Q1 2023 Big 5 Sporting Goods Corporation Earnings Call

Speaker 1: And.

Speaker 2: Good day ladies and gentlemen. Welcome to the Big Five Sporting Good's first quarter 2023 earnings results conference and we mundo???

Speaker 2: Today's call is being recorded.

Speaker 2: Thus today, I am Mr. Steve Miller, President and Chief Executive Officer, I am Mr. Barry Emerson, Chief Financial Officer of Big Five Sporting Good.

Speaker 2: At this time, for opening your marks and introductions, I'd like to turn the conference over to Mr. Mello. Please go ahead, so.

Speaker 3: Thank you, operator. Good afternoon, everyone. Welcome to our 2023 first quarter conference call. Today, we will review our financial results for the first quarter of fiscal 2023, as well as provide an outlook for the second quarter. I will now turn the call over to Barry to read our safe harbor statement.

Speaker 4: that we may make about our future expectations, plans, and prospects. Constituent forward-looking statements made pursuant to the safe harbor provisions of the Private Security's Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risk-benefit uncertainties that may cause our actual results in current and future periods.

Speaker 4: 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.

Speaker 4: that may be made from time to time by us or on our behalf.

Speaker 3: Thank you, Barry. In the first quarter, we achieved earnings near the midpoint of our guidance range, despite a very challenging operating environment. Not only did macroeconomic headwind accelerate over the course of the quarter, but the persistence of the cold and wet weather that started as a tailwind in the first half of the quarter turned into a headwind over the back half of the quarter. Our net sales for the quarter were $224.9 million compared to $242 million in the first quarter of

Speaker 3: 7.1%. On a year-over-year basis, transactions for the quarter were down mid-single digits, with the average ticket down low single digits.

Speaker 3: In January , when winter weather acts as a huge driver for our business, same store sales were up 3.6%.

Speaker 3: However, in February and March, when non-winter sales become more relevant to our overall results, we were down 7.5% and 13.7% respectively.

Speaker 3: The unusually wet and cold weather caused widespread delays to the start of our baseball and softball seasons and impacted other spring recreational activity.

Speaker 3: Additionally, it appeared to us that over the course of the quarter, our consumer was further impacted by macroeconomic conditions, including the regional bank crisis and lower tax refunds.

Speaker 3: Turning to the performance of our major merchandise categories, our apparel category increased in a high single-digit range.

Speaker 3: on the strength of winter-related failed. Our footwork category was down mid-single digits, hard goods, which was the category most negatively impacted by the significant rainfall, was down in the mid-teens range for the quarter.

Speaker 3: In the face of top-line headwinds, we have continued to focus on prioritizing merchandise margins to drive gross profit dollars.

Speaker 3: Merchandise margins in the first quarter remained healthy, declining just 23 basis points versus the record margins we generated in the first quarter of last year.

Speaker 3: up several hundred basis points for pre-pandemic levels.

Speaker 3: Our winter product sell-through was very good, and our aged inventory is at a historically low level. We feel well positioned to maintain healthy merchandise margins going forward. Turning to current trends, it remains a tough operating environment, and the second quarter is off to a soft start, with sales running down approximately 11% versus last year. We believe our customers are continuing to carefully monitor their discretionary spending.

Speaker 3: While we've benefited in the second quarter from some catch-up sales in baseball following the rain delays in the prior quarter, it certainly has not been enough to overcome the general softness in discretionary spending.

Speaker 3: As we look ahead, the key to our second quarter always revolves around the high volume periods surrounding memorials day, father's day, and the start of summer.

Speaker 3: The snowpack and rainfall have done wonders for the drought across our footprint.

Speaker 3: And we are hopeful that this will create favorable summer recreational opportunities.

Speaker 3: Although flooding from excess snow melt remains a potential concern.

Speaker 3: In summary, as we're managing through this challenging environment, which is clearly pressuring our top line sales,

Speaker 3: We are focused on maintaining our strong merchandise margins and working to mitigate the impact of inflation on our operating expenses.

Speaker 3: We've kept our inventory at a healthy position, which allows us to be opportunistic with future inventory investments that can drive traffic and sales at healthy merchandise margins. Our balance sheet remains strong, and we believe we are well positioned to navigate the current environment.

Speaker 3: capitalizing opportunities as the economy improves. I'll now turn it over Barry to provide additional details regarding our first quarter performance and second quarter outlook.

Speaker 4: Very. Thanks, Dave. Gross profit for the fiscal 2023 first quarter was $75.1 million compared to gross profit of $85.9 million in the first quarter of the prior year. Our gross profit margin of 33.4% in the fiscal 2023 first quarter

Speaker 4: declined from 35.5% recorded in the first quarter of last year.

Speaker 4: The lower gross profit margin year over year primarily reflected higher store occupancy and distribution expense, including cost capitalized in the inventory as a percentage in net sales and a decrease in merchandise margins of 23 basis points.

Speaker 4: As Steve mentioned, although merchandise margins for the first quarter this year decrease slightly versus the first quarter of fiscal 2022, merchandise margins continue to run several hundred basis points higher than pre-pandemic levels, reflecting the evolution of our pricing and promotional strategy.

Speaker 4: Overall, selling and administrative expense came in slightly favorable to plan, decreasing $0.1 million in the fiscal 2023 first quarter versus the prior year period, primarily reflecting lower performance-based incentive accruals offset by higher labor costs.

Speaker 4: 2023 compared to 15 million in the first quarter of last year.

Speaker 4: Turning to the balance sheet, our merchandise inventory was up 5.3% year over year at the end of the first quarter of fiscal 2023. We feel good about the level of our inventory in that the increase primarily reflects supply chain disruptions last year, partially offset by strong self-reward winter inventory this season.

Speaker 4: Reviewing our capital spending, our CAPEX excluding non-CASH acquisitions totaled 2.5 million for the first quarter of fiscal 2023, primarily representing investments in store-related remodeling, distribution center equipment, corporate leasehold improvements, and computer hardware and software purchases.

Speaker 4: For the fiscal 2023 full year, we continue to expect CAPEX in the range of 15 to 20 million and anticipate opening approximately five new stores, relocating one store and closing approximately five stores.

Speaker 4: In fiscal 2023 full year, we continue to expect CAPEX in the range of 15 to 20 million and anticipate opening approximately five new stores, relocating one store, and closing approximately five stores. Now looking at our cash flow.

Speaker 4: Net cash provided by operating activities was $12.3 million for the first quarter of fiscal 2023. This compares to cash used in operating activities of $23.7 million in the prior year period.

Speaker 4: Our balance sheet at the end of the first quarter of fiscal 2023 was very healthy, was zero borrowings under our credit facility and 27.5 million of cash, which was up 1.9 million from the end of fiscal year 2022. As we look ahead, we continue to anticipate our working capital to decline in 2023, which should further help our overall liquidity. Our financial condition has strengthened considerably over the past three years. And today we announce that our Board of Directors declared a quarterly cash dividend of 25 cents per share.

Speaker 4: Now I'll spend a moment on guidance. For the fiscal 2023 second quarter, the company expects same-store sales to decrease in the high single-digit range compared to the fiscal 2022 second quarter.

Speaker 4: Fiscal 2023 second quarter earnings per share is expected in the range of negative 10 cents to positive 5 cents, which compares to fiscal 2022 second quarter earnings per diluted share of 41 cents. That concludes our prepared remarks. Operator, we are now ready for any questions. Thank you, sir. The first question we have is from Mark Smith from Lake Street Capital Markets. Please go ahead.

Speaker 5: Hey guys, thank you for the insight into monthly comps. I just wanted to confirm that I kind of heard stuff. It sounds like quarter of the date you guys are running down 11%. Did I hear that right?

Speaker 5: Q2 to date, yes. That's right. Okay. So, and then you'll…

Speaker 5: So this deceleration in comps, especially as we look at it maybe on a two-year or even on a three-year stack basis, you know, I don't know if you can quantify or maybe speak to how much of this you think in April was really weather-related versus macro pressures on the consumer in your markets.

Speaker 3: Sure, Mark. I think the certainly the overriding factor in our mind is the...

Speaker 3: the macro pressures to and in the markets and discretionary.

Speaker 3: for the discretionary goods that we carry. Weather was still a headwind in April to us, a less so than probably it was in March. At least we saw a peak of sun in our markets that our core California markets over the course of April . And we were very encouraged to see the...

Speaker 3: I guess the pent up demand when the sun shined, but clearly the key factor that we're battling is, I think, the back row environment.

Speaker 5: Okay. And as we look at the inventory, I think Barry had said you guys were pretty comfortable with it. And I know you guys typically are comfortable holding inventory for a longer period of time. But how do you feel about what you have? Is there anything that you think was maybe lost?

Speaker 5: due to weather, any baseball items, softball items, etc., that you may have to hold over till next season or, you know, sell at a discount here.

Speaker 3: No, we feel very good about our business. Certainly, the baseball product is not a core product, not a fashion driven business.

Speaker 3: Yeah, whatever we did hold would hold its value very possibly, but the truth of fact or as a matter is that we're in good shape in baseball. We're generally pleased with our team sports business and our baseball. I mentioned we got some comeback in baseball in April . I think that's an area that families and parents are prioritizing.

Speaker 5: Okay. And then it looks like maybe we added one additional closure to the outlook, kind of in the guidance for this year. You know, is that maybe a store up against the end of a lease that just doesn't make sense? Renew or, you know, is there maybe an issue where a store has gone down enough that it just makes sense to close? No, more, maybe it's just evaluating if we always do, you know, our store openings, relocations, and closures, really the goal of, you know, continually optimizing our store base. And I think trying to...

Speaker 3: Reflecting the change from going to, I think we said, foreclosures for the year to five was just an evaluation of a lease for renewal that we ultimately felt weighed into closing and seeing an opportunity to pick up. Maybe more help in the future with support by paying theash oriented revolvesi Worksamba. sig This 1964 so

Speaker 3: We believe enough fails to adjacent stores to ultimately make it a, you know, the correct, well we believe is the correct decision for our store base.

Speaker 5: Okay. The last question for me is just as we look at GNA, you know, you held up pretty well on merchandise margins, but as we look at GNA, you know, down just slightly year over year and I know you don't guide this number, but as you look at it big pictures.

Speaker 5: Is there any, you know, we'll call it fat that's out there that you think you can trim or control in G&A or if you like your when a kind of is lean as you can right now on G&A expenses.

Speaker 4: You know, Mark, we're looking at all of our expenses very carefully in this environment. It really is broad-based pressure really throughout the income statement and the balance sheet, really. But no, there's levers that we can pull and are pulling. You know, it's, again, generally the pressure is up, but we're...

Speaker 4: taking a hard look at, you know, I mean, when we look at our labor costs, I mean, certainly, you know, the our most Significant expenses labor and and labor rates have gone up, you know year after year after year So we're doing our best to try and manage our labor hours as best we can You know at store level and and and that we've been we've had some success there Certainly we and we continue to work, you know that that angle that's certainly our largest expense So we'll continue to work on labor hours at the store stores You know advertising, you know, we continue to look at our advertising and try and you know rationalize and make sure that we're you know we're getting the return on those dollars whether it's with

Speaker 6: you guys.

Speaker 3: Thanks Mark.

Speaker 2: Thank you. Ladies and gentlemen, there are no further questions at the stage. I will now hand back to Mr. Mena for closing remarks. She's going ahead.

Speaker 3: 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 second quarter.

Speaker 3: 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 at the after the conclusion of our second quarter. Have a great afternoon.

Speaker 2: Thank you. Ladies and gentlemen, that then concludes today's conference call. Thank you for joining us. You may now disconnect your lines.

Speaker 1: I Le C.

Speaker 1: The.

Speaker 1: I.

Speaker 1: The.