01 Aug Big 5’s Q2 Earnings Top Guidance
Big 5 Sporting Goods Corp. notched a profit against a loss in the second quarter ended June 30 as same-store sales rose for the third consecutive quarter. Earnings arrived above guidance. Increased traffic in California in June in advance of new ammunition legislation that took effect in July boosted sales in the period.
Net sales for the fiscal 2019 second quarter were $241.0 million compared to net sales of $240.0 million for the second quarter of fiscal 2018. Same-store sales increased 0.7 percent for the second quarter of fiscal 2019. Guidance had called for same-store sales in the low negative to low positive single-digits. Same-store sales decreased by 2.1 percent in the year-ago period.
Net and same-store sales comparisons year-over-year reflect a small negative impact as a result of the calendar shift of the Easter holiday, when the company’s stores are closed, into the second quarter of fiscal 2019 from the first quarter of fiscal 2018.
Gross profit for the fiscal 2019 second quarter was $73.1 million compared to $75.3 million in the second quarter of the prior year. The c’s gross profit margin was 30.3 percent in the fiscal 2019 second quarter versus 31.4 percent in the second quarter of the prior year. The reduction in gross profit margin reflected lower merchandise margins, which contracted 80 basis points primarily due to a shift in sales mix, as well as lower distribution costs capitalized into inventory.
Selling and administrative expense as a percentage of net sales was 30.0 percent in the fiscal 2019 second quarter versus 31.1 percent in the second quarter of the prior year. Overall selling and administrative expense for the quarter decreased by $2.5 million from the prior year mainly due to a favorable settlement related to the termination of a software contract and lower print advertising expense and employee benefit-related costs, partially offset by higher employee labor expense.
Net income for the second quarter of fiscal 2019 was $28,000, or $0.00 per diluted share, including a $0.03 per diluted share net benefit primarily related to the favorable settlement of a software contract termination. This compared to a net loss for the second quarter of fiscal 2018 of $0.2 million, or $0.01 per share. Guidance had called for a loss in the range of 4 cents to 12 cents.
For the 26-week period ended June 30, 2019, net sales were $486.3 million compared to net sales of $474.1 million in the first 26 weeks of last year. Same-store sales increased 2.7 percent in the first half of fiscal 2019 versus the comparable period last year. Net income for the first 26 weeks of fiscal 2019 was $1.7 million, or $0.08 per diluted share, including the $0.03 per diluted share benefit for the software contract termination and a $0.02 per diluted share charge for the write-off of deferred tax assets, compared to a net loss for the first 26 weeks of fiscal 2018 of $1.6 million, or $0.07 per share, including a $0.01 per share charge for the write-off of deferred tax assets.
The company’s revolving credit borrowings were $62.4 million as of the end of the fiscal 2019 second quarter, which reflects a reduction in borrowings of $28.2 million, or 31 percent, versus the same period in the prior year. The company’s merchandise inventories declined 7.5 percent on a per-store basis as of the end of the second quarter compared to the prior-year period. The resulting working capital improvements in inventory and accounts payable, as well as higher net income, combined to provide $5.6 million in operating cash flow in the fiscal 2019 year-to-date period, versus a $21.9 million use of cash in the comparable prior-year period.
“We are pleased to achieve our third consecutive quarter of same-store sales growth and deliver earnings exceeding the top range of our guidance,” said Steven G. Miller, the company’s chairman, president and chief executive officer. “We had a strong finish to the quarter, benefitting from increased traffic in California in June in advance of new ammunition legislation that took effect in July. This allowed us to overcome the negative impact of the Easter holiday shift and a significantly cooler than normal start to summer, which impacted sales of summer products. With our sales performance and continued focus on prudently managing our inventory levels and expense structure, we delivered positive cash flow for the quarter, allowing us to further reduce our borrowings on a year-over-year basis and strengthen our balance sheet.”
Miller continued, “For the third quarter to date, our sales are running down in the low single-digit range versus the prior year, as the start to the quarter has been impacted by continued softness in summer-related product sales, given the slow start to summer weather, particularly in the Pacific Northwest. We have been comping against relatively strong sales that were driven by favorable weather during the same period last year, but we are encouraged by the trending of a number of core product categories. Looking forward, our sales comparisons will ease over the balance of the quarter and we believe that our merchandise assortment is well-positioned to drive upside over the period.”
Quarterly Cash Dividend
The company’s Board of Directors has declared a quarterly cash dividend of $0.05 per share of outstanding common stock, which will be paid on September 13, 2019, to stockholders of record as of August 30, 2019.
For the fiscal 2019 third quarter, the company expects same-store sales to be in the flat to positive low single-digit range and earnings per diluted share to be in the range of 15 to 23 cents, compared to a same-store sales decrease of 2.0 percent and earnings per diluted share of $0.15 in the third quarter of fiscal 2018. The company’s fiscal 2019 third-quarter earnings guidance reflects an anticipated increase in merchandise margins over the prior-year period.
During the second quarter of fiscal 2019, the company opened one store and for the fiscal 2019 full year, the company currently anticipates opening approximately four new stores and closing approximately five stores.