Big 5 Sporting Goods Corp (BGFV) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the Big 5 Sporting Good's first-quarter 2012 earnings results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Steve Miller, President and CEO of Big 5 Sporting Goods. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone. Welcome to our 2012 first-quarter conference call. Today we will review our financial results for the first quarter of fiscal 2012, and provide general updates in our business, as well as provide guidance for the second quarter. At the end of our remarks we will open the call for questions. I will now turn the call over to Barry Emerson, our CFO, to read our Safe Harbor statement.

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 by 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 report on form 10-K for fiscal 2011, and 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.

Thank you Barry. Our results for the first quarter reflect continued macroeconomic weakness in our Western US markets, and the absence of winter weather across the vast majority of our geographies, which was extremely detrimental to demand for cold weather and snow-related products.

Despite the lackluster sales of winter-related merchandise, we were encouraged by the strength of our non-winter products, which generally performed positively for the quarter, as we continue to make progress on our initiatives to better align our product mix and promotional efforts with today's consumer. We believe these initiatives are gaining further traction in the second quarter, as reflected by a number of improving trends in our business, which we will speak to shortly.

But first commenting on our first quarter sales, net sales were $218.5 million, versus $221.1 million for the first quarter of fiscal 2011. Same-store sales decreased 2.9% during the quarter. We believe the absence of winter weather in our markets was the major factor affecting sales for the quarter.

We were particularly impacted during the first two weeks of the quarter following New Year's and over the period surrounding President's Day, which are historically key winter product selling periods. This reduction in demand for cold weather apparel and footwear and snow-related products, led to decline of over 25% in sales of winter-related products for the quarter.

For the quarter we experienced a low mid single-digit decrease in traffic, but achieved a low single-digit increase in average ticket. We were particularly pleased with this increase in our ticket given the loss of higher dollar winter product sales. From a product standpoint, the adverse weather conditions I mentioned negatively impacted sales in all of our major merchandise categories, particularly apparel sales, which comped down low double-digits for the quarter.

Sales in our footwear and hard good categories were slightly negative for the quarter. As mentioned, we are pleased that our non-winter products generally performed well for us for the period. Excluding sales of winter-related products, same-store sales for the quarter were positive, in the low single-digit range.

Our merchandise margins were down 156 basis points for the quarter, reflecting the product sales mix shift away from higher-margin winter-related products, particularly in January. We also lost some margin to increased promotional activity, including efforts to sell winter products later in the quarter, in the absence of winter weather, as well as some continued and anticipated impact from product cost inflation.

At the end of the first quarter our per-store inventories were up 1.8% from the prior year. Excluding winter products, our per-store inventories were actually down from the prior year at quarter-end. We obviously have more than normal carryover of winter product, and our plan is to buy judiciously around this mix of product for next year's winter season.

All in all, we are pleased in our inventory management through this challenging period. Our inventory comparisons have continued to improve the second quarter, and as we speak today, our per-store inventories are virtually flat with the prior year, even including the excess winter product carryover.

Now commenting on store openings. During the first quarter we opened one new store in Palm Springs, California, which is a relocation of an existing store that will close in the second quarter. We currently have 407 stores in operation. During the second quarter we plan to open three stores, one of which is a relocation. In addition, we expect to close four stores, one of which is part of a relocation. The remaining three closures are locations for which we previously recorded impairment charges, and which have leases due for expiration in 2014.

For the 2012 full-year we currently expect to open approximately 10 new stores, relocate approximately 6 stores, and close 3 stores. Of the six stores expected to be relocated in 2012, we anticipate closing approximately three this year and a remaining three next year. Thus our current estimate is that we will end of the year with approximately 416 stores in operation.

Now turning to current trends. While the economic environment in our markets remains challenging, we are encouraged by the early results of the merchandising initiatives we spoke to on our last call. Our same-store is sales for the second quarter to date are up in the positive low single-digit range.

Our April customer traffic comparisons to the prior year are the best that we have experienced since last October, and we have seen accelerating improvement in average ticket comparisons to the prior year for each month since January.

As mentioned, we continue to improve our inventory position. Additionally, our point of sale margins are trending in the right direction. Although still running down, merchandise margin comparisons for the prior year have improved for each month since January.

Now to update a few of the key merchandising and marketing initiatives that we believe are contributing to these improved results. We continue to selectively downsize certain product lines that have been underperforming, while expanding other product offerings that are showing strength. As we refine our product mix we are particularly focused on broadening the reach of our product assortment to include more in-line branded product, while maintaining our core value offering.

From a promotional standpoint, we continue to expand our digital marketing efforts and are seeing positive results. We are increasing both a subscriber base and sales generated from our e-mail marketing program, and we continue to build our digital online and mobile advertising platforms.

We believe these efforts will improve the reach of our message to consumers who might not be seeing our print advertisements. In addition, we are on target with plans to develop a robust product and promotionally focused website, which we expect to have in place during the fourth quarter.

All in all, we are very excited about our ongoing efforts to broaden our appeal to the consumer in the current environment and position our business for improved performance. We believe the positive trending of a number of key metrics in our business, in recent months, which were reviewed today, reflects the early benefits of these initiatives. We look forward to building these efforts, as well as leveraging our core strengths and competitive advantages, in the seasons ahead.

With that said, now I will turn the call over to Barry, who will provide more information about the quarter as well as speak to our balance sheet, cash flows, and provide second-quarter guidance.

Thanks Steve. Our gross profit margin for the first quarter was 30.9% of sales, compared to 32.6% of sales for the first quarter of 2011. The decline was mainly due to the 156-basis-point decrease in merchandise margins that Steve discussed. Our selling and administrative expense, as percentage of sales, was 30.5% in the fiscal 2012, first quarter versus 30.4% in the first quarter of the prior year.

On an absolute basis, SG&A expense declined $0.7 million, due primarily to a reduction in employee benefit related costs from higher than normal levels in the prior year period, as well as a decrease in debit card fees, as a result of recent federal legislation.

Our effective tax rate for the first quarter was 35.9% compared to 36.1% for the first quarter of fiscal 2011. Reflecting our lower same-store sales for the first quarter, net income for the period was $156,000 or $0.01 per diluted share compared to net income for the first quarter of fiscal 2011 of $2.8 million or $0.13 per diluted share.

Turning to our balance sheet, total chain inventory was $267.5 million at the end of the first quarter, up 4.7% from the prior year. As Steve mentioned, on a per-store basis, our inventory was up 1.8% from last year, reflecting the impact of lower than anticipated sales of winter-related products.

Other than our higher than normal winter product carryover, as a result of unseasonably warm weather, we feel good about our inventory mix as we head into the spring and summer months. As we progress through the year we expect our inventory per store to further decline.

Looking at our capital spending, CapEx, excluding non-cash acquisitions, totaled $1.6 million for the first quarter of 2012, primarily reflecting expenditures for one store relocation, existing store maintenance, MIS systems, and DC equipment. We expect total capital expenditures for 2012, excluding non-cash acquisitions, of approximately $14 million to $17 million, reflecting the opening of approximately 10 new stores and the relocation of approximately 6 stores.

We generated cash flow from operations of $11.4 million for the first quarter of 2012, compared to $4.2 million in the same period last year. The increase was primarily due to lower funding of merchandise inventory purchases, partially offset by a lower reduction in accounts receivable and lower net income for the current year. For the first quarter we continued to pay our quarterly cash dividend of $0.075 cents per share.

Our long-term debt at the end of the first quarter was $60.2 million, up from $51.8 million at the end of the first quarter last year, due primarily to higher inventory levels. Our positive operating cash flow for the first quarter allowed us to reduce debt by $2.3 million from the end of fiscal 2011.

During the first quarter we repurchased a 172,471 shares of our stock for a total of $1.4 million. As of the end of the first quarter, we had approximately $11.8 million available for stock repurchases under our 20 million share repurchase program authorized in fiscal 2007.

Now I'll spend a minute on our second quarter guidance. Based on results to date, we expect same-store sales in the positive low single digit range and earnings per diluted share in the range of $0.05 to $0.11. This guidance assumes merchandise margin comparisons to the prior year will be negative, but significantly improved relative to the year-over-year margin comparisons experienced in the first quarter.

Our guidance also anticipates a small negative impact from the calendar shift of the July 4 holiday further into the third quarter this year, as well as an estimated charge of approximately $1.2 million or $0.04 per diluted share, to provide for the closing of three stores. For comparative purposes in the second quarter of 2011, same-store sales decreased 1.7% and earnings per diluted share were $0.14, including a non-cash impairment charge of $0.02 per diluted share. Operator, we are now ready to turn the call back to you for questions and answers.

Certainly. Thank you ladies and gentlemen.

(Operator Instructions)

David Magee, with Sun Trust Robinson Humphrey.

Would you talk a little bit about some of the new products that you're putting in the stores? What categories you are emphasizing, and how these might may be marketed differently?

Sure David, it is pretty broad-based. The new products cover the gamut of all of our major merchandise categories, hard goods, footwear, and apparel. A little more focus and in certain cases of more branded product, in some cases its expanding, size and color runs. In other cases it is reaching out to some higher price points in an effort to appeal to a consumer who may have more discretionary income in today's environment.

And how much are you going to market differently or how are you making customers aware of these products on the outside?

Well, in some cases it is through our traditional means of advertising. We are reaching out in some of our digital marketing to communicate what we are carrying in our stores through similar means that we've tried to reach our customers in the past.

Steve, do you anticipate as the year progresses that you'll be doing a lot more of this, or do you think you have done the bulk of the changes already?

No, it is very much a work in progress. We are continually adding additional products, we are testing a number of product offerings, and in some cases in selected stores, and we're getting great benefit from our business analytics, trying to analyze where we are achieving the best successes. We are also developing our website, to be a -- we think -- a very robust website, that will give us a terrific vehicle to help communicate our offering to our customer.

Thanks Steve. And just lastly, can you remind us of how the months last year sort of played out in the second-quarter? How the comparisons look?

Yes, let me go ahead and take that David. Same stores sales, as I mentioned, were down 1.7% in the second quarter last year. April, as we started the quarter, was negatively impacted by the shift of Easter, when our stores are closed, into the 2nd quarter from the 1st quarter in the prior year, in fiscal 2010. So we had a negative effect from the shift into April last year. May sales were down largely due to unseasonably cold weather comparisons in our market, particularly around Memorial Day. June sales were slightly positive.

Thanks Barry. Good luck.

Sean Naughton, with Piper Jaffray you're.

Hi, thanks for taking my question. Steve, you just mentioned that the business analytics, doing a little bit more work there. Can you give us an update? What you guys are doing, and when we could expect to see more benefits, potentially, in the P&L from some of the things you are learning your information technology investment?

I think we will see the benefit in the P&L over the course of, honestly, a number of years. This is phenomenal information that builds upon itself. Our ability with this information to very efficiently drill down and see more detailed reporting on item movement by stores, by size, by colors, by price points, is terrific stuff. And it is helping us, certainly, in the buy, being able to model buys more precisely, understanding capabilities of individual stores, and be able to do, we think, a much better job of getting the right product into the stores to, obviously, improve their ability to move the merchandise.

Okay. In terms of the improvements that you've seen in April, it seems like April is a little bit easier comparison then may have been beforehand. Are there any particular product categories, in terms of apparel, footwear, hard goods, that you're seeing some renewed strength in in the month of April.

Clearly apparel. Apparel, which was our weakest performing category, I guess in the 4th quarter last year, as well is the 1st quarter, we think much of it because of the weather, is our strongest performing category thus far in the 2nd quarter. But, we are seeing very positive performance in footwear and across a number of our hard goods categories as well.

Okay, great. And then lastly, Barry, maybe you can quantify for us, is that $0.04 per share that you're talking about the press release from the pretax charge, does that include the calendar shift, the negative impact from the calendar shift as well?

No, Sean. The $0.04 is really just the charge that we would be taking for the closing of these three stores. The impact of the calendar shift -- it's difficult to quantify frankly. We are working on our advertising plan for the end of the quarter, and it's not firmed up specifically, so the impact is not crystal clear. But it is not dramatic. But there is an impact.

Okay, great. Good luck in the 2nd quarter.

(Operator Instructions)

Matt Dhane, with Tieton Capital Management.

I was hoping you could detail the changes that you're making to your website and the desired impact of those changes.

Yes, certainly Matt. Sure, for the past few years we have been working to position our website, our e-mail marketing initiative, social media, to be better drivers of sales into our stores, and generally been pleased with the process. We're -- in terms of the changes, we are basically building out a database to be able to have our product offering on the website, enable customers to search and see what's available in our stores, lots more product information.

We should be able to leverage that into marketing and offerings through the digital platform, to -- obviously, it's a goal to drive traffic into our stores. We will certainly have the capability. This will provide us to move to an e-commerce platform, should we choose to do that, and we are very actively evaluating that at this time. The decision really is going to be based on whether we can engage them in a manner that we feel will be accretive to earnings, factoring in the logistics, and support requirements, and we are in the process of engaging outside consultants to assist us in that effort.

And when would you have a sense of whether e-commerce makes sense for you folks?

Well, I think over the course of this year. We are going to be rolling out the more robust website in the 4th quarter, and as we are doing, in the process of doing that, we are evaluating an e-commerce strategy, as well.

Great. Thank you.

David Berman, from Berman Capital Management. Mr. Berman your line is open. Please go ahead. I am hearing no response from that line. We have no further questions at this time. I'll turn the conference back over to our speakers.

Okay. We thank you for being on the call today, and we look forward to speaking you with our second-quarter results. Thank you very much.

Thank you ladies and gentlemen that does conclude today's conference call. We would like to thank you all for your participation.