Big 5 Sporting Goods Corporation saw a holiday shift add to the uneven winter weather and macroeconomic challenges the retailer faced in its first quarter performance as the West Coast and Mountain states sporting goods retailer posted another quarter with a double-digit comp store sales decline, albeit not as challenging as the decline in the fourth quarter. 

While the company contends that outside factors hurt its retail business, senior management realizes it can only focus on what it can control, including expenses and inventory management.

Net sales for the fiscal 2024 first quarter were $193.4 million, compared to net sales of $224.9 million for the first quarter of fiscal 2023. Same-store sales decreased 13.5 percent year-over-year for the first quarter.

“As anticipated, sales comparisons were impacted by the calendar shift of the Easter holiday when our stores are closed from the second quarter of 2023 to the first quarter of 2024,” explained company President and CEO Steve Miller. “We believe this calendar shift negatively impacted our first quarter same-store sales by roughly 100 basis points.”

Miller said apparel sales were down approximately 16 percent in the quarter, hardgoods sales were down approximately 14 percent, and footwear sales were down approximately 10 percent during the period.

“While we were encouraged that our average ticket was up slightly year-over-year, our transaction count was down low double-digits, which we believe reflects the soft discretionary spending environment,” Miller added.

Gross margin was 31.2 percent of net sales in the first quarter versus 33.4 percent in the first quarter of the prior year. The 220 basis-point decrease in gross profit margin compared with the prior-year quarter was said to primarily reflect higher store occupancy and distribution expense, including costs capitalized into inventory, as a percentage of net sales.

The company’s merchandise margins increased by 48 basis points year-over-year for the first quarter of fiscal 2024.

Miller said winter-related product margins were strong as the category benefited from the freshness of product this winter season following strong sell-through in the prior year’s winter season. 

“Margins also benefited from our overall inventory management, and we are pleased to achieve merchandise margin gains while also reducing year-over-year inventory levels by 12.5 percent as of the end of the quarter,” he shared.

“In the face of the top-line sales headwinds, we have continued to focus on the aspects of the business that we have more control over,” Miller continued. “We were relatively pleased with the results we achieved from our efforts in optimizing merchandise margins, maintaining healthy inventory levels relative to sales, and managing expenses.”

Diligent expense management continues to be another focal point for Big 5 as Miller noted that the company reduced its first quarter selling and administrative expenses by $3.8 million year-over-year, which Miller said was primarily due to lower employee labor expenses.

“A large contributor to the expense savings resulted from closely managing our store labor hours, which we’ve been particularly focused on to mitigate the impact of substantial increases in minimum wage rates across our markets,” Miller detailed. “Expense management has always been one of our strengths, and this focus is particularly important now given the inflationary pressures and challenging sales environment.”

As a percentage of net sales, selling and administrative expense was 36.9 percent in the 2024 first quarter, compared to 33.4 percent in the 2023 first quarter, reportedly due to the lower sales base.

The net loss for the first quarter was $8.3 million, or 38 cents per basic share, compared to net income of $0.2 million, or 1 cent per diluted share, in the first quarter of fiscal 2023.

EBITDA was negative $6.6 million for Q1, compared to a positive EBITDA of $4.5 million in the prior year Q1 period. EBITDA and Adjusted EBITDA are non-GAAP financial measures.

CapEx excluding non-cash acquisitions totaled $1.8 million for the first quarter, primarily representing investments in store-related remodeling, distribution center equipment, and computer hardware and software purchases, noted company CFO Barry Emerson.

“For the 2024 full year, we continue to expect CapEx in the range of $13 million to $18 million,” Emerson continued. “For the balance of fiscal 2024, we anticipate opening approximately five new stores and closing approximately four stores as part of our ongoing efforts to optimize our store base resulting in approximately 425 stores in operation at the end of the year.”

Net cash provided by operating activities was $8.2 million in the first quarter.

“This compares to net cash provided by operating activities of $12.3 million in the comparable period last year,” said Emerson. “The year-over-year decrease in our operating cash flow primarily reflected lower net income, partially offset by a smaller decrease in accrued expenses.”

Balance Sheet
Emerson added that the balance sheet at the end of the first quarter remained healthy. The company ended the quarter with no borrowings under its credit facility and a cash balance of $12.6 million. This compares to no borrowings under the company’s credit facility and $9.2 million of cash as of the end of fiscal 2023.

Merchandise inventories were $275.8 million at quarter-end, a decrease of 12.5 percent compared to the prior-year Q1 period-end, reflecting the company’s efforts to manage inventory levels relative to sales.

Quarterly Cash Dividend
The company’s Board of Directors declared a quarterly cash dividend of 5 cents per share of outstanding common stock, paid on June 14, 2024 to stockholders of record as of May 31, 2024.

Store Openings
The company has 424 stores in operation, reflecting six store closures in the 2024 first quarter as part of its ongoing efforts to optimize its store base. During the remainder of fiscal 2024, the company expects to open approximately five stores and close four.

Second Quarter Guidance
For the fiscal 2024 second quarter, the company expects same-store sales to decrease in the high-single-digit range compared to the fiscal 2023 second 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 second quarter.

“Although fiscal second-quarter net sales comparisons to the prior year will benefit from the calendar shift of the Easter holiday, this benefit is expected to be offset by the 4th of July holiday shifting two days further into our fiscal third quarter this year,” noted CFO Emerson.

“In the second quarter to date, we have continued to feel effects from the ongoing macro headwinds that are impacting consumer discretionary spending and same-store sales are running down in the high-single-digits, including a benefit from being open an extra day in the second quarter related to the calendar shift of the Easter holiday,” Miller suggested.

“The first half of the second quarter is a relatively low volume period for our business,” Miller continued. “The key to the second quarter always revolves around the higher volume periods surrounding Memorial Day and Father’s Day, along with the start of summer. We feel very positive about our product assortment and inventory position as we transition seasons.”

Miller said warmer and drier weather could be a strong driver of store traffic and spending over the balance of the quarter, especially compared to last year when those factors at the start of summer were said to be relatively unfavorable for the retailer.

Fiscal 2024 second-quarter net loss is expected in the range of 40 cents to 55 cents per basic share, which compares to the fiscal 2023 second-quarter net loss of 1 cent per basic share.

“We are cautiously optimistic that this year our business will benefit from more normalized weather patterns,” Miller expressed. “That said, our primary challenge in the near term will be contending with the confluence of macroeconomic variables that are continuing to weigh on discretionary spending patterns,” the CEO concluded. “We believe that when conditions improve, our proven business model, which focuses on providing customers with the optimal mix of value, selection, service, and convenience, will position us to resume positive sales and earnings growth and, in turn, create value for our shareholders. While we continue to work hard to energize our sales, we will remain diligently focused  managing our merchandise margins, inventory levels and expenses.”

Image courtesy Big 5 Sporting Goods Corp.