Big 5 Sporting Goods Corp. reported sales and earnings fell against record pandemic-driven results in the year-ago period, but sales were flat against the 2019 first quarter and EPS expanded more than 20 percent higher than in any pre-pandemic first quarter.
The West Coast sporting goods chain’s results came in slightly above the high-end of guidance.
“The foundation of our business remains very solid as we transitioned from a pandemic environment of the past two years,” said CEO Steve Miller on a call with analysts. “Our mix of diverse product categories continues to resonate with consumers seeking recreational opportunities and we continue to capitalize on shifts and demands through our nimble merchandising strategy. These core strengths of our model, coupled with improved operating leverage relative to historical rates are driving earnings to remain well above pre-pandemic levels.”
In the quarter, ended April 3, sales fell 11.3 percent to $242 million from record sales of $272.8 million in the year-ago quarter. Sales in the 2021 first quarter grew 25.3 percent as the 2020 quarter included significant store closures due to COVID-19 over the last ten days of the period.
Same-store sales in the latest quarter decreased 11.4 percent against a 31.8 percent surge for the first quarter of fiscal 2021. Same-store sales were flat against the 2019 first quarter.
When reporting fourth-quarter results on March 1, Big 5 said it expected same-store sales to decrease 10 percent to 13 percent.
Said Miller, “In this year’s first quarter, many product categories performed very well, especially on a historical basis, even though we faced several headwinds, unfavorable winter weather, the Omicron surge, supply chain issues, and inflationary pressures.”
Gross profit dollars, which reflect the combination of both sales and merchandise margins, showed greater improvement than sales, up approximately 10 percent. Miller said the gains were “driven by the strength of our merchandise margins, which have been a huge contributor to our success over the last couple of years.”
Merchandise margins for the first quarter were up 119 basis points compared to Q121 and up 461 basis points compared to Q119.
On a monthly basis on a year-over-year basis, January sales were down in the low-20 percent range, February was essentially flat and March was down low double-digits. Big 5 had warned in reporting fourth-quarter results on March 1 that sales were being impacted by unseasonably warm and dry winter weather in Big 5’s markets, along with the Omicron surge last January.
March 2022 faced a “very challenging comp” as March 2021 benefited from pent-up demand as COVID restrictions began to ease, in-person schooling and sports leagues resumed and “stimulus checks were being distributed on a widespread basis,” according to Miller.
Compared to the first quarter of 2019, January was down low single-digits and February was down mid-single digits as 2019 benefited from “extremely positive” winter product sales driven by favorable winter weather. As merchandise transitioned to spring offerings, March sales were up mid-single digits versus 2019.
Gross margins in the latest quarter eroded 40 basis points year over year to 35.5 percent due to higher store occupancy expense as a percent of sales partially offset by higher merchandise margins. Gross margins were well above the 30.9 percent reached in the first quarter of 2019 due to higher merchandise margins.
Overall, S&A expense increased $5.2 million versus the prior-year period primarily due to broad-based inflation, which particularly impacted employee labor and benefit-related expenses. Also, expenses last year were reduced by $1.2 million mainly related to the elimination of an employment agreement liability. As a percent of sales, SG&A was 31.1 percent versus 25.7 percent in the 2021 quarter, reflecting a combination of higher expenses and lower sales. Compared to the pre-pandemic first quarter of fiscal 2019, SG&A expense as a percent of sales was up approximately 150 basis points.
Net income reached $9.1 million or 41 cents per share, down 57.7 percent from $21.5 million or 96 cents, a year ago. Earnings were 8 cents in the first quarter of fiscal 2019.
When reporting fourth-quarter results, Big 5 predicted first-quarter EPS in the range of 30 cents to 40 cents.
Adjusted EBITDA totaled $15 million for the first quarter of fiscal 2022, down from $30.3 million in the first quarter of fiscal 2021 but improving on the loss of $2.2 million in the 2019 first quarter.
Merchandise inventory at the end of the first quarter of fiscal 2022 increased 18.2 percent year-over-year reflecting more normalized inventory levels relative to sales with a higher carryover of winter-related inventory, following unfavorably warm and dry winter weather in the first quarter.
Barry Emerson, CFO, said, “Most of the carryover winter inventory was fresh coming into the season and we feel confident in our ability to reintroduce it again next winter season.”
Compared to the end of the first quarter of fiscal 2019, merchandise inventory was 2.6 percent lower. Excluding winter-related inventory, merchandise inventory was down over $20 million versus 2019 in part, because Big 5’s overall reduction in advertising allows the chain to operate with reduced inventory compared to levels carried historically.
Emerson added, “While supply chain disruptions still persist, we generally feel good about our ability to source product, and we believe our assortment is well-positioned for the spring and summer seasons.”
For the second quarter, same-store sales are expected to decrease in the high-teens compared to the record sales of the fiscal 2021 second quarter when net sales grew 34 percent, higher than any pre-pandemic second quarter in the company’s history.
Fiscal 2022 second-quarter is expected in the range of 40 cents to 50 cents, which compares to record second-quarter earnings per diluted share of $1.63 in fiscal 2021.
In the 2020 second quarter, net earnings of 52 cents per share included a net benefit of approximately 13 cents per share related to rent abatement savings and recovery in eminent domain litigation, partially offset by the expense associated with its employee recognition bonus awards.
Miller said that so far in the second quarter, most categories are performing well against pre-pandemic periods.
“We are particularly encouraged by the early rates in our summer seasonal products,” he said. “And we believe our inventory is well-positioned to capitalize on summer seasonal demands. That said, historically April is a low-volume month. And, as always, the key to the quarter will revolve around the high volume periods of Memorial Day, Father’s Day and the lead-up to the July 4 holiday, which, this year, falls on the first day of our third quarter.”
Miller also noted that the year-over-year comparisons remain challenging during the second quarter as Big 5 faces last year’s record sales that benefited from a continuation of the pent-up demand following the easing of pandemic-related restrictions. For the quarter-to-date, same-store sales compared to last year are running down in the mid-20 percent range. However, compared to 2019, quarter-to-date sales are running up approximately 10 percent.
Miller concluded, ‘Taking a step back for a moment, over the last couple of years, our business has achieved unprecedented growth in the face of unprecedented challenges. As some of these challenges are now beginning to recede, our earnings results continue to significantly outpace historical levels. We certainly set the bar high last year. But keep in mind that we don’t need to beat last year’s results to produce another very profitable and successful quarter and year. We feel very optimistic about our ability to continue to capitalize on many of the recent drivers of our success including favorable product trends, expanded merchandise margins and meaningfully reduced print advertising spend, coupled with more flexible purchasing and pricing. And perhaps, more importantly, we have a highly experienced team that knows how to execute our model to drive results.”