Big 5 Sporting Goods Q3 2024 Earnings Report

Big 5 Sporting Goods EPS Results

• Actual EPS: -$0.34
• Consensus EPS: -$0.25
• Beat/Miss: Missed by -$0.09
• One Year Ago EPS: $0.08

Big 5 Sporting Goods Revenue Results

• Actual Revenue: $220.60 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Big 5 Sporting Goods Announcement Details

• Quarter: Q3 2024
• Date: 10/29/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, October 29, 2024
• Conference Call Time: 5:00PM ET

Big 5 Sporting Goods (NASDAQ:BGFV), Inc. (NASDAQ: BGFV) is a specialty retailer of sporting goods, athletic apparel and footwear in the United States. Founded in 1955 and headquartered in El Segundo, California, the company operates a chain of retail stores designed to serve a broad range of sports enthusiasts, from casual exercisers to competitive athletes. Its product assortment spans basketball, baseball, football, cycling, camping, fishing and water sports, as well as fitness equipment and lifestyle apparel.

The company’s retail network includes over 400 stores located primarily in the western United States. These brick-and-mortar outlets are complemented by an e-commerce platform that offers online ordering, curbside pickup and home delivery options. Big 5’s merchandising strategy emphasizes value pricing, national and private-label brands, and seasonal promotions to attract both cost-conscious shoppers and brand-loyal customers.

Throughout its history, Big 5 Sporting Goods has focused on community engagement and grassroots marketing, often partnering with youth sports organizations and local teams. The company expanded gradually from its California roots into neighboring states such as Arizona, Colorado, Nevada, Oregon, Utah and Washington, establishing a regional footprint that leverages supply-chain efficiencies and localized inventory management.

Leadership at Big 5 includes President and Chief Executive Officer Steven G. Miller, who joined the company in 2008 and was named CEO in 2011. Under his tenure, the company has modernized store layouts, enhanced its digital presence and refined its private-label offerings. Big 5’s board and management team continue to pursue a multichannel growth strategy aimed at strengthening its market position within the competitive sporting goods retail sector.

Big 5 Sporting Goods Q3 2024 Earnings Call Transcript

Key Takeaways

• Big 5 reported Q3 net sales of $220.6 million, down 7.5% on a same-store basis, though sequential improvements in the sales trend continued into Q4.
• The company’s gross profit margin contracted to 29.1% from 33.2% a year ago, driven by a 119 basis-point decline in merchandise margins and higher occupancy and distribution expenses.
• Q3 net loss was $29.9 million ($1.36 per share), which included noncash charges of $21.8 million for a deferred tax asset valuation allowance and $0.7 million for store asset impairments, resulting in negative adjusted EBITDA of $5.1 million.
• For Q4, Big 5 expects same-store sales to be flat to slightly negative in low single digits, benefiting from more normal winter weather but facing ongoing macroeconomic headwinds, with a projected net loss of $0.80–$1.05 per share.
• The company reduced inventory by 8.7% year-over-year and is adjusting pricing and promotional strategies—including an earlier Thanksgiving push—while planning to open three new stores and close eleven for fiscal 2024.

Presentation

[Operator]

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Third Quarter 2024 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 introductions, I'd like to turn the floor over to Mr. Miller. Please go ahead.

[Steve Miller, CEO at Big 5 Sporting Goods]

Thank you, Operator. Good afternoon, everyone. Welcome to our 2024 third quarter conference call. Today, we will review our financial results for the third quarter of fiscal 2024, as well as provide an outlook for the fourth quarter. I will now turn the call over to Barry to read our Safe Harbor Statement.

[Barry Emerson, CFO at Big 5 Sporting Goods]

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. Please refer to our press release to find a reconciliation of certain non-GAAP financial measures referenced in today's call.

[Steve Miller, CEO at Big 5 Sporting Goods]

Thank you, Barry. Our third quarter results reflected ongoing economic headwinds influencing consumer spending. Net sales for the third quarter were $220.6 million compared to $239.9 million in the prior year, with same-store sales down 7.5%. Although our sales remain under pressure, we're encouraged by the sequential improvement in same-store sales each quarter this year, a trend that has continued through the first month of our fourth quarter. From a product category perspective, in the third quarter, we saw relatively consistent trends across our major merchandise categories, which we believe speaks to the pervasiveness of the inflationary pressures that are impacting our core customer. Our apparel and footwear categories were each down approximately 9%, and hard goods was down approximately 6%. Despite the overall sales pressure, our average ticket remained relatively stable, declining low single digits, while our transaction count was down mid-single digits.

[Steve Miller, CEO at Big 5 Sporting Goods]

Our merchandise margins in the third quarter decreased 119 basis points compared to the prior year. While we're focused on optimizing our gross profit dollars, we are mindful of the need to drive top-line sales in this challenging environment. We are carefully evaluating our pricing strategies across categories and looking to target areas where we believe we can benefit from energizing sales by being responsive to market conditions. Our team continues to do an excellent job managing inventory. As of the end of the quarter, our inventory levels were down 8.7% year-over-year, reflecting our ongoing efforts to align inventories with our sales performance. This disciplined approach provides us flexibility to capitalize on opportunistic buys and will keep us well-positioned to respond swiftly to evolving consumer demand when macroeconomic conditions improve.

[Steve Miller, CEO at Big 5 Sporting Goods]

Now commenting on our fourth quarter outlook, we anticipate same-store sales in the range of positive low single digits to negative low single digits compared to the 2023 fourth quarter. Last year, over the course of the fourth quarter, our markets experienced extraordinarily warm weather and a lack of snow that significantly impacted sales of winter-related products, which were down nearly 40% versus the prior year. While our outlook anticipates that we should benefit from more normalized weather this year, it also anticipates a continuation of the persistent macroeconomic challenges to consumer spending. Additionally, the Thanksgiving holiday falls late in the calendar this year, which compresses the traditional holiday shopping season.

[Steve Miller, CEO at Big 5 Sporting Goods]

To account for this shift and help energize what has been a pressured and distracted consumer, we are adjusting our promotional strategy ahead of Thanksgiving in an effort to stimulate sales activity in what has traditionally been a seasonally slow period. In closing, although we continue to face a challenging environment, we are encouraged by the sequential improvement in same-store sales each quarter this year, and as I mentioned, that trend has continued into the fourth quarter. We believe our inventories are well-positioned for the holiday season. We have been effective in managing through clearance products, and that has enabled us to enhance our product assortments. A number of our product categories are contributing to the improvements in our sales trending, and we are particularly excited with the early reads in our fall and winter apparel.

[Steve Miller, CEO at Big 5 Sporting Goods]

Our focus has been and continues to be on managing the aspects of our business that are within our control. By doing so, we believe we are well-positioned to navigate through this current period of constrained discretionary spending. With that, I'll now turn it over to Barry to provide additional details regarding our third quarter performance and fourth quarter outlook.

[Barry Emerson, CFO at Big 5 Sporting Goods]

Thanks, Steve. Gross profit for the fiscal 2024 third quarter was $64.2 million compared to gross profit of $79.6 million in the third quarter of the prior year. Our gross profit margin of 29.1% in the 2024 third quarter compared to 33.2% in the third quarter of last year. The decrease in gross profit margin versus the prior year primarily reflected lower merchandise margins of 119 basis points and higher store occupancy and distribution expense, including cost capitalized into inventory as a percentage of net sales. Overall selling and administrative expense for the fiscal 2024 third quarter decreased $1.6 million compared to the prior year. The year-over-year reduction primarily reflected lower legal expense and reduced performance-based incentive accruals. As a percent of net sales, selling and administrative expense was 34% in the 2024 third quarter versus 31.9% in the 2023 third quarter, reflecting the lower sales base.

[Barry Emerson, CFO at Big 5 Sporting Goods]

We continue to focus on managing the expenses within our control, considering the challenging economic environment. Now looking at our bottom line, net loss for the third quarter of fiscal 2024 was $29.9 million, or $1.36 per basic share, and included a non-cash charge for the establishment of a valuation allowance related to deferred tax assets of $21.8 million, or $0.99 per basic share, as well as a non-cash store asset impairment charge of $0.7 million, or $0.03 per basic share. These non-cash charges have no impact on our operations, liquidity, or debt covenants. For comparison purposes, in the third quarter of 2023, we generated net income of $1.9 million, or $0.08 per diluted share. Adjusted EBITDA was negative $5.1 million for the third quarter of fiscal 2024, compared to positive EBITDA of $7.4 million in the third quarter last year.

[Barry Emerson, CFO at Big 5 Sporting Goods]

Briefly reviewing our results for the first nine months of 2024, net sales were $613.8 million compared to net sales of $688.4 million in the first nine months of last year. Same-store sales decreased 10.2% in the first nine months of fiscal 2024 versus the comparable period last year. Net loss for the first nine months of fiscal 2024 was $48.2 million, or $2.20 per basic share, including the non-cash valuation allowance for deferred tax assets and the non-cash store asset impairment charge I mentioned. Adjusted EBITDA was negative $20.3 million for the 2024 year-to-date period compared to positive EBITDA of $16 million in the comparable period last year. Turning to the balance sheet, our merchandise inventory at the end of the third quarter of fiscal 2024 decreased 8.7% year-over-year. This reduction reflects our efforts to manage inventory levels lower in response to the soft sales environment.

[Barry Emerson, CFO at Big 5 Sporting Goods]

Reviewing our capital spending, our CapEx excluding non-cash acquisitions totaled $8.9 million for the first nine months of fiscal 2024, primarily representing investments in store-related remodeling, new stores, distribution center equipment, and computer hardware and software purchases. For the 2024 full year, we expect CapEx in the range of $10 to $14 million. For fiscal 2024, we anticipate opening three new stores and closing 11 stores as part of our ongoing efforts to optimize our store base, resulting in 422 stores in operation at the end of the year. Now looking at our cash flow, net cash provided by operating activities was $9.1 million in the first nine months of fiscal 2024. This compares to net cash provided by operating activities of $21.1 million in the comparable period last year.

[Barry Emerson, CFO at Big 5 Sporting Goods]

The decrease is primarily attributed to a net loss in the current period, partially offset by reduced funding of merchandise inventory. Our balance sheet at the end of the third quarter of fiscal 2024 remains healthy. We had zero borrowings under our credit facility and a cash balance of $4 million. As we navigate this dynamic market environment and execute our strategy, we remain focused on maintaining a healthy and flexible financial condition. Now I'll spend a moment on guidance. For the fiscal 2024 fourth quarter, we expect same-store sales in the range of positive low single digits to negative low single digits compared to the 2023 fourth quarter. As Steve mentioned, our same-store sales guidance reflects an expectation that macroeconomic headwinds will continue, while we also expect that our results will benefit from winter weather normalizing relative to last year.

[Barry Emerson, CFO at Big 5 Sporting Goods]

In connection with establishing a valuation allowance in the fiscal 2024 third quarter related to deferred tax assets, we do not anticipate realizing any income tax benefit in the fiscal 2024 fourth quarter, which will result in a tax provision of approximately zero for the quarter. On this basis, we expect fiscal 2024 fourth quarter net loss per basic share in the range of $0.80 to $1.05. For prior period comparison purposes, assuming an estimated effective tax rate of 26.3%, we expect fiscal 2024 fourth quarter adjusted net loss per basic share in the range of $0.59 to $0.77. This compares to fiscal 2023 fourth quarter net loss per basic share of $0.41, which was not impacted by the deferred tax asset valuation allowance. That concludes our prepared remarks. I will now turn the call back to Steve for closing comments.

[Steve Miller, CEO at Big 5 Sporting Goods]

Thank you, Barry. Thank you all for joining us on today's call. We appreciate your interest in Big 5 Sporting Goods and look forward to speaking with you again after the conclusion of our fourth quarter.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

Participants

Executives

• Steve Miller, CEO

Analysts

• Barry Emerson, CFO at Big 5 Sporting Goods