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Big 5 Sporting Goods (BGFV -0.31%)Q2 2022 Earnings CallAug 02, 2022, 5:00 p.m. ETContents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks: OperatorGood day, women and gents. Welcome to the Big 5 Sporting items second quarter 2020 earnings outcomes convention name. Today’s name is being recorded. With us as we speak are Mr. Steve Miller, president and chief government officer; and Mr. Barry Emerson, chief monetary officer of Big 5 Sporting Goods. At this time, for opening remarks and introductions, I’d like to show the convention over to Mr. Miller. Please go forward, sir.Steve Miller — President and Chief Executive Officer Thank you, operator. Good afternoon, everybody. Welcome to our 2022 second quarter convention name. Today, we are going to evaluate our monetary outcomes for the second quarter of fiscal 2022, in addition to present an outlook for the third quarter. I’ll now flip the decision over to Barry to learn our secure harbor assertion.Barry Emerson — Chief Financial Officer Thanks, Steve. Except for statements of historic reality, any remarks that we might make about our future expectations, plans, and prospects represent forward-looking statements made pursuant to the secure harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain recognized and unknown dangers and uncertainties that will trigger our precise leads to present and future durations to vary materially from forecasted outcomes. These dangers and uncertainties embrace these extra totally described in our annual stories on Form 10-Ok, our quarterly stories on Form 10-Q, and our different filings with the Securities and Exchange Commission. We undertake no obligation to revise or replace any forward-looking statements which may be made now and again by us or on our behalf.Steve Miller — President and Chief Executive Officer Thank you, Barry. In what grew to become an more and more difficult retail local weather over the course of the second quarter, we had been happy to attain earnings that had been inside our steerage vary and better than in any pre-pandemic second quarter in our historical past. As we take a look at our outcomes by means of the primary half of this fiscal yr on a year-over-year foundation, it is very important understand that we confronted extraordinarily troublesome comparisons in opposition to final yr’s file outcomes when gross sales surged because of uncommon pandemic-related elements, together with a big profit from large pent-up demand for our merchandise following the resumption of in-person colleges and sports activities leagues, together with the distribution of stimulus checks. As a outcome, year-over-year comparisons are extremely distorted, so we are going to present some pre-pandemic comparisons as we speak as extra context. Net gross sales for the fiscal 2022 second quarter had been $253.8 million in comparison with web gross sales of $326 million for the second quarter of final yr. Same-store gross sales had been down 22.3% versus final yr and beneath our plan that referred to as for a high-teens lower. From a visitors and ticket perspective, on a year-over-year foundation, transactions for the second quarter decreased within the excessive teenagers with our common sale down roughly 4%. Looking at our same-store gross sales versus the pre-pandemic 2019 interval, we had been up 3.9% on a comparable day foundation. Similar to different retailers, our prime line was impacted by macroeconomic headwinds which grew to become progressively worse over the course of the second quarter. These macro developments are undoubtedly pulling {dollars} away from customers’ discretionary spending. (*5*), we have now been impacted by the resurgence of COVID instances that started in June, significantly in our key California market. This doubtless has impacted buyer visitors, and we have definitely skilled an uptick in COVID instances amongst our group members, and this compounded the continued retailer staffing points we have been battling in a troublesome hiring surroundings. With the staffing challenges, we have been unable to maintain all of our shops open for optimum working hours. Even with all these headwinds, we achieved second quarter gross sales that had been increased than any pre-pandemic second quarter gross sales in our historical past. As we have now mentioned up to now, whereas all of it begins with gross sales, producing wholesome margins has all the time been a key focus for us. In the second quarter, regardless of gross sales coming in beneath plan, our margins remained very sturdy. Although our merchandise margins decreased by 102 foundation factors versus the file margins we generated within the second quarter of final yr, this yr’s Q2 margins had been 310 foundation factors increased than in any pre-pandemic second quarter in our 20-year historical past as a public firm. This margin power demonstrates the flexibleness of our mannequin and highlights the evolution of our enterprise by means of the pandemic period that made us a stronger and extra resilient firm. Our stock is present, so we’re effectively positioned to make use of promotions strategically reasonably than relying upon them to drive gross sales or clear extra stock. While we have now been extra promotional in sure classes, we have been ready to take action with out meaningfully impacting our deliberate merchandise margins which, in flip, helped us obtain our earnings plan for the second quarter. Over the course of the pandemic, we have now advanced our promotional mannequin and change into a lot much less reliant on chainwide print promoting. Aside from the apparent promoting price financial savings, this has facilitated a extra environment friendly pricing and promotional technique that enables us to scale back the stock depth and breadth that we have now traditionally wanted to assist deliberate promotions. This improved stock effectivity has been a significant component in driving gross margin {dollars}. In the second quarter of 2022, the gross margin {dollars} we generated relative to our stock greenback funding was increased than in any pre-pandemic second quarter in our historical past as a publicly traded firm. Turning to present developments. In the third quarter, similar to within the second quarter, we’re comping extraordinary prior-year outcomes, and we proceed to battle macroeconomic headwinds. For the quarter so far, our same-store gross sales are operating down within the low teenagers versus final yr however are operating up low single digits versus the comparable days in 2019. While provide chain disruptions nonetheless persist, they’re improved from the place they had been right now a yr in the past. We imagine our product assortment is usually effectively positioned, and we anticipate that gross sales developments versus final yr will enhance over the steadiness of the quarter. Stepping again, over the course of the pandemic, we have now enhanced and advanced our mannequin and emerged a stronger firm. We have a powerful, debt-free steadiness sheet with a wholesome stock place. We knew fiscal yr 2022 could be exhausting to foretell as a result of mixture of difficult comps from durations of unprecedented demand and the uncertainties of the present surroundings. We proceed to learn from enhancements we have now made to our price construction, that are serving to to mitigate extraordinary inflationary pressures and are defending our EBITDA within the face of recent challenges borne by the shifting macroeconomic forces that each one retailers are dealing with. We have an extended working historical past and confirmed monitor file of managing by means of difficult circumstances which, mixed with the flexibleness that we have created, are permitting us to proceed to generate wholesome working outcomes. In closing, I’d prefer to acknowledge and thank our Big 5 group that has drawn on their years of expertise by means of many financial cycles to assist us stay nimble and adapt to new circumstances in an ever-changing surroundings. I’ll now flip it over to Barry to supply extra particulars concerning our second quarter efficiency and third quarter outlook.Barry Emerson — Chief Financial Officer Thanks, Steve. As we beforehand talked about, our web gross sales for the fiscal 2022 second quarter had been $253.8 million, which represented our highest second quarter gross sales within the firm’s historical past. Compared to the fiscal 2019 interval, second quarter same-store gross sales elevated 3.9% on a comparable day foundation. Gross revenue for the fiscal 2022 second quarter was $88.9 million in comparison with $126.9 million within the second quarter of the prior yr. Our gross revenue margin was 35% within the fiscal 2022 second quarter which was down in comparison with 38.9% within the file prior-year second quarter. The lower in gross revenue margin yr over yr primarily mirrored increased retailer occupancy and warehouse expense as a proportion of web gross sales, partially offset by a big improve in price capitalized into stock. Our merchandise margins decreased by 102 foundation factors for the fiscal 2022 second quarter in comparison with the second quarter of fiscal 2021. However, when in comparison with the 30.3% gross revenue margin we reported within the second quarter of 2019, our gross margin continues to exhibit power with a rise of roughly 470 foundation factors, partly reflecting the evolution of our pricing and promotional technique. Overall promoting and administrative expense decreased $1.8 million within the fiscal 2022 second quarter versus the prior-year interval primarily because of decrease performance-based incentive accruals and bank card charges, partially offset by broad-based inflationary impacts, together with elevated worker labor and benefit-related bills yr over yr and, to a lesser diploma, increased promoting expense due partly to the Easter calendar shift. (*5*), we incurred a cost of $1 million or $0.03 per diluted share for the revaluation of staff’ compensation reserves because of a change in claims evaluation methodology. As a % of web gross sales, SG&A expense was 30.2% within the fiscal 2022 second quarter versus 24% within the 2021 second quarter, reflecting the deleveraging impact of decrease gross sales. Compared to the second quarter of fiscal 2019, SG&A expense as a % of web gross sales this yr was roughly flat. Now taking a look at our backside line. Net earnings for the second quarter of fiscal 2022 was $8.9 million or $0.41 per diluted share after the $0.03 staff’ compensation cost. This compares to file second quarter web earnings of $36.8 million or $1.63 per diluted share within the second quarter of fiscal 2021. And as soon as once more, for added perspective, this yr’s second quarter EPS of $0.41 compares to breakeven EPS of zero that we reported within the second quarter of fiscal 2019. Adjusted EBITDA continues to be very wholesome and totaled $17.7 million for the second quarter of fiscal 2022 in comparison with $52.9 million within the second quarter of fiscal 2021. Briefly reviewing our 2022 first-half outcomes, web gross sales had been $495.8 million in comparison with file web gross sales of $598.8 million within the first 26 weeks of final yr. Same-store gross sales decreased 17.3% within the first half of fiscal 2022 versus the comparable interval final yr. Net earnings for the primary 26 weeks of fiscal 2022 was $18 million or $0.81 per diluted share. This compares to file web earnings for the 2021 first half of $58.3 million or $2.59 per diluted share, together with a beforehand reported web good thing about $0.06 per share. Adjusted EBITDA was $32.7 million for the 2022 year-to-date interval in comparison with $83.2 million within the comparable prior-year interval. Turning to the steadiness sheet. Our merchandise stock on the finish of the second quarter of fiscal 2022 elevated 26.8% yr over yr, primarily reflecting extra normalized stock ranges following the numerous sell-through within the prior-year interval. To a lesser extent, the upper stock additionally displays carryover of winter-related stock following unseasonably heat and dry winter climate within the first quarter, which we are going to reintroduce subsequent season. Compared to the top of the second quarter of fiscal 2019, our merchandise stock this yr elevated barely by 1.5%. Factoring out winter-related merchandise, our merchandise stock was effectively beneath 2019 ranges. Looking at our capital spending. Our capex, excluding noncash acquisitions, totaled $5.5 million within the first half of fiscal 2022. For the fiscal 2022 full yr, we anticipate capex within the vary of $13 million to $17 million, primarily representing investments in store-related reworking, new shops, distribution middle gear, and pc {hardware} and software program purchases. During fiscal 2022, we anticipate to open roughly three shops and shut roughly two shops, together with one relocation. From a money circulate perspective, web money utilized in working actions was $39.1 million within the first half of fiscal 2022. This compares to optimistic working money circulate of $88.7 million within the prior-year interval. The year-over-year lower in working money circulate primarily displays elevated funding of merchandise stock and decrease web earnings. Our steadiness sheet on the finish of the second quarter of fiscal 2022 was very wholesome with zero borrowings underneath our credit score facility and a money steadiness of $36.6 million. Our monetary situation has strengthened significantly over the previous three years and compares to borrowings underneath our credit score facility of $62.4 million and a money steadiness of $6.6 million on the finish of the second quarter of fiscal 2019. In the second quarter of fiscal 2022, we repurchased $2.6 million of widespread inventory underneath our $25 million share repurchase authorization, bringing our year-to-date repurchases to $4.1 million. (*5*), as we speak, we introduced that our board of administrators declared a quarterly money dividend of $0.25 per share. Now I’ll spend a second on steerage, which displays our expectation that macroeconomic headwinds will proceed to influence client discretionary spending. For the fiscal 2022 third quarter, we anticipate same-store gross sales, that are reported on a comparable day foundation, to lower within the excessive single-digit vary in comparison with the fiscal 2021 third quarter. Versus 2019, we anticipate same-store gross sales to extend within the low single-digit vary on a comparable day foundation. We anticipate fiscal 2022 third quarter earnings per diluted share within the vary of $0.22 to $0.32, which compares to earnings per diluted share of $1.07 within the third quarter of fiscal 2021 and $0.30 in fiscal 2019. Relative to this yr, the fiscal 2019 third quarter benefited from a shift associated to our fiscal calendar. That concludes our ready remarks. Operator, we at the moment are prepared for any questions. Questions & Answers:OperatorThank you. At this time, we will probably be conducting a question-and-answer session. [Operator instructions] One second, please, whereas we ballot for questions. We have a query from Mark Smith of Lake Street Capital. Please go forward.Mark Smith — Lake Street Capital Markets — Analyst Hi, guys. First off, I used to be questioning if you happen to might stroll slightly bit by means of sort of the sequential comps through the quarter, what you noticed sort of month to month.Steve Miller — President and Chief Executive Officer Oh, sure. I imply, once more, it is so erratic going in opposition to the 2021 outcomes. But we had been down, as we mentioned, 22%, 0.2 plus, 0.3, similar retailer for the quarter. And it was fairly in keeping with every quarter being down between principally 20% and 25%, down barely extra in April. That’s in comparison with final yr. If we had been evaluating to 2019, April was by far our strongest comparability in opposition to ’19. And the comps decelerated in opposition to ’19 for May and June. And on that foundation, it is considerably distorted because of extraordinary ammunition gross sales again in June of 2019 in entrance of a legislation change in California. Based on expectations, as we talked about, we noticed a elementary deceleration from our plan over the course of the quarter. Hope that helps.Mark Smith — Lake Street Capital Markets — Analyst OK. Yeah. As we take a look at it, is there anyone factor which you could tie it to? How shut was the buyer pullback tied to maybe gasoline costs? Or is it a way more broad concern hitting your key customers that made them sort of pull again?Steve Miller — President and Chief Executive Officer You know, Mark, I imply, I feel the inflation and the influence on our customers’ pocketbooks could be troublesome to discern how a lot of it is gasoline, how a lot of it is meals inflation, how a lot of it is housing prices and rents and the like, however very troublesome to see it in actual time, however undoubtedly an influence for discretionary purchases amongst our customers.Mark Smith — Lake Street Capital Markets — Analyst OK. And then you definately guys mentioned, I feel, quarter-to-date comps are down low teenagers. I feel it is what you mentioned. Do you are feeling like your client has sort of bottomed, that it is gotten as dangerous as it should get or with even any rebound? Or possibly inform us what you are seeing from client habits as we speak.Steve Miller — President and Chief Executive Officer Mark, it’s extremely troublesome to make a judgment on whether or not our customers bottomed on a real-time foundation. I imply there’s so many transferring elements to our gross sales on a year-over-year foundation because of seasonality, because of impacts of climate. In phrases of the comparisons in opposition to 2021, we do anticipate, and I feel I discussed within the ready remarks, that our developments will decide up. And we’re guiding to a lower within the quarter in opposition to final yr of excessive single digits, and we’re operating down low teenagers. And that has extra to do with type of the cadence actually of what occurred final yr as our numbers had been impacted, as we play by means of the Q3 of final yr, by our inventory place being comparatively depleted after a exceptional second quarter that we achieved. And so, as we went into the again half of the quarter final yr, we’re lacking a number of merchandise that we want we had and, unquestionably, might have carried out even stronger than our sturdy Q3 outcomes a yr in the past the place we had a greater stock place.Mark Smith — Lake Street Capital Markets — Analyst And as we take a look at margin slightly bit right here, any extra perception you can provide us on sort of margin deceleration with the decline in gross sales? And I do know you guys have sort of a brand new working mannequin versus a few years in the past. Do you are feeling like you may preserve the gross revenue margin on this low 30% to 35%? Or with decelerating gross sales, is there an opportunity we see it possibly drop beneath these ranges?Barry Emerson — Chief Financial Officer Merchandise margin.Steve Miller — President and Chief Executive Officer Well, I imply, when it comes to merchandise margins, our focus is on profitability. We suppose we have taken vital steps to boost the revenue mannequin of our enterprise and working our enterprise at stronger merchandise margins than we achieved pre-pandemic. And we imagine that absolutely the lion’s share of that’s sustainable, not essentially to the exceptional diploma that we realized final yr. So on a year-over-year foundation, some deceleration. On a quarter-over-quarter foundation, comparatively talking, we’re planning for very modest, I suppose, deceleration of our merchandise margin ranges. Barry, when it comes to the general?Barry Emerson — Chief Financial Officer That’s proper, Mark. And then as ranges come down, gross sales come down, we’re seeing some deleveraging in occupancy, to a decrease diploma. But on the warehousing aspect, due to the challenges round discovering sources, staffing, these sorts of issues, and total freight prices, we’re seeing some deleveraging on the decrease gross sales on warehouse, in addition to slightly bit on occupancy additionally.Steve Miller — President and Chief Executive Officer At the top of the day, Mark, we’re all the time about making an attempt to optimize gross revenue {dollars}, and we really feel that we’re in a really wholesome stock place. So, we do not really feel we have to promote only for the sake of clearing stock. And in the end, our choices are pushed by how you can optimize gross revenue {dollars} and appropriately handle prices.Barry Emerson — Chief Financial Officer And sadly, you understand, simply from a pre-pandemic standpoint, it is good to see our merchandise margins up, sort of north of 400 foundation factors, versus the 2019 interval, for instance.Mark Smith — Lake Street Capital Markets — Analyst OK. And then Steve, you simply talked about it, sort of my final query, slightly bit. As we take a look at stock ranges, the greenback quantity, up pretty considerably on a yr over yr and even a sequential foundation. It appears like a few of that’s winter holdover. As we take a look at sort of late summer time months transferring into fall, do you are feeling like there’s discounting that you must do on a few of what you name sort of your present stock? Or are you OK if we see gross sales at decrease ranges, with the ability to maintain a few of that stock over to subsequent yr?Steve Miller — President and Chief Executive Officer Yeah. We really feel fairly good total about our inventories. I imply, like all the time, I imply, through the pandemic, pre-pandemic and now, there’s all the time some objects we want we had extra of and a few objects we want we had much less of. But total, we expect our stock is in good place. We really feel comfy. To the extent that gross sales in some areas could also be softer than anticipated, we’re working to regulate orders to the extent we’re capable of. But by and enormous, we’re very comfy holding merchandise over. We’ve demonstrated yr over yr that it is similar to with winter product that if the demand is not there, simply chasing it with discounting is not essentially the reply, and holding that product and reintroducing it really works effectively for us. But total, we do not see that as a serious concern except there’s some extra vital deceleration from a requirement standpoint.Mark Smith — Lake Street Capital Markets — Analyst Perfect. Thank you, guys.Steve Miller — President and Chief Executive Officer Thank you, Mark.OperatorThat concludes our question-and-answer session. I’ll now flip the decision again to Mr. Miller for any closing feedback.Steve Miller — President and Chief Executive Officer All proper. Well, thanks, operator, and thanks all for becoming a member of us on as we speak’s name. We admire your curiosity in Big 5 Sporting Goods and sit up for talking with you once more after the conclusion of our third quarter. Have a terrific afternoon.Operator[Operator signoff] Duration: 0 minutesCall individuals:Steve Miller — President and Chief Executive OfficerBarry Emerson — Chief Financial OfficerMark Smith — Lake Street Capital Markets — Analyst
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