Nuvalent Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Second 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.

Operator

Barry Emerson, Chief Financial Officer of Big 5 Sporting Goods. At this time, for opening remarks and introductions, I'd like to turn the conference over to Mr. Miller. Please go ahead, sir.

Speaker 1

Thank you. Good afternoon, everyone. Welcome to our 2023 Q2 conference call. Today, we will review our financial results for the Q2 of fiscal 2023 as well as provide an outlook for the Q3. I will now turn the call over to Barry to read our Safe Harbor statement.

Speaker 2

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 These risks and uncertainties include those more fully described in our annual reports on Form 10 ks, 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

Speaker 1

Thank you, Barry. As we anticipated, macroeconomic headwinds continue to impact consumer discretionary spending throughout the Q2. However, we did not anticipate the unseasonably cool weather conditions that we experienced over the back half of the quarter, particularly in our core California markets. The slow start to summer had a significant impact on our sales, which came in slightly below expectations. Despite the top line challenges, we delivered bottom line results ahead of the midpoint of our guidance range.

Speaker 1

This speaks to our continued focus on diligently managing expenses, while also closely managing our inventory, which contributed to healthy merchandise margins. Net sales for the Transactions for the quarter were down high single digits with the average ticket down low single digits. All of our major merchandise categories were down low double digits. To elaborate a bit on the impact of weather, The extreme heat over the past month has been widely reported in the national news. But as I just mentioned, We experienced an abnormally slow start to summer in our California market.

Speaker 1

While weather in the late spring, early summer always varies, The cooler than normal temperatures and lack of sunshine across much of California were well beyond normal deviation. Summer recreation becomes increasingly important to our sales starting the week leading up to Memorial Day and continuing throughout June. Unfortunately, during that period this year, nearly every day temperatures were well below historical averages and below last year's temperatures. This had a very noticeable impact on sales of summer related products across the board From swimsuits to shorts to sandals, camping products, water sports and so forth. In markets where weather was more normal, Even favorable such as the Pacific Northwest, Oregon, Washington and Idaho and the Southwest, New Mexico, Our stores performed significantly better.

Speaker 1

In fact, our same store sales performance in those markets for the quarter was roughly 1,000 basis points higher than in California. In the last weekend of the 2nd quarter, we finally saw the true arrival of warm weather across California and our sales responded very positively. While this was certainly too little too late to meaningfully influence our 2nd quarter results, we are encouraged that the improved Trending creates some momentum that has carried over into the 3rd quarter, which I'll speak to in a moment. Moving to our Q2 operating performance, we believe we executed well despite the difficult conditions. Given the sales headwinds we faced, our focus on prioritizing merchandise margins to drive gross profit dollars continue to serve us well.

Speaker 1

While 2nd quarter merchandise margins were flat compared to the healthy margins that we generated in the prior year period, Our margins continue to run several 100 basis points above pre pandemic levels, a testament to the sustainability of the enhancements we have made to our business. Our team has done an outstanding job of managing inventory in an effort to align With a challenging sales environment, as a result, we have not needed to be overly promotional for the sake of clearing merchandise. We are also continuing to diligently manage expenses in the face of widespread inflationary pressures. We remain prudent with our ad spending and we are carefully managing store labor usage and being more targeted in tailoring store operating hours to local shopping patterns. Turning to current trends.

Speaker 1

As I mentioned, we are encouraged That as weather has improved across our footprint, so has our sales trending, particularly in our core California market. Relative to the Q2, our 3rd quarter to date sales trends have increased significantly with same store sales running down Low mid single digits, including a small benefit related to the timing of the 4th July holiday. Looking over the balance of the quarter, while we are cautious given that the economic health of the consumer continues to be a challenge, We feel that our product assortment is well positioned to meet demand for the remainder of the summer season, which includes back to school and the start of fall sports along with the Labor Day holiday. Over the past year, we've closely managed our inventory levels and maintained a healthy balance sheet. We believe there continues to be a buildup of inventory in the retail channel and we are in a position to take advantage of this excess through opportunistic buys to further solidify Big 5's value proposition with our customers.

Speaker 1

In summary, as we are continuing to manage through a tough environment, We are confident that our focus on sustaining healthy merchandise margins, while closely managing both expenses and inventory levels Will enable us to maintain a strong balance sheet and enhance our bottom line as economic headwinds begin to ease. I'll now turn it over to Barry to provide additional details regarding our 2nd quarter performance and 3rd quarter outlook.

Speaker 2

Thanks, Steve. Gross profit for the fiscal 2023 Q2 was $71,900,000 compared to gross Profit of $88,900,000 in the Q2 of the prior year. Our gross profit margin of 32.2% in the fiscal 2023 Q2 declined from 35% recorded in the Q2 of last year. The lower gross profit margin year over year primarily reflected higher store occupancy and distribution expense, including costs capitalized in inventory as a percentage of net sales. Merchandise margins for the Q2 of fiscal 2023 were consistent with the prior year period and continued to run Overall selling and administrative expense came in favorable to plan, decreasing $4,200,000 in the fiscal 2023 second quarter versus the prior year period.

Speaker 2

The year over year change primarily reflects lower employee labor and benefit related expense and company performance based incentive accruals. As a percent of net sales, SG and A expense was 32.4% in the fiscal 2023 second quarter versus 30.2% in the 2022 second quarter, reflecting the lower sales base. Now looking at our bottom line, net loss for the Q2 of fiscal 2023 was $300,000 or a loss of $0.01 per share. This compares to net income of $8,900,000 or $0.41 per diluted in the Q2 of fiscal 2022. EBITDA totaled $4,200,000 for the Q2 of fiscal 2023 compared to adjusted EBITDA of $17,700,000 in the Q2 last year.

Speaker 2

Briefly reviewing our 2023 first half results, Net sales were $448,500,000 compared to net sales of $495,800,000 In the 1st 26 weeks of last year, same store sales decreased 9.6% in the first half of fiscal twenty twenty three versus the comparable period last year. Net loss for the 1st 26 weeks of fiscal 2023 was $100,000 or breakeven on a per share basis. This compares to net income for the first half of twenty twenty two of $18,000,000 or $0.81 EBITDA was $8,600,000 for the 2023 year to date period compared to adjusted EBITDA of $32,700,000 in the comparable period last year. Turning to the balance sheet, Our merchandise inventory at the end of the Q2 of fiscal 2023 decreased 2.2% year over year. We feel good about our inventory position as we move through summer and into fall.

Speaker 2

Reviewing our capital spending, Our CapEx excluding non cash acquisitions totaled $4,700,000 for the first half of fiscal twenty twenty three, primarily representing investments in store related remodeling, distribution center equipment, computer leasehold improvements and computer hardware and software purchases. For the fiscal 2023 full year, we now expect CapEx in the range of 8 to $13,000,000 and anticipate opening approximately 2 new stores and closing approximately 6 stores, including 2 stores that we closed in the Q1 and one pending relocation. Now looking at our cash flow, Net cash used in operating activities was $3,300,000 in the first half of fiscal twenty twenty three. This compares to net cash used in operating primarily reflected reduced funding of merchandise inventory and accrued expenses, mainly related to performance based incentive accruals, partially offset by lower net income this year. Our balance sheet at the end of the Q2 of fiscal 2023 was healthy with 0 borrowings under our We expect same store sales to decrease in the mid single digit range compared to the fiscal 2022 Q3.

Speaker 2

Our same store sales guidance reflects an expectation that macroeconomic headwinds will continue to impact consumer discretionary spending over the balance of the Q3. Fiscal 2023 3rd quarter earnings per diluted share is expected in the range of 0 point which compares to fiscal 2022 Q3 earnings per diluted share of $0.29 That concludes our prepared remarks. Operator, we are now ready for any questions.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our question comes from the line of Mark Smith with Lake Street Capital. Please go ahead.

Speaker 3

Hi, guys. Question for me first, just wanted to look at the SG and A a little bit here. It was good at a good level here, Maybe discuss kind of what you're actively doing to manage operating expenses versus maybe what just came down as a function of lower revenue?

Speaker 2

Yes, Mark, sure. Well, certainly the biggest expense and key for us is store labor. And we've talked and talked and everybody's experienced the increased overall wage rates. And certainly, we on the West Coast in California have got our share of increased wage rates, whether it's minimum wage or Competing wage rates surrounding minimum wage. But so what we've been doing is focusing on managing store labor In lots of different categories and we've been able to bring our overall labor down, which has allowed us to actually reduce Our overall expense year over year.

Speaker 2

So that's number 1. Certainly, The advertising continues to be a focus for us and our advertising continues to run at rates that are less than half of what they were pre pandemic, so that's a focus for us. And then really, I mean, there's countless categories that we continue to work on that are being impacted by In many, many areas that we continue to work on. And certainly, obviously, performance based Accruals are down year over year just because of the lower income as well.

Speaker 3

Okay. And the next one was just looking at the guidance on store growth, especially kind of net store, it was coming down a little bit here now. Was that a function of kind of where the consumer is and just diving back on growth? Or was there any delays that just pushed Some of these stores in the next year, kind of walk us through those, your thoughts on that?

Speaker 1

Yes, yes, Mark. We had a couple of store openings that previously are planned for this year have Slipped into next year due to landlord construction issues. That's the big factor impacting The store openings for this year? We'll hit the should hopefully hit the ground running next year with some openings.

Speaker 2

Hey, Mark, let me come back to you. Also, Mark, let me when you're done, I want to come back to him on expenses.

Speaker 3

Okay. Yes, the last one for me was really just as we think about quarter to date sales and kind of trends, I want to make sure that I heard you right. The 3rd quarter to date down kind of low to mid single digits. Is that right, Stephen? And that's including what sounds like was it fairly positive And 4th July period?

Speaker 1

Yes. I mean, the 4th July kind of hit us through really the period the last Couple days of the Q2, as I mentioned, way too little, too late to influence the 2nd quarter. But and then the sort of with a calendar shift in the 4th moving one day further into the 3rd quarter, we sort of had an extra day and a solid day of pre 4th July business in the 3rd quarter That benefited the Q3. And you're right, Mark, I said we're down a low mid single digit of quarter to date. Okay.

Speaker 1

Perfect.

Speaker 3

And then Barry, if you had other thoughts on expenses for them, that's of us.

Speaker 2

Yes. Mark, the only other thing I would say is Fortunately, we're seeing reduced overall medical costs. We, like everybody else, had a real big ramp up in the last year In our medical costs, as the base postponed procedures and so on because of COVID. And so we saw Just a huge ramp up in costs last year. And fortunately, we're seeing those come down.

Speaker 2

We saw the benefit in the Q1 that continued in the second quarter. So that is also a meaningful positive change for us and hopefully that will continue through the balance of the year.

Speaker 3

Excellent. Thank you, guys.

Speaker 1

Thanks, Mark.

Operator

Thank you. That concludes our question and answer session. I will now turn the call back to Mr. Miller for any closing remarks.

Speaker 1

Thank you, operator, and thank you all for joining us in 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 3rd quarter.

Operator

Thank you. The conference of Big 5 Sporting Goods has now concluded. Thank you for your participation. You may now disconnect your

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