Hit by particular weakness in its firearms & ammunition as well as winter-related categories, Big 5 Sporting Goods reported earnings tumbled 72.0 percent in its first quarter ended Mar. 30, to $2.1 million, or 9 cents per diluted share.
On Feb. 25 when reporting fourth-quarter results, the sporting goods chain, based in El Segundo, CA, said it expected earnings in the range of 5 to 11 cents a share due to the anticipated continued decrease in demand for firearms & ammunition products and reduced demand for winter products as a result of unfavorable winter weather conditions.
The latest quarter also included expenses associated with the development of the company's new e-commerce platform of 1 cent per share. It’s planning a soft launch of e-commerce this summer.
Revenues were down 6.1 percent in the quarter, to $231.3 million. Same store sales declined 7.9 percent. The retailer had expected comps to decline in the high single-digit range. Same store sales increased 10.5 percent for the 2013 first quarter.
On a conference call with analysts, Steven Miller, chairman, president and CEO, said sales from firearms & ammunition, which “represented well over 10 percent” of last year’s sales, slumped 45 percent in the latest quarter. Last year’s comp was driven by particular strength in the hunt categories.
Winter-related categories, which “also represented well over 10 percent” of revenues last year, were off 25 percent in the latest quarter. Excluding those two categories, comps were up in the low-single digit range.
For the quarter, hard goods comped down low double digits, reflecting the pressures on firearms & ammunition. Footwear was down mid-single digits and apparel was down low-single digits.
Gross margins eroded to 31.4 percent from 32.7 percent in the first quarter of the prior year, reflecting a decrease in merchandise margins of 28 basis points and an increase in store occupancy costs as a percentage of net sales. Merchandise margins in the first quarter last year increased 113 basis points year over year.
SG&A expense as a percentage of sales increased to 29.8 percent from 27.6 percent in the first quarter of the prior year, due primarily to lower sales levels.
Total merchandise inventory was up 5.7 percent at the quarter’s end, reflecting lower-than-anticipated sales of winter products and more- normalized firearms & ammunition inventory than last year. The inventory rate did improve from being up 7.4 percent as of Dec. 31.
Regarding current trends, Miller said the second quarter has “started off softly,” although given the later timing of Easter this year and a related late arrival of spring sports activities, “current sales trends have been somewhat difficult to evaluate.” Still, he said the “slight softness” may be due to the “rather dramatic recent rise” in gas prices in its western markets. He also said the drop off in firearms was greater than expected.
“However,” added Miller, “it should be noted that April is a relatively low volume period for us and the key to the quarter will be how we perform over the back half of the period, which includes Memorial's day, Father's day, and the start of summer. We feel well positioned from a merchandise and promotional standpoint to maximize our results over this key selling period.”
For the second quarter, the company expects same store sales comparisons in the low negative to low positive single-digit range and EPS in the range of 12 to 20 cents. In the 2013 second quarter, it earned 28 cents a share. Comps in the year-ago quarter rose 4.4 percent with the benefit of the calendar shift of the Easter holiday.
The guidance reflects the continued softness in demand for firearms & ammunition products and the negative effect of the calendar shift of the Easter holiday, during which the company's stores are closed, out of the first quarter and into the second quarter this year. In addition, second quarter guidance includes approximately 1 cent per share in anticipated expenses associated with the development of the company's e-commerce platform
Big 5 closed four stores in the quarter, two of which were part of relocations, and ended the quarter with 425 stores in operation. It expects to add 12 to 15 net new stores this year.
