Big 5 Sporting Goods reported its fourth consecutive quarter of record quarterly earnings as the pandemic elevates the demand for fitness and outdoor products. Big 5 officials also expressed confidence that they would manage Nike’s pending exit from the chain.

In mid-day trading Wednesday, shares of Big 5 were ahead $5.17, or 27 percent, to $$24.24.

As reported in late March, Nike said it would close six additional wholesale accounts, including Big Five, to focus on its direct-to-consumer efforts and limit wholesale distribution to select accounts that it believes best supports its positioning in the marketplace. The other five retailers include DSW, Urban Outfitters, Shoe Show, Dunham’s Sports, and Olympia Sports. Nike also plans to no longer sell apparel directly to Macy’s.

Addressing the issue on Big 5’s first-quarter conference call, Steve Miller, president and CEO, said, “We were originally informed of an expansion of Nike’s direct-to-consumer initiatives that will impact Big Five along with certain other large chain retailers. As a result, by the end of this year, we will no longer receive shipments directly from Nike.”

He also said that although this would lead to a “significant reduction” in the flow of Nike products, Big Five would continue to purchase certain Nike products from authorized licensees. Those items include several team sports categories.

Overall, Miller said the products impacted by Nike’s decision represented approximately 7 percent of its 2020 sales. He added, “Based on the current and effective supply chain of Nike products, we do not expect any material impact on our 2021 sales.”

Looking beyond 2020, Miller expressed confidence that other vendor partners would be able to step up to fill the void left by Nike’s exit.

He said, “We source products from many vendors, and we have a very diverse and flexible product mix. Although we are disappointed by Nike’s decision, we are encouraged by the response of other vendors, both new and existing, about the opportunity to expand their presence in our stores. From a customer standpoint, we believe that many customers enter our stores relatively brand agnostic and shop us for our value and convenience. I’m quite confident in our team’s ability to work through this transition to continue to offer a compelling product assortment in 2022 and beyond.”

Nike’s pending exit comes as Big 5’s business is booming. Results came in well above company guidance in the quarter.

Big 5’s Q1 Same-Store Sales Climb 32 Percent 
In the quarter ended April 4, sales climbed 25.3 percent to $272.8 million from $217.7 million a year ago. In the year-ago period, sales fell 11.3 percent due largely to significant store closures due to COVID-19 over the last ten days of the period.

Same-store sales increased 31.8 percent. When Big 5 reported fourth-quarter results on March 2, the retailer forecasted same-store sales would increase approximately 20 percent. In the 2020 first quarter, same-store sales decreased 10.8 percent.

The net sales gain was less than the same-store gain due to calendar shifts related to the company’s part 53-week fiscal 2020 and a shift related to the Easter holiday. Same-store sales comparisons are made on a comparable-week basis, and the calendar shifts did not have a material impact on same-store sales comparisons.

By month, same-store sales in January jumped approximately 40 percent in part, driven by “very strong” sales of winter-related products, said Miller.

February’s comps were up mid-single-digits as team sports comparisons were heavily impacted by headwinds this year due to widespread league closures, whereas last year in February, the pandemic had not yet impacted team sports activities. Excluding products related to team sports categories, comps were up more than 20 percent in February.

In March, sales accelerated significantly ahead of plan and were up over 50 percent. The CEO added that, as expected, sales comparisons were “exceptionally strong” for the last two weeks of the period as the chain retailer comped against widespread foreclosures last year.

“Much of the incremental demand above our plan throughout March was in our team sports category as leagues throughout our markets began to resume practice and games with the easing of COVID restrictions,” said Miller. “The sales acceleration also reflected benefits from school re-openings in our markets and coincided with the distribution of stimulus checks. With the return of team sports, virtually all categories have been performing at extraordinary levels.”

Apparel Paces Q1 Revenue Gains
Among categories, apparel’s comps surged more than 40 percent and received the largest benefit from the strong winter-related sales. Footwear sales were up approximately 25 percent while hardgoods advanced almost 30 percent.

On a year-over-year basis, the average sale was up approximately 20 percent, reflecting increases in the number of units per sale and the average price per unit. Transactions were up approximately 12 percent.

Gross margins in the quarter improved to 35.9 percent from 29.6 percent a year ago. The increase largely reflected a 350-basis point increase in merchandise margins, lower store occupancy and warehousing costs as a percent of sales and, to a lesser degree, the favorable impact from an insurance settlement, partially offset by lower distribution costs capitalized into inventory for the quarter.

Said Miller, “Reduction in promotional activity along with favorable product mix shifts were the key drivers of the margin gain.”

As a percent of sales, selling and administrative expenses were reduced to 25.7 percent from 32.8 percent. Overall selling and administrative expenses for the quarter decreased $1.3 million from the prior year primarily due to lower print advertising expenses and the elimination of a liability for an employment agreement. Costs savings also resulted from reduced store hours. Higher performance-based incentive compensation accruals partially offset these factors.

Net income totaled $21.5 million, or 96 cents per share, which includes a benefit of 6 cents per share related to the elimination of the employment agreement liability and the insurance settlement. When it reported fourth-quarter results on March 2, the retailer forecast EPS in the range of 47 cents to 53 cents a share.

The net loss in 2020’s first quarter was $4.6 million, or 22 cents per share. Adjusted EBITDA for the latest quarter improved to $30.3 million compared to a loss of $2.2 million in the prior-year period.

Big 5 ended the quarter with no borrowings under its credit facility and cash and cash equivalents of $100.1 million. This compares to zero borrowings and $64.7 million of cash and cash equivalents as of the end of 2020 and $124.3 million of borrowings and $44.2 million of cash at the end of the 2020 first quarter.

In light of the continued strength of the company’s business, cash flow generation and improved balance sheet, Big 5 raised its quarterly dividend payout by 20 percent to 18 cents a share and also declared a special cash dividend of $1.00 per share.

Said Miller, “The success we have achieved over the course of the past 12 months has significantly strengthened our balance sheet and positioned us to return more value to shareholders.”

Total inventories decreased 20.8 percent due to strong demand for certain items and logistical challenges in the marketplace largely traced to port congestion. Said Miller, “Given the pace of sales that drove these remarkable earnings, our team has done a tremendous job chasing inventory in numerous hot categories, which has been complicated by the widely reported supply chain disruptions throughout retail. There are certainly categories where we wish we had more inventory. I suspect it will be some time before supply catches up to demand.”

Second-Quarter Comps Running Ahead Over 100 Percent
For the second quarter, same-store sales are projected to increase in the range of 22 percent to 27 percent and EPS to range between $1.05 to $1.25.

Fiscal 2021 second-quarter guidance reflects the combined positive impact of calendar shifts of the Easter holiday and the Fourth of July holiday into the second quarter this year, as well as year-ago store closures. The guidance compares to a same-store sales decrease of 4.2 percent and EPS of 52 cents in the year-ago period. The year-ago period included a net benefit of 13 cents per share related to rent abatement savings and recovery in eminent domain litigation, partially offset by expense associated with special employee recognition bonus awards.

Miller said the second quarter “is off to a tremendously strong start by any measure,” with quarter-to-date sales running up over 100 percent, albeit with the benefit of coming against year-ago store closures. After adjusting for the Easter calendar shifts, same-store sales for the start of Q2 are running up approximately 40 percent, with point-of-sale margins up approximately 450 basis points versus 2019.

“As we look at our current trends, what we find particularly encouraging is that, as conditions relating to the pandemic have been improving, and restrictions have been easing in our market, the categories that surged through the pandemic are continuing to perform at high levels. We’re experiencing customer traffic significantly above historical levels, indicating the Big 5 is at the forefront of people’s minds as a convenient and trusted destination to find what they need.”

He added, “This past year has been a catalyst for many to stay healthy and engage or reengage in recreational activities, whether it’s golf or tennis, family activities in the backyard, or going to the lakes, mountains or beaches. The desire to be active is higher than ever, and our product assortment is ideally situated for these trends. In sum, we are very enthusiastic about our business and feel well-positioned to leverage our trending and improve cost structure to continue to deliver strong results.”

Photo courtesy Big 5