Big 5 Sporting Goods Corp. reported that warm weather, weak firearms sales and discounting caused fourth-quarter earnings to come in at the lower end of guidance.
Earnings in the quarter ended Dec. 28 are now expected to come in the range of 14 to 16 cents a share, down from 23 cents a year ago. When it reported third-quarter earnings on Oct. 28, it had projected earnings in the range of 14 to 22 cents a share.
The California-based retailer, which operates 439 stores in the Western United States, achieved net sales $250.3 million in the quarter, up 0.9 percent. Same-store sales decreased 0.5 percent on top of a 0.5 percent in the 2013 fourth quarter.
At the ICR XChange Conference last week, Steven Miller, chairman, president and CEO, said that after producing same store sales in the positive low single-digit range during October and November that were “very much on plan,” its holiday period sales declined in the low single-digit range, which brought its fourth quarter sales below expectations.
Sales of firearms were weaker than expected. The category had been a challenge for Big 5 all last year as it cycled a “surge” in firearms that began in 2012. But while recently improving background checks point to some improvement in firearms sales, Miller believes the pickup was driven by handgun sales. Big 5 only sells long guns, which Miller believes has remained weak industry wide.
Sales were also impacted by soft sales in its winter-related business as a result of significantly warmer than normal weather throughout virtually all of our market areas prior to Christmas. Miller said the winter categories also tend to be a huge driver of traffic during the holiday period.
Finally, the sales shortfall reflected another “highly promotional retail environment” over the holiday period. Miller believed that the actions were also “not always rational” by retailers, including extensive free-shipping offers that came at the expense of margins and a decision by many stores to open on Thanksgiving. Big 5 chose not to open on the holiday.
Big 5 saw a small increase in average sale and a small decrease in transaction count. Both footwear and apparel increased in the low-single digits on a comp basis despite the weather challenges. Hardgoods was down low-single digits. Excluding firearms, hard goods was up low-single digits.
On the positive side, merchandise margins decreased only approximately 10 basis points despite the sales shortfall. Favorable winter weather also arrived over the last few days of the fourth quarter to boost sales.
Said Miller, “These favorable weather conditions continued through the New Year holiday and as a result, we are off to a very positive start to fiscal 2015.”
For the full year, the company now expects to realize EPS in the range of 68 to 70 cents a share, down from $1.27 a year ago.
The latest year includes 3 cents per share of anticipated non-cash impairment charges, 3 cents per share of e-commerce development expenses and 1 cent per share for a legal settlement charge. The prior year included 4 cents per share for legal settlement charges and 2 cents per share for e-commerce development expenses. Excluding the charges, earnings would have been 77 cents in the year against $1.34 a year ago, a drop of 42.5 percent. Net sales slid 1.6 percent to $977.9 million with comps down 2.9 percent.
In his update on the overall company, Miller said the apparel category, which represents 19 percent of sales, has been “particularly successful” in recent years due to efforts to increase its offerings of branded merchandise to appeal to a customer with a higher level of disposable income. Footwear, representing 28 percent of sales, remains a “particular strength of ours” and is helped by special make-up and exclusive styles from brands such as Asics, New Balance and Saucony.
Its hard goods category, making up 53 percent of sales, gets special make-ups from Coleman, Easton, Louisville Slugger and Rawlings. Miller said its opportunistic buys and special make-ups help the stores stand out for value offerings.
Miller said Big 5 continues to benefit from its dominance of West Cost sporting goods retailing with its store count in California three times the size of any competitor. Other attributes include management with long tenure at the company and its 11,000-square-foot average store size, which has proven to work in smaller shopping centers inaccessible to competitor's larger stores. Big 5 sends out about 15.5 million circulars per week to drive traffic but continues to expand digital advertising in part to support e-commerce, which launched in the fourth quarter.
