Big 5 Outlines Strategy For Adapting To Market Pressures

By Eric Smith

Though Big 5 Sporting Goods Corp.’s third quarter earnings fell within guidance, they were shy of expectations as August and September sales were “disappointing,” company President and CEO Steven Miller said on Tuesday afternoon’s earnings conference call with analysts.

But the El Segundo, CA-based sporting goods retailer was able to navigate a series of market pressures to find some measure of success in the period, and the company has plans to adapting to ongoing headwinds.

“While our sales performance was disappointing, we effectively managed both product margins and expenses during the quarter while making significant progress toward rightsizing our inventory levels,” Miller said. “We certainly recognized that successfully navigating the challenges of operating in the current retail environment requires that we closely examine all aspects of our business, and as part of this ongoing process we are testing and implementing initiatives across our organization in effort to improve our operating result.”

Read more: Big 5 Sporting Goods Corp. Misses On Q3 Revenue, Earnings

Net income for the third quarter of fiscal 2018 ended September 30 was $3.1 million, or 15 cents per diluted share, missing estimates by 4 cents. This was down from net income for the third quarter of fiscal 2017 of $6 million, or 28 cents per diluted share.

Net sales for the third quarter were $266.4 million, missing expectations by $9.4 million and down from net sales of $270.5 million for the third quarter of fiscal 2017.

Same-store sales decreased 2 percent for the third quarter of fiscal 2018. As anticipated, fiscal 2018 third quarter sales comparisons to the prior year reflect a small benefit from the calendar shift related to the Fourth of July holiday.

Gross profit for the fiscal 2018 third quarter was $82.5 million compared to $87.5 million in the third quarter of the prior year. The company’s gross profit margin was 31 percent in the fiscal 2018 third quarter versus 32.4 percent in the third quarter of the prior year primarily reflecting higher distribution and store occupancy expenses as a percentage of net sales. The company also realized a slight contraction of merchandise margins of 10 basis points year-over-year due in part to added promotions related to the calendar shift of the July 4 holiday.

Big 5’s product assortment was mixed in the quarter, with apparel performing positively, up in the low single digits, while footwear comped down in the mid single digits, “primarily due to softness in our core athletic footwear assortment,” Miller said. “Our casual and lifestyle footwear assortments performed well, but their strength was not enough to offset the weakness athletic footwear.”

And Big 5’s hardgoods category declined in the low single digits, due primarily to adverse impact from California wildfires stunting outdoor activities.

Wall Street took note of the soft quarter, as shares of Big 5 slid 72 cents, or 17 percent, at market close on Wednesday.

But the company is bullish on a solid fourth quarter, in part because it will comp against a soft Q4 last year due to unfavorable winter weather conditions, but mostly because Big 5 has announced some initiatives it thinks can improve the top and bottom lines.

From a product standpoint, Big 5 said it is “accelerating the pace of change within our assortment,” Miller said. “This includes downsizing certain product categories to position us to be more aggressive in pursuing product opportunities that we believe have higher growth potential. In some areas, we are narrowing the overall assortment while increasing the depth of certain key selling SKUs.”

The company is also testing some pricing strategies “to be more responsive to an increasingly promotional competitive retail environment,” Miller said. “Of course, our goal is to achieve the optimal balance between driving sales and maintaining margins that are healthy for our business. We are adjusting our advertising cadence and structure to allow more flexibility to diversify our marketing message across our print and digital platforms. This includes shifting a greater proportion of our marketing budget from print to digital programs and testing a number of digital marketing channels.”

The company’s new POS system is in place, helping Big 5 expand customer relationship management capabilities to enhance analytics and improve marketing efforts, Miller said.

Other initiatives include cost reduction opportunities such as mitigating wage pressures and managing store occupancy costs through negotiating rent reductions. The company also announced a reduction of its quarterly dividend.

“As we work to implement our operational and expense reduction initiatives, we will continue to look for other opportunities throughout our business to accelerate our performance and improve our operating result,” Miller said. “We are optimistic that as these enhancements will roll out, we will be better positioned to succeed in this challenging retail environment.”

For the fiscal 2018 fourth quarter, the company expects same-store sales to be in the range of negative low single-digits to positive low single-digits and expects to realize a loss per share in the range of 15 cents to 25 cents.

Photo courtesy Big 5 Sporting Goods

[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]