Big 5 Sporting Goods Corporation (BGFV) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods First Quarter 2021 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 conference over to Mr. Miller. Please go ahead sir.
Steve Miller: Thank you, operator. Good afternoon, everyone. Welcome to our 2021 first quarter conference call. Today, we will review our financial results for the first quarter of fiscal 2021 as well as provide an outlook for the second quarter of fiscal 2021. I will now turn the call over to Barry to read our Safe Harbor statement.
Barry Emerson:
Steve Miller: Thank you, Barry. We are excited to report an extraordinary start to fiscal 2021 with first quarter top-and bottom-line results significantly ahead of our guidance. This marks our fourth consecutive quarter of delivering record quarterly earnings. Our performance was driven by a combination of strong top-line sales, merchandise margin expansion, and an improved cost structure. The success we have achieved over the course of the past 12 months has significantly strengthened our balance sheet and positioned us to return more value to shareholders. Today, we announced a 20% increase in our regular quarterly dividend. Additionally, we declared a special cash dividend of $1 per share. Given our strong cash flow and very healthy cash position, we're able to provide these shareholder returns while also maintaining the financial flexibility to continue to invest in our business. Barry will provide more detail on our balance sheet and use the cash. But first, I would like to give some color on our first quarter performance and our momentum in the second quarter to date. First quarter net sales were a record $272.8 million compared to net sales of $217.7 million for the first quarter of fiscal 2020. Last year's first quarter was impacted by significant pandemic related store closures over the last 10 days of the period. Year-over-year net sales comparisons are also a bit muddy due to fiscal calendar shifts because last year was a 53-week fiscal year. That said, same-store sales comparisons, which are made on a comparable weight basis and are not materially impacted by the calendar shifts were up to 31.8%. Looking at the rollout of the quarter, January same-store sales increased approximately 40% in part driven by very strong sales of winter related products. February was up mid-single-digits, as team sports comparisons were heavily impacted by headwinds this year due to widespread lead closures, whereas last year in February, same-stores activities had not yet been impacted by the pandemic. Excluding products related to team sport or other product categories were up more than 20% in February.
Barry Emerson: Thanks Steve. First let me note certain calendar shifts that affected our net sales for the first quarter. The increase in net sales was partially offset by an approximate 10 million unfavorable impact from the calendar shift related to the Company's 53-week fiscal 2020 that caused fiscal 2021 to begin one week later in fiscal 2020 as well as an unfavorable impacts from the calendar shifts related to the Easter holiday during which the Company stores are closed. From the second quarter of fiscal 2020 to the first quarter of fiscal 2021; however, our same-store sales comparisons are made on a comparable week basis, and therefore the calendar shifts did not have a material impact on our same-store sales comparisons. Gross profit for the fiscal 2021 first quarter increased to 97.9 billion from 64.6 million in the first quarter the prior year. Our gross profit margin was 35.9% in the fiscal 2021 first quarter versus 29.6% in the first quarter of the prior year. The increase in gross profit margin largely reflects the 350 basis point expansion of merchandise margins that Steve mentioned, along with reduced our occupancy and warehousing costs as a percentage of net sales and to a lesser degree the favorable impact from an insurance settlement partially offset by lower distribution costs capitalized into inventory for the quarter. Selling and administrative expense decreased 1.3 million in the fiscal 2021 first quarter versus the prior year period, primarily due to lower print advertising expense and the elimination of a liability for an employment agreement partially offset by higher performance based incentive compensation accruals. Selling and administrative expense as a percentage of net sales was 25.7%, representing a 710 basis point improvement versus the prior year period due to the combination of expense reductions and higher sales volumes. Now looking at our bottom line. Net income for the first quarter of fiscal 2021 increase to $21.5 billion or $0.96 per diluted share including a benefit of $0.06 per diluted share related to the elimination of the employment agreement liability, and the insurance settlement. This compares to a net loss of $4.6 million or $0.22 per basic share in the first quarter of fiscal 2012. Adjusted EBITDA for the first quarter of fiscal 2021 was $30.3 million, compared to a loss of $2.2 million in the prior year period. Turning to the balance sheet, our merchandise inventory at the end of the fiscal 2021 first quarter was down 20.8% compared to the prior year. This reduction in inventory reflects a strong sell-through of our winter merchandise combined with broad based strength across our product categories. Our buying team continues to work closely with our vendors to obtain key merchandise, but in some instances, we have been impacted by the widely reported disruptions in the supply chain.
Operator: Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Mark Smith from Lake Street Capital. Your line is now.
Mark Smith: A couple of questions here for you. First off, I just wanted to look a little bit at maybe what we would call closure or pandemic categories versus kind of reopening sales categories. You spoke a little bit about it in the call but can you talk about outdoor space, exercise at home, if you've seen any ammunition or firearms supply, this kind of helping boost sales? And then, in particular as we look at reopening team sports, are there any other categories that are doing well as we're starting to see some reopening?
Steve Miller: Sure, Mark. As I tried to indicate in the prepared remarks, once the team sports business return, we had virtually all categories throughout our stores performing at high levels. Throughout much of the pandemic, all the categories other than team sports were doing pretty well, very, very well; and certainly the outdoor categories, backyard, home backyard like outside yards, weather escapes or scooters, we're performing well. The individual sports, the golf and the tennis. So we pretty much had everything worked and other than that a big hit from team sports over the entire pandemic, the firearm business has been widely reported, has been strong. I'm sure nation nationwide and once things started reopen, which really happened, I'd argue in a hurry, come March, particularly in our California market with a really flip the script and dealing with the pandemic. Team sports came on very strong. We have baseball seasons, which would traditionally start in some of our markets as early as in January, and certainly by February into early March, we're kind of just kicking in over the course of March and into April. And top of that many schools tried to make up a miss fall football season. We had soccer so we really had everything working for our business in very positive manner.
Mark Smith: Okay. And it sounds like you've got to said that there, you haven't seen a slowdown in the categories that were strong over the last 12 months that kind of front yard, backyard outdoor exercise categories. Have you seen any shift in consumer behavior to where they're doing other things than what they did during the pandemic?
Steve Miller: I guess the way to look at Mark, I mean, we certainly have seen some slowdown from the levels of pure surge vines, if that occurred, for example, in exercise, which was really one of the first categories to take off at the onset of the pandemic. And whereas we're certainly not seeing the demand at the level of really a year ago, we still see that category performing meaningfully stronger than pre-COVID levels and now we saw in '19, '18, '17, '16 ago and going backwards. So, I think the interest in getting outdoors and recreating particularly when the weather cooperates is really strong as strong as ever, and it will feel terrific about the trends that we see across the board.
Mark Smith: Anything as we look at the cost side, you guys have done a good job on reduced hours and your new cost structure, anything inflationary that we can keep our eyes on? Are you seeing any pressure in labor rates or anything that we should be watching for?
Barry Emerson: Actually, Mark, I think that labor pressure, not only minimum wage, which, of course, is huge for our markets, it's really easy across the nation. But just the labor market in general, surprisingly enough, we are just seeing a lot of challenges, really at store level at distribution center level and really throughout the organization, just from an overall labor standpoint. And so that's an impact. We've talked a lot about how we've been mitigating those costs over time and we're continuing to save cost pressure. We're also seeing cost pressure on the product side. So freight costs, just raw materials, other inputs to the product costs and we're watching that closely, but so far so good in terms of being able to make adjustments and increase prices as necessary, there's still, demand still, certainly exceeds supply. And at this point in time, we've been able to pass those kinds of costs along and in some of the other areas, in terms of advertising and store labor and so on, we're evaluating those costs, and levels of investment, depending on sales trending. But we feel very good about being able to continue to manage those costs, as we have recently and continue to have them trended lower than they were in 2019.
Mark Smith: I think two more for me, Steve, just confirmed regarding Nike, I think you said 7% of 2020 sales, and you don't expect any growth significant impact this fiscal year. Is that correct?
Steve Miller: That is correct.
Mark Smith: And then the last one for me if you have it handy, can you give us what the cadence of comps or sales were last year during Q2 and I know the calendar shift move some things around? But if you've got that handy, if not, we can discuss it offline?
Steve Miller: I think I can provide that. Can they help that, Barry?
Barry Emerson: Yes, I can give you Q2 in March, we were -- April was down almost 40%. May was up just slightly and June was up approximately 15%. So, you can see the trending and that's when we made the comment last year, the first half being down significant -- first half the quarter being down significantly, and then the second half, turning around and being up pretty strongly in the second half of the second quarter.
Steve Miller: It really flipped in the middle of May we all of a sudden we were able to reopen a lot of stores had been closed, and our business took off very possibly the back half of the second quarter.
Operator: Thank you. We reach end of our question-and-answer session. I'll turn the floor back over to Mr. Miller for your further closing comments.
Steve Miller: All right. Well, thank you, operator and thank you all for joining us for today's call. We appreciate your interest in Big 5 Sporting Goods. I look forward to speaking with you again after the conclusion of our second quarter. Have a great afternoon.
Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time and have wonderful day. We thank you for your participation today.
