Big 5 Sporting Goods Corporation (NASDAQ:BGFV) is a leading sporting goods retailer in the western United States, operating 424 stores and an e-commerce platform as of March 31, 2023. The company has a long history of providing a full-line product offering in a traditional sporting goods store format that averages approximately 12,000 square feet. Its product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, home recreation, tennis, golf, and winter and summer recreation.

Financials

For the fiscal year ended January 1, 2023, Big 5 Sporting Goods reported annual revenue of $884,745,000, a decrease from the prior year's revenue of $924,000,000. The company's annual net income was -$7,083,000, compared to the previous year's net income of $10,000,000. Despite the challenging macroeconomic environment, the company's annual operating cash flow remained resilient at $18,538,000, while its annual free cash flow stood at $7,516,000.

In the first quarter of fiscal 2023, the company's net sales decreased by 14.0% to $193,427,000 compared to $224,939,000 in the first quarter of the prior year. This decline was primarily attributed to a 13.5% decrease in same-store sales, which the company believes was impacted by significant and persistent inflationary pressures that dampened consumer sentiment and reduced demand for discretionary products. Additionally, the company experienced an unfavorable impact from a calendar shift related to the Easter holiday, which resulted in its stores being closed during the first quarter of fiscal 2023 compared to the second quarter of the prior year.

Despite the top-line challenges, Big 5 Sporting Goods demonstrated its operational agility by focusing on optimizing merchandise margins and managing expenses. The company's gross profit margin for the first quarter of fiscal 2023 was 31.2%, compared to 33.4% in the same period of the prior year. This decrease was primarily due to higher store occupancy and distribution expenses as a percentage of net sales, which were partially offset by a 48-basis-point improvement in merchandise margins.

On the expense management front, the company reduced its selling and administrative expense by $3.8 million in the first quarter of fiscal 2023 compared to the same period in the prior year. This reduction was largely driven by decreases in employee labor expense, credit card fees, and company performance-based incentive accruals. The company's diligent expense management has been a key focus, particularly in the face of inflationary pressures and the challenging sales environment.

Outlook

Looking ahead, the company's guidance for the second quarter of fiscal 2023 reflects the continued impact of macroeconomic headwinds on consumer discretionary spending. Big 5 Sporting Goods expects same-store sales to decrease in the high single-digit range compared to the second quarter of the prior year. This guidance takes into account the calendar shift of the Easter holiday, which is expected to provide a benefit, as well as the fourth of July holiday shifting two days further into the fiscal third quarter, which is expected to offset the Easter holiday benefit.

For the fiscal 2023 second quarter, the company anticipates a net loss per basic share in the range of $0.40 to $0.55, compared to a net loss per basic share of $0.01 in the second quarter of the prior year. Despite the near-term challenges, the company remains cautiously optimistic that its proven business model, which focuses on providing customers with the optimal mix of value, selection, service, and convenience, will position it to resume positive sales and earnings growth when macroeconomic conditions improve.

Liquidity

Big 5 Sporting Goods' liquidity position remains healthy, with no borrowings under its credit facility and a cash balance of $12,621,000 as of March 31, 2023. The company's balance sheet strength and disciplined capital allocation have enabled it to continue investing in its business, including store-related remodeling, distribution center equipment, and computer hardware and software purchases, while also returning capital to shareholders through a quarterly cash dividend.

In the first quarter of fiscal 2023, the company paid a quarterly cash dividend of $0.05 per share of outstanding common stock, and in the second quarter, its Board of Directors declared a quarterly cash dividend of $0.05 per share, which will be paid on June 14, 2023, to stockholders of record as of May 31, 2023.

Risks and Challenges

Big 5 Sporting Goods operates in a highly competitive and rapidly changing environment, which exposes the company to various risks, including the impact of COVID-19, global supply chain disruptions, changes in consumer spending patterns, increased competition from e-commerce retailers, and the potential for lower-than-expected profitability of its e-commerce platform. The company's ability to navigate these challenges and capitalize on opportunities will be crucial to its long-term success.

Conclusion

Despite the current macroeconomic headwinds, Big 5 Sporting Goods remains focused on optimizing its merchandise margins, maintaining healthy inventory levels, and managing expenses. The company's proven track record of operational excellence and its commitment to providing customers with a compelling value proposition position it well to weather the current storm and emerge stronger when the economic environment improves. Investors should closely monitor the company's progress in executing its strategy and managing the evolving market conditions.