Continuing to benefit from the exits of Sports Authority and Sport Chalet in its markets, Big 5 Sporting Goods earned $5.3 million, or 24 cents a share, in the first quarter, bouncing back from a net loss for the first quarter of fiscal 2016 of $1.1 million, or 5 cents, a year ago.
Results easily topped the retailer’s guidance calling for earnings in the range of 12 to 18 cents a share. The year-ago quarter included a charge of 3 cents per share for the write-off of deferred tax assets related to share-based compensation.
“We are pleased to deliver an extraordinarily strong first quarter performance, driven by increases of same-store sales across each of our major merchandise category, improvement in customer traffic and average sale, and healthy margin expansion,” said Steven Miller, chairman, CEO and president, on a conference call with analysts. “Our strong results reflect our team’s continued effort to expand our market share gain following the competitive store closures that occurred in our sector last year and capitalized on the favorable weather conditions in our market during the first quarter.”
Sales in the quarter rose 7.7 percent to $252.6 million. Same store sales increased 7.9 percent. The company had expected same store sales to be in the positive mid-single-digit range compared to a same store sales decrease of 1.9 percent in the first quarter of fiscal 2016.
The same-store sales comparison for the period benefited by approximately 50 basis points from the calendar shift to the Easter holiday, when its stores are closed, into the second quarter this year from the first quarter last year. A mid-single-digit increase in customer transaction, and a low single-digit increase in average ticket during the first quarter was seen versus the prior year period.
By month, January was the strongest month, comping up in the double-digit range on the strength of highly-favorable winter weather conditions in its Western market. Sales during February comped up in the low single-digit range as the continued strength in its winter product category was largely offset by softness in its non-winter product category as a result of heavy rains in its markets, particularly in California. March comped up in a high single-digit range as generally favorable early spring weather arrived along with snow in the mountain and, for the most part, dry field conditions. Said Miller, “This helped facilitate both late season winter product sales as well as sales of spring-related products.”
The March gain also reflected boosted by the Easter shift.
From a product category standpoint, all major merchandise categories benefited from both the competitive store closures that occurred last year and the favorable winter weather conditions during the first quarter.
“Apparel was our best performing category, comping up strong double digit from the strength of increased demand for winter-related products,” said Miller. “Our footwear category comped up mid-single digits, and our hardgoods category comped up low single digits for the quarter. Our hardgoods category was impacted in part by decreased demand for firearms and ammunition-related products compared to the prior year.”
Gross margins improved to 33.1 percent versus 30.3 percent in the first quarter of the prior year, reflecting an increase in merchandise margins of 228 basis points and a decrease in store occupancy and distribution costs as a percentage of net sales.
Miller said merchandise benefited from a favorable sales mix shift, driven by strong demand for higher-margin winter products and reduced demand for lower-margin firearms and ammunition products as well as reduced clearance activity, a less promotional environment resulting from the competitive store closures in its market.
SG&A expense as a percentage of sales was 29.5 percent, down from 30.4 percent a year ago, reflecting the sales leverage. Overall selling and administrative expense for the quarter increased $3.4 million from the prior year primarily due to higher employee labor and benefit expense.
On a per-store basis, merchandise inventory was up 4.2% versus the prior year, reflecting the strategic decision enhance in-stock inventory levels for key product areas in order to meet anticipated customer demand.
During the first quarter of fiscal 2017, the company opened one store, which was a relocation, and closed two stores, one of which was a relocation, ending the quarter with 431 stores in operation. The company has opened one store in the second quarter to date and anticipates opening one additional store in the remainder of the second quarter. For the fiscal 2017 full year, the company currently anticipates opening approximately eight new stores and closing approximately three stores.
Commenting on current trends, Miller said Big 5 is “off to a solid start” in the second quarter with same-store sales for the period to date up in the low mid-single-digit range despite having one less sales day this year due to the calendar shift this Easter into the second quarter.
“We are projecting same-store sales to be up in the mid-single-digit range for the second quarter as we expect sales comparisons to continue to benefit from store closures of Sports Authority and Sport Chalet that concluded early in the third quarter of last year,” said Miller. “We also believe that water recreation conditions in the lakes and rivers in our markets should be much improved this summer following the significant snow and rainfall that we experienced this year, which, we hope, will lead to increased recreational activity and increased demand for related products.”
Looking ahead, Big 5 expects same store sales to be in the positive mid-single-digit range and EPS to be in the range of 14 to 20 cents. That compares to a same store sales decrease of 1.7 percent and EPS of 10 cents in the 2016 second quarter. The guidance reflects an anticipated small negative impact as a result of the calendar shifts of the Easter and Fourth of July holidays.
The projected mid-single-digit comp gain in the second quarter compares to a same store sales decrease of 1.7 percent. Besides the Easter shift, the shift in the Fourth of July holidays is expected to have a small negative impact on comps. EPS is projected to be in the range of 14 to 20 cents, which compares to EPS of 10 cents in the 2016 second quarter.
Miller said Big 5 continues to highlight the convenience and value that Big 5 Sporting Goods offer to attain customers that used to shop at Sports Authority and Sport Chalet. Added Miller, “We continue to work with our vendors to provide great products and tremendous values for our customers. We also continue to strategically enhance our inventory position in key product areas, which are at a high level of in-stock availability of the products that customers want when they shop in our stores. We believe that these efforts, along with our strong financial condition, should position us well as we move into the summer selling season and beyond.”
Photo courtesy Big 5 Sporting Goods
