Steven Miller - Chairman, President and Chief Executive Officer Barry Emerson - Senior Vice President, Chief Financial Officer and Treasurer.

Mark Smith - Feltl and Company Mason Marion - Barrington Research.

Please standby, we’re about to begin. Good day and welcome to the Big 5 Sporting Goods Third Quarter 2015 Earnings Results Conference. Today’s conference is being recorded. On the call today from the company, we have Mr. Steve Miller, President and Chief Executive Officer; and Mr. Barry Emerson, Chief Financial Officer.

At this time, I would like to turn the conference over to Mr. Miller..

Thank you, operator. Good afternoon, everyone. Welcome to our 2015 third quarter conference call. Today, we will review our financial results for the third quarter of fiscal 2015 and provide general updates on our business as well as provide guidance for the fourth 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. Although we delivered earnings in line with the guidance we provided for the third quarter, our sales fell slightly short of our expectations. For the quarter, net sales were $270.1 million, up 1.9% from $265.1 million for the third quarter of fiscal 2014. Same-store sales decreased 0.4% for the period.

We were unable to overcome the drag to our business from cycling against strong soccer-related sales that were influenced by the men’s World Cup last year, as well as softer than anticipated sales of firearms-related products and the continuing impact of the drought in our major market.

In terms of how sales trended over the quarter, we comped slightly negative in July and comps down in the low single-digits in August. Same-store sales swung to the positive low single-digits in September, as we benefit from promotions celebrating Big 5’s 60th anniversary.

We experienced a low single-digit decrease in customer transaction and a low single-digit increase in average sales during the period. From a product category standpoint, our footwear category comped positively the low single-digits for the period, while our apparel and the hardgoods categories each comped down low single-digits.

As expected, each of these major merchandise categories experienced some impact from slightly last year’s strong soccer-related sales. Our hardgoods category also was negatively impacted by the reduced sales of firearms-related products, which we believe was due in part to some recently enacted legislation in California.

Merchandise margins decreased by 51 basis points for the period compared to the third quarter of last year. This reduction was a reflection of product mix shift along with our promotional efforts to drive sales. Now, commenting on store openings. During the third quarter, we opened one store in San Jose, California, and closed one store.

We ended the quarter with 439 stores in operation. We now expect that this will be the number of stores at year end, as we don’t anticipate opening or closing any additional stores during the current period. We have had certain store openings delayed by construction and landlord issues, and we would expect those openings to move into next year.

We’re also reevaluating certain locations that we had anticipated for store opening earlier this year, as we continue to maintain a cautious approach for selecting the right new store opportunities for our business in the current retail environment. Now, turning to current trends.

We are currently comping down low single-digits for the fourth quarter to-date. While October represents lowest line in sales month of the quarter and the holiday period is always somewhat unpredictable, we feel well-positioned from a product and promotional perspective for the balance of the quarter.

However, we do expect that this will be another highly promotional holiday period and weather conditions over the winter selling season will be critical to the performance of our winter product business enhanced our fourth quarter results.

We should note that last year weather was not particularly favorable over most of the quarter, but turned remarkably positive during the last week of the period and remained so during the first week of the first quarter, which produced extraordinary winter product sales for us.

Given that we are in a 53-week fiscal year with a 14-week fiscal fourth quarter, same-store sales for the last week of our fourth quarter this year will compare against the first week of the first quarter of fiscal 2015, a week in which our sales were up very strong double-digits.

In other words, we’re hoping for a lot of snow during the winter and particularly over the New Year’s holiday periods. Before I turn it over to Barry, I’d like to note that September marked Big 5’s 60th year in business.

Since our founding in 1955, we have successfully evolved from selling army surplus products to being a leading sporting goods retailer in the Western United States.

We have weathered many challenges along the way, due to old macroeconomic conditions, changes in the competitive environment, changes in the consumer, and not to mention highly variable weather patterns.

Looking forward to help ensure that we are best positioned to succeed in the constantly evolving retail environment, we’ve engaged consultants to help us evaluate our store growth strategies and identify potential avenues for profit enhancement.

We look forward to working in these initiatives, while at the same time continue to focus on driving sales, margins, and controlling expenses. Now, I will turn the call over to Barry, who will provide more information about the quarter, as well as speak to our balance sheet, cash flows, and provide fourth quarter guidance..

Thanks, Steve. Our gross profit margin for the fiscal 2015 third quarter was 31.5% of sales versus 32.5% of sales in the third quarter of fiscal 2014. The decrease in gross margin for the period reflected the 51 basis point decline in merchandise margin, as Steve mentioned, as well as an increase in store occupancy costs as a percentage of sales.

Our selling and administrative expense as a percentage of sales was 27.7% in the third quarter, down 20 basis points from 27.9% in the third quarter of fiscal 2014.

On an absolute basis, SG&A expense increased $1.1 million year-over-year, primarily reflecting higher employee labor expense and operating expenses resulting from our increased store count, partially offset by a reduction in advertising expense. Now, looking at our bottom line.

Net income for the third quarter was $6.1 million, or $0.28 per diluted share. This compares to net income in the third quarter of fiscal 2014 of $7.5 million, or $0.34 per diluted share. Briefly reviewing our 2015 first nine months results, net sales increased to $754.1 million from $727.5 million during the first nine months of fiscal 2014.

Same-store sales increased 1.7% during the first nine months of fiscal 2015 versus the comparable period last year. Net income for the current period was $11.0 million, or $0.50 per diluted share, including $0.06 per diluted share of charges for the company’s publicly disclosed proxy contest and a legal settlement.

This compares to net income of $12.1 million, or $0.54 per diluted share, including $0.02 per diluted share of non-cash impairment charges for the first nine months of last year. Turning to our balance sheet, total merchandised inventory was $318.4 million at the end of the third quarter, up 3.5% in the prior year.

On a per store basis, inventory was up 1.6% versus last year, and we feel good about our inventory as we enter the holiday and winter selling season.

Looking at our capital spending, our CapEx excluding non-cash acquisitions totaled $18.0 million for the first nine months of fiscal 2015, primarily reflecting investment in our distribution center, expenditures for new stores, existing store maintenance enhancement, and computer hardware and software purchases, including investments related to a new point-of-sale system.

We currently expect capital expenditures for fiscal 2015, excluding non-cash acquisition of approximately $26 million to $28 million, as we increase investment in our distribution center facilities to support overall growth.

From a cash flow perspective, our operating cash flow was a positive $25.3 million for the first nine months of fiscal 2015, compared to $25.1 million for the same period last year.

The slight increase in cash flow from operations primarily reflected a smaller decrease in accrued expenses and decreased prepaid expenses, partially offset by increased funding of inventory purchases. For the third quarter, we continue to pay our quarterly cash dividend of $0.10 per share.

Additionally, during the third quarter, we have repurchased 181,969 shares of our common stock for a total expenditure of $2.0 million, raising our year-to-date repurchases to 278,242 shares of common stock for a total expenditure of $3.2 million.

As of the end of the third quarter, we had $3.9 million available for stock repurchases under our $20 million share repurchase program. Our long-term debt at the end of the third quarter was $65.3 million, which compared to $55.4 million at the end of the third quarter last year and $66.3 million at the end of fiscal 2014.

The increase in debt at the end of the third quarter compared to the same period last year, primarily reflected our higher level of capital expenditures this year, along with the funding of shareholder dividends and share repurchases. Now, I’ll spend a minute on our guidance.

For this year’s fourth quarter, we’re projecting same-store sales in the low negative single-digit to low positive single-digit range, and earnings per diluted share in the range of $0.10 to $0.20.

Our guidance reflects anticipated expenses of approximately $0.01 per diluted share associated with consulting fees for the evaluation of store growth strategies and potential profit improvement opportunities. As a reminder, the fiscal 2015 fourth quarter will include 14 weeks and the fiscal fourth quarter last year included 13 weeks.

Our same-store sales guidance reflects comparable 14-week period. Operator, we’re now ready to turn the call back to you for questions and answers..

Thank you [Operator Instructions] And we’ll take our first question from Mark Smith with Feltl and Company..

Hi, guys.

You guys might have given this half of the comment in the 53-week at the earnings?.

I was like, can you speak up a little….

I said the 53-week at your earning….

Yes..

Yes, in your guidance, how much is from that extra week?.

Yes, Mark, I would say that, we’ve estimated about $0.02 to $0.03 for the extra week. Remember, we’ve got extra sales, but of course, we’ve got all the extra expenses along with that extra week as well..

That week is very, very dependent on winter weather. So it’s really a call on how you believe winter will be over the New Year’s holiday, and hopefully, our best guess that normal would suggest $0.02 to $0.03..

Okay.

And then looking at your near-term strategy on opening, it sounds like you do have separate line, maybe you’ll open up here in Q1, where you guys are aggressive or excited to open new stores, or is it something that’s really you’re waiting for Q1 results really stay about new store growth?.

Well, I think we’ve – I believe we’ve always maintained a strategy of growth, growth under control always being cautious and trying to open up the right new stores, but not so excited just setting a number or just try to getting a number.

That said, we’re excited and are trying to find properties, but they do fit prescription for successful a Big 5 Store. We’ve got some stores that were clearly delayed. We wish we were to have opened this year that come into the way that we will be opening as we roll into the next year, and other opportunities that we’re moving forward on..

Okay. Then lastly you guys said that you were comfortable with your inventory levels. I remember it seems like you guys held over a fair amount of winter in inventory last year.

If we don’t ship in the colder weather here, what – how bad the way it should be with inventory?.

Well, I guess, we have no winter weather. We won’t be again be in a position of having some excess winter product that we’ve become pretty experienced in carrying over from season to season. We bought around our carryover inventory from last year. We feel very good about the inventory, as we enter the season.

But certainly, if we have no winter weather, we’ll have inventory to carryover into the following year, but….

Well, Mark, we actually had pretty good winter weather that last – the last week of last year and then into the first week of this year. So although it’s only a couple of weeks, it was pretty significant for us. And anyway, so we were able to sell down our winter product pretty good at beginning of this year..

I think it’s a little early in the season that we’ll be thinking about not having winter weather. We got to believe that we are going to get some winter weather we believe we’re to [ph] do for it..

Perfect. Thanks, guys..

Yep..

[Operator Instructions] We’ll take our next question from Kristine Koerber with Barrington Research..

Hi, this is Mason Marion sitting in for Kristine.

So your earnings per share guidance, is that – and that’s $0.20, and that’s pretty broad gap, or what’s driving that variance there?.

Well, I think, we really has – we’ve certainly had in the fourth quarter.

First of all to answer your question, this is – the fourth quarter for us is with all of the different dynamics of the holidays and the dynamics of weather, whether or not we’ll have El Niño, or, yes or no, will it be warm, will it be cold, what’s the promotional activity and cadence going to be for the holidays, which we expected to be very competitive and promotional.

And then just the overall consumer and the level of demand and so on. So we’ve clearly had ranges that have been at this level previously, and in fact, larger than this in the fourth quarter. So this really is an out of the ordinary for us..

[Operator Instructions] And with no further questions, I’ll turn it back to Steve Miller at this time..

All right. Well, we appreciate those of you on the call, and we’ll look forward to speak to you in our next call, however. Good afternoon..

And that does conclude today’s conference. Thank you for your participation..