Steve Miller - President, CEO Barry Emerson - CFO.

Adam Sindler - Deutsche Bank Kristine Koerber - Barrington Research Associates, Inc. David Magee - SunTrust Robinson Humphrey Sean McGowan - Needham & Company.

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods First Quarter 2015 Earnings Results Conference. Today's call is being recorded. On the call today from the Company, we have Mr. Steve Miller, President and CEO; and Mr. Barry Emerson, CFO. At this time, I would like to turn the conference over to Mr. Steve Miller. Please go ahead, sir..

Thank you, operator. Good afternoon everyone. Welcome to our 2015 first quarter conference call. Today we will review our financial results for the first quarter of fiscal 2015 and provide general updates on our business, as well as provide guidance for the second quarter. 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..

Thanks Steve. 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 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, Barry. We are pleased to deliver a solid first quarter performance with earnings excluding certain unusual charges above the high end of the guidance range that we provided during our last call.

With our sales and earnings growth, we generated strong cash flow which we used to invest in the business, reduce our debt and continue to return capital to shareholders through our quarterly dividend payment and continued share repurchases. Now, I'll comment on sales for the first quarter.

We rang the register to the tune of $243.6 million up 5.3% from $231.3 million for the first quarter of fiscal 2014. Same-store sales increased 3.9% for the period.

In terms of how sales trended over the quarter, January was our strongest month comping up in the low double-digit range on the strength of outstanding winter weather conditions in our Western U.S. markets at the very beginning of the period around the New Year's holiday.

Sales were down low signal digits in February as the weather turned on seasonally warm which impacted winter recreational activities over the key Presidents' Day holiday weekend. Sales in March turned positive again comping up in the low mid single-digit range as we moved into the spring season.

We improved both customer transactions and average ticket during the quarter with each up in the low single digit range versus the prior year period. From a product category standpoint, all of our major merchandized categories comped possibly for the quarter.

Apparel comped up in the high single digits and footwear comped up in the mid single digits as our going initiatives including offering more branded products and stepped up price points benefited both of these categories.

Sales in our hard disk category comped up low single digits despite the continued drag from firearm related products although the impact has certainly lessened from last year. If we were to exclude firearm related products, the rest of our hard disk category would have comped up in the mid single digit range.

In addition, although difficult to quantify we believe that sales in all categories have been impacted to a degree by the shipping backlog from the labor dispute at the West Coast ports as products we were expecting to receive have been delayed.

Along with growing sales for the period, we are able to increase our merchandized margins by 14 basis points for the first quarter compared to last year. Now commenting on store openings. During the first quarter, we closed three stores, one as part of a relocation that began in fiscal 2014 and open one store in Newport, Oregon.

We ended the quarter with 437 stores in operation. In the second quarter, we plan to open three new stores. For the 2015 full year, we currently plan to open approximately ten net new stores. Now turning to current trends. I’m pleased to report that our positive sales trends are continuing into the second quarter.

While April is a relatively low volume month in a critical sales period including Memorial Day and Fathers' Day remains ahead, we’re encouraged by our solid start to the quarter.

We continue to experience strength across the broader way of product categories, and although we have some concern about the impact that the ongoing drought might have on summer recreational activities in our markets, we feel very positive about our product assortments and promotional plans as we move into the summer selling season.

With that said, now I will turn the call over to Barry, who will provide more information about the quarter, as well speak to our balance sheet, cash flows and provide second quarter guidance..

Thanks Steve. Our gross profit margin for the fiscal 2015 first quarter was 31.5% of sales versus 31.4% of sales for the first quarter of fiscal 2014. The increase in gross margin for the period reflected the 14 basis point improvement in merchandized margins that Steve mentioned.

Our selling and administrative expense as a percentage of sales was 29.8% in the first quarter even with the first quarter of fiscal 2014.

On an absolute basis SG&A expense increased $3.6 million year-over-year due in part to higher employee labor and benefit related expense and added expense for new stores resulting from our increased store count, partially offset by a decrease in print advertising expense.

Additionally our increased selling and administrative expense reflected pre-tax charges of $0.4 million related to a legal settlement and $0.5 million in expenses associated with the publicly disclosed proxy contest.

Now looking at our bottom-line, net income for the first quarter was $2.3 million or $0.11 per diluted share including $0.03 per diluted share of charges for the legal settlement and expenses associated with the proxy contest. This compares the net income in the first quarter of fiscal 2014 at $2.1 million or $0.09 per diluted share.

Turning to our balance sheet, total merchandized inventory was $305.1 million at the end of the first quarter. On a per store basis, inventory was down 1.1% versus last year and we feel good about our inventory as we move through the spring and summer selling seasons.

Looking at our capital spending, our CapEx excluding non-cash acquisitions totaled $7.0 million for the first quarter of fiscal 2015 primarily reflecting expenditures for one new store, existing store maintenance and enhancement, distribution center equipment and computer hardware and software purchases including investments related to a new point of sales system.

We expect a higher than normal level of capital expenditures for fiscal 2015 excluding non-cash acquisitions of approximately $28 million to $32 million to mainly to increased investment and our distribution facilities to support overall growth.

From a cash flow perspective, our operating cash flow was $19.5 million for the first quarter of fiscal 2015 compared to $3.4 million for the same period last year. The increase in cash flow from operations primarily reflects decreased funding of prepaid expenses, inventory and other working capital.

For the first quarter we continued to pay our quarterly cash dividend of $0.10 a share. Additionally during this year's first quarter, we repurchased 76,073 shares of our common stock, for our total expenditure of $0.9 million.

As of the end of the first quarter we had $6.2 million available for stock repurchases under our $20 million share repurchase program. Our long term debt at the end of the first quarter was $55.4 million which was up slightly from $54.2 million at the end of the first quarter of last year but down from $66.3 million at the end of fiscal 2014.

Now I’ll spend a minute on our guidance. For this year's second quarter, we’re projecting same-store sales in the positive low to mid single digit range and earnings per diluted share in the range of $0.12 to $0.17 excluding cost incurred related to the publicly disclosed proxy contest.

Operator, we are now ready to turn the call back to you for questions-and-answers..

[Operator Instructions] We'll go first to Adam Sindler, Deutsche Bank..

Great. Thanks so much. I was hoping that we could take a moment and maybe get an update on where we are in the e-commerce growth curve. Potentially how the new POS system still needs to play out in order to fully maximize things like shipped from store and ship to store.

And then as you're getting off the ground here, how you view investment in the channel longer-term? Is this a offensive maneuver, is this more of a defensive maneuver? Some companies in our space that have tried to ramp quickly have found significant growing pains. I just wanted to see how you thought about that process..

Okay, thank you. We are certainly hoping to avoid lots of the growing pains that others have experienced. Just to recap, we launched our e-commerce site in the middle of the Q4, the time with the limited selection of our existing products.

As we said, sales from e-commerce were immaterial to 2004 given the launch timing our phased approach for ramping up the product in the platform.

We didn't expect that e-commerce to be a game changer for our business and it hasn’t been a game changer but for 2015, again we don't expect e-commerce to be material to either sales or income, what our focus in e-commerce was certainly to create another sales channel for our customer, we’ve done that now and we’re evaluating and measuring the initial customer response.

So far our major focus in marketing the site has been to, we call our e-team members those we communicate with diligently, we’re now at a point where we look to strategically step up our marketing efforts to drive new customers to our site.

We're going to be analyzing, evaluating, and growing our ecommerce platform over a period of time with a goal to integrate e-commerce with our existing merchandising and promotional strategies. We’re really trying to as we said avoid some of the growing pains, look to the use of channel in a way that will be accretive to our business.

We’re looking to move it as we demonstrated and how we’ve grown our store base slowly, prudently, under control. And evaluate it and make decisions in ramping it up as we proceed forward..

That's great. I’m sorry. Please, yes..

You'd also mentioned that new POS system..

Yes..

Let me highlight that. We do expect to launch a new store wide Oracle based POS system, but not tell sometime in 2016, we continue to invest in the new POS system in 2015, there’s a lot of design development going on, we’ll probably spend a couple of million dollars or so in development in 2015.

The new system will have functionality, more functionality than our existing system including some more advanced pricing and promotions ability, loyalty program capabilities, and will also integrate with our ecommerce system. I mean, we’re very excited about the new system, but its a little ways off now..

Perfect. Thanks so much. And just to close the loop here. So, you did mention specifically decreased print ad expenses as part of drove the SG&A improvement this quarter.

Is that something that we could potentially see maybe a few basis points over the balance of the year, as you shift a little bit more toward digital marketing?.

If you track back several years, we’ve been bringing down our print advertising for a number of years now and we continue to do that very strategically and as we’re doing that you’re right, we’re shifting some of those dollars to digital advertising.

And we’re excited about the results I think that of course allows us to attract a broader customer base. We’ve got the print advertising customer, we also got the digital advertising customer. And of course that dovetails quite nicely with our e-commerce business. So yes, we would see that trend continuing..

Perfect. Thanks so much. Congrats on a good quarter..

Next from Barrington Research Associates is Kristine Koerber..

Good afternoon. I have a few questions.

First, with respect to the guidance, to get to the high end of the guidance, do trends need to continue at the current pace, what you're seeing in early Q2? Or do they need to strengthen from current levels?.

I think we’re running - to get to where we are - high end of our guidance Kristine, we’re looking to have our sales come in at the higher end of our guidance range as you might expect. And we would also expect that our POS margins would be slightly positive for the quarter..

I guess what I'm looking for is that coming out of Q1, did business strengthen or stay the same coming out of Q1?.

We’re off to a solid start and we’re running within our guidance range its - there’s number of factors in place. In April our shifts in Easter's and like that everything is in totally apples-to-apples.

We’re very pleased with our business the trending very much inline for the range of guidance that we provided seeing very positive strength across our broader ray of product categories.

And now the key is really to the second quarter is the performance of business in the higher volume days that really surround Memorial Day, start of summer, Father's Day leading into 4 July. We feel very good about being prepared from the product standpoint and promotional strategies..

Okay. So with that said, the inventory levels, you'd indicated that you're comfortable with the inventory. But if you look at the inventory levels across some of the categories that are performing well, especially in apparel where you had high single - or I guess it was double-digit.

I guess you came out of the quarter with a pair of high single digit comps.

Are you feeling pretty good about some of these categories as far as inventory that have been performing quite strongly?.

We feel excellent about our overall inventory levels, I mean short of certain items that we’re still effectively, it feels revolving around the port strike that port issues that we’re trying to work through.

We feel great about our inventories and we came out of the winter selling season with our winter carryover at meaningfully lower levels than they were last year and from an inventory standpoint we feel very prepared..

Okay. And then just lastly, I was going to ask on the West Coast port issues.

So are things getting back to normal for you? And this strike, the trucker's strike, is that going to have any impact on your business?.

Yes, that’s pretty fresh and a little early to speak to. That's something really just happened it’s not a full strike of all truckers or product moving out of the port and we’re really not in a position to determine what impacts that may or may not have on us.

But I mean in terms of the overall port issues, I think we’re certainly over the most significant impact of it. Approximately we are moving through the ports, there’s still some catch-up has to occur, we’re still feeling a residual impact, they may have some impact in some degree to our spring summer products.

Several items that we think would be helpful to have from Memorial Day that it’s a bit touch and go whether we will be receiving those on time, I don’t think in a whole that the game changing type issues, but they’re issues I think our team is doing a great job of really mitigating our way through this situation..

Okay. That's helpful, thank you, and good luck..

Thank you..

We'll now hear from David Magee, SunTrust..

Are you there?.

Yes, I'm sorry. I had the mute function on. Congratulations on a nice performance, guys. I just had some housekeeping questions really.

One is, did you talk about occupancy costs in the quarter and how that trended year to year?.

The occupancy cost are increasing and we'd mentioned that if you had to pick a category on the income statement that’s one of them that seems to be rising really some of our older leases come up for renewal, we had some of these 35, 40 years and as they came up for renewal, there's certainly a higher cost element on the renewal side and then even our new leases of course are now at higher level.

So we’ve been seeing some pressure on the occupancy side, and we've been working really hard to reduce that, but at this stage we’re leveraging occupancy at about a 4% comp or so..

Okay. Thank you. And then you mentioned drought as being somewhat of a risk factor this year.

How does that - or could you give us a more color about that? How does that come to play, and what do you see out there that could happen that would maybe restrict some activities?.

Okay, well so out here in the west I think it’s pretty well hopefully no one throughout the country that the drought issues that we’re facing particularly in California they’re - we’re at levels that are situations relatively unprecedented.

So it’s really difficult to quantify, the drought, certainly has impact on our sales, one from the impact it has on the economy.

For certain its very tough for me from the farm environment, farm communities, many of which we serve, but certainly from a recreational standpoint, the snowpack this year is down significantly from normal where it should be recently unprecedented lows, that’s not going to help lakes and rivers, which now dealing with the situation over a number of years.

Lower water levels have a diminishing effect on recreational use. That affects being able to sell items water recreation projects with the restrictions and publicity of being mindful of conserving water that's throughout California. I suspect fewer people maybe buying items pool toy, use of pools, inflatable pools and items of that nature.

Bottom line, we're just going to have to see how it plays out. We’re monitoring our inventory levels and seeing how the drought affects us. There can be some affect in campgrounds and whether all campgrounds will be open, and whether there will be water of showers and flushing toilets et cetera for the campgrounds.

So it’s a bit of a wait-and-see issue, hopefully it has a minor impact on our business but it is certainly not helpful..

But it sounds like at this point, you're not seeing any real impact though, just given -.

Pardon me?.

It sounds like at this point though, you're not really seeing much of an impact. This all sounds like it may be prospective..

Well it certainly becomes a bigger impact during where periods of recreation, water based recreation is as highest and that’s certainly the summer months. The economic impact of that California particular may feel is probably already here to some degree and but nevertheless we are playing through we think quite well..

Can you remind us what - how the weather was last year, sort of late spring, early summer?.

I think last year, it was relatively neutral. I think on a whole - I don’t believe it was a major factor one way or the other in terms of - as I recall for Q2..

Great, thanks Steve..

Thank you, Davis..

[Operator Instructions] Next we will go to Sean McGowan, Needham & Company..

Thank you. Couple of questions.

Do you have any sense at this point, Barry or Steve, what the ongoing expenses this year related to this proxy contest could be? It sounds like it's not over, so would we be expecting to see a similar amount in the second quarter? Any idea how that's going to go for the balance of the year?.

Well Sean let me guess, what I can say is as indicated in the release we incurred $500,000 or so the expense related to the proxy contest in Q1. At this stage we really believe it would be pre-matured to forecast these cost for Q2 given the variety of possible outcomes with the situation.

However we do expect the proxy contest related expenses in Q2 to be higher than it was in Q1. That’s really I think all we can say at this point..

Okay. That's helpful. And given - maybe an update on the leasing trends in guns and ammunition, and any commentary on what impact that's having on the overall gross margin. As that category is a little less negative..

Yes, I mean our firearm business continues to trend down. As we mentioned it was a drag on the business for Q1 although significantly less of a drag than it was over the course of 2014. Currently we still see some softness in the firearm, specifically firearm business. Our ammunition business is trending more favorably.

We think in terms of a margin, from a margin standpoint, gross margin standpoint when firearm business is soft firearms are significantly lower than our average margins, so that probably results in more favorable point-of-sale margins..

Right.

Does the business recovers the relief that isn't down as much, that could have, on balance, an increasingly negative impact on gross margins?.

I'm sorry, we’re having a little - Sean we’re having a little difficulty hearing you..

I apologize. I'm just saying that as that business improves or at least stops declining as much that would be a headwind on gross margin, right? That goes without saying.

Any idea why the firearm side of it is still trending negatively? Is that an industry wide trend, or do you think that there's something going on in your stores?.

I don’t think we’re a good barometer for what’s happening in industry-wide. We don’t have the breadth of inventory in the category that others in the industry have. We only carry long guns, we do not carry handguns or center flyer modern sporting rifles, I guess so called assault rifles.

It's our understanding that sales of those products are probably more brisk than the more traditional shotguns, 22 rifles and other products that we stock. So I wouldn't use us, necessarily as a barometer for the overall industry trends..

Okay. Thank you..

You’re welcome..

We will take a follow-up from SunTrust, David Magee..

Thank you. Could you give a little more color regarding the stepped up price points in footwear and apparel? That's been a positive factor the last couple years. And maybe talk about how much upside you had left with that dynamic. Thanks..

Sure, it’s something that have been playing out very positively for footwear now and for apparel for number of seasons. We still feel we have upside and look at what’s successful and then trying to be more precise in our purchasing and new store allocations.

We think that some of the same contest we have been working that will apply to our footwear category.

We think that has been a much bigger shift to turn and we’re excited with the direction it’s moving and it’s performed positively in Q1, it’s continuing to perform positively at Q2 to-date, and it’s just shifting some more of our buy dollars to serving branded products. Some cases have elevated price points.

It’s much more of an evolution than a revolution. We're trying to get deeper in the size and color offerings, and stronger selling models, and we're excited about the progress and think we still have runway..

Thanks, Steve. And just one more question I had. Do you have a pretty good feel for what your wage costs were this year? I know there has been some upward pressure on retail in general, but also out West in particular. Can you talk a little bit about what's happening there too? Thanks..

Well David, of course I think you’re aware of the minimum wage impact that we’re feeling in California particularly with over half of our stores in California.

And just I mean California approved a $2 increase in the States minimum wage from $8 to $10 and the increase is being rolled out in two separate increments with the first $1 increase effective July 1 of 2014 and then the second in January of 2016. So we went up to nine bucks effective July 1, 2014.

The overall impact of the first phase of the minimum wage increase on our store employee wages it's about $400,000 to $500,000 a quarter. And anyway, so we’ve been - once we get through the second quarter, we will then at least be on equal footing beginning in the third quarter at that higher rate and that will go up once again in January of 2016..

Okay, great. Thanks Barry, good luck..

At this time, there are no further questions Mr. Miller, I’ll hand things back to you for any additional or closing remarks..

All right. We thank you for your interest today and look forward to speaking with you on our next call. Have a great afternoon..

That does conclude today’s conference. Thank you all for your participation..