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Edited Transcript of BGFV earnings conference call or presentation 25-Feb-20 10:00pm GMT

·11 min read

Q4 2019 Big 5 Sporting Goods Corp Earnings Call EL SEGUNDO Mar 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Big 5 Sporting Goods Corp earnings conference call or presentation Tuesday, February 25, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Barry D. Emerson Big 5 Sporting Goods Corporation - Senior VP, CFO & Treasurer * Steven G. Miller Big 5 Sporting Goods Corporation - Chairman, President & CEO ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Fourth Quarter 2019 Earnings Results Conference Call. Today's call is being recorded. With us today are Mr. Steve Miller, President and Chief Executive Officer; and Mr. Barry Emerson, Chief Financial Officer of Big 5 Sporting Goods. At this time, for opening remarks and introduction, I'd like to turn the conference over to Mr. Miller. Please go ahead, sir. -------------------------------------------------------------------------------- Steven G. Miller, Big 5 Sporting Goods Corporation - Chairman, President & CEO [2] -------------------------------------------------------------------------------- Thank you, operator. Good afternoon, everyone. Welcome to our 2019 fourth quarter conference call. Today, we will review our financial results for the fourth quarter of fiscal 2019 and provide general updates on our business as well as provide guidance for the first quarter of 2020. I will now turn the call over to Barry to read our safe harbor statement. -------------------------------------------------------------------------------- Barry D. Emerson, Big 5 Sporting Goods Corporation - Senior VP, CFO & Treasurer [3] -------------------------------------------------------------------------------- Thanks, Steve. Except for statements of historical fact, any remarks that we may make about our future expectations, plans and prospects constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in current and future periods to differ materially from forecasted results. These risks and uncertainties include those more fully described in our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statements that may be made from time to time by us or on our behalf. -------------------------------------------------------------------------------- Steven G. Miller, Big 5 Sporting Goods Corporation - Chairman, President & CEO [4] -------------------------------------------------------------------------------- Thank you, Barry. 2019 was a strong year of growth for Big 5 Sporting Goods. With positive same-store sales, healthy merchandise margin expansion and sound expense management, we produced a year with meaningful enhancement of our net income, including year-over-year earnings growth each quarter of the year. Looking at our fourth quarter, net sales were $244.1 million compared to $247.1 million for the fourth quarter of fiscal 2018. Although our same-store sales decreased 0.6% for the fourth quarter, our same-store sales gross margin dollars were up 4.7% for the quarter driven by a 239 basis point increase in our merchandise margin. The merchandise margin expansion for the fourth quarter and for the full year each marked our strongest margin performance of any fourth quarter and full year in more than 10 years. Key drivers of our margin gains have been favorable product mix shifts, opportunistic buys and the successful impact of our ongoing strategic efforts to optimize pricing and promotions. Overall, for the fourth quarter, we realized a low single-digit decrease in customer transactions that was largely offset by a low single-digit increase in average sale. The quarter benefited from strong sales of winter-related products driven by favorable winter weather during the key Thanksgiving and Christmas weeks. From a product category standpoint, apparel performed well, up in the mid-single-digit range for the fourth quarter, primarily driven by demand for seasonal winter products. Our footwear category was up in the low single-digit range and our hardgoods category was down mid-single digits, in part due to continued softness in sales of ammunition in California due to regulatory changes that have been effective since July. Now commenting on store activity. During the fourth quarter, we opened a new store in Bishop, California and relocated our store in Pittsburg, California. We ended the quarter with 434 stores in operation. During the first quarter of 2020, we have closed 3 stores and will not open any new stores. For the full year, we currently anticipate opening approximately 5 stores and closing approximately 5 stores. Turning now to current trends in the first quarter of 2020. During the quarter, we are facing very challenging comparisons against extraordinary sales of winter-related products in the first quarter of 2019 driven by last year's highly favorable winter weather conditions across our markets and this year's disappointing winter weather. Although this year began with solid winter weather conditions in our geography, unfortunately, the conditions turned highly unfavorable over the course of the quarter, particularly in our key California markets. For instance, Mammoth Mountain, one of the primary ski destinations in our market, has received just 14 inches of snowfall quarter-to-date this year compared to more than 24 feet of snowfall during the comparable period last year. The other resorts in California have seen similar snowfall disparities year-over-year. Our winter business really began to soften in mid-January and even more so in February with our sales of winter-related products down over 50% for the month. Consequently, sales of winter-related products, which last year accounted for over 30% of sales in January and February, are currently running down over 30% for the quarter-to-date. As a result, overall same-store sales quarter-to-date are now down approximately 10% compared to the approximately 10% increase that we experienced during the comparable period last year. Thus, on a 2-year stack basis, our sales are running relatively flat. Given the huge impact that winter has had on traffic and sales over the start to the quarter, it is difficult to get a true read on the underlying trends of our business. Although certain aspects of our nonwinter-related categories are performing well, it does appear that we may be experiencing some general softness in our business, which we believe could be a function of the overall macro environment. Over the balance of the quarter, sales comparisons will ease, and we expect our sales trending to improve as we transition into spring. A bright spot during this difficult seasonal period has been the continued strength of our merchandise margin. Despite headwinds from decreased sales of high-margin winter products, our overall merchandise margins are up approximately 75 basis points for the quarter-to-date as we continue to benefit from the strategies that drove margin expansion over the second half of 2019. Additionally, we should touch briefly on issues relating to the coronavirus. Although we cannot pinpoint any specific material impact from the coronavirus on our sales or business to date, many of the products we sell are produced overseas, and we expect that there will be some disruption in our supply chain over the coming months. At this point, however, it is too early to quantify the degree of the impact. We are working closely with our suppliers in an effort to mitigate any supply chain issues that we might encounter. Now I will turn the call over to Barry who will provide more information about the fourth quarter and provide first quarter guidance. -------------------------------------------------------------------------------- Barry D. Emerson, Big 5 Sporting Goods Corporation - Senior VP, CFO & Treasurer [5] -------------------------------------------------------------------------------- Thanks, Steve. Our gross profit margin for the fiscal 2019 fourth quarter improved over 300 basis points to 31.6% of sales versus 28.5% of sales for the fourth quarter of fiscal 2018. The increase in gross profit margin largely reflects an increase in merchandise margins of 239 basis points and higher distribution costs capitalized into inventory for the quarter. Our selling and administrative expense for the fiscal 2019 fourth quarter as a percentage of sales was even with the prior year at 30.9%. Overall selling and administrative expense for the quarter decreased $0.7 million from the prior year, primarily due to lower print advertising expense and contract termination charges in the prior year. This was partially offset by higher employee-, labor- and benefit-related expenses in the quarter. Now looking at our bottom line. For the fourth quarter, we reported net income of $0.4 million or $0.02 per diluted share, which was reduced by a charge of $0.02 per diluted share for asset impairment. Excluding this charge, fourth quarter earnings were $0.04 per diluted share at the high end of our previously issued guidance range of $0.02 to $0.04 per diluted share. For the fiscal 2019 full year, as previously reported, net sales were $996.5 million compared to net sales of $987.6 million for the fiscal 2018 full year. Same-store sales increased 1.2% in fiscal 2019 versus the prior year. Net income for fiscal 2019 was $8.4 million or $0.40 per diluted share. Net loss for fiscal 2018 was $3.5 million or $0.17 per share, including charges of $0.09 per share, as previously reported. Turning to the balance sheet. Our chain-wide inventory was $309.3 million at the end of fiscal 2019 compared to $294.9 million at the end of fiscal 2018. On a per-store basis, merchandise inventory was up 5.9% versus the prior year. The year-over-year increase partly reflects our decision to accelerate certain inventory orders in an effort to mitigate potential tariff-related price increases. We have adjusted our inventory purchases in an effort to rightsize our inventory levels, and we anticipate our overall year-over-year inventory comparisons to improve over the course of the first quarter. That said, given the soft winter conditions quarter-to-date, we expect our end-of-season winter inventory carryover to be greater this year than it was last year and we -- when we experienced exceptional winter products sell-through. We have managed through seasonal inventory carryovers of this magnitude in the past, and we will buy around it and reintroduce this winter product next season with little markdown risk. Looking at our capital spending, our CapEx, excluding noncash acquisitions, totaled $9.4 million for fiscal 2019, primarily representing investments in new stores, store-related remodeling, distribution center equipment and computer hardware and software purchases. We currently expect capital expenditures for fiscal 2020, excluding noncash acquisitions, of approximately $11 million to $15 million. This reflects continued investment in store-related remodeling, new stores, our distribution center and IT systems. From a cash flow perspective, our cash flow from operations was a positive $14.3 million in fiscal 2019 compared to a positive $24.5 million in the prior year period. The decrease in operating cash flow primarily reflects increased funding for merchandise inventory, partially offset by higher net income. For the fourth quarter, we paid a quarterly cash dividend of $0.05 per share, and our Board of Directors also declared a quarterly cash dividend of $0.05 per share for the first quarter of 2020. Our long-term revolving credit borrowings totaled $66.6 million at the end of 2019 compared to $65.0 million at the end of the prior year. We continue to manage our capital structure to maintain a healthy balance sheet, and we have the flexibility to invest appropriately in our business. Now I will spend a minute on our guidance. As Steve discussed, we are experiencing a tough first quarter, in large part due to highly unfavorable winter weather conditions throughout our markets. For the fiscal 2020 first quarter, we expect same-store sales to decrease in the mid- to high single-digit range and expect to realize a loss per share in the range of $0.15 to $0.25. This compares to the first quarter of last year when same-store sales increased 4.6% and earnings per diluted share were $0.08. Steve, I'll now turn the call back to you for some closing remarks. -------------------------------------------------------------------------------- Steven G. Miller, Big 5 Sporting Goods Corporation - Chairman, President & CEO [6] -------------------------------------------------------------------------------- Thank you, Barry. While we are pleased to deliver solid fiscal 2019 results, we are clearly disappointed with the start to 2020. The challenges of the current quarter illustrate the volatile impact that weather conditions can have on our business. We look forward to easing comps and hopefully, more normalized weather. Our team is working hard to build on the success we had last year by improving sales trends and generating healthy margins and as always, prudently managing our cost structure. Thank you for joining us on today's conference call. We look forward to speaking with you again after the conclusion of our first quarter. Operator? -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.