Big 5’s Q2 Earnings Sink 35 Percent

The latest quarter includes a non-cash impairment charge of 2 cents per diluted share.

As anticipated, second quarter sales were negatively affected by 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.

Gross profit for the fiscal 2011 second quarter was $71.8 million, compared to $73.0 million in the second quarter of the prior year. The company’s gross profit margin was 32.7 percent in the fiscal 2011 second quarter versus 33.2 percent in the second quarter of the prior year. The decrease in gross profit margin reflects a decline of 75 basis points in merchandise margins resulting primarily from an increase in promotional activities and inflationary product cost pressure.

Selling and administrative expense as a percentage of net sales was 30.5 percent in the fiscal 2011 second quarter versus 29.6 percent in the second quarter of the prior year. Overall selling and administrative expense increased $1.8 million during the quarter from the prior year due primarily to an increase in store-related expenses as a result of an increased store count, as well as a non-cash pre-tax impairment charge of $0.6 million related to certain underperforming stores.

For the 26-week period ended July 3, 2011, net sales increased $2.4 million, or 0.5 percent, to $440.7 million from net sales of $438.3 million in the 26 weeks ended July 4, 2010. Same store sales decreased 1.3 percent in the first 26 weeks of fiscal 2011 versus the comparable period last year. Net income was $5.9 million, or $0.27 per diluted share, including the $0.02 impairment charge, for the first 26 weeks of fiscal 2011, compared to net income of $9.8 million, or $0.45 per diluted share, for the first half of last year.

“During the second quarter, we continued to battle very challenging economic headwinds in the majority of our markets, which remain among the areas most adversely impacted by unemployment and foreclosures in the nation,” said Steven G. Miller, the company’s Chairman, President and Chief Executive Officer. “We experienced a decline in customer traffic, as we believe our consumer again reduced purchases of discretionary items in response to the difficult environment. Sales softened further during most of May and early June, as unseasonably cool weather in many of our markets impacted sales of summer related products. When warm summer weather arrived in many of our key markets toward the end of the quarter, our sales improved, enabling us to comp positively for the month of June.”

Miller continued, “As we look to the second half of fiscal 2011, we continue to take steps to enhance our merchandise, pricing and promotional strategies. We believe these efforts will allow us to more effectively work through these challenging times and position us well when the economic environment improves.”

Guidance

For the fiscal 2011 third quarter, the company expects same store sales in the negative low single-digit to positive low single-digit range and earnings per diluted share in the range of $0.12 to $0.20. For comparative purposes, the company’s earnings per diluted share for the third quarter of fiscal 2010 were $0.31.

Store Openings

During the second quarter of fiscal 2011, the company closed one store as part of a relocation that began in late 2010. The company ended the fiscal 2011 second quarter with 395 stores in operation and anticipates opening three new stores during the fiscal 2011 third quarter. Excluding stores closed as part of relocations that began last year, the company now expects to open between 10 and 12 net new stores during fiscal 2011.