BGFV
#Thank you, operator.
Good afternoon, everyone.
Welcome to our 2015 fourth quarter conference call.
Today we will review our financial results for the fourth quarter and full year of FY15 and provide general updates on our business as well as provide guidance for the first quarter.
At the end of our remarks, we will open the call for questions.
I will now turn the call over to <UNK> to read our Safe Harbor statement.
Thanks, <UNK>.
Except for statements of historical, any remarks 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 includes those more fully described in our annual reports on Form 10-K, 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.
Thank you, <UNK>.
We are pleased with our solid fourth-quarter performance as we generated positive sales, expanded merchandise margins, delivered earnings growth and achieved healthy cash flow in a highly competitive and promotional retail environment.
We also strengthened our balance sheet and our cash flow allowed us to significantly reduce our debt at year end.
As a result of our strong financial position and commitment to return value to our stockholders, today we announced a 25% increase in our quarterly cash dividend to $0.125 per share for an annual rate of $0.50 per share.
Now on to our fourth-quarter results.
First I should note that the FY15 fourth quarter was a 14-week period and the fourth quarter of the prior year was a 13-week period.
As we previously announced, net sales for the fourth quarter of FY15 were $275 million, compared to $250.3 million for the 13-week fourth quarter of FY14.
On a comparable 14-week basis, same-store sales increased 0.1% for the period.
We experienced a low single-digit decrease in customer transactions and a low single-digit increase in average sales during the period.
Our sales were down in the low single-digit range in October and November until the week of Black Friday.
We comped positively over the Black Friday week and comped up in the low single-digit range in December, primarily in the strength of very strong business during the weeks of Christmas and New Years as we benefited from favorable winter weather conditions throughout most of our Western markets.
On the product category standpoint, our apparel category comped positively in the high single digits for the period while our footwear category comped up in the low single digits.
Both categories benefited from strong winter-related product sales.
Our hard goods category comped down mid-single digits for the period.
We were pleased with our merchandise margins for the quarter which increased by 21 basis points from the prior year.
This improvement was a reflection of favorable product mix shifts, particularly the increased sales of higher-margin winter related products.
We feel our team did a great job of delivering higher margins while managing inventories in what was clearly a challenging and highly promotional holiday period.
Now commenting on store activity.
During the fourth quarter, we closed one store that we have been operating as a clearance outlet as part of a relocation and we ended the year with 438 stores in operation.
In the first quarter, we had closed four stores, one as part of a prior relocation and three as a result of lease expirations.
We do not anticipate opening any stores during the first quarter.
In 2016 we plan to continue to maintain a cautious approach toward selecting the right new store opportunities for our business in the current retail environment.
While we are still in the process of evaluating and finalizing our store opening strategy for the year, at this time our plans would suggest approximately five to eight store openings and approximately 10 closures.
This could change, but for now I would anticipate that is the range.
In addition, we plan to continue our program of upgrading and remodeling our store base.
Now turning to current trends.
We are currently comping up in the low single-digit range for the first quarter to date.
While we got off to a great start for the quarter, comping up in the high single-digit range for January as we benefited from the strength of outstanding winter weather conditions in our markets, sales over most of February were disappointing.
Weather conditions turned unseasonably warm in several of our major markets and our winter product business softened.
At the same time, we did not receive the lift in our non-winter product categories that we would have anticipated given the warmer weather conditions.
Our sense is that much of our recent weakness is reflective of a generally soft overall consumer environment and a highly promotional competitive activity in the sporting goods sector.
Although the consumer and competitive headwinds could persist and as I suspect most of you are aware there are some unusual activity taking place in our sector which still needs to sort itself out, we believe that our product assortments are well-positioned as we transition into the spring selling season.
Now I will turn the call over to <UNK> who will provide more information about the quarter as well as speak to our balance sheet, cash flows and provide first-quarter guidance.
Thanks, <UNK>.
Our gross profit margin for the FY15 fourth quarter was 31.2% of sales versus 31.6% of sales for the fourth quarter of FY14.
A decrease in gross margin in the period reflects an increase in distribution and store occupancy costs as the percentage of sales partially offset by the 21 basis point increase in merchandise margins that <UNK> mentioned.
Our selling and administrative expense as a percentage of sales was 28.5% in the fourth quarter, down 120 basis points from 29.7% in the fourth quarter of FY14.
On an absolute basis, SG&A expense increased $4.1 million year-over-year, primarily reflecting the extra week in the fourth quarter of FY15, higher employee labor and benefit expense, consulting expense of $0.4 million and non-cash impairment of $0.2 million partially offset by a $0.7 million reduction in advertising expense.
Now looking at our bottom line, net income for the fourth quarter was $4.3 million or $0.20 per diluted share, including $0.02 per diluted share of expense related to evaluating store growth strategies and potential profit improvement opportunities and non-cash impairment.
This compares to net income in the fourth quarter of FY14 of $2.8 million or $0.13 per diluted share, including $0.04 per diluted share for a charge for legal accruals and $0.01 per diluted share for non-cash impairment.
Briefly reviewing our full-year 2015 results, net sales increased to $1.03 billion for the 53-week FY15 from $977.9 million during the 52- week FY14.
The extra week in FY15 added approximately $22.8 million to net sales.
Same-store sales increased 1.3% in FY15 versus the comparable period last year.
Net income for FY15 was $15.3 million or $0.70 per diluted share including $0.07 per diluted share of charges for the Company's publicly disclosed proxy contest, a legal settlement, expense related to evaluating store growth strategies, and profit and potential profit improvement opportunities and non-cash impairment.
This compares to net income of $14.9 million or $0.67 per diluted share, including $0.07 per diluted share for legal accruals and non-cash impairment charges for FY14.
Turning to our balance sheet, total merchandise inventory was $299.4 million at the end of FY15, down 3.4% from the prior year.
Inventory on a per-store basis was down 2.7% year-over-year.
We're pleased with the sell down of our winter merchandise and we feel good about our inventory heading into the spring selling season.
Looking at our capital spending, our CapEx excluding non-cash acquisitions, totaled $24.6 million for FY15, primarily reflecting investment in our distribution center, existing store maintenance and enhancements and expenditures for new stores.
We currently expect capital expenditures for FY16, excluding non-cash acquisitions, of approximately $17 million to $21 million, primarily to fund store-related maintenance and enhancements, the opening of new stores, distribution center equipment, e-commerce and computer hardware and software, including investments related to the development of a new point-of-sale system.
From a cash flow perspective, our operating cash flow was a healthy $39.6 million for FY15 compared to $28.5 million last year.
The increase in cash flow from operations was primarily due to the favorable effect of lower inventory levels year-over-year.
For the fourth quarter we continued to pay our quarterly cash dividend of $0.10 per share.
As <UNK> mentioned, in the first quarter of 2016 we increased our quarterly cash dividend to $0.125 cents per share.
Additionally, during the fourth quarter we repurchased 101,688 shares of our common stock for a total of 379,930 shares in FY15 and a total expenditure of $4.2 million for the year.
As of the end of FY15, we had $2.9 million available for stock repurchases under our $20 million share repurchase program.
Our long-term debt at the end of FY15 was $54.8 million, down 17.3% from $66.3 million at the end of FY14.
Now I'll spend a minute on our guidance.
For the FY16 first quarter, we expect same-store sales to be in the negative low single-digit to positive low single-digit range and earnings to be in the range of a net loss of $0.05 per share to a positive $0.02 per share.
We expect first-quarter net sales and earnings comparisons to the prior year to be negatively impacted by approximately $0.04 per share as a result of the calendar shift resulting from FY15 being a 53-week fiscal year, and FY16 being a 52-week fiscal year, as well as by the calendar shift of the Easter holiday during which our stores are closed out of the second quarter of FY15 and into the first quarter of FY16.
Keep in mind that the calendar shift is not reflected in our same-store sales guidance for the first quarter because we report same-store sales on a comparable calendar day basis as opposed to a fiscal period basis.
Our earnings guidance for the first quarter also reflects anticipated lower product margins compared to the prior year as a result of increased clearance activity and efforts to drive sales in a highly promotional competitive environment as well as expense deleveraging and charges of approximately $0.01 per share of consulting expenses related to evaluating store growth strategies and potential profit improvement opportunities, and approximately $0.03 per share for the write-off of deferred tax assets related to share-based compensation.
For comparative purposes, in the first quarter of FY15 same-store sales increased 3.9% and earnings per diluted share were $0.11, including $0.03 per diluted share for charges for a legal settlement and other matters.
Operator, we are now ready to turn the call back to you for questions and answers.
There's always more benefit.
We continue to develop new efforts, new reports for our buyers and store allocators to use to be more precise in our decision-making.
So I'm not sure how I could quantify it, but it's definitely something that we continue to utilize extensively and get better and better in doing so.
Thank you.
We are not going to be that granular.
The firearm business was a bit of a drag.
The fluctuations were not nearly as material as it was for some of the preceding years, but the firearm business trended down for most of the quarter.
It got a little bit better towards the end of the quarter, but we're not going to be so granular as to give a specific number.
The Olympics, again, I'm not sure I can quantify it to a number.
It has generally been, we think, a positive.
It brings attention to some sports that generally aren't in the mainstream and tends to help sports like volleyball and archery and swimming and other sports.
I don't know that it's a game changer, but it's certainly a plus.
We're not being specific in terms of the locations that we are looking at.
I will say we don't currently have any plans to expand our footprint this year outside of our current geography, but we would expect that the stores we open would be a mix within our current states.
Sure.
Thank you and we look forward to our next call.
