Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BGFV > SEC Filings for BGFV > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for BIG 5 SPORTING GOODS CORP

Form 10-Q for BIG 5 SPORTING GOODS CORP


2-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Big 5 Sporting Goods Corporation ("we", "our", "us") financial condition and results of operations includes information with respect to our plans and strategies for our business and should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes ("Interim Financial Statements") included herein and our consolidated financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 1, 2012.

Overview

We are a leading sporting goods retailer in the western United States, operating 407 stores in 12 states under the name "Big 5 Sporting Goods" at September 30, 2012. We provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. Our 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, tennis, golf, snowboarding and roller sports.

Executive Summary

Our improved operating results for the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 were mainly attributable to our higher sales level, including an increase in same store sales of 5.2%. We believe our higher sales primarily reflect favorable customer response to changes in our merchandise offering and new marketing initiatives along with the positive influence of more favorable weather this year. We also believe our operating results for the third quarter of fiscal 2012 and the third quarter of fiscal 2011 continue to reflect challenging macroeconomic conditions in our markets resulting primarily from the lingering effects of the economic recession.

Net sales for the third quarter of fiscal 2012 increased 7.3% to $251.8 million compared to $234.7 million for the third quarter of fiscal 2011. The increase in net sales was primarily attributable to an increase in same store sales of 5.2% as well as added sales from new stores, partially offset by lower closed store sales. The increase in net sales also reflected a favorable shift of certain Fourth of July holiday-related sales into the third quarter of fiscal 2012. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.

Net income for the third quarter of fiscal 2012 increased to $8.2 million, or $0.38 per diluted share, compared to $5.8 million, or $0.27 per diluted share, for the third quarter of fiscal 2011. The increase in net income primarily reflected the effect of higher gross profit resulting from the increase in net sales and higher merchandise margins, partially offset by higher selling and administrative expense.

- 21 -



Gross profit as a percentage of net sales for the third quarter of fiscal 2012 increased by 50 basis points to 33.3%, primarily due to higher merchandise margins along with lower store occupancy and distribution costs as a percentage of net sales.

Selling and administrative expense for the third quarter of fiscal 2012 increased 4.3% to $70.4 million compared to $67.5 million for the third quarter of fiscal 2011, but decreased as a percentage of net sales to 27.9% for the third quarter of fiscal 2012 compared to 28.8% for the same period last year. The increase in selling and administrative expense was primarily attributable to added expense for the increased store count, higher employee benefit-related costs and a store closing-related charge.

Operating income for the third quarter of fiscal 2012 increased to $13.5 million, or 5.4% of net sales, compared to $9.5 million, or 4.0% of net sales, for the third quarter of fiscal 2011. The higher operating income primarily reflected the effect of higher gross profit resulting from the increase in net sales and higher merchandise margins, partially offset by higher selling and administrative expense.

Results of Operations

The results of the interim periods are not necessarily indicative of results for the entire fiscal year.

13 Weeks Ended September 30, 2012 Compared to 13 Weeks Ended October 2, 2011

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
                                            September 30, 2012            October 2, 2011
                                                  (In thousands, except percentages)
 Net sales                                $   251,774       100.0 %    $ 234,680       100.0 %
 Cost of sales (1)                            167,901        66.7        157,691        67.2

 Gross profit                                  83,873        33.3         76,989        32.8
 Selling and administrative expense (2)        70,384        27.9         67,484        28.8

 Operating income                              13,489         5.4          9,505         4.0
 Interest expense                                 469         0.2            632         0.2

 Income before income taxes                    13,020         5.2          8,873         3.8
 Income taxes                                   4,851         1.9          3,056         1.3

 Net income                               $     8,169         3.3 %    $   5,817         2.5 %

(1) Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center costs and store occupancy costs. Store occupancy costs include 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 costs, as well as advertising, depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges.

- 22 -


Net Sales. Net sales increased by $17.1 million, or 7.3%, to $251.8 million in the 13 weeks ended September 30, 2012 from $234.7 million in the comparable period last year. The change in net sales reflected the following:

Same store sales increased by $12.0 million, or 5.2%, for the 13 weeks ended September 30, 2012, versus the comparable 13-week period in the prior year. We believe our higher sales primarily reflect favorable customer response to changes in our merchandise offering and new marketing initiatives along with the positive influence of more favorable weather this year. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.

Added sales from new stores reflected the opening of 17 new stores since July 3, 2011, partially offset by lower closed store sales.

Customer traffic into our retail stores increased for the 13 weeks ended September 30, 2012 versus the comparable period last year.

Sales for the 13 weeks ended September 30, 2012 include the favorable impact of the calendar shift of the Fourth of July holiday further into the third quarter of fiscal 2012 compared to the 13-week period ended October 2, 2011, which resulted in certain Fourth of July holiday-related sales moving from the second quarter to the third quarter this year.

Store count at September 30, 2012 was 407 versus 398 at October 2, 2011. We opened two new stores and closed two stores, one of which was a relocation, in the 13 weeks ended September 30, 2012. We opened three new stores in the 13 weeks ended October 2, 2011. For fiscal 2012, we expect to open approximately 14 new stores, including three relocations, and close approximately six stores, including two relocations.

Gross Profit. Gross profit increased by $6.9 million, or 8.9%, to $83.9 million, or 33.3% of net sales, in the 13 weeks ended September 30, 2012 from $77.0 million, or 32.8% of net sales, in the 13 weeks ended October 2, 2011. The change in gross profit was primarily attributable to the following:

Net sales increased $17.1 million, or 7.3%, year over year in the third quarter of fiscal 2012.

Merchandise margins, which exclude buying, occupancy and distribution costs, increased 25 basis points versus the third quarter last year.

Store occupancy costs increased by $0.8 million year over year in the third quarter of fiscal 2012, primarily reflecting the expense for new stores. Store occupancy costs decreased 24 basis points as a percentage of net sales.

Distribution costs increased $0.7 million primarily from lower costs capitalized into inventory and higher distribution center labor and employee benefit-related costs. Distribution costs decreased 5 basis points as a percentage of net sales.

- 23 -


Selling and Administrative Expense. Selling and administrative expense increased by $2.9 million to $70.4 million in the 13 weeks ended September 30, 2012 from $67.5 million in the same period last year. Selling and administrative expense as a percentage of net sales decreased 90 basis points to 27.9% in the 13 weeks ended September 30, 2012 from 28.8% in the same period last year. The increase in selling and administrative expense compared to the prior year was primarily attributable to added expense for new stores, higher employee benefit-related costs and a pre-tax charge of $0.4 million related to a store closing, as discussed in Note 4 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. Partially offsetting these expense increases were lower debit card fees compared to the third quarter last year.

Interest Expense. Interest expense decreased by $0.2 million to $0.5 million in the 13 weeks ended September 30, 2012 compared to the same period last year. This decrease in interest expense reflected a decrease in average debt levels of $10.3 million to $54.7 million in the third quarter of fiscal 2012 from $65.0 million in the same period last year. Average interest rates declined 30 basis points, to 2.2% in the third quarter of fiscal 2012 from 2.5% in the same period last year, due mainly to lower applicable margins under our amended credit agreement.

Income Taxes. The provision for income taxes was $4.9 million for the 13 weeks ended September 30, 2012 and $3.1 million for the 13 weeks ended October 2, 2011. Our effective tax rate was 37.3% for the third quarter of fiscal 2012 compared with 34.4% for the third quarter of fiscal 2011. The increased effective tax rate for the third quarter of fiscal 2012 compared to the same period in fiscal 2011 primarily reflected lower income tax credits in the current year.

- 24 -


39 Weeks Ended September 30, 2012 Compared to 39 Weeks Ended October 2, 2011

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:



                                                            39 Weeks Ended
                                            September 30, 2012            October 2, 2011
                                                  (In thousands, except percentages)
 Net sales                                $   696,882       100.0 %    $ 675,411       100.0 %
 Cost of sales (1)                            472,505        67.8        454,497        67.3

 Gross profit                                 224,377        32.2        220,914        32.7
 Selling and administrative expense (2)       205,560        29.5        201,590        29.8

 Operating income                              18,817         2.7         19,324         2.9
 Interest expense                               1,645         0.2          1,838         0.3

 Income before income taxes                    17,172         2.5         17,486         2.6
 Income taxes                                   6,289         0.9          5,804         0.9

 Net income                               $    10,883         1.6 %    $  11,682         1.7 %

(1) Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center costs and store occupancy costs. Store occupancy costs include 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 costs, as well as advertising, depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges.

Net Sales. Net sales increased by $21.5 million, or 3.2%, to $696.9 million in the 39 weeks ended September 30, 2012 from $675.4 million in the same period last year. The change in net sales reflected the following:

Added sales from new stores reflected the opening of 19 new stores since January 2, 2011, partially offset by lower closed store sales.

Same store sales increased by $7.7 million, or 1.2%, in the 39 weeks ended September 30, 2012, versus the comparable 39-week period in the prior year, while also reflecting lower sales of winter merchandise as a result of unseasonably warm winter weather in the first quarter of fiscal 2012. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.

Customer traffic into our retail stores decreased for the 39 weeks ended September 30, 2012 versus the comparable period last year.

Store count at September 30, 2012 was 407 versus 398 at October 2, 2011. We opened six new stores, two of which were relocations, and closed five stores, two of which were relocations, in the 39 weeks ended September 30, 2012. We opened five new stores, two of which were relocations, and closed three stores related to 2010 relocations in the 39 weeks ended October 2, 2011. For fiscal 2012, we expect to open approximately 14 new stores, including three relocations, and close approximately six stores, including two relocations.

- 25 -


Gross Profit. Gross profit increased by $3.5 million, or 1.6%, to $224.4 million in the 39 weeks ended September 30, 2012 from $220.9 million in the 39 weeks ended October 2, 2011. Gross profit decreased 50 basis points to 32.2% in the 39 weeks ended September 30, 2012 from 32.7% in the same period last year. The change in gross profit was primarily attributable to the following:

Net sales increased by $21.5 million, or 3.2%, in the 39 weeks ended September 30, 2012 compared to the same period last year.

Merchandise margins, which exclude buying, occupancy and distribution costs, decreased 37 basis points year over year, primarily reflecting a significant sales mix shift away from higher margin winter product categories in the first quarter of fiscal 2012, combined with product cost inflation.

Store occupancy costs increased by $2.1 million, or 4 basis points, year over year, primarily reflecting the expense for new stores.

Distribution costs increased $1.4 million, or 7 basis points, primarily from lower costs capitalized into inventory and higher distribution center labor and employee benefit-related costs, partially offset by lower trucking expense.

Selling and Administrative Expense. Selling and administrative expense increased by $4.0 million to $205.6 million in the 39 weeks ended September 30, 2012 from $201.6 million in the same period last year. Selling and administrative expense as a percentage of net sales decreased 30 basis points to 29.5% in the 39 weeks ended September 30, 2012 from 29.8% in the same period last year. The increase in selling and administrative expense compared to the prior year was primarily attributable to added expense for new stores, higher employee benefit-related costs, higher than normal store public liability claims-related costs and a pre-tax charge of $1.1 million related to store closing costs, as discussed in Note 4 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. Offsetting these expense increases were lower debit card fees and advertising expense, along with reduced impairment charges related to certain underperforming stores, compared to the prior year.

Interest Expense. Interest expense decreased by $0.2 million to $1.6 million in the 39 weeks ended September 30, 2012 compared to the same period last year. This decrease in interest expense reflects a decrease in average interest rates of 30 basis points, to 2.3% in the 39 weeks ended September 30, 2012 from 2.6% in the same period last year, due mainly to lower applicable margins under our amended credit agreement. The impact of decreased average interest rates was offset by an increase in average debt levels of $3.9 million to $64.0 million in the 39 weeks ended September 30, 2012 from $60.1 million in the same period last year.

Income Taxes. The provision for income taxes was $6.3 million for the 39 weeks ended September 30, 2012 and $5.8 million for the 39 weeks ended October 2, 2011. Our effective tax rate was 36.6% for the 39 weeks ended September 30, 2012 compared with 33.2% for the same period last year. Our higher effective tax rate for the 39 weeks ended September 30, 2012 compared to the same period in fiscal 2011 primarily reflected lower income tax credits in the current year.

- 26 -


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 on hand, cash flows from operations and borrowings from our revolving credit facility. We believe our cash and cash equivalents on hand, future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months. There is no assurance, however, that we will be able to generate sufficient cash flows from operations or maintain our ability to borrow under our revolving credit facility.

We ended the third quarter of fiscal 2012 with $5.0 million of cash and cash equivalents compared with $4.7 million at the end of the same period in fiscal 2011. Our cash flows from operating, investing and financing activities are summarized as follows:

                                                                39 Weeks Ended
                                                      September 30,            October 2,
                                                          2012                    2011
                                                                (In thousands)
Net cash provided by (used in):
Operating activities                                 $        28,529          $    (11,570 )
Investing activities                                          (7,025 )              (6,814 )
Financing activities                                         (21,407 )              17,487

Net increase (decrease) in cash and cash
equivalents                                          $            97          $       (897 )

Operating Activities. Net cash provided by operating activities for the 39 weeks ended September 30, 2012 was $28.5 million, and net cash used in operating activities for the 39 weeks ended October 2, 2011 was $11.6 million. The increase in cash flow from operating activities for the 39 weeks ended September 30, 2012 compared to the same period last year primarily reflects an increase in

accounts payable and lower inventory year over year. The increase in accounts payable during the first nine months of fiscal 2012 over the first nine months of the prior year was due primarily to the timing of inventory purchases. Inventory purchases were lower in the fourth quarter of fiscal 2011 compared to the fourth quarter of fiscal 2010, which resulted in a lower accounts payable balance at the end of fiscal 2011. The reduced inventory during the first nine months of fiscal 2012 compared to the first nine months of the prior year was related primarily to improved sales in fiscal 2012. Also, for the first nine months of fiscal 2011, we strategically increased inventory levels to add certain new products and purchased inventory earlier in the year to mitigate the impact of product cost inflation and potential delivery delays.

Investing Activities. Net cash used in investing activities for the 39 weeks ended September 30, 2012 and October 2, 2011 was $7.0 million and $6.8 million, respectively. Capital expenditures, excluding non-cash property and equipment acquisitions, for the 39 weeks ended September 30, 2012 and October 2, 2011 were $7.3 million and $7.8 million, respectively. We received proceeds of $0.3 million and $0.5 million in the 39 weeks ended September 30, 2012 and October 2, 2011, respectively, as part of a local utility rebate program related to the implementation of a green energy system at our distribution center. Additionally, we received proceeds of $0.5 million from the sale of owned real property in the 39 weeks ended October 2, 2011.

- 27 -


Financing Activities. Net cash used in financing activities for the 39 weeks ended September 30, 2012 was $21.4 million, and net cash provided by financing activities for the 39 weeks ended October 2, 2011 was $17.5 million. In the first nine months of fiscal 2012, net cash was used primarily to pay down borrowings under our revolving credit facility, pay dividends and repurchase stock. In the first nine months of fiscal 2011, net cash was provided primarily from increased borrowings under our revolving credit facility, offset by cash used to pay dividends.

As of September 30, 2012, we had revolving credit borrowings of $52.6 million and letter of credit commitments of $4.1 million outstanding. These balances compare to revolving credit borrowings of $63.5 million and letter of credit commitments of $3.7 million outstanding as of January 1, 2012 and revolving credit borrowings of $69.1 million and letter of credit commitments of $3.5 million outstanding as of October 2, 2011. The decrease in revolving credit borrowings at the end of the third quarter of fiscal 2012 compared to the same period last year primarily reflects our ability to pay down debt using cash flow generated from operating activities.

In fiscal 2011 and the first three quarters of fiscal 2012, our Board of Directors declared quarterly cash dividends of $0.075 per share of outstanding common stock, for an annual rate of $0.30 per share. In the fourth quarter of fiscal 2012, our Board of Directors also declared a quarterly cash dividend of $0.075 per share of outstanding common stock, which will be paid on December 14, 2012 to stockholders of record as of November 30, 2012.

In the fourth quarter of fiscal 2011, we resumed our share repurchase activity under our previously announced program, and in the first nine months of fiscal 2012 we repurchased 408,991 shares of our common stock for $3.2 million. Since the inception of our initial share repurchase program in May 2006 through September 30, 2012, we have repurchased a total of 1,887,626 shares for $25.0 million, leaving a total of $10.0 million available for share repurchases under our current share repurchase program.

Credit Agreement. On October 18, 2010, we entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and a syndicate of other lenders. Initial borrowings under the Credit Agreement on October 18, 2010 were used to, among other things, repay all of our outstanding indebtedness under our prior financing agreement, at which time the prior financing agreement was terminated. As further discussed below, the Credit Agreement was amended on October 31, 2011.

The Credit Agreement provides for a revolving credit facility (the "Credit Facility") with an aggregate committed availability of up to $140.0 million, which amount may be increased at our option up to a maximum of $165.0 million. We may also request additional increases in aggregate availability, up to a maximum of $200.0 million, in which case the existing lenders under the Credit

- 28 -


Agreement will have the option to increase their commitments to accommodate the requested increase. If such existing lenders do not exercise that option, we may (with the consent of Wells Fargo, not to be unreasonably withheld) seek other lenders willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit for issuances of letters of credit and a $20.0 million sublimit for swingline loans. As of September 30, 2012 and January 1, 2012, our total remaining borrowing availability under the Credit Agreement, after subtracting letters of credit, was $83.3 million and $72.8 million, respectively.

We may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the then aggregate availability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the "Loan Cap"). The "Borrowing Base" generally is comprised of the sum, at the time of calculation of (a) 90.00% of our eligible credit card accounts receivable; plus (b)(i) during the period of September 15 through December 15 of each year, the cost of our eligible 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); and
(ii) at all other times, the cost of our eligible inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of our eligible in-transit inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of our eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain reserves established by Wells Fargo in its role as the Administrative Agent in its reasonable discretion.

Generally, we may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans. In each case, the applicable interest rate was a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts outstanding under the Credit Facility (such amount being referred to as the "Average Daily Excess Availability"). Those loans designated as LIBO rate loans shall bear interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans shall bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the . . .

  Add BGFV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BGFV - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.