Big 5 Sporting Goods Corporation (BGFV) Q4 2022 Earnings Call Transcript

Big 5 Sporting Goods Corporation (NASDAQ:BGFV) Q4 2022 Earnings Conference Call February 28, 2023 5:00 PM ET

Company Participants

Steve Miller - President & CEO

Barry Emerson - EVP & CFO

Conference Call Participants

Mark Smith - Lake Street Capital Markets

Operator

Good day, ladies and gentlemen and invited to nan Big 5 Sporting Goods Fourth Quarter 2022 Earnings Results Conference Call. Today's telephone is being recorded. With america coming 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’d for illustration to move nan convention complete to Mr. Miller. Please spell ahead, sir.

Steve Miller

Thank you, operator. Good afternoon, everyone. Welcome to our 2022 4th fourth convention call. Today, we will reappraisal our financial results for nan 4th fourth of fiscal 2022 arsenic good arsenic supply an outlook for nan first 4th of fiscal 2023.

I will now move nan telephone complete to Barry to publication our safe harbor statement.

Barry Emerson

Thanks, Steve. Except for statements of humanities fact, immoderate remarks that we whitethorn make astir our early expectations, plans and prospects represent forward-looking statements made pursuant to nan safe harbor provisions of nan Private Securities Litigation Reform Act of 1995.

Forward-looking statements impact known and chartless risks and uncertainties that whitethorn origin our existent results successful existent and early periods to disagree materially from forecasted results. These risks and uncertainties see those much afloat described successful our yearly reports connected Form 10-K, our quarterly reports connected Form 10-Q and our different filings pinch nan Securities and Exchange Commission. We undertake nary responsibility to revise aliases update immoderate forward-looking statements that whitethorn beryllium made from clip to clip by america aliases connected our behalf.

Steve Miller

Thank you, Barry. I want to commencement by recognizing our squad and their execution complete nan past fewer years, which allowed america to present tremendous results successful nan look of nan world pandemic related proviso concatenation disruptions, broad-based ostentation and nan economical slowdown that we are each watching closely.

2022 was a very move twelvemonth for nan unit industry, transitioning from nan challenges of nan pandemic to a caller group of economical challenges pinch progressively cautious user sentiment and persistent costs ostentation amid increasing interest for an economical downturn. Although 2022 was not a blockbuster twelvemonth that we reported successful 2021, erstwhile we benefited from unprecedented request and unsocial income drivers.

We produced beardown net successful 2022 and our profitability continued to comparison favorably to pre-pandemic years reflecting nan improvement of our business model. We ended nan twelvemonth successful a coagulated financial information pinch a indebtedness free equilibrium expanse and patient inventory.

Turning to our 4th fourth results. As antecedently reported, nett income were $238.3 cardinal compared to $273.4 cardinal successful nan 4th fourth of 2021. Same-store income for nan 4th fourth were down 13.2%, which was toward nan debased extremity of our guidance scope that called for a high-single to debased double-digit decrease.

On a year-over-year basis, transactions for nan 4th fourth were down high-single digits pinch mean summons down mid-single digits. Our income for nan 4th were mostly connected target starring up to Black Friday, but trends decelerated successful December arsenic inflationary pressures and economical uncertainty appeared to effect vacation discretionary spending to a greater grade than we had initially anticipated.

In nan look of nan apical statement headwinds, we person continued to attraction connected prioritizing merchandise margins to optimize gross profit dollars. We person intimately managed our inventory and arsenic a result, we person not needed to beryllium overly promotional for nan liking of clearing profit (ph). Although our 4th fourth merchandise margins declined by 129 ground points compared to nan grounds margins successful nan anterior year, our 2022 4th fourth merchandise margins accrued by complete 300 ground points versus nan pre-pandemic 4th fourth of 2019.

Our merchandise margins were connected a affirmative trajectory anterior to nan pandemic and we proceed to use from nan merchandising, pricing and promotional changes we person made complete nan past respective years. As we've evolved our exemplary by reducing our concatenation wide people advertising, we've been capable to importantly grow our merchandise margins, while operating pinch little inventory. We now person greater elasticity successful a customized merchandise assortment by store, which successful move has reduced our levels of clearance product. And of course, our costs building benefits greatly from nan reduced advertizing expense.

While nan volatility of nan existent situation is surely unique, we person a successful way grounds of weathering galore different economical cycles complete nan people of our agelong operating history. Whereas 2021 benefited from a robust system including stimulus checks and higher levels of individual savings that thief thrust spending connected recreational and leisure activities.

Over nan people of 2022, we've seen a important softening of user sentiment successful spending peculiarly for discretionary products. While successful immoderate respects our business benefits successful this environment, owed to our value points and values that we supply to our customers, those benefits person been much than offset by nan realities of nan broader macroeconomic forces successful play.

Turning now to our existent trends. For nan first 4th to date, our same-store income are moving down successful nan low-single digit scope versus past year. We saw affirmative year-over-year income maturation successful January benefiting from favorable seasonal wintertime upwind successful our markets that drove request for our wintertime products. Our expertise to capitalize connected this opportunity to outfit customers seeking nosy successful nan snowfall erstwhile wintertime upwind hits highlights nan advantage of our convenient shop footprint. However, nan beardown request for wintertime products successful January was partially offset by softer trends crossed different merchandise categories.

In February, our wintertime income person remained beardown but complete nan people of nan quarter, wintertime products go progressively little impactful to our wide results and our same-store income person shifted into nan negative, reflecting nan expanding pressures connected discretionary spending that I said astir earlier. We expect that nan situation will stay challenging complete nan equilibrium of nan first quarter.

Given nan wintertime seasonal strength, our wintertime inventory carryover this twelvemonth will beryllium importantly beneath that of past year. Overall, we stay pleased pinch our inventory position. We judge nan existent situation is mounting up positively for opportunistic buys, this is simply a humanities spot of ours and we are intimately evaluating our inventories to guarantee that we stay good positioned to return advantage of these opportunities arsenic they arise.

Although, we are surely facing pressures some to our apical statement and to our expenses, we consciousness good equipped to tackle nan challenges. We person nan acquisition of managing done a wide scope of economical cycles complete galore decades. We are intently focused connected managing each aspects of nan business wrong our control, they are taking steps to trim operating costs successful an effort to mitigate inflationary disbursal pressures. We person a patient equilibrium sheet, which provides america plentifulness of elasticity arsenic we navigate nan existent situation and position nan institution for coagulated maturation arsenic nan wide system improves.

I'll now move it complete to Barry to supply further specifications regarding our 4th fourth capacity and first 4th fiscal 2023 (ph) outlook.

Barry Emerson

Thanks, Dave. Gross profit for nan fiscal 2022 4th fourth was $79.8 cardinal compared to grounds gross profit of $103 cardinal successful nan 4th fourth of nan anterior year. Our gross profit separator of 33.5% successful nan fiscal 2022 4th fourth declined from nan 37.7% recorded successful nan 4th fourth of nan anterior year.

The alteration successful gross profit separator year-over-year chiefly reflected a alteration successful merchandise margins of 129 ground points, coupled pinch higher shop occupancy and distribution expense, including costs to capitalized into inventory, arsenic a percent of nett sales.

As Steve mentioned, although, merchandise inventories for nan 4th fourth this twelvemonth decreased versus nan 4th fourth of fiscal 2021, erstwhile compared to nan pre-pandemic 2019 4th quarter, merchandise margins accrued 308 ground points, reflecting nan improvement of our pricing and promotional strategy.

Overall, trading and administrative disbursal accrued $1.4 cardinal successful nan fiscal 2022 4th fourth versus nan anterior twelvemonth period, chiefly reflecting continued upward unit connected labour costs and different broad-based inflationary impacts, partially offset by little capacity based inducement accruals.

As a percent of nett sales, SG&A disbursal was 32.5% successful nan fiscal 2022 4th fourth versus 27.9% successful nan 2021 4th quarter, reflecting nan deleveraging effect of accrued disbursal connected a little income base.

Now looking astatine our bottommost line. Net income for nan 4th fourth of fiscal 2022 was $1.7 cardinal aliases $0.08 per diluted share. This compares to nett income of $19.9 cardinal aliases $0.89 per diluted stock successful nan 4th fourth of fiscal 2021. EBITDA totaled $6.9 cardinal for nan 4th fourth of fiscal 2022 compared to $31.5 cardinal successful nan 4th fourth of fiscal 2021.

Briefly reviewing our afloat twelvemonth results for fiscal 2022. Net income were $995.5 cardinal compared to grounds nett income of $1.16 cardinal successful nan anterior year. Same-store income decreased 14.5% for fiscal 2022 versus nan comparable anterior twelvemonth period. Net income for fiscal 2022 was $26.1 cardinal aliases $1.18 per diluted share, including a antecedently reported complaint successful nan 2nd 4th of $0.03 per diluted share.

This compares to grounds nett income for fiscal 2021 of $102.4 cardinal aliases $4.55 per diluted share, including a antecedently reported nett use of $0.06 per diluted share. Adjusted EBITDA was a coagulated $52.6 cardinal for nan 2022 afloat twelvemonth compared to a grounds $152 cardinal successful nan anterior year.

Turning to nan equilibrium sheet. Our merchandise inventory astatine nan extremity of fiscal 2022 accrued 9.6% year-over-year, chiefly reflecting much normalized inventory levels pursuing nan important sell-through and proviso concatenation challenges successful nan anterior year. Our merchandise inventory astatine nan extremity of fiscal 2022 was down 5.1% compared pinch nan 4th fourth of fiscal ‘19, reflecting nan improvement of our exemplary that allows america to now run pinch little inventory arsenic Steve mentioned.

Reviewing our superior spending, our CapEx excluding non-cash acquisitions totaled $13.2 cardinal for fiscal 2022, chiefly representing investments successful shop related remodeling, caller stores, distribution halfway instrumentality and machine hardware and package purchases. For nan fiscal 2023 afloat year, we expect CapEx successful nan scope of $15 cardinal to $20 cardinal and expect opening astir six caller stores including 1 relocation.

Now looking astatine our rate flow. Net rate utilized successful operating activities was $28.4 cardinal for nan fiscal 2022 afloat year. This compares to affirmative operating rate travel of $115.5 cardinal successful fiscal 2021. The alteration successful our operating rate travel for fiscal 2022 compared to nan anterior year, chiefly reflected little net and accrued backing of merchandise inventory successful efforts to replenish depleted inventory levels resulting from beardown user request and proviso concatenation challenges successful fiscal 2021.

Our equilibrium expanse rate of $25.6 cardinal astatine nan extremity of fiscal 2022 was down $71.9 cardinal from $97.4 cardinal astatine nan extremity of fiscal 2021 The timing of our inventory purchases had a meaningful effect connected nan year-over-year alteration successful cash. Our inventory purchases were higher successful Q4 2021 arsenic proviso concatenation issues eased, while our inventory purchases were little successful Q4 2022, owed successful portion to nan carryover of wintertime product, from nan anterior play because of lukewarm weather.

As a result, our waste and acquisition accounts payable declined $37 cardinal year-over-year. We besides grew our merchandise inventory during nan twelvemonth by $23 cardinal arsenic inventory readiness improved and we invested complete $13 cardinal successful superior expenditures. Additionally, during fiscal 2022, we returned superior to shareholders of complete $26 cardinal done rate dividends and stock repurchases.

Our equilibrium expanse astatine nan extremity of fiscal 2022 was very patient pinch zero borrowings nether our in installments installation and disposable rate reserves. As we look ahead, we expect our moving superior to diminution successful 2023, which should further thief our wide liquidity. Our financial information has strengthened considerably complete nan past 3 years and coming we announced that our Board of Directors declared a quarterly rate dividend of $0.25 per share.

Now I'll walk a infinitesimal connected our guidance. For nan fiscal 2023 first quarter, nan institution expects same-store income to alteration successful nan mid-single digit scope compared to nan fiscal 2022 first quarter. The company's same-store income guidance reflects an anticipation that macroeconomic headwinds will proceed to effect user discretionary spending complete nan equilibrium of nan first quarter.

Fiscal 2023 first 4th net per stock is expected successful nan scope of antagonistic $0.02 to affirmative $0.06, which compares to fiscal 2022 first 4th net per diluted stock of $0.41.

That concludes our prepared remarks. Operator, we are now fresh for immoderate questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, astatine this time, we will beryllium conducting a question-and-answer session. [Operator Instructions] Our first mobility comes from nan statement of Mark Smith from Lake Street Capital Markets. Please spell ahead.

Mark Smith

Hey, guys. First 1 for me, conscionable want to look astatine gross a small bit. I conjecture possibly a small amazed that you're not getting much bumps present successful Q1 fixed immoderate of nan upwind trends that we've seen successful your cardinal markets. Do you guys person nan inventory that you consciousness for illustration you needed to deed immoderate of nan request present particularly successful January and arsenic we've seen immoderate affirmative upwind present possibly nan past mates of weeks?

Steve Miller

No, by and large, we do consciousness -- Mark that we do person nan inventory to capitalize connected nan wintertime opportunity. We've had truthful overmuch upwind that has been beautiful important offset to different products that group recreate outdoors, nan startup of nan shot play has been very delayed. We've had a -- I deliberation it would beryllium filled caller grounds I deliberation adjacent humanities grounds complaint falls successful California overmuch of our occidental markets. So that's dampened immoderate of nan benefits of nan wintertime business. And not to mention conscionable nan softness from, I think, discretionary spending market.

Mark Smith

Any inventory, I cognize you held complete past twelvemonth owed to antagonistic weather. Do you consciousness for illustration you benignant of cleaned up that wintertime inventory and are successful a bully spot to not person to clasp overmuch complete into adjacent year?

Steve Miller

We do. Yeah, we do. We deliberation we're going to upwind up nan play reasonably cleanable and beryllium capable to bargain astir that for nan adjacent season.

Mark Smith

Okay. And then, conscionable looking astatine inventory, I cognize you guys said that you are comfortable and pleased pinch benignant of wherever your inventory is. As you look astatine your peers, particularly benignant of large container retail, we proceed to perceive inventory is still beautiful dense and possibly you guys getting a small promotional. Are you seeing that and, is that whitethorn beryllium hurting income astatine your stores?

Barry Emerson

I'm not judge that I tin opportunity that I spot that and that's impacting sales. I deliberation nan wide marketplace is beautiful competitive. I mean, successful position of discounting and I deliberation different companies that are not conscionable nonstop competitors, but from nan section stores and we saw footwear and apparel that you tin bargain successful a batch of places. And I deliberation immoderate retailers person heftier inventory situations to effort and cleanable up and we haven't been precocious promotional, but it's difficult to asseverate that, that's impacting our income directly, but it tin help.

Mark Smith

And past could you guys locomotion through, you gave america a adjacent magnitude of colour connected benignant of gross profit separator and nan puts and takes and pressures there. Maybe locomotion america done what it is that you tin power location and possibly what's retired of your power and steps that you're taking to effort to support and clasp connected to immoderate decent gross profit separator present arsenic we look astatine 2023.

Steve Miller

Yeah. Are you looking astatine nan merch? Are you speaking to nan merchandise margin, Mark?

Mark Smith

Merchandise margins, I cognize you guys called retired occupancy arsenic well. There's been immoderate unit there, possibly shipping freight, things for illustration that. Just locomotion america done benignant of what you tin power and steps taking to effort to support and clasp nan margin.

Barry Emerson

Yeah, Mark. Yeah. The gross margin, of course, is made up of merchandise margin, it's made up of distribution costs and it's made up of occupancy costs. We effort and negociate arsenic champion we tin each three, but you're right. Some are easier than others. I mean conscionable talking astir distribution costs, there's been a batch of unit successful nan distribution because of each nan freight and each nan proscription challenges and truthful on. Resources person been an rumor for america and we've now combated that.

And truthful now, fortunately, there's much resources available, but nan labour costs unit is beautiful significant. So we're seeing immoderate beautiful important deleveraging successful our distribution costs. We're besides seeing deleveraging successful our occupancy. Occupancy is an area wherever we've been focused for many, galore years and person done rather good successful trying to support our occupancy, wide occupancy disbursal retrieve that 20% aliases truthful of our leases travel up for renewal each year. And truthful we person astir 80 aliases truthful positive aliases minus options that we discuss pinch landlords.

And complete nan past astir apt 3 years, 2 to 3 years, things person been a batch much difficult. There's been much -- nan pendulum has swung backmost to much of a benignant of a landlord market. Prior to that, we had important favorable acquisition successful trying to either support levels of rent aliases successful immoderate cases, trim if you've sewage thing connected first successful Maine, you're ne'er going to beryllium capable to needfully that wide cost. But I deliberation we've done a bully job, and we're laser-focused connected managing occupancy. But pinch nan unit connected sales, we're deleveraging nan occupancy arsenic well. Merchandise margins?

Steve Miller

We consciousness bully astir nan efforts to support very patient merchandise margins importantly supra pre-pandemic levels, arsenic we reported that we did for nan 4th quarter. As we mentioned, immoderate of nan changes to our advertizing exemplary that's benefiting our margins, and we look for that to continue.

Barry Emerson

And we're besides really focused connected gross profit dollars and not feeding nan promotional situation that we benignant of spot retired there. And truthful our inventory is very clean. Our clearance merchandise is -- our aged inventory is incredibly debased and it's good managed. So we consciousness bully astir our inventory and nan clearance merchandise and again, driving gross profit dollars I think, is key.

We consciousness bully astir -- because of immoderate of nan changes successful nan model, being capable to run our business pinch overmuch little levels of inventory than we person successful nan past. I mean that's going to thief conscionable nan spot of our wide equilibrium expanse gives america a batch of elasticity to -- from an opportunistic bargain standpoint, it gives america elasticity to bargain successful smaller batch sizes to beryllium capable to allocate merchandise pinch elasticity to different stores, those kinds of things, which should thief america arsenic we move guardant successful this environment.

Mark Smith

Okay. I deliberation nan past 1 for me. As you talked a small spot astir operating rate travel and CapEx is going to travel up a small spot this adjacent year. But locomotion america done benignant of unlocking immoderate of nan worth present successful moving superior and nan improvements that you expect successful 2023. Does that return immoderate clip during nan twelvemonth to build aliases will we spot immoderate of that much evident present successful Q1?

Barry Emerson

Well, I deliberation that -- I mentioned connected nan telephone nan benignant of dynamics of nan alteration successful -- nan effect connected rate our timing of purchases successful 2022 pinch our payables being much, overmuch higher astatine nan extremity of 2021 and past much, overmuch little astatine nan extremity of 2022 because we bought astir nan wintertime merchandise because we carried it complete from nan anterior year. So we're starting from a overmuch little waste and acquisition payables guidelines astatine nan extremity of 2022.

Having said that, we do expect complete nan twelvemonth to move our inventories lower. I mean that's our goal. And past commensurate pinch that, obviously, payables will follow. And anyway, truthful that's nan superior area that we're focused on. And again, it feeds from what I said previously, nan expertise to beryllium capable to run pinch little levels of inventory.

Mark Smith

Okay. Great. Maybe I'll compression 1 more. Just arsenic you were talking astir occupancy and leases here, nan closures that we saw present successful Q1 and you expect a mates much here, it sounds for illustration done nan remainder of nan year. Are these each stores that were astatine nan extremity of their lease position aliases did you person immoderate troubled stores that needed to close?

Steve Miller

One was astatine nan extremity of its lease term, and we were unsuccessful to renegotiate for extended word there. The different shop was a shop that we deemed to beryllium underperforming, and we expose it.

Mark Smith

Okay. Great. Thank you.

Steve Miller

Thank you, Mark.

Barry Emerson

Thanks, Mark.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll now move nan telephone backmost to Mr. Miller for immoderate closing remarks.

Steve Miller

Thank you, operator. We admit you joining america connected today's telephone and your liking successful Big 5 Sporting Goods, and we look guardant to speaking to you erstwhile we study our first 4th results. Have a awesome afternoon.

Operator

Thank you, sir. The convention of Big 5 Sporting Goods has now concluded. Thank you for your participation. You whitethorn now disconnect your lines.