Big 5 Third Quarter Profits Soar on Lower Costs and Rising Sales

The West-Coast chain saw a slight improvement in customer traffic while average ticket remained virtually unchanged.

“Sales were generally consistent throughout the quarter and we comped positively within a relatively tight range in each of the months of July, August and September,” said Steve Miller, president and CEO, on conference call. “We enjoyed nice summer weather in most of our markets during the quarter.”

Hard goods continued to be its strongest performer, up mid-single-digits with strength in outdoor categories and summer-related activities. Although firearms helped drive the outdoor gain, Miller said Big 5 is “seeing positive momentum in a number of categories that we think can more than offset” a likely weakening in firearms. The category has been boosted by fears caused by the arrival of the Obama administration. Footwear and apparel were both down low-single-digits, but this marked noticeable improvement after being off high-single digits in recent quarters.

Merchandise margins increased 13 basis points due to a combination of strong sales of higher-margin summer product, cycling through product cost inflation, less clearance activity, and a favorable opportunistic buying environment. The gross margin improvement also reflects lower distribution costs due to lower fuel costs. SG&A expenses declined to 28.2% from 29.6% as its ad spend was lowered by $2 million during the quarter due to a combination of reduced frequency and distribution of ad circulars and lower printing costs. The expense improvement came despite operating 10 more stores in the latest period.  On a per store basis, inventories were down approximately 8%.

Miller said that while expansion plans aren't finalized, it expects to open “substantially more stores in 2010 than in 2009.” Regarding Q409, Big 5 expects comps in the positive low to low-mid single-digit range and EPS in the range of 28 cents to 38 cents, more than double year-ago earnings of 17 cents a share.