Big 5 Sporting Goods’ same-store sales were down 0.7 percent in the third quarter ended September 30 against tough comparisons given the year-ago sales surge during the early months of the pandemic. On a two-year stack basis, comps jumped 13.2 percent versus the 2019 third quarter. The retailer achieved the gains despite supply chain challenges that have caused product shortages.
Given its sustained momentum, cash flow generation and positive outlook for the fourth quarter, Big 5 declared another special cash dividend of $1 per share on top of its regular quarterly cash dividend of 25 cents per share.
“We saw broad-based sales strength across our diverse product mix,” said Steve Miller, Big 5’s president and CEO, on a conference call with analysts. “Although we faced challenges from supply chain disruptions to continued pandemic-related issues to nature wildfires in our markets, we nonetheless delivered sales that largely kept pace with last year’s extraordinary pandemic-related sales surge while comping very positively against pre-pandemic 2019 sales.”
Indeed, Miller noted that the chain’s comps would have “comped comfortably up in the low-single-digits” if it were not for the extensive wildfires in its region.
When reporting second-quarter results on August 3, Big 5 had projected third-quarter same-store sales to be in the flat to positive mid-single-digit range.
Third-quarter net sales were down 5.0 percent to $289.6 million from $305 million a year ago. On a two-year stack basis, sales would have climbed 8.8 percent to $289.6 million from $266.2 million for the third quarter of 2019.
Net sales and earnings were negatively impacted by a calendar shift related to its 53-week fiscal 2020 that resulted in pre-4th of July holiday sales moving from the third quarter in fiscal 2020 to the second quarter in fiscal 2021. Same-store sales are recorded on a comparable day basis and not impacted by the calendar shift.
Monthly, July same-store sales comped down 9 percent against 2020 as the period comped against the peak of the pandemic sales surge last year. On a two-year basis compared to 2019, July sales were up 17.7 percent.
August comped up 3.8 percent compared to 2020 and grew 6.4 percent compared to 2019. Although August benefited from the return of school and youth sports, much of the benefit was offset by the negative impacts of the wildfires. The wildfires led to closing all national forests in California to the public for multiple weeks, including the key Labor Day holiday period, which notably impacted sales of outdoor recreational products.
In September, same-store sales were up 4.5 percent versus 2020 and up 15.9 percent versus 2019. The decline, in part, reflected the impact of the wildfires.
Footwear Paces Category Gains
Each of Big 5’s three major merchandise categories benefited from the healthy return to team sports in its markets.
- Apparel sales grew more than 20 percent versus 2020 and climbed more than 10 percent versus 2019.
- Footwear was up more than 25 percent versus 2020 and grew mid-single-digits versus 2019.
- Hardgoods was down low teens versus 2020 but gained nearly 20 percent versus 2019.
Hardgoods by far was the biggest beneficiary of pandemic-related demand in the prior-year period, driven by products including home fitness and outdoor recreation, and consequently faced the most challenging year-over-year comparisons. The hardgoods category was also most impacted by wildfires during this year’s third quarter.
Added Miller, “What we think is particularly noteworthy is that we continue to generate these strong sales while operating our stores with significantly less advertising and reduced operating hours compared to the pre-pandemic period, which, of course, have enhanced our operating cost structure.”
Net earnings declined 15.1 percent to $24.1 million, or $1.07 per share, in line with guidance calling for EPS in the range of 95 cents to $1.15.
The latest earnings compared with year-ago net income of $28.4 million, or $1.31 per share, which at the time was the highest earnings of any quarter in the company’s history. The July-4th calendar shift also had an approximately 20 cents unfavorable impact on the latest earnings.
On a two-year stack basis, earnings would have increased nearly four-fold from $6.4 million, or 30 cents per share.
Merchandise Margins Improve 152 Basis Points
Gross margins improved to 37.3 percent from 36.1 percent a year ago. The increase primarily reflects a 152-basis point increase in merchandise margins, partially offset by higher store occupancy expense as a percentage of net sales compared with the prior year. Versus 2019, merchandise margins were up 429 basis points on a comparable day basis.
As a percent of sales, selling and administrative expense increased to 25.9 percent in the latest from 23.4 percent a year ago. Overall selling and administrative expense for the quarter increased $3.8 million year over year primarily due to increased store-related costs, such as labor, benefits, and facility costs, versus the prior-year period, which included reduced operating hours due to the pandemic. Advertising expense also increased in the latest period but remained substantially below pre-pandemic levels.
For the nine months, sales reached were $888.5 million against $750.6 million in the prior-year period and sales of $752.4 million in the 2019 period. Same-store sales increased 18.9 percent in the latest nine months versus the comparable period last year and increased 19.7 percent versus the comparable period in 2019.
Net income in the nine months was $82.5 million or $3.66 per share, including a net benefit in the first quarter of 6 cents per share related to an insurance settlement and the elimination of an employment agreement liability. That compares to $34.9 million or $1.63 a year ago, which included a benefit of 13 cents. For the first nine months of 2019, net income of $8.1 million or 38 cents, including a 2-cent benefit.
Favorable Fourth-Quarter Outlook Despite Supply Chain Disruption
Miller noted that the sales performance in the latest quarter came despite supply chain constraints. He said, “Unquestionably, our third-quarter results would have been even stronger but for the fact that our ability to procure and deliver products to our stores was constrained by the widely reported supply chain disruptions facing virtually all retailers. While those challenges have continued into the fourth quarter, and we may not have all the products on hand that we would ideally want to have, we believe our inventory should be sufficiently well-positioned to produce solid fourth-quarter results that significantly exceed pre-pandemic levels.”
For the current 13-week fourth quarter, Big 5 expects same-store sales to be in the range of negative low-single-digits to positive low-single-digits, with EPS in the range of 55 cents to 70 cents. That compares to a same-store sales increase of 10.5 percent and EPS of 95 cents in the 14-week fourth quarter of 2020, which included a previously reported net benefit of 12 cents per share.
The mid-point of guidance range reflects an expected same-store sales increase of approximately 10 percent versus the 2019 fourth quarter.
Earnings were 4 cents a share in the 2019 fourth quarter.
For the fourth quarter to date, same-store sales are running slightly positive on a year-over-year basis versus 2020 and up in the mid-teens on a two-year basis versus 2019.
“We continue to see strength across a broad array of product categories,” said Miller. “That said, October is historically a low-volume month. And as always, the key to the quarter is the holiday period, which will be heavily influenced by winter weather and the overall retail consumer environment, not to mention the ongoing supply chain challenges.”
Inventory Below Plan
Merchandise inventory at the end of the quarter was up just slightly compared to the prior year. On a two-year basis, from the end of the fiscal 2019 third quarter, merchandise inventory is down approximately 18 percent.
“Our inventory is a little lower than we would like to see right now,” said Barry Emerson, chief financial officer. “We are managing through supply chain disruptions as demand continues to outpace supply.”
Emerson noted that one benefit of the reduction in print advertising is that the chain can operate with less inventory now than it historically had to because heavy stocks in promoted items are less required. Said Emerson, “With the reduced print advertising, we have more flexibility to source product in smaller lots and more flexibility to allocate products strategically to stores, both of which have proven to be an advantage in the current environment. Additionally, our inventory is very fresh, and we are operating with considerably less clearance inventory than we were last year and in 2019.”
Asked to elaborate on the supply chain and inflation hurdles in the Q&A section of the call, Miller said, “Well, we’re certainly facing all the issues that we believe are well documented that most others are facing. As I think I mentioned in prepared remarks in some categories, we wish we had more product, but the bottom line is that we are well-positioned, we think, for the balance of the quarter and certainly the holiday season. We continue to receive product every day, and at this point, we have the lion’s share of what we need for Black Friday and the holiday.
“In terms of inflation, it’s a very real issue right now. We’re in a situation where given certainly the strong demand relative to supply, we’ve been able to adjust prices to maintain our margins, something we’re keeping a close eye on, and at the end of the day, we’re all about maximizing gross profit dollars. We would anticipate at some point in time, as supply begins to catch up with a man, it will pivot to be somewhat more promotional, certainly with the goal of ultimately maintaining and enhancing gross profit dollars.”
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