Big 5 Sporting Goods Corp. reported earnings jumped more than four-fold in the third quarter ended September 30 as same-store sales jumped 14.8 percent.

Steven G. Miller, Chairman, president and CEO, said, “I am pleased to report an exceptional third quarter, which represents the strongest sales and earnings performance in our 65-year history. During this unprecedented time, our product offerings are resonating with consumers who are looking for ways to stay healthy and active. Clearly, customers are recognizing our stores as a convenient and safe environment to fulfill their fitness and outdoor recreational needs. Additionally, we continue to benefit from substantial cost reductions that have enabled us to achieve meaningful operating leverage. I am extremely proud of our team’s tremendous dedication and execution during these challenging times.”

Miller continued, “Our success navigating the COVID-19 environment to date has substantially strengthened our balance sheet and enhanced our financial flexibility. At the end of the third quarter, we had zero borrowings on our revolver and nearly $56 million in cash. As a result, our Board of Directors has authorized an increase in our regular cash dividend to double its prior rate. Looking at the fourth quarter, we have continued to see solid momentum with sales increasing 15.1 percent for our fiscal October period. We believe our inventory is well-positioned for the upcoming winter and holiday seasons. That said, we recognize there is tremendous uncertainty impacting the consumer environment over the coming months and we are prepared to be nimble and make adjustments as necessary.”

Third Quarter Fiscal 2020

  • Same-store sales increased 14.8 percent for the third quarter of fiscal 2020, compared to a 0.3 percent increase for the third quarter of fiscal 2019.
  • Net sales for the fiscal 2020 third quarter were $305.0 million compared to net sales of $266.2 million for the third quarter of fiscal 2019.
  • Gross profit for the fiscal 2020 third quarter was $110.0 million, compared to $86.0 million in the third quarter of the prior year. The company’s gross profit margin was 36.1 percent in the fiscal 2020 third quarter versus 32.3 percent in the third quarter of the prior year. The increase in gross profit margin largely reflects higher merchandise margins, which increased 277 basis points versus the prior-year period, driven by a favorable shift in product mix toward certain higher-margin categories and by more limited promotional activity versus the prior-year period.
  • Gross profit margin also reflects reduced store occupancy and warehousing costs as a percentage of net sales, partially offset by lower distribution costs capitalized into inventory for the quarter.
  • Selling and administrative expense decreased $5.6 million in the fiscal 2020 third quarter versus the prior-year period primarily due to lower advertising expenses and employee labor expenses reflecting reduced store operating hours during the period. As a percentage of net sales, selling and administrative expense decreased to 23.4 percent, versus 28.9 percent in the prior year, as a result of the cost containment measures and higher sales volume in the third quarter.
  • Net income for the third quarter of fiscal 2020 was $28.4 million, or $1.31 per diluted share, which compares to net income of $6.4 million, or $0.30 per diluted share, in the third quarter of fiscal 2019.

When reporting second-quarter results on July 28, Big 5 said it expected same-store sales for the full third quarter to increase in the range of 14 percent and 20 percent and EPS in the range of $1.00 to $1.30.

Third Quarter Outlook
As discussed in this release and the company’s other public filings, the company has experienced dramatic swings in its sales trends due to the widespread closure of its stores and other disruptions related to COVID-19. While sales trends have been decidedly positive since the company’s stores reopened, with same-store sales up 31.9 percent for its July 2020 fiscal period, the dramatic shifts in customer demand and the uncertainties of these unprecedented circumstances, including any future impact on consumer spending from the potential expiration of stimulus benefits, make it difficult for the company to accurately forecast the months ahead.

In light of the uncertainty in the current environment, for the third quarter of fiscal 2020, the company is providing wide sales and earnings guidance ranges and expects earnings to reflect expense savings primarily from reductions in advertising and store operating hours. So long as conditions relating to COVID-19, including any regulations issued in response to the pandemic, do not materially impact the company’s ability to continue to operate its stores, the company believes it is reasonable to expect same-store sales over the remainder of the fiscal 2020 third quarter to increase in the range of 5 percent to 15 percent compared to the comparable period during fiscal 2019. Assuming the company achieves sales within that range over the remainder of the quarter, the company would expect same-store sales for the full third quarter of fiscal 2020 to increase in the range of 14 percent to 20 percent compared to the comparable period during fiscal 2019 and for earnings per diluted share for the quarter to be in the range of $1.00 to $1.30, compared to a same-store sales increase of 0.3 percent and earnings per diluted share of $0.30 in the third quarter of fiscal 2019.

For the 39-week period ended September 27, 2020, net sales were $750.6 million compared to net sales of $752.4 million in the first 39 weeks of the prior year. Same-store sales increased 0.4 percent in the first 39 weeks of 2020 versus the comparable prior-year period. Net income for the first 39 weeks of fiscal 2020 was $34.9 million, or $1.63 per diluted share, including a $0.13 per diluted share net benefit recorded in the second quarter related to rent abatement savings and recovery in eminent domain litigation, partially offset by special employee recognition bonus awards. This compares to net income for the first 39 weeks of fiscal 2019 of $8.1 million, or $0.38 per diluted share, including a $0.02 per diluted share charge for the write-off of deferred tax assets related to share-based compensation.

Balance Sheet
The company’s merchandise inventories at the end of the fiscal 2020 third quarter decreased 18.0 percent compared to the prior year. The company completed the fiscal 2020 third quarter with zero borrowings under its revolving credit facility and a cash position of $55.7 million, reflecting a $111.3 million improvement in net cash (cash less revolver borrowings) on a year-over-year basis and a $74.0 million improvement in net cash compared to the end of the fiscal 2020 second quarter.

Cash Dividend
In light of the current strength of the company’s business, cash flow generation, and balance sheet, the company’s Board of Directors has declared an increase in its quarterly cash dividend from $0.05 per share of outstanding common stock to $0.10 per share of outstanding common stock, which will be paid on December 15, 2020 to stockholders of record as of December 1, 2020.

Fourth Quarter Outlook
Same-store sales for the company’s fiscal October 2020 period increased 15.1 percent versus the prior-year period. Merchandise margins continue to trend positively for the fiscal 2020 fourth quarter-to-date period compared to the prior-year period, reflecting less promotional activity and a favorable shift in product mix toward certain higher-margin categories.

The company continues to benefit from certain aspects of its expense reduction initiatives that were implemented in response to the uncertainties of COVID-19, including labor expense savings due to reduced store operating hours and advertising expense savings due to significantly reduced print advertising. The company expects these savings to create the potential for significant operating leverage for the fourth quarter.

As discussed in this release and the company’s other public filings, the company has experienced dramatic swings in its sales trends due to the widespread closure of its stores, other disruptions related to COVID-19 and surges in consumer demand related to the pandemic. The dramatic shifts in consumer demand and the uncertainties of these unprecedented circumstances, including any future impact on consumer spending from any stimulus benefits or election impacts, the uncertainty surrounding consumer spending for the upcoming holiday season, and the potential for increased COVID-19 outbreaks and related restrictions over the course of the winter, make it difficult for the company to accurately forecast the months ahead.

In light of the uncertainty in the current environment, for the fourth quarter of fiscal 2020 the company is providing wide sales and earnings guidance ranges and expects earnings to reflect expense savings primarily from reductions in advertising and store operating hours. So long as conditions relating to COVID-19, including any regulations issued in response to the pandemic, or other conditions do not materially impact the company’s ability to continue to operate its stores, the company believes it is reasonable to expect same-store sales over the remainder of the fiscal 2020 fourth quarter in the range of -5 percent to +5 percent compared to the comparable period during the prior year. Assuming the company achieves sales within that range over the remainder of the quarter, the company would expect same-store sales for the full fourth quarter of fiscal 2020 to be in the range of flat to +7 percent compared to the comparable period during the prior year and for earnings per diluted share for the quarter to be in the range of $0.35 to $0.60, which includes an after-tax insurance settlement benefit of approximately $2.1 million, or $0.10 per diluted share, associated with a fire at the company’s Pasadena, CA store. This compares to a fiscal 2019 fourth-quarter same-store sales decrease of 0.6 percent and earnings per diluted share of $0.02, including a $0.02 per diluted share charge for asset impairment.

As a result of the fiscal calendar, the fourth quarter of fiscal 2020 will include 14 weeks and the fourth quarter last year included 13 weeks. The company’s same-store sales guidance above reflects comparable 14-week periods.

As a reminder, the company’s fourth-quarter typically reflects lower quarterly earnings compared to the third quarter due to the combination of seasonally lower sales volumes in the first half of the quarter until the holiday sales period, the related promotional environment associated with holiday sales and higher expenses during the holidays for store labor and advertising compared to the third quarter.

Store Openings
The company did not open any new stores or permanently close any stores during the third quarter, ending with 431 stores in operation, which compares to 433 stores in operation in the prior-year period. During the third quarter, all of the company’s stores were open for in-store shopping, subject to appropriate social distancing restrictions and with reduced operating hours. For the fiscal 2020 fourth quarter, the company expects to permanently close approximately one store. Including that expected closure in the fourth quarter, for the fiscal 2020 full year, the company expects to permanently close approximately four stores.

Photo courtesy Big 5 Sporting Goods