Big 5 Sporting Goods Corp. reported same-store sales declined 7.1 percent in the first quarter ended April 1 with cold and rainy weather stalling the start of baseball, softball and other spring sports seasons. On an analyst call, Steve Miller, president and CEO, said comps are down 11 percent for the second quarter to date and expected to decline in the high single-digit range due to macro pressures.
Earnings in the first quarter arrived near the midpoint of its guidance range with the help of lower-than-expected expenses and only a slight decline in merchandise margins despite promotional pressures. The performance, Miller noted, came despite a “very challenging operating environment.”
He elaborated, “Not only did macroeconomic headwind accelerate over the course of the quarter, but the persistence of the cold and wet weather that started as a tailwind in the first half of the quarter turned into a headwind over the back half of the quarter.”
Net income for the first quarter of fiscal 2023 was $0.2 million, or $0.01 per diluted share. This compares to a net income of $9.1 million, or $0.41 per diluted share in the first quarter of fiscal 2022. Guidance had called for earnings in the range of negative 2 cents a share to positive 6 cents.
Net sales for the fiscal 2023 first quarter were $224.9 million compared to net sales of $242.0 million for the first quarter of fiscal 2022.
Same-store sales decreased 7.1 percent for the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. Same-store guidance called for same-store sales to decrease in the mid-single-digit range.
On a year-over-year basis, transactions for the quarter were down mid-single digits, with the average ticket down low single digits. In January, same-store sales were up 3.6 percent, boosted by the wintry weather. However, in February and March, when non-winter sales become more relevant to overall results, same-store sales were down 7.5 percent and 13.7 percent, respectively.
“The unusually wet and cold weather caused widespread delays to the start of our baseball and softball seasons and impacted other spring recreational activities,” said Miller. “Additionally, it appeared to us that over the course of the quarter, our consumer was further impacted by macroeconomic conditions, including the regional bank crisis and lower tax refund.”
By category, apparel increased in the high single-digit range on the strength of winter-related sales while footwear was down mid-single digits. Hard goods, which was the category most negatively impacted by the significant rainfall, was down in the mid-teens range for the quarter.
Miller said that in the face of top-line headwinds, Big 5 continued to prioritize merchandise margins to drive gross profit dollars. Merchandise margins were only down 23 basis points versus the record margins generated in the first quarter of last year.
Merchandise margins continued to run several hundred basis points ahead of pre-pandemic rates, supported by the evolution of the company’s pricing and promotional strategy.
Miller added, “We continue to closely manage our inventory. And as a result, we have not needed to be overly promotional for the sake of clearing product. Our winter product sell-through was very good, and our aged inventory is at a historically low level. We feel well positioned to maintain healthy merchandise margins going forward.”
Gross margins were down 210 basis points to 33.4 percent. The decline was due to higher store occupancy and distribution expense, including costs capitalized into inventory, as a percent of sales, as well as the slight decrease in merchandise margins.
Overall selling and administrative expense for the quarter decreased by $100,000 from the prior year, primarily reflecting lower performance-based incentive accruals, offset by higher labor costs. As a percentage of sales, selling and administrative expense increased to 33.4 percent from 31.1 percent in the year-ago sales due to sales deleverage.
Selling and administrative expense came in slightly favorable to plan. Barry Emerson, CFO, said on the call, “We continue to focus on managing our expenses in this challenging high inflation economic environment.”
Inventories were up 5.3 percent year-over-year at the end of the first quarter of fiscal 2023. Emerson said, “We feel good about the level of our inventory and that the increase primarily reflects supply chain disruptions last year, partially offset by strong sell-through of winter inventory this season.”
Big 5 in 2023 expects to open approximately five new stores, relocate one store, and close approximately three stores. The company currently has 430, which reflects two store closures during the first quarter.
For the second quarter, same-store sales are expected to decrease in the high single-digit range year over year, reflecting an expectation that macroeconomic headwinds will continue to impact consumer discretionary spending over the balance of the second quarter. EPS is expected in the range of negative 10 cents to positive 5 cents a share, which compares to fiscal 2022 second quarter earnings per diluted share of 41 cents.
“It remains a tough operating environment, and the second quarter is off to a soft start, with sales running down approximately 11 percent versus last year,” said Miller. “We believe our customers are continuing to carefully monitor their discretionary spending. While we benefited in the second quarter from some catch-up sales in baseball following the rain delays in the prior quarter, it certainly has not been enough to overcome the general softness in discretionary spending.”
He added, “As we look ahead, the key to our second quarter always revolves around the high-volume periods surrounding Memorial Day, Father’s Day and the start of summer. The snowpack and rainfall have done wonders for the drought across our footprint. And we are hopeful that this will create favorable summer recreational opportunities, although flooding from excess snow melt remains a potential concern.”
He said that given the challenges to top-line growth, Big 5 is continuing to focus on maintaining merchandise margins and mitigating the impact of inflation on operating expenses.
“We’ve kept our inventory in a healthy position, which allows us to be opportunistic with future inventory investments that can drive traffic and sales at healthy merchandise margins,” said Miller. “Our balance sheet remains strong, and we believe we are well positioned to navigate the current environment and capitalize on opportunities as the economy improves.”
Photo courtesy Big 5
