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Big 5 Sporting Goods Corporation (NASDAQ:BGFV)

Q2 2008 Earnings Call

July 31, 2008 5:00 pm ET

Executives

Steven G. Miller - Chief Exec. Officer and Pres

Barry D. Emerson - Chief Financial Officer

Analysts

Sean McGowan - Needham & Company

David Magee - SunTrust Robinson Humphrey

Ian Corydon - B. Riley & Company, Inc.

Eric Halawai for Richard Nelson - Stephens, Inc.

Mitchell Kaiser - Piper Jaffray

Bill Dezellem – Titan Capital Management

Jeff Mintz - Wedbush Morgan Securities Inc.

Anthony Lebiedzinski - Sidoti & Company

Operator

Welcome to the Big 5 Sporting Goods Second Quarter 2008 Earnings Conference Call. (Operator Instructions) On the call today will be Steve Miller, President and CEO, and Barry Emerson, CFO. And now I would now like to turn the call over to Steve Miller.

Steven G. Miller

Welcome to our fiscal 2008 second quarter conference call. Today we will review our financial results for the second quarter of 2008 and provide general updates on our business, as well as provide guidance. At the end of our remarks we will open the call for questions.

I will now turn the call over to Barry to read our Safe Harbor Statement.

Barry D. Emerson

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 Report on Form 10-K for fiscal 2007, our quarterly report on Form 10-Q for the first quarter of fiscal 2008, and 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 for us on our behalf.

Steven G. Miller

Given the challenging consumer environment, we are pleased with our operating performance during the second quarter. We improved product margins and achieved meaningful savings ahead of plan in several major expense areas of our business, including store level, our distribution center, advertising, and corporate admin, and we continued with our strong inventory management. As a result, excluding the impact of an unanticipated one-time charge related to leasing account, that Barry will discuss, our earnings came in at the high end of the guidance range that we provided on our last call in April.

Now for the numbers: In the second quarter sales were $209.0 million, down 4.1% from $217.8 million for the second quarter of fiscal 2007. Our same-store sales declined 7.6% for the second quarter. The decrease was primarily a traffic issue with a mid-single-digit decrease in customer traffic and our average transaction size down low single-digits.

As anticipated, we experienced continued weakness in the roller shoe product category, which accounted for approximately 140 basis points of the same-store sales decline during the second quarter. While we expect roller shoe sales comparisons to remain weak through the remainder of the year, the impact of this category in overall results should diminish in the third quarter and should be a relative non-issue by the fourth quarter.

Additionally, second quarter sales reflected one more shopping day during the quarter due to the shift of the Easter holiday, when our stores are closed, out of the second quarter last year and into the first quarter this year. However, this was largely offset by our fiscal calendar which placed the Fourth of July holiday two days further from the end of the second quarter. Thus our third quarter will have the benefit of some additional Fourth of July business.

Looking at our major merchandise categories, our apparel merchandise category was down low single digits during the quarter, hard goods was down mid- to-high single digits and footwear was down high single digits, due in large part to the roller shoe business. Excluding roller shoes, footwear was down low single digits.

We are pleased that we were able to increase our product margins 11 basis points for the quarter, especially given the impact of the roller shoes. If you factor out roller shoes, product margins would have been up approximately 23 basis points for the quarter. Our margin improvement was made possible in part by our cleaner inventories, which resulted in fewer mark-downs, as well as the efforts of our experienced buying team to optimize pricing and to protect product margins in this difficult environment.

We are experiencing inflation in the purchase cost of many products and the cost of raw goods, production, and associated transportation continues to rise. As always, we are carefully evaluating pricing strategies in an effort to maximize both sales and margins. We believe that our product mix, which includes a strategy of opportunistic buying, allows us to provide compelling values for our customers while still earning margins that are very positive for our bottom line.

As I indicated, we are also very pleased with our inventory position. As of the end of the second quarter, our total chain-wide inventories were down from the prior year, while operating 22 additional stores. Our inventories were down 6.3% on a per store basis. We’ve made great strides in further improving inventory comparisons thus far in third quarter. We feel our inventory management has put us in an outstanding position to take advantage of opportunistic buys as they become available

Turning now to current trends: Like most retailers, we continue to face strong headwinds in the current economic environment. What we’ve experienced over the past several weeks has not been too dissimilar from what we experienced during the first half of the year. We, like everybody, are waiting to see some real and long-lasting stimulus to restore the economic health of our consumer.

In the meantime, we remain very focused on refining and managing the controllable aspects of our business as efficiently as possible in order to position ourselves for growth when the consumer climate improves. Our entire chain worked very hard to achieve second quarter expense savings ahead of our plan and we continue to evaluate all of our cost-saving levers.

Before I turn the call over to Barry, I will comment on our distribution center and store openings. We continue to be extremely pleased with the productivity and efficiency levels at our distribution center. During the second quarter our DC team lowered overall expenses from the prior year, despite supporting 22 more stores and experiencing significant increases in trucking costs due to higher fuel prices.

Commenting on store growth during the second quarter, we opened six new stores. These stores were in: Golden, Colorado; East Mesa, Arizona; Hermiston, Oregon; and Paris, Huntingdon Park, and Ventura, California. The Ventura store was a relocation of a store that we closed early in the third quarter. We anticipate opening four stores during the third quarter.

We continue to focus on securing quality new store locations, expect to open approximately 20 net new stores during fiscal 2008. In line with our strategy of controlled growth, we continue to take a hard look at each potential new location and we are encouraged by the real estate opportunities we are finding. We believe these new locations will further solidify our market position and benefit us when the consumer climate improves.

Now I will turn the call over to Barry who will provide more information about the quarter and full year as well as speak to our balance sheet, our capital expenditure, our cash flows, and provide guidance.

Barry D. Emerson

Our gross profit margin for the second quarter was 32.7% or sales compared to 34.3% of sales for the second quarter of 2007. The 11 basis point increase in product selling margins was offset by higher store occupancy costs, due mainly to new store openings and the one-time charge relating to lease accounting that Steve mentioned.

During the quarter we recorded a $1.5 million pre-tax charge to correct an error in our previously recognized straight-line rent expense, substantially all of which pertained to prior periods and accumulated over a period of 15 years. This error is primarily related to the timing of reflecting the impact of store-lease amendments on our straight-line rent expense. This charge accounted for approximately 75 basis points of the decline in gross profit margin during the second quarter. We have determined this charge to be immaterial to our prior-year and current-year financial statements. As it was not anticipated, this charge was not included in the earnings guidance that we had provided on our last call.

Our selling and administrative expense, as a percentage of net sales, was 30.8% in the second quarter of fiscal 2008 versus 29.1% in the second quarter of the prior year. The higher rate year-over-year was primarily due to the softer sales conditions and higher store-related expenses reflecting an increased store count.

Now looking at our bottom line, net income for the second quarter was $1.7 million, or $0.08 per diluted share, compared to net income in the second quarter of fiscal 2007 of $5.9 million, or $0.26 per diluted share.

Briefly reviewing our six-month results, sales declined 3% for the 2008 year-to-date period to $421.9 million from $434.9 million during the same six-month period in 2007. Same-store sales decreased 6.4% versus the same period last year. Looking at the bottom line for the first half, net income was $5.8 million, or $0.27 per diluted share, compared to net income of $13.5 million, or $0.59 per diluted share in the same period last year.

Earnings results for both the second quarter and first six months of fiscal 2008 include the charge related to straight-line rent expense, the after-tax effect of which was $0.9 million, or $0.04 per diluted share.

Turning to our balance sheet, total chain inventories of $251.4 million at the end of fiscal year 2008 second quarter were down slightly from both the end of fiscal 2007 and the second quarter last year. As Steve discussed, we continue to enhance our inventory position during the second quarter and on a per-store basis, quarter end inventories were down approximately 6.3% from the same period last year.

Looking at our capital spending, CAPEX, excluding non-cash acquisitions, totaled $9.1 million for the first six months of fiscal 2008, reflecting expenditures for new stores, store-related remodeling, distribution center and corporate headquarter costs, and IT purchases. We continue to expect total capital expenditures for fiscal 2008, excluding non-cash acquisitions, of approximately $23.0 million to $24.0 million, primarily to fund the opening of approximately 20 net new stores, store-related remodeling, and new point-of-sale terminals at our stores, corporate office and distribution center improvements, and computer hardware and software purchases.

We generated cash flow from operations of $21.3 million in the first half of fiscal 2008, compared to $6.1 million for the same period last year. The difference is mainly due to reduced funding for working capital as we right-sized our inventories to align them with the weaker sales conditions. We will continue to evaluate the best use of cash, including paying shareholder dividends, reducing debt, or repurchasing the company’s common stock.

Our long-term debt at the end of the second quarter of fiscal 2008 of $103.3 million compares to $103.4 million at the end of fiscal 2007 and $88.8 million at the end of the second quarter last year.

To update activity under our share repurchase program, in the second quarter we repurchased 210,474 shares of our stock for a total of $1.7 million. As of the end of the second quarter, we had $15.0 million available for stock repurchases under our $20.0 million share repurchase program authorized in the fiscal 2007 fourth quarter.

Now I will turn to guidance. Although results for the second quarter of fiscal 2008 were in line with our expectations and our expense control was ahead of plan, the consumer environment remains challenging. With no near-term stimulus in sight we are assuming that sales will continue to be impacted by a challenging consumer environment and are maintaining a cautious outlook.

Based on that assumption, we are providing the following guidance. For the third quarter we expect a decline in same-store sales in the mid-single digit range and earnings per diluted share in the range of $0.14 to $0.20 and for the full year 2008 we expect a decline in same-store sales in the mid-single digit range and earnings per diluted share in the range of $0.60 to $0.80. This full-year guidance includes the $0.04 lease accounting charge that we previously discussed.

A material improvement or decline in the overall consumer environment during the remainder of the year could materially impact our performance relative to this guidance.

We are now ready to turn the call back to you for questions and answers.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sean McGowan with Needham & Company.

Sean McGowan - Needham & Company

Steve, could you give us some sense of how the quarter flowed, month-to-month, and also whether there were any notable geographic disparities in the sales results?

Steven G. Miller

I think how the quarter flowed, April was our strongest month although that was primarily a result of the shift of the Easter that gave April an extra sales day. And we also moved an extra promotion out of May last year into April this year. May lost the promotion we moved to April and we experienced what I call some traditional softness around Memorial Day that we attribute primarily to cooler weather in most of our markets during that important holiday period. June was impacted, as I mentioned in the prepared remarks, by the shift of the Fourth of July holiday two days further into the third quarter. And we moved an associated promotion out of Q2 into Q3.

So, I think the bottom line, if you really remove the effects of the calendar and promotional shifts, I would call our trends really not too dissimilar through the entire quarter, with perhaps a little extra softness around Memorial Day. Our business trends were remarkably consistent over the course of the quarter, other than I think we were arguably a little extra soft over the important Memorial Day weekend and the weather was not very cooperative for that important holiday.

Sean McGowan - Needham & Company

And regarding geographies?

Steven G. Miller

Really, I think during the second quarter sales were really relatively mixed across our market areas. We certainly had areas that performed better, some areas better than others. It’s probably fair to say we saw some greater sales weakness in certain areas of California and other states that have been more impacted by the housing-related issues. I don’t think the consumer climate is particularly robust, arguably, in any of our market areas.

Sean McGowan - Needham & Company

Any particularly strong product categories that you could call out?

Steven G. Miller

We certainly had some areas of our business that performed reasonably well for us. But I don’t think we’re going to get more specific than talking about our major merchandise categories, footwear, hard goods, and apparel, for competitive reasons.

I will tell you I think really more recently and somewhat in the second quarter, I think we’re seeing a trend of what I’ll call stay-at-home products. Staycation I hear it referred to. The stuff that you can use at or near your home and relatively inexpensively. In general, those types of products seem to be outperforming categories that require you to get in your car and drive and in some cases pay to engage in an activity when you get there. Examples may be golf and water or boating-related items.

Operator

Your next question comes from David Magee with SunTrust Robinson Humphrey.

David Magee - SunTrust Robinson Humphrey

Has your back-to-school started yet?

Steven G. Miller

Not in most of our market areas.

David Magee - SunTrust Robinson Humphrey

It looks like, given the numbers, the guidance you’ve given for the year and for the third quarter, that you have a shot here of showing flatter numbers in the fourth quarter. Is it possible as we look into next year, given the fact that you’re going to have more apples-to-apples in the sales line, your margins are stable, your expenses seem to be under pretty good control, could you show, in this same kind of environment, some earnings growth in the early part of next year, do you thing?

Steven G. Miller

We certainly hope so.

Barry D. Emerson

David, I mean, we honestly haven’t given any kind of guidance whatsoever for next year, and I know you’re not asking necessarily for that, what we are doing is managing our expenses very, very carefully. We really are tapping everything we can control, from an inventory management, from a cost containment, from a product mix, advertising, all of those kinds of things. We’re going to continue to press every one of those levers next year.

But again, sales is just a big question.

David Magee - SunTrust Robinson Humphrey

It sounds like to me that things are just kind of bumping along here at a low but now getting worse or better. And maybe you’re operating better than you were six months ago within this environment.

Steven G. Miller

We think we are but obviously there’s a tremendous unknown on I guess what I’ll call the health of the consumer and where our general economy is going to go.

David Magee - SunTrust Robinson Humphrey

And do you anticipate opening up the same number of stores next year as you did this year, or as you are this year?

Steven G. Miller

We’ve made no real seat change in our overall thought process in terms of our strategy of controlled growth. We’re certainly looking hard in this environment at each and every potential new store location. We’re encouraged about the real estate opportunities we’re finding. I would argue that we never grew out of control in better times and at this point in time we believe that maintaining our positive but controlled growth will allow us to further secure market position and benefit us over the long term when the consumer climate improves.

David Magee - SunTrust Robinson Humphrey

Are you seeing more opportunities on the real estate side than you were a year ago?

Steven G. Miller

I think we’re seeing better opportunities, and perhaps better pricing. I think with the number of store closings that we’re hearing and reading about, it might even get better.

Barry D. Emerson

David, in addition to that, for this year we’re still anticipating free cash flow in excess of $20.0 million and we evaluate the best use of our cash consistently, and looking at both opening new stores and the dividend and stock buyback and pay-down of debt, those kinds of things. We’re going to continue to look at that real carefully and watch our financial condition very carefully at the same time. If things continue to stay the same or things, in fact, start to deteriorate, we are of course going to have to re-evaluate the use of cash.

Operator

Your next question comes from Ian Corydon with B. Riley & Company.

Ian Corydon - B. Riley & Company, Inc.

I believe you said that the first half trend pretty much continued into July, but the third quarter same-store guidance is for mid-single digit negative, which seems like an improvement from the second quarter. And I guess roller shoes impact that but could you just talk about what else went into your Q3 comp guidance?

Steven G. Miller

I think we’re saying in general we’re looking for a similar sales trend as we had in the second quarter, and I think we’re splitting hairs on any thing else.

Barry D. Emerson

There’s a slight improvement, as we mentioned, going through the year relative to the roller shoes. But we’re really not anticipating improvement necessarily in our back half of the year.

Ian Corydon - B. Riley & Company, Inc.

So the back half of the year, if that was a minus 7 comp, that would be in the range of down mid-single digits? The way you guys think of it?

Steven G. Miller

Year-to-date, for the first half of the year, we’re down 6.4%, which I would characterize as mid-single digits and that’s pretty much what we’ve factored in for the third quarter. We’ll have a little less hit from roller shoes, I think we got a little extra hit in the Q2 around Memorial Day. I mean, all things being equal, it should be a similar, or guiding toward, a similar type quarter.

Barry D. Emerson

But going into the fourth quarter, we’re going against some 4.7 negative last year and we haven’t gone against a negative quarter like that in 11 or 12 years. So we do have, if you kind of calculate it out, a low-single digit comp here for the fourth quarter. But again, that’s basically going against a weak comp. We’re also expecting an improvement in the roller shoe category in the fourth quarter and hopefully, and we believe, we’re going to go against less competitive openings in the fourth quarter, or cycling competitive openings as well.

Ian Corydon - B. Riley & Company, Inc.

And interest expense in the quarter came in a little lower than I would have thought. Are there any unusual items there?

Barry D. Emerson

No, there aren’t any unusual items. It’s just all about interest rates and debt levels.

Operator

Your next question comes from Richard Nelson with Stephens, Inc.

Eric Halawai for Richard Nelson - Stephens, Inc.

First, did you, or could you, provide a DNA number for Q2?

Barry D. Emerson

I can provide it but why don’t you keep going and I will provide it to you.

Eric Halawai for Richard Nelson - Stephens, Inc.

Second question is, I believe you said that traffic was down mid-single digits in the quarter but ticket was down low-single. What, in your opinion, accounts for the difference between those?

Steven G. Miller

I think in a difficult consumer environment we’re just getting fewer people through the doors.

Eric Halawai for Richard Nelson - Stephens, Inc.

I mean is the lower reduction in the ticket versus the traffic a function of the fewer mark-downs that you referred to vis-à-vis the inventory, or what do you think accounted for the relative strength of the ticket versus the traffic?

Steven G. Miller

Our ticket was down, so I don’t think we have particular relative strength in the ticket. The ticket was still down. I think some of that may be just product mix shift and perhaps missing some higher ticket items for us.

Barry D. Emerson

Eric, the DNA number for the second quarter was 4.7 million and for the year-to-date it’s 9.5 million.

Operator

Your next question comes from Mitchell Kaiser with Piper Jaffray.

Mitchell Kaiser - Piper Jaffray

Did you see any benefit from the tax rebates? I know, Steve, you didn’t mention anything particularly in June, but is there any way you could break that out, or how should we think about that?

Steven G. Miller

I don’t think we could, in the grander scheme of things, could see any direct benefit of the tax breaks. I think it probably paid for a couple tanks of gas and that’s about it.

Mitchell Kaiser - Piper Jaffray

I think we’re hearing from a number of retailers that you’re seeing some of this trade-down effect, that people are looking for off-price and value, and I know that certainly you have some close-out product and then you have the brand that’s exclusive, which is more of a value brand as well. Are you seeing any mix shift down to some of those categories, or are you seeing that similar dynamic to others?

Steven G. Miller

I think we’re feeling that yet it’s hard to slice and dice it to that degree. I think what we do believe is the fact that we offer compelling values to our consumers, popular price points in many categories. That hopefully plays well for us and has allowed us to be reasonably competitive in a very difficult environment.

Mitchell Kaiser - Piper Jaffray

I guess when you look at the traffic number being down mid-single digits it’s more of a traffic issue than it is a ticket issue.

Operator

Your next question comes from Bill Dezellem with Titan Capital Management.

Bill Dezellem – Titan Capital Management

First of all, relative to roller shoes, do you see where you have any sort of issues with your inventory that’s problematic at this point?

Steven G. Miller

Absolutely not. We’re in a terrific position, we’re making healthy margins in our roller shoe product. It’s not quite as healthy as it was a year ago. We’re really in a buying mode for that product. We’re freshening up our product mix. We really expect roller shoes will be an ongoing category for us, it’s unfortunately not to the place it was a year or two ago.

Bill Dezellem – Titan Capital Management

Relative to store openings, you’ve had just a very systematic plan in the past and articulated that that’s what you are going to be doing going forward. Given the difficult retail environment and your comment that you might be seeing even better real estate come available, is there an argument that could be made for accelerating your store openings?

Steven G. Miller

I think we’re going to maintain a position of controlled growth. If there were opportunities to a degree and a level that we have not previously seen, it may be something that we would consider. We’ll never say never about situations like that but we have to, there’s really a balance between having some better opportunities and a softer consumer climate, the duration of the softness is really unknown. So I think we want to be prudent and thoughtful in terms of how we maintain our growth.

Bill Dezellem – Titan Capital Management

And then relative to expense reductions, you alluded in the press release and your comments here today about expense reductions in the second quarter. Would you discuss those in more detail, please, and also what go forward plans you have for expense reduction?

Barry D. Emerson

Sure. As you know, we have historically operated a generally lean business. And that being said, some of our larger expense items that we always evaluate include store labor, advertising, distribution center, administrative, those kinds of things. We’ve made a number of advances in expense savings across our business, which individually may not be overly material individually but taken together add up to some pretty healthy savings for us. Our store labor hours, we monitor those very carefully and adjust those based on sales forecasts. Safety enhancements are favorably impacting our workers’ comp, for example. We are looking at light retrofits. We have reductions in our supply costs and courier expenses. We are slightly trimming our ad spend and making adjustments to the ad calendar to most efficiently deploy our ad dollars. We have been able to reduce our overall insurance costs. So those are some of the things that we’re doing.

Bill Dezellem – Titan Capital Management

Are there any things that you will be doing on a go-forward basis that will individually be stand outs?

Barry D. Emerson

Obviously store labor is critical for us and so that is something that we evaluate daily and we will continue to do that. It is obviously our largest expense. We are really kind of looking at everything, we always look at everything, and we continue to look at everything. And fortunately we’ve had some success in several areas. And we will continue to do that going forward.

Bill Dezellem – Titan Capital Management

One balance sheet question. Other long-term liabilities were $7.7 million, up from $2.5 million in the first quarter. Would you address the $5.0 million jump?

Barry D. Emerson

We reclassified our workers’ comp accrual. We had classified all of our workers’ comp in current liabilities previously and we, with our actuaries, worked to try and estimate what the long-term portion of workers’ comp was and determined that and went ahead and did a re-class, or actually classified our long-term portion of workers’ comp down below in long-term liabilities for the second quarter and went back and reclassified, on a comparable basis, those same balances as of December 30, 2007.

Bill Dezellem – Titan Capital Management

You all have been through California housing market ups and specifically downs in the past. Would you please discuss what took place over time with those past down-turns and if there are some dissimilarities with this down-turn that maybe makes my question irrelevant?

Steven G. Miller

I don’t know or recall a down-turn quite as significant as what we are seeing today. I mean, we have certainly seen ups and downs and a national economy and a California economy and we have obviously played very positively through those and we expect to this time, as well. But clearly we’re in very unusual times, California and arguably, the national economy and we’ll certainly see how it plays out.

Operator

Your next question comes from Jeff Mintz with Wedbush.

Jeff Mintz - Wedbush Morgan Securities Inc.

Just one question that hasn’t been answered. On the inventory reduction, and obviously you’ve done a great job controlling inventory, do you feel you’re starting to kind of get to the upper limit of those reductions? I mean, at some point you have to have enough product in the store to sell.

Steven G. Miller

Absolutely. I don’t know the upper limit. I think there’s still some fine tuning and opportunities to bring inventories down. Really, I think we’re just bringing it down in line with our sales. And we feel very positive about the steps we’ve taken. We think we’ve put ourselves in an outstanding position to be able to consider and take advantage of appropriate opportunistic situations.

I wouldn’t say that we’ve reached the upper limit of the reductions, all things being equal, though.

Jeff Mintz - Wedbush Morgan Securities Inc.

Would you say you’re taking more advantage, or doing more of those opportunistic buys, than you’ve done in the past? Has the slow down in the consumer led to more of that or less, would you say?

Steven G. Miller

I think it’s beginning to become certainly arguably more favorable. I mean, things are pretty dynamic now and you’re seeing a growing number of retailers closing stores or filing for bankruptcy protection. I think that creates some excess inventory in the pipeline. On the other hand, I have to say there’s a little bounce because I think the vendor community is being very careful about what products they produce.

But I think overall the flow of opportunistic buys is certainly staying steady. I think there’s a reasonable possibility that it’s going to improve going forward and we think we’re well positioned to hopefully benefit from that.

Operator

Your next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski - Sidoti & Company

I was wondering if you guys could comment on the competitive landscape now and the promotions from your competitors? Are they being more promotional, less, or about the same? Any kind of color on that topic would be helpful.

Steven G. Miller

I think for the most part I would say the promotional activity that we’re seeing is reasonably similar to what we’ve experienced in the past. I think we’re certainly facing a number of competitive openings in our market place, reasonably similar to what we have seen in prior years. I think our research suggest that we may be facing fewer competitive openings over the back half of the year. But nothing really out of the ordinary at this point in time from a competitive environment.

Anthony Lebiedzinski - Sidoti & Company

Could you comment on the impact of increased gas prices on your distribution costs and what have you done to try to minimize those costs?

Barry D. Emerson

Of course, the cost that we’re feeling on the fuel is significant, as you might imagine. Our transportation costs were significantly impacted by the higher fuel costs, to the tune of on a year-over-year basis, comparing 2008 to 2007, we’re expecting those costs to be up $2.0 million to $3.0 million.

We’re examining the frequency and the routing of some of our store deliveries and we believe there is potential for savings there with little or no impact on our sales.

Anthony Lebiedzinski - Sidoti & Company

And the $2.0 million to $3.0 million number you gave, that’s for the year, right?

Barry D. Emerson

For the year.

Anthony Lebiedzinski - Sidoti & Company

And in terms of your ad spending, is it still primarily circulars or are you looking at other media, perhaps more online advertising? What are your thoughts on that?

Steven G. Miller

It’s certainly primarily still circulars, delivered via newspapers and mail, typically, to non-subscribers of newspapers. We are exploring other ways to reach customers via the Internet and other media. But certainly our primary focus is still in the print circulars.

Anthony Lebiedzinski - Sidoti & Company

My last question is about the July 4th shift, I guess because the holiday, like you mentioned before, that your quarter ended a little bit earlier last year versus this July 4th. How much of an impact is that going to have on the third quarter comps?

Steven G. Miller

It should benefit the third quarter comps, maybe in the neighborhood of 60 basis points-70 basis points.

Operator

At this time there are no further questions. I will turn it back to Mr. Miller.

Steven G. Miller

Thank you. We certainly thank you for being on the call. We appreciate your interest in Big 5 Sporting Goods and look forward to speaking with you again soon.

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