets. Please go ahead.
Hi, guys.
First off just wanted to dig into gross profit margins a little bit can you walk through kind of.
Whats implied in your guidance here as we look at Q1.
As we look at Q1 in terms of our.
Overall margins.
Merchandise margins well extend the other merchandise margin. Okay. Let me, let me take a shot at the merchandise margins, which I mentioned <unk> been a big driver of our results and.
Whats expanded development, it's been multiple factors.
Our model change that I talked about away from print advertising that has provided us increased pricing flexibility.
We now have product and price driven promotions, we still have the product and price driven promotions, but now more digitally.
Involved in our marketing, which gives us shorter lead times, our pricing is more responsive to demand, allowing us to be more flexible in our product mix.
And able to buy in smaller lots and tailor, our our promotion floor to specific geographies.
In terms of the implication for <unk>.
And our first quarter margins very well, yes, yes.
Mark being included obviously is you got merchandise margins, which is number one and then you've got occupancy and distribution costs.
And so <unk>.
You've heard us talk about the lag.
The labor pressure et cetera that we're seeing.
Certainly in the distribution area and we're not alone it seems like all retailers are dealing with this so we have pressure on the labor front, just getting resources et cetera, and so we don't expect to leverage our distribution costs in the.
In the first quarter. So there is some pressure there.
That's fair.
I wanted to ask and I know that you're just going to give the quarterly guidance, but as we think about the remainder of the year.
How should we be thinking about merchandise margins I assume that some of these pressures that you feel today labor some of the distribution of these things will continue.
But yet you guys talk about having kind of this new model pulling away from print advertising things that should help you going forward I guess the big picture.
We fall into maybe a new normal where do you think gross profit margins of merchandize margins, maybe settle and remove back to pre pandemic levels or can you continue to run the business at elevated margins.
So we believe that we can continue to run the business at margins.
Merchandize margin significantly and we believe overall.
Gross profit margins significantly.
Above what they were pre pandemic, we think the.
The enhancements in our merchandize margins that were our trajectory there was up very positively.
Here to the pandemic.
We accelerated.
Our movement in margins over the course of the pandemic to a large part the acceleration of the evolution of our advertising model that.
Oaken too I think there are additional factors over the pandemic supply chain related debt.
Further added to our margin growth and we'll have to see how those play out but that's.
Certainly when there is the disparity between supply and demand thus.
Thats favorable to margin at some point in time is supply.
<unk>.
Meet demand then we'll re evaluate our pricing as we always have with the goal of maximizing gross margin dollars.
Our stores are cleaner from an inventory standpoint, we have.
The third product, we think there's a number of factors that will enable us to achieve margins significantly ahead of where they were pre pandemic.
Mark we mentioned that our.
And our margins in Q4 were up.
And over 600 basis points versus Q4 of 2018, So we've got a lot of runway there.
We don't we've got a lot of a lot.
Margin.
So to speak.
Where we were and where we were where we ended Q4.
Okay Perfect and then last question for me as we look at store growth I think Barry you said you expect to open six this quarter and sorry, this year and close to <unk>.
Have you guys seen opportunities, you'll maybe for more store expansion, whether that's geographical or backfill in some markets. How do you view this maybe as we look.
Even beyond 2022 is there an opportunity to grow the base more.
Well.
Mark.
Store growth philosophy has been a.
A big part of our Oh.
Yes.
What we focus on for 65 years, and I think our position there is pretty well established in terms of.
Positive growth, but growth under control.
We are looking and evaluating a number of opportunities.
We slowed our growth relays didn't open stores in 2020, the consequence of the pandemic, we stepped it up last year with opening five.
New stores, a couple were relocations.
We indicated we are on the drawing board this year and we're continuing to evaluate a number of sites both for.
Infill in existing markets that we're looking for.
New opportunities, but generally at this point in time within the overall footprint that we occupy.
Perfect. That's great maybe I'll just squeeze one more in like seen the new share repurchase authorization.
And replacing kind of the old one given where the shares have come back to do you expect that to be maybe more of a priority rather than special dividends as we look here in near term.
Well Mark we've.
<unk> always looked at our share repurchases opportunistically and dividends is still an important part of our of our thought process.
But and of course, we will certainly be looking at the stock.
The stock.
<unk> overall.
If we deem it appropriate we will we will reengage, we showed that we were and.
We were active certainly in the fourth quarter and earlier in the year. So it is something that the.
The $25 million is kind of a re up.
Of an existing program.
We were at $7 7 million, so we kind of re upped it.
But it certainly gives us some more capacity in.
It's something we will keep an eye on.
Mark we've always through our long history as a public company have been very focused on returning value to our shareholders.
Perfect. Thank you guys.
Thanks Mark.
That completes our question and answer session I will now turn the call back to Mr. Miller for any closing remarks.
Thank you operator, and thank you all for joining us on today's call. We appreciate your interest in big five sporting goods and look forward to speaking with you again after the conclusion of our first quarter.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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Okay.
Yes.
Thanks.
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Uh huh.