Big 5 Sporting Goods (BGFV) reported a challenging fourth quarter for fiscal 2023, with net sales dropping to $196.3 million, a 17.7% decrease in same-store sales compared to the previous year.
The company cited macroeconomic pressures and unfavorable winter weather as significant factors impacting consumer discretionary spending and sales of winter-related products.
Despite these challenges, Big 5 Sporting Goods managed to maintain healthy merchandise margins and reduce inventory by 9.1% year-over-year. The company also adjusted its quarterly dividend from $0.125 to $0.05 per share in response to the uncertain economic climate.
Key Takeaways
- Net sales for Q4 decreased by 17.7% in same-store sales compared to the prior year.
- Unfavorable winter weather led to a nearly 40% drop in sales of winter-related products.
- Merchandise margins decreased by 43 basis points in Q4, but remained flat for the full year.
- Inventory levels were down 9.1% from the previous year.
- Quarterly dividend was reduced from $0.125 to $0.05 per share.
- For Q1 fiscal 2024, same-store sales are expected to decrease in the low double-digit range.
Company Outlook
- Expectation of continued macroeconomic pressures impacting consumer spending.
- Anticipated low double-digit decrease in same-store sales for Q1 fiscal 2024.
- Projected net loss per basic share for Q1 fiscal 2024 in the range of $0.30 to $0.40.
Bearish Highlights
- Significant decrease in fourth-quarter sales and profitability year-over-year.
- Ongoing macroeconomic challenges and weather volatility affecting sales trends.
Bullish Highlights
- Healthy merchandise margins maintained despite a challenging sales environment.
- Inventory levels successfully managed and reduced to align with current market conditions.
- Operating expenses controlled, including a reduction in company-wide store labor expense.
Misses
- Q4 net loss of $8.9 million or $0.41 per basic share, including a store asset impairment charge.
- Adjusted EBITDA for Q4 was negative $8.7 million, a stark contrast to the positive $6.9 million in the previous year.
Q&A Highlights
- Discussion of strategies for navigating the current economic cycle and capital allocation.
- Emphasis on the company's commitment to maintaining a healthy balance sheet and providing shareholder returns.
Big 5 Sporting Goods is facing a tough retail environment as it deals with the impacts of broader economic issues and specific challenges like weather conditions that have affected its core product categories. The company's efforts to manage margins and expenses, along with adjustments to its dividend, reflect a strategic approach to maintaining financial stability during uncertain times. As Big 5 Sporting Goods heads into the first quarter of fiscal 2024, it remains cautious due to the anticipated continuation of macroeconomic headwinds.
InvestingPro Insights
Big 5 Sporting Goods (BGFV) has experienced notable shifts in its financial position, as reflected in recent InvestingPro data and tips. The company's market capitalization stands at a modest $104.66 million, and the firm is trading at an adjusted P/E ratio of -15.28, highlighting the challenges it faces. Furthermore, Big 5's revenue for the last twelve months as of Q4 2023 was $884.75 million, which represents an 11.13% decrease, indicating a significant drop in sales.
InvestingPro Tips suggest that the stock has been under considerable pressure, with a notable decline over the past week, three months, and six months. Analysts are also expecting a sales decline and a drop in net income for the current year, with no profitability anticipated. However, it's not all negative; the company has maintained its dividend payments for 21 consecutive years and its liquid assets still exceed short-term obligations.
To gain deeper insights and additional InvestingPro Tips for Big 5 Sporting Goods, including more detailed financial metrics and expert analyses, you can visit https://www.investing.com/pro/BGFV. There are currently 9 additional tips listed on InvestingPro that could provide further guidance on the stock's performance.
For those interested in a comprehensive analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This offer could help investors make more informed decisions during these challenging times for retail companies like Big 5 Sporting Goods.
Full transcript - Big 5 Sporting Go (BGFV) Q4 2023:
Operator: Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Fourth Quarter 2023 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 (NYSE:EMR), Chief Final 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, sir.
Steven Miller: Thank you, operator. Good afternoon, everyone. Welcome to our 2023 fourth quarter conference call. Today, we will review our financial results for the fourth quarter of fiscal 2023 as well as provide an outlook for the first quarter of fiscal 2024. I will now turn the call over to Barry to read our safe harbor statement.
Barry Emerson: Thanks, Steve. Except for statements of historical facts, 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.
Steven Miller: Thank you, Barry. Our fourth quarter results were disappointing, as our top line was impacted by ongoing macroeconomic challenges, pressuring consumer discretionary spending, coupled with extraordinarily unfavorable winter weather conditions across our Western footprint. Net sales for the fourth quarter were $196.3 million compared to $238.3 million in the prior year, reflecting a 17.7% decrease in same-store sales. Winter-related products are typically an important seasonal driver of our fourth quarter business. But this year's warm weather and lack of snow weighed heavily on the category's performance, which was down nearly 40% versus the prior year. Sales of non-winter products were down approximately 10%, consistent with the guidance that we provided at the beginning of the quarter. The unfavorable winter weather impacted each of our major merchandise categories, but certainly the greatest impact was to our apparel category, which is heavily correlated to winter weather. That category was down approximately 30%. Our footwear category was down approximately 17% and our hardgoods category was down approximately 11%. Transactions for the quarter were down mid-teens and the average ticket was down low single digits. In the face of a challenging sales environment, we have continued to focus on the aspects of the business that we have more control over, such as merchandise margins, inventory levels and expense management. Our fourth quarter merchandise margins were down 43 basis points, which primarily reflected the year-over-year product mix shift away from higher-margin winter-related sales. Although our Q4 margins were down for the full year, we maintained very healthy merchandise margins that were flat with the prior year and substantially higher than pre-pandemic levels. Our margins continue to benefit from the steps we have taken to manage our inventory as efficiently as possible to align with the challenging sales environment. At the end of Q4, despite the challenges to our top line, our inventory was down 9.1% from last year. And for the most part, we have not needed to be overly promotional for the sake of clearing merchandise, which has helped us maintain very healthy merchandise margins. Another area of focus has been managing our operating costs. Despite facing significant wage inflation, we were able to reduce our company-wide store labor expense by $2.7 million in the fourth quarter on a year-over-year basis. This was accomplished primarily by our diligent management of store labor usage. In addition, our operating expense continued to benefit from reduced levels of marketing spend versus pre-pandemic. Expense management has always been one of our strengths, and this focus is particularly important today given the inflationary pressures in a challenging sales environment. Turning to current sales trends. Our sales in the first quarter to date continue to be influenced by ongoing macroeconomic pressures, which are disproportionately impacting our core value-oriented consumer. Further, weather volatility continues to play a role in our sales results. Our first quarter-to-date sales are running down in the low teens. In January, the quarter got off to a difficult start with a lack of winter weather while comping against very strong winter business in the prior year. In February, our winter seasonal categories have picked up with the arrival of winter weather that brought significant snowfall to many of our markets. Unfortunately, the snowfall in the mountains was accompanied by historic rainfall at lower elevations that has clearly impacted sales of and participation in team sports and other outdoor recreational activity. This has been particularly evident in our baseball category, which becomes increasingly important to our business over the course of the first quarter. We are optimistic that we have the potential to capture some sales upside from pent-up demand as the baseball fields dry out. We believe our overall product assortment is well positioned to resonate with our customers and reinforce our reputation for value. That said, the macro uncertainty persists and we anticipate that many of our customers will continue to feel the squeeze in their wallets and be cautious with their discretionary spend. As we navigate this uncertainty, and look for ways to energize our sales, we remain committed in our efforts to maximize our gross profit dollars through optimizing merchandise margins while efficiently managing our inventory and rigorously controlling expenses. These measures will not only fortify our resilience in this challenging environment, but also position us advantageously to seize opportunities as the macroeconomic landscape improves. As part of our efforts to navigate this economic cycle, we have continued to evaluate our capital allocation strategy in effort to maintain ample financial flexibility given the uncertainty of the duration of the macroeconomic headwinds our customers are facing. As part of that evaluation, concurrent with today's earnings release, we announced a decrease in our quarterly dividend from $0.125 per share to $0.05 per share. Our dividend has long been central to our capital allocation strategy. And over the years, we have adjusted it periodically, both up and down to reflect changing business circumstances. As the current environment stabilizes, we will continue to evaluate our use of cash with the goal of maintaining a healthy balance sheet while also providing shareholders a meaningful return. With that, I'll now turn it over to Barry to provide additional details regarding our fourth quarter performance and first quarter fiscal 2024 outlook. Barry?
Barry Emerson: Thanks, Steve. Gross profit for the fiscal 2023 fourth quarter was $59.2 million compared to gross profit of $79.8 million in the fourth quarter of the prior year. Our gross profit margin of 30.2% in the fiscal 2023 fourth quarter compared to 33.5% in the fourth quarter of last year, the decrease in gross profit margin compared with the prior year primarily reflected higher store occupancy and distribution expense, including costs capitalized into inventory as a percentage of net sales, which was partially offset by the extinguishment of certain real estate-related liabilities. Merchandise margins for the fourth quarter of fiscal 2023 decreased 43 basis points versus the prior year period. Overall, selling and administrative expense for the fiscal 2023 fourth quarter decreased $5.1 million versus the prior year. The year-over-year reduction primarily reflected lower employee labor and benefit-related expense, partially offset by a $0.6 million store asset impairment charge. As a percent of net sales, selling and administrative expense was 36.9% in the fiscal 2023 fourth quarter versus 32.5% in the 2022 fourth quarter, reflecting the lower sales base. Looking at our bottom line, net loss for the fourth quarter of fiscal 2023 was $8.9 million or $0.41 per basic share, including a $0.02 per share impact from the store asset impairment charge I just mentioned, which was not reflected in our prior guidance for the quarter. This compares to net income of $1.7 million or $0.08 per diluted share in the fourth quarter of fiscal 2022. Adjusted EBITDA was negative $8.7 million for the fourth quarter of fiscal 2023 compared to EBITDA of a positive $6.9 million in the fourth quarter last year. Briefly reviewing our full year results for fiscal 2023, net sales were $884.7 million compared to net sales of $995.5 million in the prior year. Same-store sales decreased 11.2% for fiscal 2023 versus the prior year. Our merchandise margins were essentially flat for the fiscal 2023 full year compared to fiscal 2022. Net loss for fiscal 2023 was $7.1 million or $0.33 per basic share. This compares to net income for fiscal 2022 of $26.1 million or $1.18 per diluted share. Adjusted EBITDA was $7.3 million for the 2023 full year compared to $52.6 million in the prior year. Turning to the balance sheet. Our merchandise inventory at the end of fiscal 2023 decreased 9.1% year-over-year. This reduction reflects our efforts to manage inventory levels considering the soft sales environment, and we feel good about our inventory position as we move into the spring season. Reviewing our capital spending. Our CapEx, excluding noncash acquisitions, totaled $11 million for fiscal 2023, primarily representing investments in store-related remodeling, distribution center equipment and computer hardware and software purchases. For the fiscal 2024 full year, we expect CapEx in the range of $13 million to $18 million. We anticipate opening approximately 5 new stores and closing approximately 10 stores, including 6 stores already closed in the first quarter as part of our ongoing efforts to optimize our store base, resulting in approximately 425 stores in operation at the end of the year. Now looking at our cash flow. Net cash provided by operating activities was $18.5 million in fiscal 2023. This compares to net cash used in operating activities of $28.4 million in the prior year. The year-over-year improvement in our operating cash flow primarily reflected reduced funding of merchandise inventory, partially offset by lower net income this year. Our balance sheet at the end of fiscal 2023 remains healthy. We had zero borrowings under our credit facility and a cash balance of $9.2 million. As Steve mentioned, the decision to reduce the quarterly dividend reflects our capital management objective of maintaining a healthy financial condition amid the challenged macroeconomic backdrop. Now I'll spend a moment on guidance. For the fiscal 2024 first quarter, we expect same-store sales to decrease in the low double-digit range compared to the fiscal 2023 first quarter. 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 first quarter net loss per basic share is expected in the range of $0.30 to $0.40, which compares to fiscal 2023 first quarter earnings per diluted share of $0.01. That concludes our prepared remarks. I will now turn the call back to Steve for any closing comments.
Steven Miller: Thank you, Barry. Clearly, we are operating at a difficult economic environment. Over our long history, we have successfully navigated through a number of challenging periods, and we are confident that the steps we are taking will leave us well positioned as the environment improves. Thank you all for joining us on today's call. We appreciate your interest in Big 5 Sporting Goods and look forward to speaking with you again after the conclusion of our first quarter.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines.
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