Big 5 Sporting Goods Corp. reported a significant hike in earnings in the fourth quarter ended January 3 as same-store sales jumped 10.5 percent. The sporting goods chain also hiked its dividend by 50 percent and predicted that same-store sales would climb approximately 20 percent in the first quarter.
Results for the fourth quarter were in line with a forecast provided on January 13.
Steven G. Miller, the company’s chairman, president and chief executive officer, said, “Our strong fourth-quarter results highlight our exceptional performance in fiscal 2020 with record earnings driven by top-line sales growth, merchandise margin expansion and an improved cost structure. As we faced the many challenges of 2020, we remained focused on providing our customers with a convenient shopping experience to find products to stay active and healthy. Our team did a tremendous job of recognizing and capitalizing on key product trends. Additionally, in 2020 we successfully implemented cost reduction initiatives that are continuing to provide significant operating leverage. Looking back on the year, I want to once again thank our entire team for their dedication and execution during a challenging period.”
Miller continued, “The momentum of 2020 has continued into the start of 2021 with same-store sales up approximately 20 percent for the quarter to date. Although team sports remain impacted by the widespread suspension of league play, this softness has been more than offset by strength in other product categories. Winter-related product sales have been very strong, as customers have taken advantage of favorable winter weather to recreate the outdoors. The exceptional performance of our business over the course of 2020 and into 2021 is reflected in our balance sheet, as we currently have no debt and a strong cash position. We are pleased to report that our Board of Directors has authorized an increase in our regular cash dividend from an annual rate of $0.40 per share to an annual rate of $0.60 per share.”
As previously reported, net sales for the 14-week fiscal 2020 fourth quarter were $290.6 million compared to net sales of $244.1 million for the 13-week fourth quarter of fiscal 2019. Same-store sales increased 10.5 percent for the fourth quarter of fiscal 2020. Before the updated forecast on January 13, Big 5 had projected same-store sales for the full fourth quarter to be in the range of flat to positive 7 percent.
As a result of the company’s fiscal calendar, the fourth quarter of fiscal 2020 included 14 weeks, the fourth quarter of the prior fiscal year included 13 weeks, the fiscal 2020 full year included 53 weeks and the previous fiscal full-year included 52 weeks. The company’s same-store sales results for the fourth quarter reflect comparable 14-week periods and for the full year reflect comparable 53-week periods.
Gross profit for the 14-week fiscal 2020 fourth quarter increased 33.0 percent to $102.4 million, compared to $77.0 million in the 13-week fourth quarter of fiscal 2019. The company’s gross profit margin was 35.2 percent in the fiscal 2020 fourth quarter versus 31.6 percent in the fourth quarter of the prior year. The increase in gross profit margin largely reflects a 243-basis point increase in merchandise margins, lower store occupancy and warehousing costs as a percentage of net sales and, to a lesser degree, the favorable impact from an insurance settlement, partially offset by lower distribution costs capitalized into inventory for the quarter.
Selling and administrative expense as a percentage of net sales was 25.6 percent in the fiscal 2020 fourth quarter versus 30.9 percent in the fiscal 2019 fourth quarter. Overall selling and administrative expense for the quarter decreased $1.1 million from the prior year due to lower print advertising expense and the favorable impact of an insurance settlement, partially offset by higher performance-based incentive compensation accruals.
Net income for the fourth quarter of fiscal 2020 was $21.0 million, or 95 cents per diluted share, which includes a benefit of $0.10 per diluted share related to a favorable insurance settlement and a benefit of $0.02 per diluted share related to a reduction in deferred tax asset valuation allowance. Net income for the fourth quarter of fiscal 2019 was $0.4 million, or $0.02 per diluted share, including charges of $0.02 per diluted share as previously reported.
On January 13, Big 5 forecast EPS in the range of 90 cents to 93 cents, well above the previous range of 35 cents to 60 cents.
For the 53-week fiscal 2020 full year, as previously reported, net sales were $1.04 billion, compared to net sales of $996.5 million for the 52-week fiscal 2019. Same-store sales increased 3.0 percent for the fiscal 2020 full year despite periods of significant store closures during the year associated with the COVID-19 pandemic. Net income for fiscal 2020 was $55.9 million, or $2.58 per diluted share. Net income for fiscal 2019 was $8.4 million, or $0.40 per diluted share.
Balance Sheet
The company ended the 2020 fiscal year with no borrowings under its credit facility and with cash and cash equivalents of $64.7 million, which compares to $66.6 million of borrowings under its credit facility and $8.2 million of cash and cash equivalents as of the end of the 2019 fiscal year. Total merchandise inventories decreased by approximately 19.2 percent as of the end of fiscal 2020 versus the end of the prior fiscal year.
Credit Facility
As previously reported, subsequent to the end of the fourth quarter of 2020, on February 24, 2021, the company entered into a new Loan Agreement with Bank of America, N. A., as administrative agent and lender (the “Loan Agreement”). The Loan Agreement has a five-year term that matures in February 2026 and provides for a secured revolving credit facility with aggregate committed availability of up to $150 million.
Quarterly Cash Dividend
In light of the strength of the company’s business, cash flow generation, and balance sheet, the company’s Board of Directors has declared an increase in its quarterly cash dividend from $0.10 per share of outstanding common stock to $0.15 per share of outstanding common stock, which will be paid on March 26, 2021 to stockholders of record as of March 12, 2021.
First Quarter Guidance
For the fiscal 2021 first quarter, the company expects same-store sales to increase approximately 20 percent and expects to realize earnings per diluted share in the range of 47 to 53 cents, which includes expected non-operational benefits of approximately $0.06 per diluted share related to an insurance claim and elimination of a liability for an employment agreement associated with a related party. This compares to a same-store sales decrease of 10.8 percent and a loss per basic share of 22 cents in the first quarter of fiscal 2020.
Store Openings
The company currently has 430 stores in operation. During fiscal 2021, the company expects to open approximately five stores and close approximately one store.
Photo courtesy Big 5