Big 5 Sporting Goods reported Q2 revenues fell 4% to $209 million from $217.8 million a year ago. Same store sales declined 7.6% for the second quarter, primarily due to a mid-single digit decrease in customer traffic and continued weakness in the roller shoe product category, which accounted for approximately 140 basis points of the same store sales decline during the second quarter. Net income tumbled 71.1% to $1.7 million, or 8 cents a share, from $5.9 million, or 26 cents, a year ago.
Gross profit for the fiscal 2008 second quarter was $68.4 million, compared to $74.8 million in the second quarter of the prior year. The company’s gross profit margin was 32.7% in the fiscal 2008 second quarter versus 34.3% in the second quarter of the prior year. The company achieved an 11 basis-point increase in product selling margins and lowered overall distribution center expenses versus the prior year despite operating 22 more stores and experiencing increased freight costs due to higher fuel prices. These benefits were offset by higher store occupancy costs and a $1.5 million one-time pre-tax charge to correct an error in the company’s previously recognized straight-line rent expense, substantially all of which pertained to prior periods and accumulated over a period of 15 years. This charge accounted for approximately 75 basis points of the decline in gross profit margin during the second quarter.
Selling and administrative expense as a percentage of net sales was 30.8% in the fiscal 2008 second quarter versus 29.1% in the second quarter of the prior year, primarily due to lower sales levels and higher store-related expenses reflecting an increased store count.
For the 26 week period ended June 29, net sales decreased $13.0 million, or 3.0%, to $421.9 million from net sales of $434.9 million for the same period last year. Same store sales decreased 6.4% in the first 26 weeks of fiscal 2008 versus the same period last year. Net income was $5.8 million, or 27 cents per diluted share, for the first 26 weeks of fiscal 2008, compared to net income of $13.5 million, or 59 cents per diluted share, for the same period last year.
Results for the second quarter and first 26 weeks of fiscal 2008 include a one-time pre-tax charge of $1.5 million, or 4 cents a share, to correct an error in the company’s previously recognized straight-line rent expense, substantially all of which pertained to prior periods and accumulated over a period of 15 years. The company said it has determined this charge to be immaterial to its prior year and current year financial statements.
“Given the challenging sales environment, we are pleased with our second quarter earnings results, which came in at the high end of our expectations on an operational basis, but were impacted by the one-time charge relating to lease accounting,” said Steven G. Miller, the company’s chairman, president and CEO. “We achieved meaningful savings ahead of our plan in several major expense areas of our business, including store-level, distribution center, advertising and corporate administrative expense. We continued with our strong inventory management and completed the second quarter with chain-wide product inventories down from the prior year while operating 22 additional stores. On a per-store basis, product inventories were down 6.3% versus the prior year. We have further improved inventory comparisons during the third quarter to date.”
Miller continued, “We believe that we have a solid grasp on the controllable aspects of our business in the current environment and remain committed to our overall business model, including securing quality new store locations, refining our merchandise mix and promotional plans, managing inventory and controlling expenses.”
Guidance
The Company’s guidance for the remainder of fiscal 2008 assumes that sales will continue to be impacted by a challenging consumer environment. Based on that assumption, the company expects that for the fiscal 2008 third quarter it will report a decline in same store sales in the mid-single digit range and earnings per diluted share in the range of $0.14 to $0.20.
For the fiscal 2008 full year, Big 5 expects a decline in same store sales in the mid-single digit range. Based on the company’s results for the first half of fiscal 2008 and outlook for the second half of the year, the company now expects earnings per diluted share for the fiscal 2008 full year in the range of $0.60 to $0.80.
Store Openings
The company opened six new stores during the second quarter of fiscal 2008, including one relocation of a store that was closed after the end of the quarter. The company ended the second quarter with 370 stores in operation. The company anticipates opening four new stores during the fiscal 2008 third quarter, and has closed the store that was relocated during the second quarter. The company anticipates opening approximately 20 new stores, net of relocations and closures, during fiscal 2008.
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, 2008 to stockholders of record as of August 29, 2008. Based on the current price of the company’s stock, this dividend equates to an annualized dividend yield of approximately 4%.
During the fiscal 2008 second quarter, the company repurchased 210,474 shares of its common stock for a total expenditure of $1.7 million. As of the end of the fiscal 2008 second quarter, the company had approximately $15.0 million available for future stock repurchases under its $20.0 million share repurchase program authorized in the fiscal 2007 fourth quarter.
