BIG 5 SPORTING GOODS CORPORATION The following discussion and analysis of the
Our fiscal year ends on the Sunday nearest
Overview
We are a leading sporting goods retailer in the western
In the first quarter of fiscal 2023 we closed two stores and in the first quarter of fiscal 2022 we did not open or close any stores. For fiscal 2023, we anticipate opening approximately six new stores and closing approximately six stores.
Executive Summary
Net income decreased in the first quarter of fiscal 2023 compared with the first quarter of fiscal 2022 as a result of reduced net sales and lower merchandise margins year over year. Reduced net sales in the first quarter of fiscal 2023 in part reflected challenging macro-economic conditions including significant inflationary pressures which dampened consumer sentiment and negatively impacted discretionary spending.
•
Net sales for the first quarter of fiscal 2023 decreased 7.1% to
•
Gross profit for the first quarter of fiscal 2023 represented 33.4% of net sales, compared with 35.5% in the first quarter of the prior year. The decrease in gross profit margin primarily reflects higher store occupancy and distribution expense as a percentage of net sales as well as lower merchandise margins compared with the prior year. While merchandise margins were down year over year they remained healthy and continued to compare favorably to pre-pandemic levels.
•
Selling and administrative expense for the first quarter of fiscal 2023 remained
relatively unchanged at
•
Net income for the first quarter of fiscal 2023 was
•
Operating cash flow for the first quarter of fiscal 2023 was a positive
•
Capital expenditures for the first quarter of fiscal 2023 decreased to
- 18 -
--------------------------------------------------------------------------------
•
We had cash and cash equivalents of
•
We paid cash dividends in the first quarter of fiscal 2023 and 2022 of
•
We did not repurchase any shares of common stock in the first quarter of fiscal
2023, and we repurchased 94,983 shares of common stock for
Results of Operations
The results of the interim periods are not necessarily indicative of results for the entire fiscal year.
13 Weeks Ended
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:
13 Weeks Ended
April 2, April 3,
2023 2022
(Dollars in thousands)
Net sales $ 224,939 100.0 % $ 241,981 100.0 %
Cost of sales (1) 149,795 66.6 156,048 64.5
Gross profit 75,144 33.4 85,933 35.5
Selling and administrative expense (2) 75,173 33.4 75,317 31.1
Operating (loss) income (29 ) 0.0 10,616 4.4
Interest (income) expense (115 ) (0.1 ) 184 0.1
Income before income taxes 86 0.1 10,432 4.3
Income tax (benefit) expense (107 ) 0.0 1,329 0.5
Net income $ 193 0.1 % $ 9,103 3.8 %
(1)Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, including depreciation and amortization, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes and insurance.
(2)
Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges, if any.
•
Same store sales decreased by
o
The decrease in same store sales in the first quarter of fiscal 2023 in part reflected significant inflationary pressures and heightened recessionary concerns that dampened consumer sentiment and negatively impacted discretionary spending. While we experienced strong winter-related product sales as a result of cold winter-weather conditions during the first fiscal quarter, the continuing cold and wet winter-weather patterns negatively impacted sales for the spring categories of product such as baseball and other spring sports during the second half of the fiscal quarter.
o
Our lower same store sales reflected decreases in our major merchandise categories of hardgoods and footwear, while our apparel category increased reflecting higher winter-product sales.
o
Same store sales comparisons are made on a comparable-day basis. Same store sales for a period normally consist of sales for stores that operated throughout the period and the full corresponding prior-year period, along with sales from e-commerce. Same store sales comparisons exclude sales from stores permanently closed, or stores in the process of closing, during the comparable periods. Sales from e-commerce in the first quarter of fiscal 2023 and 2022 were not material.
•
We experienced decreased customer transactions of 5.9% and a lower average sale per transaction of 1.2% in the first quarter of fiscal 2023 compared to the prior year.
- 19 -
--------------------------------------------------------------------------------
Gross Profit. Gross profit decreased by
•
Net sales decreased by
•
Merchandise margins, which exclude buying, occupancy and distribution expense, decreased by an unfavorable 23 basis points compared with the first quarter of last year when merchandise margins increased by a favorable 119 basis points. Our decreased merchandise margins primarily reflect increased promotional pricing and higher product purchase costs. While merchandise margins were down year over year they remained healthy and continued to compare favorably to pre-pandemic levels.
•
Store occupancy expense increased by
•
Distribution expense, including costs capitalized into inventory, increased by
Selling and Administrative Expense. Selling and administrative expense decreased
by
•
Administrative expense decreased by
•
Our advertising expense decreased by
•
Store-related expense, excluding occupancy, increased by
Interest (Income) Expense. Interest expense decreased by
Income Taxes. The provision for income taxes was a benefit of
- 20 -
--------------------------------------------------------------------------------
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash and cash equivalents, cash flows from operations and borrowings from the revolving credit facility, when necessary.
As ofApril 2, 2023 , we had$27.5 million of cash and cash equivalents compared to$62.0 million of cash and cash equivalents as ofApril 3, 2022 . Our cash flows from operating, investing and financing activities are summarized as follows: 13 Weeks Ended April 2, April 3, 2023 2022 (In thousands) Total cash provided by (used in): Operating activities$ 12,292 $ (23,717 ) Investing activities (2,529 ) (2,926 ) Financing activities (7,869 ) (8,739 )
Net increase (decrease) in cash and cash equivalents
Operating Activities. Operating cash flows for the first quarter of fiscal 2023
and 2022 were a positive
Investing Activities. Net cash used in investing activities for the first
quarter of fiscal 2023 and 2022 was
Financing Activities. Financing cash flows for the first quarter of fiscal 2023
and 2022 were a negative
As of
In fiscal 2022 we paid quarterly cash dividends of
Periodically, we repurchase our common stock in the open market pursuant to
programs approved by our Board of Directors. We may repurchase our common stock
for a variety of reasons, including, among other things, our alternative cash
requirements, existing business conditions and the current market price of our
stock. In the first quarter of fiscal 2022, our Board of Directors authorized a
new share repurchase program of up to
- 21 -
--------------------------------------------------------------------------------
Loan Agreement. We are party to a Loan, Guaranty and Security agreement with
We may borrow under the Loan Agreement from time to time, provided the amounts
outstanding will not exceed the lesser of the then aggregate committed
availability (as discussed above) and the Borrowing Base (such lesser amount
being referred to as the "Line Cap"). As defined in the Loan Agreement, the
"Borrowing Base" generally is comprised of the sum, at the time of calculation,
of (a) 90.00% of eligible credit card receivables; plus (b) the cost of eligible
inventory (other than eligible in-transit inventory), net of inventory reserves,
multiplied by 90.00% of the appraised net orderly liquidation value of eligible
inventory (expressed as a percentage of the cost of eligible inventory); plus
(c) the cost of eligible in-transit inventory, net of inventory reserves,
multiplied by 90.00% of the appraised net orderly liquidation value of eligible
in-transit inventory (expressed as a percentage of the cost of eligible
in-transit inventory), minus (d) certain agreed-upon reserves as well as other
reserves established by
Generally, we may designate specific borrowings under the Loan Agreement as
either base rate loans or Term SOFR rate loans. The applicable interest rate on
our borrowings is a function of the daily average, over the preceding fiscal
quarter, of the excess of the Line Cap over amounts borrowed (such amount being
referred to as the "Average Daily Availability"). Those loans designated as Term
SOFR rate loans bear interest at a rate equal to the then applicable secured
overnight financing rate as administered by the
SOFR Rate Base Rate
Level Average Daily Availability Applicable Margin Applicable Margin
I Greater than or equal to $70,000,000 1.375% 0.375%
II Less than $70,000,000 1.500% 0.500%
The commitment fee assessed on the unused portion of the credit facility is 0.20% per annum.
Obligations under the Loan Agreement are secured by a general lien on and
security interest in substantially all of our assets. The Loan Agreement
contains covenants that require us to maintain a fixed charge coverage ratio of
not less than 1.0:1.0 in certain circumstances, and limits the ability to, among
other things, incur liens, incur additional indebtedness, transfer or dispose of
assets, change the nature of the business, guarantee obligations, pay dividends
or make other distributions or repurchase stock, and make advances, loans or
investments. We may generally declare or pay cash dividends or repurchase stock
only if, among other things, no default or event of default then exists or would
arise from such dividend or repurchase of stock and, after giving effect to such
dividend or repurchase, certain availability and/or fixed charge coverage ratio
requirements are satisfied, although we are permitted to make up to
Future Capital Requirements. We had cash and cash equivalents of
- 22 -
--------------------------------------------------------------------------------
Dividends are paid at the discretion of our Board of Directors. In fiscal 2022
we paid quarterly cash dividends of
As of
We believe we will be able to fund our cash requirements from cash and cash equivalents, operating cash flows and borrowings from our credit facility, for at least the next 12 months.
Contractual Obligations. Our material contractual obligations include operating lease commitments associated with our leased properties and other occupancy expense, finance lease obligations, borrowings under the credit facility, if any, and other liabilities. Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate offices. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term, and we intend to renegotiate most of these leases as they expire. Operating lease commitments also consist of information technology ("IT") systems hardware, distribution center delivery tractors and equipment. Additional information regarding our operating and finance leases is available in Notes 2 and 5 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
In the first quarter of fiscal 2023 and 2022, we had zero borrowings under our revolving credit facility.
In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Because most of these purchase orders do not contain any termination payments or other penalties if cancelled, they are not included as outstanding contractual obligations.
Critical Accounting Estimates
As discussed in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of our Annual Report on Form 10-K
for the fiscal year ended
Seasonality and Impact of Inflation
We experience seasonal fluctuations in our net sales and operating results, which can suffer when weather does not conform to seasonal norms, such as the first quarter of fiscal 2022 when we experienced warm and dry winter-weather conditions across our markets that resulted in significant carryover of winter inventory. Seasonality in our net sales influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of a season and supplement our merchandise assortment as necessary and when possible during the season. Our efforts to replenish products during a season are not always successful. In the fourth fiscal quarter, which includes the holiday selling season and the start of the winter selling season, we normally experience higher inventory purchase volumes and increased expense for staffing and advertising. If we miscalculate the consumer demand for our products generally or for our product mix in advance of a season, particularly the fourth quarter, our net sales can decline, which can harm our financial performance. A significant shortfall from expected net sales, particularly during the fourth quarter, can negatively impact our annual operating results.
In fiscal 2022 and the first quarter of fiscal 2023, we experienced greater inflation in the cost of products that we purchase for resale as well as higher freight costs than in previous years. While our merchandise inventory costs have been impacted by inflationary pressures, we have generally been able to adjust our selling prices in response to these higher product purchase costs. However, if we are unable to adjust our selling prices for product purchase cost increases that might occur in the future, then our merchandise margins could decline, which would adversely impact our operating results. In fiscal 2022 and the first quarter of fiscal 2023, we also experienced increased wage expense as a result of higher demand and competition for labor in many of our markets and we expect these dynamics to continue in fiscal 2023. Broad-based inflationary pressures adversely impacted many categories of costs and expenses during fiscal 2022 and this impact is expected to continue during fiscal 2023.
- 23 -
--------------------------------------------------------------------------------
Recently Issued Accounting Updates
See Note 2 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This document includes certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements relate to, among other things, our financial condition, our results
of operations, our growth strategy and the business of our company generally. In
some cases, you can identify such statements by terminology such as "may,"
"could," "project," "estimate," "potential," "continue," "should," "expects,"
"plans," "anticipates," "believes," "intends" or other such terminology. These
forward-looking statements involve known and unknown risks and uncertainties and
other factors that may cause our actual results in current or future periods to
change significantly and differ materially from forecasted results. These
forward-looking statements involve known and unknown risks and uncertainties and
other factors that may cause our actual results in current or future periods to
change significantly and differ materially from forecasted results. These risks
and uncertainties include, among other things, the economic impacts of COVID-19,
including any potential variants, on our business operations, including as a
result of regulations that may be issued in response to COVID-19, global supply
chain disruptions resulting from the ongoing conflict in
© Edgar Online, source
