Big 5 Sporting Goods(BGFV) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited financial statements reflect significant year-over-year improvement in net income, liquidity, and equity Unaudited Condensed Consolidated Balance Sheets Total assets grew to $759.4 million, driven by increased cash, while stockholders' equity rose to $263.0 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | July 4, 2021 | January 3, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $118,940 | $64,654 | | Merchandise inventories, net | $258,905 | $251,180 | | Total current assets | $405,490 | $347,397 | | Total assets | $759,414 | $699,994 | | Liabilities & Equity | | | | Total current liabilities | $269,185 | $239,585 | | Total liabilities | $496,463 | $467,356 | | Total stockholders' equity | $262,951 | $232,638 | | Total liabilities and stockholders' equity | $759,414 | $699,994 | Unaudited Condensed Consolidated Statements of Operations Net sales surged to $326.0 million in Q2 2021, driving net income to $36.8 million from $11.1 million year-over-year Statements of Operations Highlights (in thousands, except per share data) | Metric | 13 Weeks Ended July 4, 2021 | 13 Weeks Ended June 28, 2020 | 26 Weeks Ended July 4, 2021 | 26 Weeks Ended June 28, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $326,020 | $227,935 | $598,826 | $445,671 | | Gross profit | $126,923 | $72,193 | $224,816 | $136,748 | | Operating income | $48,544 | $16,360 | $76,293 | $9,545 | | Net income | $36,803 | $11,136 | $58,349 | $6,525 | | Diluted EPS | $1.63 | $0.52 | $2.59 | $0.31 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $263.0 million, driven by net income of $58.3 million in the first half of 2021 - For the 26 weeks ended July 4, 2021, total stockholders' equity increased by $30.3 million, from $232.6 million to $263.0 million[11] - Key changes in stockholders' equity for the first half of 2021 include net income of $58.3 million and common stock dividends of $29.7 million ($1.33 per share)[11] Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations increased significantly to $88.7 million, boosting the total cash balance to $118.9 million Cash Flow Summary (in thousands) | Cash Flow Activity | 26 Weeks Ended July 4, 2021 | 26 Weeks Ended June 28, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $88,738 | $58,230 | | Net cash used in investing activities | ($3,856) | ($3,207) | | Net cash used in financing activities | ($30,596) | ($46,511) | | Net increase in cash and cash equivalents | $54,286 | $8,512 | | Cash and cash equivalents at end of period | $118,940 | $16,735 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, COVID-19 impacts, a new loan agreement, and risks from Nike's supply reduction - The company operates 430 stores and an e-commerce platform as of July 4, 2021, primarily in the western United States[15] - Due to the COVID-19 pandemic, the company temporarily closed over half its stores in early 2020 but all were reopened by the first half of 2021 with safety protocols[24] - Nike, a key supplier representing 8.5% of purchases in fiscal 2020, is expanding its direct-to-consumer initiatives, which will significantly reduce the future supply chain for the company[25] - On February 24, 2021, the company entered into a new Loan Agreement with Bank of America, N.A., providing a revolving credit facility of up to $150.0 million[62] - Subsequent to the quarter end, the Board of Directors declared a quarterly cash dividend of $0.25 per share[96] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes record Q2 2021 net income to strong consumer demand, driving sales growth and margin expansion - The COVID-19 pandemic shifted consumer demand in favor of fitness and outdoor recreational products, which had a favorable impact on operating results in late 2020 and the first half of 2021[105] - Q2 2021 net income was a historically-high $36.8 million, or $1.63 per diluted share, compared to $11.1 million, or $0.52 per diluted share, in Q2 2020[112] - The company's financial condition was significantly enhanced, with cash and cash equivalents of $118.9 million and zero long-term revolving credit borrowings as of July 4, 2021[107] - For fiscal 2021, the company anticipates opening approximately five new stores, with capital expenditures expected to range from $11.0 million to $15.0 million[111][150] Results of Operations Q2 2021 net sales increased 43.0% year-over-year, driven by a 31.2% rise in same-store sales and improved margins Q2 2021 vs Q2 2020 Performance (in thousands) | Metric | Q2 2021 | % of Sales | Q2 2020 | % of Sales | | :--- | :--- | :--- | :--- | :--- | | Net sales | $326,020 | 100.0% | $227,935 | 100.0% | | Gross profit | $126,923 | 38.9% | $72,193 | 31.7% | | Operating income | $48,544 | 14.9% | $16,360 | 7.2% | | Net income | $36,803 | 11.3% | $11,136 | 4.9% | - Same-store sales for Q2 2021 increased by 31.2% year-over-year, reflecting strong consumer demand and comparison against a period with COVID-19 related store closures in 2020[115] - Merchandise margins for Q2 2021 increased by 380 basis points compared to Q2 2020, primarily due to lower promotional activities and a favorable product sales mix[117] - Selling and administrative expenses in Q2 2021 increased by $20.1 million, largely due to higher employee labor and benefit-related expenses[118] Liquidity and Capital Resources Liquidity improved with cash reaching $118.9 million, supported by strong operating cash flow and a new credit facility Cash Flow Summary - First Half (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $88,738 | $58,230 | | Investing activities | ($3,856) | ($3,207) | | Financing activities | ($30,596) | ($46,511) | | Net increase in cash | $54,286 | $8,512 | - The company entered into a new Loan Agreement with Bank of America on February 24, 2021, providing a revolving credit facility of up to $150.0 million with a maturity date of February 24, 2026[140] - In Q2 2021, the Board of Directors declared a special cash dividend of $1.00 per share and increased the regular quarterly dividend to $0.18 per share, with a further increase to $0.25 per share for Q3 2021[137][152] - As of July 4, 2021, the company had zero revolving credit borrowings and total remaining borrowing availability of $148.9 million[136][149] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide information for this item - As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, the company is not required to provide information under this item[163] 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 the company's disclosure controls and procedures are effective at a reasonable assurance level as of July 4, 2021[165] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[166] PART II – OTHER INFORMATION Legal Proceedings Ongoing legal actions from the ordinary course of business are not expected to have a material adverse effect - The company states that ongoing legal actions from the ordinary course of business are not expected to have a material adverse effect on its financial results[168] Risk Factors The primary risk factor is the significant reduction in product supply from Nike due to its direct-to-consumer shift - A significant risk is the reduction of product supply from Nike, which accounted for 8.5% of total purchases and 7.2% of total sales in fiscal 2020[170] - Nike's expansion of its direct-to-consumer strategy will significantly reduce its supply to the company, which is actively expanding relationships with other vendors to mitigate this impact[170] - The transition is not expected to have a material impact on sales for fiscal 2021[170] Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable for the current reporting period - Not applicable[173] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Exhibits filed include CEO/CFO certifications and XBRL data files[175]