Big 5 Sporting Goods Corp
NASDAQ:BGFV
Earnings Call Analysis
Q4-2023 Analysis
Big 5 Sporting Goods Corp
Investors should note that the company faced a tough fourth quarter, with net sales falling to $196.3 million from $238.3 million the previous year. This sharp decline of 17.7% in same-store sales was largely due to a combination of macroeconomic factors affecting consumer spending and unfavorable weather impacting the sales of winter-related products, which plummeted nearly 40%. Non-winter products also dropped around 10%, meeting the company's initial expectations. Footwear and hardgoods categories were down 17% and 11%, respectively. With transactions decreasing in the mid-teens and average ticket size falling by low single digits, the outlook was dimmed despite the company's efforts in managing merchandise margins, inventory levels, and expenses.
Continuing into the first quarter, sales are reportedly declining in the low teens. Persistent macroeconomic pressures continue to strain the core value-oriented consumer, and weather remains a volatile element in sales outcomes. This trend is consistent with initial reports indicating that the start of the year was challenging due to minimal winter weather, impacting the all-important winter categories. However, the company remains cautiously optimistic about capturing sales from pent-up demand, particularly in their baseball category, as conditions improve.
The fourth quarter gross profit stood at $59.2 million, down from $79.8 million in the comparable quarter of the previous year, with the gross margin decreasing from 33.5% to 30.2%. Increased costs, such as higher occupancy and distribution expenses, have weighed on margins. Although merchandise margins were flat year-over-year, the company reported a net loss of $8.9 million compared to a net income of $1.7 million from the same quarter last year, reflecting broader challenges in the retail environment.
The company has focused on cost control measures like reducing store labor expenses by $2.7 million in the fourth quarter, despite wage inflation. Efficiencies in inventory management were evidence, with inventory levels down 9.1% from the previous year, and operating expenses benefited from decreased marketing spend compared to pre-pandemic levels.
The fiscal 2023 capital expenditures (CapEx) totaled $11 million, mainly for store remodels and improvements in distribution and computing equipment. Looking ahead to fiscal 2024, CapEx is projected to be between $13 million to $18 million, with the company planning to open around 5 new stores and close 10, aiming for a network of 425 stores. Additionally, operating cash flow showed improvement, and to preserve financial stability, the quarterly dividend was reduced from $0.125 per share to $0.05 per share. The balance sheet remains strong, with no borrowings and a cash balance of $9.2 million.
Management provides guidance anticipating a low double-digit decrease in same-store sales for the first quarter of fiscal 2024, with expected net losses per basic share ranging between $0.30 to $0.40. This stands in stark contrast to the $0.01 earnings per diluted share reported in the first quarter of fiscal 2023. The guidance reflects the expected ongoing effects of macroeconomic headwinds on consumer discretionary spending.
Despite the difficulties faced, the company's leadership underlines its past success in overcoming economic challenges and expresses confidence in the strategies deployed to navigate the current climate. By focusing on gross profit optimization and rigorous expense management, the company is aiming to maintain its resilience and seize upcoming opportunities as conditions evolve.
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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, 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.
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.
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.
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, 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?
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 reflect 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.
Thank you, Barry. Clearly, we are operating at a difficult economic environment. Over our long history, we have successfully navigated through a number of challenged [ areas ], 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.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines.