Big 5 Sporting Goods reported that a lack of cold weather crushed winter business early in the first quarter while the arrival of chilly weather restrained the company’s spring business later in the quarter.
The sporting goods chain, based in El Segundo, CA, posted a loss of $1.3 million, or 6 cents a share, in the period ended March 31 against earnings of $5.3 million, or 25 cents, a year ago. Same-store sales slumped 7.5 percent compared to a 7.9 percent increase in same store sales for the first quarter of 2017.
On February 28 when the company reported fourth-quarter results, Big 5 said the company expected same-store sales for the first quarter to land in the negative high single-digit range and loss per share to be in the range of 6 to 14 cents due largely to unseasonal weather.
Revenues declined 7.3 percent to $234.2 million.
“Given the challenging conditions that our business faces during the first quarter, we are pleased that our bottom-line came in at the top-end of the guidance range,” Steve Miller, CEO, said on a conference call with analysts.
By month, comps in January declined in the high-teens as sales of winter products were “very soft as a result of significantly warmer-than-normal weather versus spectacular winter weather last January,” said Miller.
Sales trends improved each week through February with comps down in the low-mid single-digit range for that month and continued to improve in March with comps down in the low-single digit range, even though Big 5 lost a day of sales due to the shift of the Easter holiday.
Miller added, “In a rather remarkable weather anomaly, we actually did more winter-related business in March than in January this year. However, the benefit of cold weather and higher winter sales in March was largely offset by the loss of more traditional Spring-related sales.”
Overall, the number of customer transactions saw a high-single digit decrease to offset a low-single digit increase in average sales in the quarter.
By product category, the combination of the weak winter-related sales over the first half of the quarter and weak non-winter product sales in March impacted all three of the company’s categories across the quarter.
“We saw the largest swing in sales trends in our apparel category which is heavily influenced by winter-related apparel in the first quarter,” said Miller. “To illustrate, apparel was down in the low double-digit range for the overall quarter, but up in the low double digit range for the month of March, as winter sales finally showed some life.”
Hard goods and footwear categories were both down in the mid-to-high single digit range for the quarter.
Asked about hunt category in the Q&A session, Miller said the category is “still soft” but “certainly not as impactful to our overall results as we experienced throughout last year.” He did note that Big 5’s firearm assortments are “much different than many of our competitors.”
Merchandise margins for the quarter decreased 58 basis points compared to the first quarter of 2017 when merchandise margins increased 228 basis points over the prior year period. Overall gross margins eroded 200 basis points to 31.1 percent, also impacted by an increase in store occupancy expense as a percent of sales.
SG&A expenses increased to 31.4 percent from 29.5 percent due to the lack of sales leverage, but still decreased $1.1 million year-over-year due primarily to lower advertising expense. Said Barry Emerson, CFO, “We effectively managed store labor to offset increases in employee wage rates during the period.”
Inventories at the quarter’s close were up 6.3 percent on a per-store basis due to an increase in winter-related products after the unseasonably warm and dry winter. Said Emerson, “We are comfortable reintroducing this winter product carryover next season and we see a little markdown risk associated with it.”
Big 5, with 435 stores currently, plans to open approximately eight stores and close approximately three this year.
For the second quarter, same-store sales for the quarter-to-date are up in the low single-digit range, which includes the benefit of the Easter calendar shift.
For the second quarter, same-store sales are expected to be in the flat-to-positive low single-digit range and EPS to be in the range of 4 to 12 cents per share. That compares to a same store sales increase of 0.8 percent and EPS of 13 cents in the second quarter of 2017.
Same-store sales for the quarter to-date are up in the low single-digit range which includes the benefit of the Easter calendar shift and margins continue to trend positive as well through April.
Miller noted that the first half of the second quarter is a “relatively low volume period” for the company. The keys to the quarter, he added, will revolve around a strong selling period surrounding Memorial Day, Father’s Day and the start of the summer season.
“We believe we are well positioned from a product standpoint as we head into the summer, and we hope to benefit from more favorable summer recreational conditions in our markets that we experienced last year,” said Miller. “As a reminder, last year, we had a slow start to the summer with heavy snow pack and unusually high water levels in our rivers and lakes, closing campgrounds and impacting participation in summer recreation activity throughout much of California.”
Photo courtesy Big 5 Sporting Goods