Big 5 Sporting Goods released upbeat preliminary results for the fiscal second quarter ended June 28.
Steven G. Miller, the company’s chairman, president and chief executive officer, said in a statement, “We are pleased with our exceptionally strong second-quarter performance that was driven by substantial sales and merchandise margin gains over the back half of the quarter and considerable operating leverage from meaningful reductions in our cost structure. This powerful combination has contributed to significantly reduced inventory and net borrowing levels, and our business is in a very strong financial position.
“Over the first half of the second quarter, when the impacts of the COVID-19 pandemic forced us to operate with a highly reduced store count, our same-store sales decreased by 28.2 percent compared to the prior-year period. However, as we reopened stores our product assortment and convenience clearly resonated with consumers and for the second half of the second quarter, our same-store sales increased by 15.5 percent compared to the prior-year period with very strong merchandise margins. We are pleased that the positive sales and margin momentum in our business has continued into the start of the third quarter.”
Miller continued, “We are extremely proud of how our team has responded to the challenges imposed by COVID-19 over the last few months. Recognizing significant shifts in consumer demand, we leveraged our long-standing vendor partnerships to quickly evolve our product assortment. Our buying and distribution teams worked tirelessly in an effort to optimize our inventory levels across a rapidly evolving landscape. We implemented meaningful cost reduction initiatives throughout our organization. And our store and field personnel were dedicated to safely serving our communities as we established new operational protocols in our stores. We are recognizing these efforts by awarding a special bonus to most members of the Big 5 team, with the exception of senior executives. Additionally, we are moving forward with previously planned annual pay increases for the Big 5 team that had been suspended due to the uncertainties surrounding COVID-19. Although the future impacts of the pandemic remain uncertain, moving forward we are confident that our recent experience will help us to navigate challenges that may arise.”
For the fiscal 2020 second quarter, the company’s same-store sales decreased 4.2 percent versus the comparable period in 2019, when same-store sales increased 0.7 percent from 2018. Total net sales for the fiscal 2020 second quarter were approximately $228 million, compared to $241 million in the prior-year period. Merchandise margins increased approximately 175 basis points for the fiscal 2020 second quarter versus the prior-year period, reflecting margin strength in fiscal May and June. Operating expenses for the quarter benefited from reduced payroll costs, lower advertising costs, rent abatement and other expense savings during the period. Although a certain portion of such operating expense savings will only benefit the fiscal 2020 second quarter, the company expects aspects of such operating expense savings to continue beyond the period.
For the fiscal 2020 second quarter, the company expects to realize earnings per diluted share in the range of 52 to 54 cents a share, including a net benefit of approximately 15 cents per diluted share related to rent abatement savings and recovery in eminent domain litigation partially offset by the expense associated with the special employee recognition bonus awards discussed above, compared to earnings per diluted share of $0.00 for the second quarter of the prior year, which included a $0.03 per diluted share net benefit primarily related to the favorable settlement of a software contract termination.
The company’s merchandise inventories at the end of the fiscal 2020 second quarter decreased approximately 14.6 percent compared to the prior year. The company completed the fiscal 2020 second quarter with borrowings under its revolving credit facility, net of cash, of approximately $18 million, reflecting a $38 million improvement on a year-over-year basis and a $62 million improvement compared to the end of the fiscal 2020 first quarter.
Store Operations Update
As previously announced, beginning on March 20, 2020, the company temporarily closed approximately one-half of its retail store locations in response to state and local shelter orders related to the COVID-19 outbreak. At the end of April, approximately one-quarter of the company’s stores remained temporarily closed. As of the end of May, all of the company’s stores that were temporarily closed due to COVID-19 had reopened in some capacity, with less than 10 percent of the open stores operating for curbside business only in compliance with local regulations. As of the end of the second quarter and continuing as of today, all of the company’s stores that were temporarily closed due to COVID-19 had reopened for in-store shopping, subject to appropriate social distancing restrictions and with reduced operating hours. Additionally, during the second quarter, four of the company’s stores were temporarily closed due to damage incurred in connection with civil unrest, three of which reopened prior to the end of the second quarter and one of which reopened in the third quarter. During the second quarter, the company also reopened its Pasadena, California store, which had been closed for an extended period due to a fire. The company is currently operating 431 stores, which compares to 434 stores in operation at the same time in the prior year.
The company expects to report earnings results for the fiscal 2020 second quarter by the end of July.