Big 5’s Q2 Sales Drop Against Challenging Comparisons

Big 5 Sporting Goods Corp. reported same-store sales fell 22.3 percent in the second quarter ended July 3 against tough comparisons in the year-ago quarter. Sales were below company guidance, but both earnings and sales surpassed any pre-pandemic second quarter.

Steven G. Miller, the company’s chairman, president and chief executive officer, said, “In a challenging retail climate, we achieved earnings that were within our guidance range and higher than in any pre-pandemic second quarter. Our sales also exceeded any pre-pandemic second quarter, despite being softer than anticipated in the face of macroeconomic headwinds that accelerated over the course of the quarter. The flexibility of the Big 5 model enabled us to mitigate inflationary pressures and continue to generate strong merchandise margins and gross profit dollars. We ended the quarter with a strong balance sheet and a healthy inventory position. Over the course of the pandemic, we have enhanced and evolved our model and emerged a stronger company. Looking at the back half of the year, Big 5 remains in a great position with its efficient model to continue to achieve solid operating results during a period of tremendous economic challenges.”

Net sales for the fiscal 2022 second quarter were $253.8 million compared to net sales of $326.0 million for the second quarter of fiscal 2021.

Same store sales, which are reported on a comparable-day basis, decreased 22.3 percent for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, but increased 3.9 percent versus the comparable-day period in pre-pandemic fiscal 2019. Big 5 had guidance same-store sales to decrease in the high teens.

Gross profit for the fiscal 2022 second quarter was $88.9 million, compared to $126.9 million in the second quarter of the previous year. The company’s gross profit margin was 35.0 percent in the fiscal 2022 second quarter versus 38.9 percent in the second quarter of the previous year. The decrease in gross profit margin compared with the previous year primarily reflects higher store occupancy and warehouse expenses as a percentage of net sales, partially offset by higher costs capitalized into inventory. The company’s merchandise margins decreased by 102 basis points for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, primarily due to sales mix as well as some selected promotional activity to drive sales amid a softening consumer backdrop. Merchandise margins for the second quarter of fiscal 2022 were 310 basis points higher than in any pre-pandemic second quarter in the company’s history as a public company, reflecting the evolution of the company’s pricing and promotional strategy.

Overall selling and administrative expense for the quarter decreased by $1.8 million from the prior year primarily due to lower performance-based incentive accruals and credit card fees, partially offset by broad-based inflationary impacts, including increased employee labor and benefit-related expenses year over year, and to a lesser degree higher advertising expense due in part to the Easter calendar shift. Additionally, the company incurred a $1.0 million charge for the revaluation of workers’ compensation reserves due to a change in claims assessment methodology. As a percentage of net sales, selling and administrative expenses increased to 30.2 percent in the fiscal 2022 second quarter, compared to 24.0 percent in the fiscal 2021 second quarter, due to the de-leveraging effect of lower sales.

Net income for the second quarter of fiscal 2022 was $8.9 million, or $0.41 per diluted share, within the company’s guidance range of $0.40 to $0.50 per diluted share. Diluted earnings per share for the quarter include a $0.03 charge related to the revaluation of workers’ compensation reserves. This compares to record second quarter net income of $36.8 million, or $1.63 per diluted share, in the second quarter of fiscal 2021. Compared to pre-pandemic second quarter periods, fiscal 2022 second quarter earnings were the highest in the company’s history.

For the 26-week period ended July 3, 2022, net sales were $495.8 million compared to net sales of $598.8 million in the first 26 weeks of last year. Same store sales decreased 17.3 percent in the first half of fiscal 2022 versus the comparable period last year. Net income for the first 26 weeks of fiscal 2022 was $18.0 million, or $0.81 per diluted share. This compares to net income for the first 26 weeks of fiscal 2021 of $58.3 million or $2.59 per diluted share, which included a previously reported net benefit in the first quarter of $0.06 per diluted share.

Adjusted EBITDA was $17.7 million for the second quarter of fiscal 2022, compared to $52.9 million in the prior year period. For the 26-week period ended July 3, 2022, adjusted EBITDA was $32.7 million, compared to $83.2 million in the prior year period. EBITDA and Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Financial Measures” below for more details and a reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most comparable GAAP measure, net income.

Balance sheet
The company ended the fiscal 2022 second quarter with no borrowings under its credit facility and with cash and cash equivalents of $36.6 million. This compares to no borrowings under the company’s credit facility and $62.0 million of cash and cash equivalents as of the end of the fiscal 2022 first quarter. Merchandise inventories as of the end of the fiscal 2022 second quarter increased by 26.8 percent year over year, reflecting more normalized inventory levels relative to sales, along with higher carryover of winter-related inventory. In the fiscal 2022 second quarter, the company repurchased 199,336 shares of common stock.

Quarterly Cash Dividend
The company’s Board of Directors has declared a quarterly cash dividend of $0.25 per share of outstanding common stock, which will be paid on September 15, 2022 to stockholders of record as of September 01, 2022.

Third Quarter Guidance
For the fiscal 2022 third quarter, the company expects the continuation of macroeconomic headwinds to impact consumer discretionary spending and same store sales to decrease in the high-single-digit range compared to the fiscal 2021 third quarter. Versus the pre-pandemic fiscal 2019, the company’s same store sales guidance reflects an increase in the low-single-digit range on a comparable-day basis. Fiscal 2022 third quarter earnings per diluted share is expected in the range of $0.22 to $0.32, which compares to third quarter earnings per diluted share of $1.07 in fiscal 2021 and $0.30 in fiscal 2019.

Store Openings
The company currently has 431 stores in operation. During fiscal 2022, the company expects to open approximately three stores and close approximately two stores, including one relocation.

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