Big 5 Sporting Goods benefited from the store closings of its regional competitors Sports Authority and Sport Chalet, reporting higher sales and profit for the third quarter.
The sporting goods retailer, with its stores only in the Western U.S., said its same-store sales rose 6.8 percent in the third quarter, ended October 2.
Net sales were $279.0 million, compared to net sales of $270.1 million for the third quarter a year ago.
Sales would have been even higher if not negatively impacted by a calendar shift from a 53-week fiscal year in 2015, which caused fiscal 2016 to begin one week later than fiscal 2015 and resulted in pre-Fourth of July holiday sales moving from the third quarter in fiscal 2015 to the second quarter in fiscal 2016.
The calendar shift unfavorably impacted net sales comparisons to the third quarter of fiscal 2015 by approximately $8.9 million. Same-store sales comparisons were not materially impacted by the calendar shift because same-store sales comparisons are made on a comparable week basis.
Gross profit for the fiscal 2016 third quarter was $89.9 million, compared to $85.2 million in the third quarter of the prior year. The company’s gross profit margin was 32.2 percent in the fiscal 2016 third quarter versus 31.5 percent in the third quarter of the prior year, reflecting an increase in merchandise margins of 39 basis points and a decrease in store occupancy expense as a percentage of net sales.
Selling and administrative expense as a percentage of net sales was 27.3 percent in the fiscal 2016 third quarter versus 27.7 percent in the third quarter of the prior year. Overall selling and administrative expense for the quarter increased $1.4 million from the prior year, primarily due to a pre-tax charge for store closing costs of $1.1 million and higher employee labor expense.
Net income for the third quarter of fiscal 2016 was $8.2 million, or 38 cents per diluted share, including 3 cents per diluted share for store closing costs, compared to net income for the third quarter of fiscal 2015 of $6.1 million, or 28 cents per diluted share.
“We are very pleased to deliver an exceptionally strong third quarter performance, with earnings meaningfully above the prior year as well as the high end of our guidance range,” said Steven G. Miller, the company’s chairman, president and CEO. “Results were driven by strong sales growth, including increases in both customer transactions and average sale, as well as improved merchandise margins, and clearly reflected the benefit from the closure of over 200 Sports Authority and Sport Chalet store locations in our markets. Additionally, our strong cash flow enabled us to reduce borrowings under our credit facility in the third quarter by $42.4 million, or 65 percent, from the third quarter of the prior year, while continuing to return cash to our shareholders through share repurchases and our dividend. The 20 percent increase in our dividend that we announced today, which is our second dividend increase this year and represents a 50 percent increase from the beginning of 2016, reflects the health of our financial condition and our confidence in our ability to continue to perform through economic and competitive cycles.”
Miller added, “The positive sales trending experienced in the third quarter has continued, with same-store sales up in the high single-digit range for the fourth quarter to date, as we continue to benefit from the competitive rationalization of the retail sporting goods market. While the consumer spending environment over the holiday season and winter weather conditions in our markets remain uncertain, we feel well positioned to produce strong results over the course of the quarter.”
The company’s board of directors has approved a 20-percent increase in Big 5’s quarterly cash dividend from the current rate of 12.5 cents per share to 15 cents per share, effective with the dividend payable on December 15, 2016 to stockholders of record as of December 1, 2016.
During the fiscal 2016 third quarter, pursuant to its share repurchase program, the company repurchased 122,999 shares of its common stock for a total expenditure of $1.6 million. As of the end of the quarter, the company had $23.4 million available for future share repurchases under its $25 million share repurchase program.
For the fiscal 2016 fourth quarter, the company expects same-store sales to be in the positive mid-single-digit range and earnings per diluted share to be in the range of 25 cents to 35 cents. As a result of the calendar shift from a 53-week year in fiscal 2015, the fourth quarter of fiscal 2016 will include 13 weeks compared to 14 weeks in the prior-year period. The company does not expect earnings comparisons for the period to be meaningfully impacted by this shift, as the week that moved out of the fiscal fourth quarter this year was a relatively low sales volume week.
During the third quarter of fiscal 2016, Big 5 opened two new stores and closed five stores, ending the quarter with 432 stores in operation. During the fiscal 2016 fourth quarter, the company anticipates opening one new store and closing one store, which would result in a year-end store count of 432.
Photo courtesy Big 5 Sporting Goods
