John Mills - ICR
Steve Miller - Chairman, President and Chief Executive Officer
Big 5 Sporting Goods (BGFV) Q4 2007 Update Call January 10, 2008 7:00 AM ET
Good morning, ladies and gentlemen. Welcome to the Big 5 Sporting Goods fiscal fourth quarter and full year 2007 sales results and guidance update prerecorded conference call. I would now like to turn the conference over to John Mills with ICR. Please go ahead, sir.
Thank you. As a reminder, this call is being recorded as of January 10, 2008. And while the call will remain available until 11:59 pm Eastern on January 17, 2008, the call will not be updated after it is recorded.
The following is the Safe Harbor statement in regards to today’s prerecorded call. Except for statements of historical fact, any remarks that we 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 report on Form 10-K for fiscal 2006, our quarterly report on Form 10-Q for the third quarter of fiscal 2007 and other filings with the SEC.
We disclaim any obligation to update these factors or to publicly announce results of any revisions to any of the forward-looking statements made during this call that reflect future results, events or developments.
On the call today representing Big 5 is Mr. Steve Miller, Chairman and CEO. Now, I would like to turn the call over to Mr. Miller.
Thanks, John. Today I’ll review our sales for the fourth quarter of 2007 as well as update earnings guidance for the fourth quarter and full year of 2007. To begin, we are disappointed to report fourth quarter sales below our plan. Same-store sales were down 4.7% for the fourth quarter, with product margins down approximately 35 basis points. This was by far our weakest quarterly comp store sales performance since 1995. Given the soft results, we felt it was appropriate to provide additional color to our press release by means of this prerecorded call.
As a reminder, beginning in 1996 we achieved 45 consecutive quarters of comp store sales growth until our narrow miss in the second quarter of 2007. We comped slightly positive in Q3 and we certainly were looking for better results than we achieved during Q4.
We expected going into the fourth quarter that the consumer environment would be less than robust, particularly in the areas most effected by housing-related issues such as California, Nevada, and Arizona; and that we would have difficultly comping against roller shoe business from the prior year.
Although we have been able to manage through the difficult business conditions in many of our markets during the first nine months of the year, these factors had a more dramatic impact than we had anticipated during the holiday season.
Now I will provide some specific details related to the fourth quarter. First, I should report that during the fourth quarter we opened ten new stores including our first store in Oklahoma. We also opened two stores each in Colorado, Utah and Idaho and one store each in Washington, Oregon and California. This resulted in a total of 20 net new stores in fiscal 2007 right on target with our plan and we ended the year with 363 stores.
For the fourth quarter, net sales were $232.1 million versus $234.5 million for the fourth quarter of fiscal 2006. Same-store sales declined 4.7% for the fourth quarter compared to the same period last year.
For the fiscal 2007 full year, net sales increased $21.5 million or 2.5% to $898.3 million from $876.8 million for the fiscal 2006 full year. Same-store sales declined 1.0% for the full year 2007.
In the fourth quarter, and particularly over the holiday period, like many other retailers we found the overall consumer environment to be extremely challenging. Both our average ticket and traffic were down to the low single-digit range with a more significant decline in traffic than average ticket.
In reviewing the quarter on a monthly basis, for the first few weeks of October sales were flat and then turned negative, partially resulting from unseasonably warm weather and wild fires in some of our markets and remained challenging until Thanksgiving. We comped positively on Black Friday and then sales turned extremely soft and remained significantly down until the weekend before Christmas. Last-minute shopping trends improved, and our after Christmas sales were solid, helped by favorable winter weather conditions in most of our markets.
In terms of product categories, by far the most significant impact on sales was the deterioration in the performance of the roller shoe product category over the prior year. This roller shoe business had built up very positively over the past few years, but the drop off occurred very rapidly during the back half of 2007.
We expected that the category would comp negatively for the holidays, but roller shoe sales turned out to be even worse than anticipated. This one category impacted our comp-store sales results by approximately 210 basis points. In other words, if one were to exclude roller shoes, our comp-store sales for the quarter would have been down 2.6% rather than 4.7%.
Additionally, competitive price pressures on this category essentially forced us to cut prices, which also hurt our product margins. If you factor out the decline of the roller shoe business, our product margins would have been down approximately 5 basis points for the quarter compared to the overall 35 basis point decline.
Outside of rollers shoes, we generally maintained our product margins. We have what we believed was a very strong promotional plan in place for the holiday period, and for the most part we stayed with our original plan as we felt that additional ad expense and price slashing would not likely benefit the bottom line, given the very difficult consumer environment.
Unfortunately, we did not have enough positive performing products to overcome the macroeconomic head winds to offset the particular softness in roller shoes. Our winter product sales were hindered by a lack of winter weather in many of our markets until late in the quarter, and certain other categories that we thought would be holiday standouts for us did not meet expectations.
We did have strength in certain product areas including exercise and game categories. Our footwear business, excluding roller shoes, comped positively in the low single-digits for the quarter. Our weaker performing categories apart from roller shoes included winter products, general apparel, basketball and golf.
Given the softness in sales, our year end inventory levels were higher than anticipated. For the most part, we feel the additional inventory is good inventory and doesn’t carry an expiration date. We are making the appropriate adjustments and we believe that we can work our overall inventories down towards more normal levels during the first quarter.
Apart from the impact of the roller shoe category, we do not expect the process of rightsizing our inventory to meaningfully impact future margins. However, we do expect our sales and margins to continue to be impacted by the roller shoe category during 2008, particularly during the first two quarters.
Now I would like to touch on our updated guidance. Based on the sales results and other factors I previously discussed for the fiscal 2007 fourth quarter, we now expect to realize earnings per diluted share in the range of $0.25 to $0.28. For the fiscal 2007 full year, we expect to realize earnings per diluted share in the range of $1.22 to $1.25.
We believe that the primary issue in our 2007 performance was the challenging macroeconomic environment. Throughout our history of over 50 years, we have experienced and managed through very soft consumer spending environments before. We have one of the most experienced management teams in our industry, and while we unfortunately can’t dictate the overall consumer climate, we do continue to focus on areas that we can influence, including enhancing our merchandise offering and promotional plan, as well as controlling expenses. We look forward to stronger results as the consumer spending environment improves.
Thank you for your interest. As a reminder, we expect to issue our earnings results for the fiscal 2007 fourth quarter and full year as well as provide guidance for fiscal 2008 by the first week of March. Operator, this concludes our call.