Big 5 Sporting Goods Corporation saw net sales increase $13.7 million, or 6.9%, to $211.8 million for the second quarter from net sales of $198.1 million last year. Same store sales increased 2.9% for the second quarter, representing the company’s 42nd consecutive quarter of positive same store sales comparisons.
Gross profit increased 5.9% to $76.7 million from $72.4 million in the second quarter of the prior year. The Company’s gross profit margin was 36.2% in the second quarter of fiscal 2006 versus 36.6% in the second quarter of the prior year. Product selling margins, excluding buying, occupancy and distribution, increased 20 basis points versus the same period last year. Gross margin comparisons were affected by higher distribution center costs over the prior year of $2.2 million, which were primarily due to the commencement of operations at the Company’s new distribution center and increased trucking expenses driven partly by higher gasoline prices. Gross profit for the second quarter of this year included a $0.4 million increase of distribution center costs capitalized into inventory, and gross profit for the second quarter of fiscal 2005 included an insurance reimbursement of $0.4 million related to flood damage to one of the Company’s stores.
Selling and administrative expenses as a percentage of sales improved to 27.7% in the second quarter of this year from 29.0% in the second quarter of last year. The year-over-year improvement was primarily due to a $1.4 million reduction in legal and audit fees resulting from additional expense in the second quarter of last year related to the Company’s restatement of prior period financial statements, the recording of co-op advertising cost reimbursements from vendors for fiscal 2006 earlier in the year, a reduction in workers compensation reserves and the Company’s receipt of proceeds as a participant in a class action settlement relating to credit card fees, which were partially offset by an increase in the Company’s provision for public liability claims. Additionally, the Company’s distribution center operations at its new facility created improved efficiencies for the Company’s stores in product pricing and check-in, which allowed the Company to realize labor cost savings at the store level. Together with the Company’s positive sales results, these factors contributed to the Company’s leveraging of store-related expenses and advertising expenses for the second quarter, which declined 40 basis points and 50 basis points as a percentage of sales, respectively.
Depreciation and amortization expense increased $0.5 million, or 14.9%, to $4.0 million for the second quarter, from $3.5 million for the same period last year. The higher expense was primarily due to the commencement of operations at the Company’s new distribution center, and also reflected an increase in store count to 329 stores at the end of the second quarter of this year from 311 stores at the end of the second quarter last year. Interest expense for the second quarter of fiscal 2006 increased $0.6 million over the prior year, primarily reflecting rising interest rates.
Net income for the second quarter of fiscal 2006 increased to $7.4 million, or 33 cents per diluted share, from net income of $6.1 million, or 27 cents per diluted share, for the second quarter of fiscal 2005. Results for the second quarter of fiscal 2006 include a pre-tax charge of $0.7 million, or 2 cents per diluted share, for the expensing of stock options.
During the second quarter, the Company used borrowings under its revolving line of credit to prepay $5.0 million of higher interest term loan debt. During the quarter, the Company also amended its existing financing agreement to, among other things, increase its line of credit to $175.0 million and extend the initial termination date to March 20, 2011.
For the twenty-six week period ended July 2, 2006, net sales increased by $30.8 million, or 7.9%, to $419.0 million from net sales of $388.2 million in the same period last year. Same store sales increased 4.1% in the first 26 weeks of fiscal 2006 versus the same period last year. Net income was $13.4 million, or $0.59 per diluted share, for the first 26 weeks of fiscal 2006, compared to net income of $12.6 million, or $0.55 per diluted share, in the same period last year. Results for the first 26 weeks of fiscal 2006 include pre-tax charges totaling $1.1 million, or $0.03 per diluted share, for the expensing of stock options.
“We are pleased to report a strong performance for our second quarter,” said Steven G. Miller, the Company’s Chairman, President and Chief Executive Officer. “We posted both sales and margin gains in each of our major merchandise categories of footwear, hard goods and apparel. We enjoyed an early and favorable start to the summer selling season driven by warm weather conditions in many of our markets. While we experienced higher distribution center expenses as a result of the commencement of operations at our new and substantially larger facility, we benefited from improved efficiencies at the store level. We are gaining valuable experience in operating our new facility and we are confident that we will realize greater efficiencies in our distribution center operations as we move forward.”
Quarterly Cash Dividend
The Company’s Board of Directors has declared a quarterly cash dividend of $0.09 per share of outstanding common stock, which will be paid on September 15, 2006 to stockholders of record as of September 1, 2006. As previously announced, during the second quarter of fiscal 2006, the Company’s Board of Directors authorized the increase of the cash dividend from an annual rate of $0.28 per share to an annual rate of $0.36 per share.
Guidance
For the third quarter of fiscal 2006, the Company expects to realize same store sales growth in the low to mid-single digit range and earnings per diluted share in the range of $0.32 to $0.36. This includes a charge of approximately $0.02 per diluted share for the expensing of stock options. The Company expects full-year same store sales growth in the low to mid-single digit range and full-year earnings per diluted share in the range of $1.26 to $1.33. Full-year earnings guidance includes a charge of approximately $0.06 per diluted share for the expensing of stock options. Third quarter and full-year earnings guidance reflects significantly higher trucking expense resulting in part from higher gasoline prices, higher distribution center expenses in connection with the operation of a substantially larger facility and higher interest costs resulting primarily from rising interest rates. Additionally, third quarter earnings guidance reflects the favorable impact of the recording of co-op advertising cost reimbursements from vendors for fiscal 2006 earlier in the year, partially offset by the expected impact of a significantly lower benefit from inventory cost capitalization than the Company experienced in fiscal 2005.
Store Openings
The Company opened three new stores during the second quarter of fiscal 2006, bringing its store count at the end of the second quarter to 329 stores. The Company anticipates opening a total of five new stores during the third quarter of fiscal 2006, and opening a total of approximately 20 new stores during fiscal 2006.
BIG 5 SPORTING GOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)
13 Weeks Ended
July 2, 2006 July 3, 2005
Net sales $211,806 $198,132
Cost of goods sold, buying and
occupancy, excluding depreciation and
amortization, shown separately below 135,094 125,683
Gross profit 76,712 72,449
Selling and administrative 58,571 57,529
Depreciation and amortization 4,004 3,486
Operating income 14,137 11,434
Interest expense 1,869 1,283
Income before income taxes 12,268 10,151
Income tax 4,837 4,005
Net income $7,431 $6,146
Earnings per share:
Basic $0.33 $0.27
Diluted $0.33 $0.27
Weighted average shares of
common stock outstanding:
Basic 22,707 22,678
Diluted 22,807 22,802
