Principal Financial Group Q1 2024 Earnings Call Transcript

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April 30, 2024

There are 3 speakers on the call.

Operator

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods First Quarter 20 24 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, operator. Good afternoon, everyone. Welcome to our 2024 Q1 conference call. Today, we will review our financial results for the Q1 of fiscal 2024 as well as provide an outlook for the Q2. 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 results. 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 forward looking statements that may be made from time to time by us or on our behalf.

Speaker 1

Thank you, Barry. Our first quarter results were consistent with our guidance and continue to reflect a challenging macroeconomic environment that is pressure in consumer discretionary spending. Our results were also impacted by extreme weather volatility across many of our markets that was generally unfavorable to our business over the course of the quarter. Net sales for the Q1 were 193 point $4,000,000 compared to $224,900,000 in the prior year with same store sales down 13.5%. As anticipated, sales comparisons were impacted by the calendar shift of the Easter holiday when our stores are closed from the Q2 of 2023 to the Q1 of 2024.

Speaker 1

We believe this calendar shift negatively impacted our Q1 same store sales by roughly 100 basis points. From a category perspective, apparel was down approximately 16%, hard goods was down approximately 14% and footwear was down approximately 10%. While we were encouraged that our average ticket was up slightly year over year, our transaction count was down low double digits, which we believe reflects the soft discretionary spending environment. In the face of the top line sales headwinds, we have continued to focus on the aspects of the business that we have more control over. We were relatively pleased with the results we achieved from our efforts in optimizing merchandise margins, maintaining healthy inventory levels relative to sales and managing expenses.

Speaker 1

For the Q1, we grew our merchandise margins by nearly 50 basis points versus the prior year. Our winter related product margins were particularly strong as that category benefited from the freshness of our product this winter season following and we were pleased to achieve merchandise margin gains while also reducing year over year inventory levels by 12.5% as of the end of the quarter. Diligent expense management continues to be another focal point for us and we reduced our Q1 selling and administrative expense by $3,800,000 year over year. A large contributor to the expense savings resulted from closely managing our store labor hours which we've been particularly focused on to mitigate the impact of substantial increases in minimum wage rates across our markets. Expense management has always been one of our strengths and this focus is particularly important now given the inflationary pressures and challenging sales environment.

Speaker 1

Turning now to current sales trends. In the Q2 to date, we have continued to feel effects from the ongoing macro headwinds that are impacting consumer discretionary spending and same store sales are running down in the high single digits, including a benefit from being open an extra day in the Q2 related to the calendar shift of the Easter holiday. The first half of the second quarter is a relatively low volume period for our business. The key to the second quarter always revolves around the higher volume periods surrounding Memorial Day and Father's Day along with the start of summer. We feel very positive about our product assortment and inventory position as we transition seasons.

Speaker 1

Warmer and drier weather has the potential to be a strong driver of store traffic and spending over the balance of the quarter, especially compared to last year when these factors at the start of summer were relatively unfavorable for us. We are cautiously optimistic that this year our business will benefit from more normalized weather patterns. That said, our primary challenge in the near term will be contending with the confluence of macroeconomic variables that are continuing to weigh on discretionary spending patterns. We believe that when conditions improve, our proven business model which focuses on providing customers with the optimal mix of value, selection, service and convenience will position us to resume positive sales and earnings growth and in turn create value for our shareholders. While we continue to work hard to energize our sales, we will remain diligently focused on managing our merchandise margins, inventory levels and expenses.

Speaker 1

With that, I'll now turn it over to Barry to provide additional details regarding our first quarter performance and second quarter outlook.

Speaker 2

Thanks, Steve. Gross profit for the fiscal 2024 Q1 was $60,400,000 compared to gross profit of $75,100,000 in the Q1 of the prior year. Our gross profit margin of 31.2% in the 2024 Q1 compared to 33.4% in the Q1 of last year. The decrease in gross profit margin versus the prior year primarily reflected higher store occupancy and distribution expense, including cost capitalized in the inventory as a percentage of net sales. Merchandise margins for the quarter Q1 of 2024 increased 48 basis points versus the prior year.

Speaker 2

Overall selling and administrative expense for the fiscal 2024 Q1 decreased $3,800,000 compared to the prior year. Was 36.9% in the 2024 Q1 versus 33.4% in the 2023 Q1, reflecting the lower sales base. Now looking at our bottom line, net loss for the Q1 of fiscal 2024 was $8,300,000 or $0.38 per basic share. This compares to net income of $200,000 or $0.01 per diluted share in the Q1 of 2023. EBITDA was negative $6,600,000 for the Q1 of fiscal 2024 compared to a positive $4,500,000 in the Q1 last year.

Speaker 2

Turning to the balance sheet, our merchandise inventory at the end of the first quarter decreased 12.5% year over year. As Steve indicated, this reduction reflects our efforts to manage inventory levels lower considering the soft sales environment. Reviewing our capital spending, our CapEx excluding non cash acquisitions totaled $1,800,000 for the first quarter of fiscal 2024, primarily representing investments in store related remodeling, distribution center equipment and computer hardware and software purchases. For the 2024 full year, we continue to expect CapEx in the range of $13,000,000 to $18,000,000 For the balance of fiscal 2024, we anticipate opening approximately 5 new stores and closing approximately 4 stores 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 $8,200,000 in the Q1 of fiscal 2024.

Speaker 2

This compares to net cash provided by operating activities of $12,300,000 in the comparable period last year. The year over year decrease in our operating cash flow primarily reflected lower net income, partially offset by a smaller decrease in accrued expenses. Our balance sheet at the end of the Q1 of fiscal 2024 remains healthy. We had 0 borrowings under our credit facility and a cash balance of $12,600,000 up from $9,200,000 at the end of Q4 'twenty three. Today, we announced that our Board of Directors declared a quarterly cash dividend of $0.05 per share.

Speaker 2

Now I'll spend a moment on guidance. For the fiscal 2024 Q2, we expect same store sales expectation that macroeconomic headwinds will continue to impact consumer discretionary spending over the balance of the quarter. Although fiscal 2nd quarter net sales comparisons to the prior year will benefit from the calendar shift of the Easter holiday, this benefit is expected to be offset by the 4th July holiday shifting 2 days further into our fiscal Q3 this year. Fiscal 2024 second quarter net loss per basic share is expected in the range of $0.40 to $0.55 which compares to 2023 second quarter loss per basic share of $0.01 That concludes our prepared remarks. I will now turn the call back to Steve for closing comments.

Speaker 1

Thank you, Mary. 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 Q2.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude today's conference. Thank you for joining us. You may now disconnect your lines.

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