Big 5 Sporting Goods Q2 2024 Earnings Call Transcript

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July 30, 2024

Key Takeaways

  • Net sales for Q2 were $199.8 million, with same store sales down 9.9% year-over-year, reflecting broad-based declines across apparel (-8%), footwear (-9%) and hard goods (-11%) amid sustained consumer discretionary pressures.
  • Gross profit margin fell 27 basis points to 29.4% in Q2, and inventory was reduced by 10.8% to align with current sales trends and optimize gross profit dollars.
  • Q3 same store sales are guided to decline in the mid single-digit range, as early benefits from calendar shifts and strong summer demand give way to tougher comparisons and ongoing macroeconomic headwinds.
  • Q2 net loss was $10 million ($0.46 per share) versus a $0.3 million loss last year, with negative EBITDA of $8.7 million driven by lower sales and higher occupancy and distribution expenses.
  • The company has suspended its dividend to preserve financial flexibility, plans 3 new store openings and 11 closures, expects $9–14 million in full-year CapEx, and ended Q2 debt-free with a $4.9 million cash balance.
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Earnings Conference Call
Big 5 Sporting Goods Q2 2024
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good day, ladies and gentlemen. Welcome to the Big Fri Sporting Goods Second 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.

Operator

Barry Emerson, Chief Financial Officer of Big Fry Sporting Goods. At this time, for opening remarks and introductions, I'd like to turn the conference over to Mr. Miller. Please go ahead, sir.

Speaker 1

Thank you, operator. Good afternoon, everyone. Welcome to our 2024 Second Quarter Conference Call. Today, we will review our financial results for the Q2 of fiscal 2024 as well as provide an outlook for the Q3. I will now turn the call over to Barry to read our Safe Harbor statement.

Speaker 2

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 provision 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 ks, 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.

Speaker 1

Thank you, Barry. We reported 2nd quarter results that were consistent with our guidance as we continue to feel the impact of sustained pressures to consumer discretionary spending. Net sales for the 2nd quarter were $199,800,000 compared to $223,600,000 in the prior year with same store sales down 9.9%. There were a couple calendar shifts that impacted our Q2. In April, we benefited from an extra sales day as the Easter holiday when our stores are closed occurred in Q1 this year as opposed to the Q2 last year.

Speaker 1

However, this benefit was offset at the end of the quarter by the shift of the 4th July holiday further into the Q3 this year versus last. From a product category perspective, trends were fairly consistent across each of our major merchandise categories categories with apparel down approximately 8%, footwear down approximately 9% and hard goods down approximately 11%. Our average ticket was down low single digits, while our transaction count was down high single digits, which we believe largely reflects the broad based macroeconomic challenges impacting consumers. Our merchandise margins in the 2nd quarter decreased 27 basis points compared to the prior year and we closed the quarter with a 10.8% reduction in inventory. Given the sales headwinds, our team is keenly focused on aligning our inventory levels with our current sales trending.

Speaker 1

This enables us to better optimize gross profit dollars while also keeping us well positioned to take advantage of potential opportunistic buys that may present in the marketplace. Now commenting on our Q3. We started the quarter strong as sales not only benefited from the calendar shift 4th July, but also from exceptional summer product sales over the long holiday weekend when we benefited from a heat wave across much of our geography. Since then, our sales comparisons have softened as we began comping against very favorable summer weather last year, which contributed to July being the strongest month of last year's Q3. Quarter to date same store sales are currently tracking down approximately 7%.

Speaker 1

Although we remain cautious given the ongoing economic pressures affecting consumers, we anticipate benefiting from easing year over year comparisons as the quarter progresses. This is reflected in our 3rd quarter guidance, which calls for same store sales to decline in the mid single digit range. The current operating environment reflects a continuation of persistent macroeconomic challenges. There is no question that our core customer is feeling the cumulative impact of inflationary pressures in key areas such as gas, rent, groceries and interest rates. In these times, we believe that given our attractive price points and strong value proposition, we are likely benefiting from trade down activity.

Speaker 1

However, these gains have not been large enough to offset the widespread contraction in discretionary spending that is impacting the retail industry at large. We're not simply waiting for the tide to turn. We're actively managing the business with discipline as we navigate through this cycle. Our product assortment is well positioned to meet demand for crucial upcoming periods including back to school, fall team sports and the Labor Day holiday. We expect that as we emerge from this current period of constrained discretionary spending, our current strategies and operational efficiencies will position us to return to sales and earnings growth.

Speaker 1

At this time, given the uncertainty of the duration of the challenged macroeconomic environment and our priority of maintaining a healthy balance sheet, we believe that the suspension of our dividend is a prudent step to provide added financial flexibility. We remain steadfast in our commitment to maximizing shareholder value and as we always have, we will continue to evaluate opportunities to return value to shareholders. With that, I'll now turn it over to Barry to provide additional details regarding our 2nd quarter performance and 3rd quarter outlook. Thanks, Steve.

Speaker 2

Gross profit for the fiscal 2024 second quarter was $58,700,000 compared to gross profit of $71,900,000 in the Q2 of the prior year. Our gross profit margin of 29.4% in the 2024 Q2 compared to 32.2% in the Q2 of last year. The decrease in gross profit margin versus the prior year primarily reflected higher store occupancy and distribution expense, including costs capitalized in inventory as a percentage of net sales. Merchandise margins for the Q2 of 2024 decreased 27 basis points versus the prior year period. Overall selling and administrative expense for the fiscal 2024 Q2 decreased $200,000 compared to the prior year.

Speaker 2

The year over year reduction primarily reflected lower employee labor and staffing expense and reduced performance based incentive accruals. As a percent of net sales, selling and administrative expense was 36.1% in the 2024 Q2 versus 32.4% in the 2023 Q2, reflecting the lower sales base. We remain committed to diligently managing the expenses within our control, especially against the backdrop of stubborn broad based cost inflation. We continue to optimize store labor hours, which is particularly important as we navigate substantial increases in minimum wage rates across our markets. Now looking at our bottom line, net loss for the Q2 of fiscal 2024 was $10,000,000 or $0.46 per basic share.

Speaker 2

This compares to a net loss of $300,000 or $0.01 per basic share in the Q2 of 2023. EBITDA was negative $8,700,000 for the Q2 of fiscal 20 24 compared to a positive 4 $200,000 in the Q2 last year. Briefly reviewing our 2024 first half results, net sales were $393,300,000 compared to net sales of $448,500,000 in the 1st 26 weeks of last year. Same store sales decreased 11.7 percent in the first half of fiscal twenty twenty four versus the comparable period last year. Net loss for the first half of twenty twenty four was $18,300,000 or $0.84 on a per share basis.

Speaker 2

This compares to a debt loss for the first half of twenty twenty three of $100,000 or breakeven on a per share basis. EBITDA was negative $15,200,000 for the 2024 year to date period compared to positive EBITDA of $8,600,000 in the comparable period last year. Turning to the balance sheet. Our merchandise inventory at the end of the Q2 of fiscal 2024 decreased 10.8% year over year. As Steve indicated, this reduction reflects our efforts to manage inventory levels lower in response to the soft sales environment.

Speaker 2

Reviewing our capital spending, our CapEx excluding non cash acquisitions totaled $6,300,000 for the first half of fiscal twenty twenty four, primarily representing investments in store related remodeling, distribution center equipment and computer hardware and software purchases. For the 2024 full year, we now expect CapEx in the range of $9,000,000 to 14,000,000 dollars For fiscal 2024, we anticipate opening approximately 3 new stores and closing approximately 11 stores as part of our ongoing efforts to optimize our store base, resulting in approximately 4 22 stores in operation at the end of the year. Now looking at our cash flow. Net cash used in operating activities was $2,900,000 in the first half of fiscal 2024. This compares to net cash used in operating activities of $3,300,000 in the comparable period last year.

Speaker 2

The decreased cash used in operating activities for the current year primarily reflected reduced funding of merchandise inventory and a smaller decrease in accrued expenses, partially offset by a larger net loss for the period. Our balance sheet at the end of the Q2 of fiscal 2024 remains healthy. We had 0 borrowings under our credit facility and a cash balance of $4,900,000 consistent with our position at the end of Q2 2023. As Steve mentioned, the decision to suspend our quarterly cash dividend reflects our capital management objective of maintaining a healthy financial condition as we work through the duration of the current challenging microeconomic climate. Now I'll spend a moment on guidance.

Speaker 2

For the fiscal 2024 Q3, we expect same store sales to decrease in the mid single digit range compared to the 2023 Q3. Our same store sales guidance reflects an expectation that macroeconomic headwinds will continue to impact consumer discretionary spending over the balance of the quarter. Fiscal 2024 3rd quarter net loss per basic share is expected in the range of $0.15 to 0 point 3 $5 which compares to 2023 Q3 net income per diluted share of $0.08 That concludes our prepared remarks. I will now turn the call back to Steve for closing comments.

Speaker 1

Thank you, Barry. Thank you all for joining us on today's call. We appreciate your interest in Vic 5 Sporting Goods and look forward to speaking with you again after the conclusion of our Q3.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect.

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