Big 5 Sporting Goods(BGFV) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Financials show higher net income and cash flow despite lower sales, driven by better margins and cost control Unaudited Condensed Consolidated Balance Sheets Balance Sheet Summary | Balance Sheet Items | June 28, 2020 (In thousands) | December 29, 2019 (In thousands) | | :--- | :--- | :--- | | Cash | $16,735 | $8,223 | | Merchandise inventories, net | $270,924 | $309,315 | | Total current assets | $311,072 | $340,864 | | Total assets | $660,459 | $688,800 | | Long-term debt | $35,000 | $66,559 | | Total liabilities | $473,855 | $508,428 | | Total stockholders' equity | $186,604 | $180,372 | Unaudited Condensed Consolidated Statements of Operations Quarterly Results of Operations | Metric (Q2) | 13 Weeks Ended June 28, 2020 (In thousands) | 13 Weeks Ended June 30, 2019 (In thousands) | | :--- | :--- | :--- | | Net sales | $227,935 | $240,965 | | Gross profit | $72,193 | $73,117 | | Operating income | $16,360 | $938 | | Net income | $11,136 | $28 | | Diluted EPS | $0.52 | $0.00 | Year-to-Date Results of Operations | Metric (YTD) | 26 Weeks Ended June 28, 2020 (In thousands) | 26 Weeks Ended June 30, 2019 (In thousands) | | :--- | :--- | :--- | | Net sales | $445,671 | $486,251 | | Gross profit | $136,748 | $148,993 | | Operating income | $9,545 | $4,203 | | Net income | $6,525 | $1,692 | | Diluted EPS | $0.31 | $0.08 | Unaudited Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $180.4 million to $186.6 million, driven by $6.5 million in net income, partially offset by $1.1 million in dividends paid[11] Unaudited Condensed Consolidated Statements of Cash Flows Year-to-Date Cash Flow Summary | Cash Flow Activity (YTD) | 26 Weeks Ended June 28, 2020 (In thousands) | 26 Weeks Ended June 30, 2019 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $58,230 | $5,626 | | Net cash used in investing activities | ($3,207) | ($3,956) | | Net cash used in financing activities | ($46,511) | ($1,841) | | Net increase (decrease) in cash | $8,512 | ($171) | - The significant increase in operating cash flow was primarily due to a $38.4 million positive change from reduced inventory purchasing and $6.5 million in net income[14] Notes to Unaudited Condensed Consolidated Financial Statements - The Company operates 431 stores and an e-commerce platform as of June 28, 2020[15] - Due to COVID-19, the Company accounted for lease abatements of $3.0 million and lease deferrals of $1.2 million[48] - The Company increased its credit facility to $165.0 million to support liquidity, with borrowings of $35.0 million as of June 28, 2020[62][67] - Under the CARES Act, the Company carried back a Net Operating Loss, resulting in a $2.1 million income tax refund in Q2 2020[71] - The Board reinstated the quarterly cash dividend at $0.05 per share and declared an additional $0.05 per share, for a total of $0.10 per share[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 performance despite a sales decline to strategic responses to the COVID-19 pandemic Impact of COVID-19 - All retail stores, after temporary closures due to shelter orders, had reopened by June 28, 2020[101] - Q2 same-store sales declined 4.2%, with a 28.2% decrease in the first half of the quarter followed by a 15.5% increase in the second half[101] - To enhance liquidity, the company increased borrowings to a peak of $143.3 million, reduced expenses, and suspended its dividend in Q2[102] Results of Operations Q2 2020 vs Q2 2019 Performance | Metric (Q2 2020 vs Q2 2019) | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $227.9M | $241.0M | -5.4% | | Gross Profit % | 31.7% | 30.3% | +140 bps | | SG&A Expense | $58.3M | $72.2M | -19.3% | | Net Income | $11.1M | $28k | +$11.1M | - The Q2 gross profit margin increase was driven by a 173 basis point improvement in merchandise margins and a $2.9 million decrease in store occupancy expense[112] - The $13.9 million decrease in Q2 SG&A was primarily due to lower employee-related expenses and a $6.3 million reduction in advertising[114][115] - For the first 26 weeks of 2020, net sales decreased 8.3% to $445.7 million, while net income increased to $6.5 million from $1.7 million in the prior year[120][121] Liquidity and Capital Resources - Net cash from operating activities was $58.2 million for the first half of 2020, a significant improvement from $5.6 million in the prior year period[127] - Credit Facility borrowings were reduced to $35.0 million as of June 28, 2020, with $125.3 million in remaining borrowing availability[130][140] - Capital expenditures for fiscal 2020 are expected to be reduced to a range of $5.0 million to $9.0 million[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide this information as it qualifies as a smaller reporting company - As a smaller reporting company, the company is not required to provide information under this item[156] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 28, 2020[157] - No material changes to internal control over financial reporting occurred during the fiscal quarter[158] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company's ordinary course legal claims are not expected to have a material adverse effect - The company is involved in various legal actions arising in the ordinary course of business, which are not expected to have a material adverse effect[160] Item 1A. Risk Factors A supplemental risk factor was added to address the significant and ongoing disruption caused by the COVID-19 pandemic - A new risk factor was added to address the ongoing and uncertain impact of the COVID-19 pandemic on the business[161][162] - Key risks include potential new store closures, supply chain disruptions, and adverse impacts on consumer spending from a prolonged recession[163][164][166] - A prolonged economic downturn could lead to non-compliance with financial covenants in the Company's Credit Facility, impacting liquidity[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable to the company for this reporting period Item 3. Defaults Upon Senior Securities This section is not applicable to the company for this reporting period Item 4. Mine Safety Disclosures This section is not applicable to the company for this reporting period Item 5. Other Information This section is not applicable to the company for this reporting period Item 6. Exhibits This section lists all exhibits filed with the report, including certifications and XBRL data files