Big 5 Sporting Goods Corp. reported earnings were slightly below guidance in the second quarter ended October 1 as same-store sales dropped 8.2 percent on weak discretionary spending. The California-based chain further forecasted that same-store sales in the fourth quarter would decline in the high single-digit to low double-digit range.

The same-store sales decline by 8.2 percent in the second quarter was below company guidance calling for a decrease in the mid-single-digit range. EPS of 8 cents a share compares with guidance in the range of 10 cents to 20 cents.

Steven Miller, the company’s chairman, president and chief executive officer, stated, “Our third quarter results came in slightly below our expectations, reflecting the increasing pressure over the course of the quarter on consumer discretionary spending resulting from a host of significant macroeconomic headwinds. In the face of the challenging sales environment, we have remained intently focused on optimizing merchandise margins, controlling expenses, and managing inventory, and we are pleased with our team’s execution in these areas.”

Miller continued, “Looking at the fourth quarter, we have taken the steps to put our business in the best possible position for the winter and holiday season, with healthy inventory levels and a product assortment that we feel is well-positioned to resonate with our customers. However, sales trends continue to be pressured in the fourth quarter to date, and we expect that soft consumer discretionary spending is likely to persist over the balance of the quarter. Given the uncertainty of the duration of the challenged macroeconomic environment, and given our commitment to maintaining a healthy balance sheet, we have proactively adjusted our dividend to maintain ample financial flexibility.”

Net sales for the fiscal 2023 third quarter were $239.9 million, compared to net sales of $261.4 million for the third quarter of fiscal 2022. Same-store sales decreased 8.2 percent for the third quarter of fiscal 2023, compared to the third quarter of fiscal 2022.

Gross profit for the fiscal 2023 third quarter was $79.6 million, compared to $86.6 million in the third quarter of the prior year. The company’s gross profit margin was 33.2 percent in the fiscal 2023 third quarter versus 33.1 percent in the third quarter of the prior year. The slight increase in gross profit margin compared with the prior year primarily reflects a 52-basis point increase in merchandise margins and extinguishment of certain real estate-related liabilities, partially offset by higher store occupancy and distribution expense, including costs capitalized into inventory, as a percentage of net sales. The company’s merchandise margins for the third quarter of fiscal 2023 continued to run several hundred basis points ahead of pre-pandemic rates, supported by the evolution of the company’s pricing and promotional strategy.

Overall selling and administrative expenses for the quarter decreased by $1.6 million from the prior year, primarily reflecting lower employee labor and benefit-related expenses, partially offset by higher legal expenses primarily resulting from a tentative legal settlement. As a percentage of net sales, selling and administrative expenses increased to 31.9 percent in the fiscal 2023 third quarter, compared to 29.9 percent in the fiscal 2022 third quarter due to the lower sales base.

Net income for the third quarter of fiscal 2023 was $1.9 million, or $0.08 per diluted share. This compares to net income of $6.4 million, or $0.29 per diluted share in the third quarter of fiscal 2022.

For the 39-week period ended October 1, 2023, net sales were $688.4 million compared to net sales of $757.2 million in the first 39 weeks of last year. Same-store sales decreased 9.1 percent in the first nine months of fiscal 2023 versus the comparable period last year. Net income for the first 39 weeks of fiscal 2023 was $1.8 million, or $0.08 per diluted share. This compares to net income for the first 39 weeks of fiscal 2022 of $24.4 million or $1.10 per diluted share.

Adjusted EBITDA was $7.4 million for the third quarter of fiscal 2023 compared to Adjusted EBITDA of $13.0 million in the prior year period. For the 39-week period ended October 1, 2023, Adjusted EBITDA was $16.0 million, compared to Adjusted EBITDA of $45.7 million in the prior year period. EBITDA and Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Financial Measures” below for more details and a reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most comparable GAAP measure, net income.

Balance Sheet
The company ended the 2023 fiscal third quarter with no borrowings under its credit facility and with a cash balance of $17.9 million, which represents an increase from the $5.9 million of cash as of the end of the 2023 second quarter, primarily reflecting lower inventory levels. This compares to no borrowings under the company’s credit facility and $25.6 million of cash as of the end of fiscal 2022. Merchandise inventories as of the end of the third quarter of fiscal 2023 decreased by 8.0 percent compared to the prior year period, reflecting the company’s efforts to manage inventory levels relative to sales.

Quarterly Cash Dividend
The company’s Board of Directors has declared a quarterly cash dividend of $0.125 per share of outstanding common stock, which will be paid on December 15, 2023, to stockholders of record as of December 1, 2023. This dividend, which represents a reduction from the previous quarterly cash dividend rate of $0.25 per share, reflects the company’s prudent approach to capital management in an effort to maintain a healthy financial condition given the uncertain duration of current macroeconomic challenges.

Fourth Quarter Guidance
For the fiscal 2023 fourth quarter, the company expects same-store sales to decrease in the high single-digit to low double-digit range compared to the fiscal 2022 fourth quarter. The company’s same-store sales guidance reflects an expectation that macroeconomic headwinds will continue to impact discretionary consumer spending over the balance of the fourth quarter. Fiscal 2023 fourth-quarter net loss per share is expected in the range of $0.20 to $0.35, which compares to fiscal 2022 fourth-quarter earnings per diluted share of $0.08. The company currently anticipates its cash balance at the end of the fiscal 2023 fourth quarter to be largely consistent with its cash balance at the end of the fiscal 2023 third quarter.

Store Openings
The company has 430 stores in operation, which reflects two store openings and two store closures, including one relocation, during the fiscal 2023 third quarter. During the remainder of fiscal 2023, the company does not expect to open or close any stores.

Photo courtesy Big 5