Big 5 Sporting Goods Corp (BGFV) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods First Quarter 2018 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 would like to turn the conference over to Mr. Miller. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to our 2018 first quarter conference call. Today, we will review our financial results for the first quarter of fiscal 2018 and provide general updates on 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 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 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.

Thank you, Barry. Given the challenging conditions that our business faced during the first quarter, we are pleased that our bottom line came in at the top end of the guidance range that we provided in February. As we shared on our last call, unfavorable record warm and dry weather conditions in our markets led to very weak sales over the first 7 weeks of the quarter. We finally saw the arrival of cooler and wetter weather in late February and March, and this drove exceptional late season winter product sales but at a significant expense to our spring-related product categories. Trending in our overall sales and product margins did improve as the quarter progressed, and this positive trending has continued into the second quarter.

Commenting on the first quarter, net sales were $234.2 million compared to $252.6 million for the first quarter of fiscal 2017. Same-store sales decreased 7.5% from the first quarter of last year, when same-store sales increased 7.9% from the first quarter of 2016. In terms of how the quarter rolled out, we comped down in the high teens in January as sales of winter products were very soft as a result of significantly warmer-than-normal weather versus spectacular winter weather in last January. Our sales trends improved each week throughout February, with comps down in the low mid-single-digit range and continued to improve in March with comps down in the low single-digit range, even though we lost a day of sales due to the shift of the Easter Holiday. In a rather remarkable weather anomaly, we actually did more winter-related business in March than in January this year. However, the benefit of cold weather and higher winter sales in March was largely offset by the loss of more traditional Spring-related sales.

Overall, for the quarter, we experienced a high single-digit decrease in the number of customer transactions, a low single-digit increase in our average sale versus the prior year period. From a product category standpoint, the combination of the weak winter-related sales over the first half of the quarter and weak non-winter product sales in March impacted each of our major merchandise categories and are trending over the course of the quarter. We saw the largest swing in sales trends in our apparel category, which is heavily influenced by winter-related apparel in the first quarter. It illustrate apparel was down in the low-double digit range for the overall quarter but up in the low-double digit range for the month of March as winter sales finally showed some life.

Our hardgoods and footwear categories were both down in the mid- to high single-digit range for the quarter. Our merchandise margins for the quarter decreased 58 basis points compared to the first quarter of fiscal 2017, when merchandise margins increased by 228 basis points over the prior year period. The decrease primarily reflects the sales mix shift away from higher margin winter product categories earlier in the quarter. As with our sales, our product margin trending improved over each month of the period and turned slightly positive for March. Now commenting on store activity. We have no store openings or closings to report for the first quarter. In the second quarter, we plan to open 2 stores and close 2 stores, including 1 closure related to a relocation. Our current plans for the 2018 full fiscal year have us opening approximately 8 stores and closing approximately 3 stores.

Turning now to the second quarter. As mentioned, our positive sales in March and trending has continued through April. Same-store sales for the quarter to date are up in the low single-digit range, which includes the benefit of the Easter calendar shift. The first half of the second quarter is a relatively low volume period for us. The keys to the quarter will revolve around the strong selling periods surrounding Memorial Day, Father's Day and the start of the summer season. We believe we are well positioned from our product standpoint as we head into the summer, and we hope to benefit from more favorable summer recreational conditions in our markets than we experienced last year. As a reminder, last year, we had a slow start to the summer with heavy snowpack and unusually high water levels in our rivers and lakes, closing campgrounds and impacting participation in summer recreational activities throughout much of California.

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 fiscal 2018 first quarter was 31.1% of sales versus 33.1% of sales in the first quarter of fiscal 2017. The decrease in gross margin for the period primarily reflects the 58 basis point decline in merchandise margins that Steve mentioned along with an increase in store occupancy expense as a percentage of sales. Our selling and administrative expense as a percentage of sales was 31.4% in the first quarter versus 29.5% in the first quarter of fiscal 2017. Overall, SG&A expense decreased $1.1 million year-over-year due primarily to lower advertising expense. We effectively managed store labor to offset increases in employee wage rates during the period. Our effective tax rate for the first quarter of fiscal 2018 was 7.7%, reflecting the impact of the new tax legislation and a write-off of deferred tax assets related to share-based compensation.

Now looking at our bottom line. For the first quarter, we reported a net loss of $1.3 million or $0.06 per share, including a charge of $0.01 per share for the write-off of deferred tax assets related to share-based compensation. This compares to net income in the first quarter of fiscal 2017 of $5.3 million or $0.24 per diluted share.

Turning to the balance sheet. Our chain-wide merchandise inventory at the end of the first quarter was up 6.3% on a per-store basis versus the prior year, reflecting an increase in winter-related products after our unseasonably warm and dry winter. We are comfortable reintroducing this winter product carryover next season, and we see little markdown risk associated with it.

Looking at our capital spending. Our CapEx, including noncash acquisitions, totaled $2.5 million for the first quarter, primarily representing investments in store-related remodeling, IT systems and our distribution center. We currently expect capital expenditures for fiscal 2018, excluding noncash acquisitions, of approximately $16 million to $20 million. This reflects continued investment in store-related remodeling, new stores, our distribution center and IT systems as well as the purchase of a property adjacent to our corporate headquarters that we currently use as a parking area.

From a cash flow perspective, our operating cash flow was a negative $8.8 million for fiscal 2018's first quarter compared to a negative $1.1 million last year. The decrease in operating cash flow primarily reflects a larger increase in merchandise inventory and a decrease in income compared to the same period last year. In the first quarter, we paid our quarterly cash dividend of $0.15 per share, and we continued to repurchase our stock.

Pursuant to our share repurchase program, we repurchased 75,748 shares of our common stock for a total expenditure of $0.4 million during the first quarter. As of April 1, we had $15.3 million available for future repurchases under our $25 million share repurchase program. Like we have in the past, we will continue to evaluate the best use of our cash, whether it's for reinvesting in the company, dividends, stock buybacks or paying down our debt. Our long-term revolving credit borrowings at the end of the first quarter were $68.9 million, which compared to borrowings of $45 million at the end of fiscal 2017 and $21.8 million at the end of the first quarter last year. Our higher debt compared to the prior year primarily reflects our higher inventory levels as a result of the lower-than-anticipated demand for our winter-related products.

Now I'll spend a minute on our guidance. For the fiscal 2018 second quarter, we expect same-store sales to be in the flat to positive low single-digit range and earnings per diluted share to be in the range of $0.04 to $0.12. Second quarter guidance reflects a small benefit as a result of the calendar shift of the Easter holiday, which is expected to be offset by a small negative impact from the July 4 holiday, shifting 1 day further into our third quarter this year. For comparative purposes, in the second quarter of fiscal 2017, same-store sales increased 0.8% and earnings per diluted share were $0.13.

Operator, we are now ready to turn the call back to you for questions and answers.

(Operator Instructions) We'll now take our first question from Mr. Mike Baker with Deutsche Bank.

So a couple of questions. One, let me start off with -- I apologize, I didn't quite hear what you said about April. Did you say April comps were up high single digits or single digits?

Low single digits.

Low single digits, okay. I got that. So when -- and when you take out the Easter shift, presumably about flattish and, so, I guess, you got -- that's sort of what's reflected in your guidance that, that continues with maybe a little bit of an easier comparison from some of the weather issues from last year, but then you get clipped at the end of the quarter from the July 4 shift. Is that the right way to think about the guidance?

I think that's pretty spot on.

Okay. And then, a follow-up question, again, I apologize if I missed it, but I don't think you said anything about your guns and ammo business. And so first of all, how did that trend within the hardgoods business? And have you seen any share pickup from others exiting the category? Or do you expect to see that share pickup?

I mean it's -- I'm not sure. The word is it's too early to comment on that, but the category has remained somewhat soft. Although certainly, not as impactful to our overall results as we experienced throughout last year. I mean, we're not to be overly granular in talking about the category that's, again, we have when it's been more dramatic to our results. But right now, just one category. We will say that it's running though still soft but again, not as soft as it was by far over the course of 2017. I should point out that we maintain a tailored firearm offering that's much different than many of our competitors. So I'm not sure that we're going to be extremely impacted by what's going on competitively in the marketplace.

It appears that there are no further questions at this time. I will now turn the conference back to Mr. Miller for additional remarks.

Okay. We appreciate being on the call today, and we look forward to speaking to you on our next call. Have a great afternoon.

This concludes today's conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect your lines.