Big 5 Sporting Goods Corp. sees light at the end of the tunnel as sales trends appear to be improving sequentially each quarter of the year. Net sales for the fiscal 2024 third quarter ended September 29 were $220.6 million, compared to net sales of $239.9 million for the third quarter of fiscal 2023. Same-store sales decreased 7.5 percent for the third quarter of fiscal 2024, compared to the third quarter of fiscal 2023.

The company also swung to a net loss in the third quarter due to a non-cash charge to write-down deferred tax assets, but underlying earnings were also impacted by a 7.5 percent same-store decline and lower merchandising margins. On the positive side, sequential improvement in same-store sales was achieved for the third straight quarter.

“Our third quarter performance reflected the impact of ongoing economic pressures on consumer discretionary spending,” commented Steven G. Miller, chairman, president and CEO. “Despite these challenges, we’re encouraged by the fact that we have seen sequential improvement in same-store sales each quarter this year and we continue to see that trend early in the fourth quarter as well.

“With this positive trajectory in our sales and our enhanced promotional plans and product assortment, we are optimistic about the potential of the approaching holiday season. That said, we are mindful of how inflation continues to strain consumers’ budgets and of the multitude of distractions that are impacting consumer purchasing decisions in the near-term,” Miller said on a Tuesday conference call with analysts.

“A number of our product categories are contributing to the improvements in our sales trending and we are particularly excited with the early rates in our fall and winter apparel,” Miller shared. “Our focus has been and continues to be on managing the aspects of our business that are within our control. By doing so, we believe we are well positioned to navigate through this current period of constrained discretionary spending.”

Still, Miller said the sporting goods retailer saw relatively consistent trends across its major merchandise categories in Q3, which he said speaks to the pervasiveness of the inflationary pressures that are impacting their core customer.

“Despite the overall sales pressure, our average ticket remained relatively stable, declining low-single digits, while our transaction count was down mid-single digits,” Miller shared. “Our merchandise margins in the third quarter decreased 119 basis points compared to the prior-year [quarter].”

Miller reported that the Apparel and Footwear categories were each down ~9 percent and Hardgoods was down ~6 percent in the quarter.

The CEO said the company is carefully evaluating its pricing strategies across categories and looking to target areas where it believes it can benefit from energizing sales by being responsive to market conditions. He said the team continues to do an excellent job managing inventory.

“While we’re focused on optimizing our gross profit dollars, we are mindful of the need to drive top line sales in this challenging environment,” Miller noted.

Income Statement Summary
Gross profit for the fiscal 2024 third quarter was $64.2 million, compared to $79.6 million in the third quarter of the prior year. The company’s gross profit margin was 29.1 percent in the fiscal 2024 third quarter versus 33.2 percent in the third quarter of the prior year. The decrease in gross profit margin compared with the prior year primarily reflected lower merchandise margins, which declined 119 basis points year-over-year, along with higher store occupancy and distribution expense, including costs capitalized into inventory, as a percentage of net sales in the third quarter of fiscal 2024.

Overall selling and administrative expense for the quarter decreased by $1.6 million from the prior year, primarily reflecting lower legal expense and reduced performance-based incentive accruals. As a percentage of net sales, selling and administrative expense was 34.0 percent in the fiscal 2024 third quarter, compared to 31.9 percent in the fiscal 2023 third quarter due to the lower sales base.

Net loss for the third quarter was $29.9 million, or $1.36 per basic share, and included a non-cash charge for the establishment of a valuation allowance related to deferred tax assets of $21.8 million, or 99 cents per basic share, as well as a non-cash store asset impairment charge of $0.7 million, or 3 cents per basic share. This compares to net income of $1.9 million, or 8 cents per diluted share in the third quarter of fiscal 2023.

Adjusted EBITDA was a negative $5.1 million for the third quarter of fiscal 2024, compared to a positive $7.4 million in the prior year period.

Balance Sheet and Cash Flows Summary
The company ended the 2024 fiscal third quarter with no borrowings under its credit facility and a cash balance of $4.0 million. This compares to no borrowings under the company’s credit facility and $17.9 million of cash as of the end of the 2023 fiscal third quarter.

Inventory levels were down 8.7 percent year-over-year at quarter-end, reflecting ongoing efforts to align inventories with sales performance.

“Throughout this prolonged period of uncertainty, we have been steadfast in our commitment to inventory management and cost control, which we believe has fortified our ability to navigate ongoing market conditions while creating opportunities to capitalize on any favorable macroeconomic shifts,” Miller said.

“This disciplined approach provides us flexibility to capitalize on opportunistic buys and will keep us well positioned to respond swiftly to evolving consumer demand when macroeconomic conditions improve,” Miller added.

Reviewing capital spending, CFO Barry Emerson said on the call that CapEx, excluding non-cash acquisitions, totaled $8.9 million for the first 9 months of fiscal 2024, primarily representing investments in store-related remodeling, new stores, distribution center equipment and computer hardware and software purchases.

“Our balance sheet at the end of the third quarter of fiscal 2024 remains healthy,” stated Emerson. “We had $0 borrowings under our credit facility and a cash balance of $4 million. As we navigate this dynamic market environment and execute our strategy, we remain focused on maintaining a healthy and flexible financial condition.”

Fourth Quarter Guidance
Big 5 anticipates fourth quarter same-store sales in the range of positive low-single digits to negative low-single digits compared to the 2023 fourth quarter.

“Last year, over the course of the fourth quarter, our markets experienced extraordinarily warm weather and a lack of snow that significantly impacted sales of winter-related products which were down nearly 40 percent versus the prior-year [quarter],” Miller highlighted.

“While our outlook anticipates that we should benefit from more normalized weather this year, it also anticipates a continuation of the persistent macroeconomic challenges to consumer spending,” the CEO explained. “Additionally, the Thanksgiving holiday falls late in the calendar this year which compresses the traditional holiday shopping season. To account for this shift and help energize what has been a pressured and distracted consumer, we are adjusting our promotional strategy ahead of Thanksgiving in an effort to stimulate sales activity in what has traditionally been a seasonally slow period.”

In connection with the company’s establishment of a valuation allowance in the fiscal 2024 third quarter related to deferred tax assets, the company does not anticipate realizing any income tax benefit in the fiscal 2024 fourth quarter, which will result in a tax provision of approximately zero for the quarter. On this basis, the company expects fiscal 2024 fourth quarter net loss per basic share in the range of 80 cents to $1.05. For prior period comparison purposes, assuming an estimated effective tax rate of 26.3 percent, the company expects fiscal 2024 fourth quarter adjusted net loss per basic share in the range of 59 cents to 77 cents, which compares to fiscal 2023 fourth quarter net loss per basic share of 41 cents, which was not impacted by the deferred tax asset valuation allowance.

Store Openings
The company currently has 423 stores in operation, reflecting six store closures in the 2024 first quarter, two store closures in the 2024 third quarter, and two store closures in the 2024 fourth quarter to date as part of the company’s ongoing efforts to optimize its store base, as well as one store opening in the 2024 second quarter, one store opening in the 2024 third quarter, and one store opening in the 2024 fourth quarter to date.

During the remainder of fiscal 2024, the company expects to close approximately one additional store.

Image courtesy Big 5