Big 5 Sporting Goods Lowers Outlook On Calendar Shift

Big 5 Sporting Goods Corp. on Tuesday lowered its outlook for the fiscal second quarter based on the combined negative impact of calendar shifts associated with the Easter holiday, when the company’s stores are closed, and the Fourth of July, which falls in the third quarter.

For the fiscal 2019 first quarter, the company reported net income of $1.7 million, or 8 cents per diluted share, including a charge of 2 cents per diluted share for the write-off of deferred tax assets related to share-based compensation. Non-GAAP EPS of 10 cents beat Wall Street’s estimates by 2 cents. For the first quarter of fiscal 2018, net loss was $1.3 million, or $0.06 per share, including a 1 cent per share charge for the write-off of deferred tax assets.

The retailer reported net sales for Q1 increased 4.7 percent to $245.3 million from $234.2 million in the year-ago period. The company missed revenue expectations by $1.4 million.

Same store sales increased 4.6 percent for the first quarter of fiscal 2019. Net and same store sales comparisons year-over-year reflect a small positive impact as a result of the calendar shift of the Easter holiday, when the company’s stores are closed, into the second quarter of fiscal 2019 from the first quarter of fiscal 2018.

Gross profit for the fiscal 2019 first quarter increased to $75.9 million from $72.7 million in the first quarter of the prior year. The company’s gross profit margin was 30.9 percent in the fiscal 2019 first quarter versus 31.1 percent in the first quarter of the prior year. Merchandise margins increased one basis point for the quarter compared to the prior year period. The decrease in gross profit margin largely reflects lower distribution costs capitalized into inventory as a result of reduced inventory levels, which was offset by reduced occupancy and warehouse expense as a percentage of net sales.

Selling and administrative expense as a percentage of net sales decreased to 29.6 percent in the fiscal 2019 first quarter from 31.4 percent in the first quarter of the prior year. Overall selling and administrative expense for the quarter decreased $0.9 million from the prior year primarily due to lower print advertising and employee benefit-related expenses, partially offset by higher store labor expense reflecting minimum wage increases as well as higher payment card transaction fees associated with the higher sales volume versus the prior year.

The company’s revolving credit borrowings were $45.4 million as of the end of the fiscal 2019 first quarter, which reflects a reduction of $23.5 million versus the same period in the prior year and a reduction of $19.6 million compared to the end of the prior fiscal year. The company’s merchandise inventories declined 7.7 percent on a per-store basis as of the end of the first quarter compared to the prior year period. The resulting working capital improvements in inventory and accounts payable, as well as higher net income, drove a $21.4 million increase in operating cash flow in the fiscal 2019 first quarter to $12.5 million, compared to an $8.9 million use of cash in the first quarter of fiscal 2018.

“Our strong first quarter sales resulted in solid earnings growth and allowed us to substantially strengthen our balance sheet by reducing both inventory and borrowing levels. Our model, which is built on providing the optimal mix of value, selection, service and convenience, enabled us to capitalize on favorable seasonal winter conditions and achieve a remarkable sell-down of our winter merchandise,” said Steven G. Miller, the company’s chairman, president and CEO.

“While our current sales trends are somewhat difficult to read due to the volatility of this year’s weather and the later timing of Easter this year, it appears that our business is being impacted by softness in our overall consumer environment. That said, we feel well-positioned from a merchandise and promotional perspective for the key selling period during the quarter, which includes Memorial Day, Father’s Day and the start of the summer season. Given that weather was generally unfavorable last year during these periods, we believe that there exists upside opportunity over the balance of the quarter.”

Quarterly Cash Dividend 
The company’s Board of Directors has declared a quarterly cash dividend of 5 cents per share of outstanding common stock, which will be paid on June 14, 2019, to stockholders of record as of May 31, 2019.

Guidance
For the fiscal 2019 second quarter, the company expects same store sales to be in the low negative to low positive single-digit range and loss per share to be in the range of 4 cents to 12 cents. This compares to a same store sales decrease of 2.1 percent and a loss per share of 1 cent in the second quarter of fiscal 2018.

Fiscal 2019 second quarter guidance reflects the combined negative impact of calendar shifts associated with the Easter holiday, during which the company’s stores are closed, from the first quarter of fiscal 2018 and into the second quarter of fiscal 2019, and with the Fourth of July holiday, which will move one day further into the third quarter this year.

Store Openings
During the first quarter of fiscal 2019, the company closed three stores, ending with 433 stores in operation. During the fiscal 2019 second quarter, the company expects to open one new store. For the fiscal 2019 full year, the company continues to anticipate opening approximately five new stores and closing approximately four stores.