Steve Miller - Chairman, President and CEO Barry Emerson - SVP and CFO.

Michael Baker - Deutsche Bank David Magee - SunTrust Robinson Humphrey Aaron Steele - Feltl and Company.

Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Third Quarter 2016 Earnings Results Call. Today’s call is being recorded. With us today are Mr. Steve Miller, Chairman and Chief Executive Officer; and Mr. Barry Emerson, Chief Financial Officer of Big 5 Sporting Goods.

At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Miller. Please go ahead, sir..

Thank you operator. Good afternoon, everyone. Welcome to our 2016 third quarter conference call. Today, we will review our financial results for the third quarter of fiscal 2016 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. We're very pleased to deliver an exceptionally strong third quarter performance. We achieved meaningful increases in same-store sales and earnings as we benefited from the significant competitive rationalization that has occurred in our markets.

As I suspect, most of you are aware with the recent liquidation of the Sports Authority and Sport Chalet, over competitor stores within the general training area of a Big 5 Sporting Goods store have been closed.

With our sales and earnings growth for the third quarter, we generated strong cash flow which helped us reduce our debt by $42.4 million for 65% from the third quarter last year, while continuing to return capital to shareholders for our quarterly dividend payments and share repurchases.

Our confidence in the health of our financial condition and ability to continue to perform through economic and competitive cycles is reflected in the 20% dividend increase that we announced today. This represents our second dividend increase this year and a 50% increase in our dividend from the beginning of 2016.

Now, I’ll comment on sales for the third quarter. During the third quarter, we rang the register to the tune of $279 million compared to net sales of $270.1 million for the third quarter of fiscal 2015. This increase was achieved 15 despite the $8.9 million negative impact as we had anticipated from the calendar shift.

As a reminder, our fiscal 2016 began one week later than fiscal 2015, the resulted in pre-Fourth of July holiday sales moving from the third quarter in fiscal 2015 to the second quarter in fiscal 2016. Same-store sales increased 6.8% during the third quarter of 2016 versus the comparable 13-week period in the prior year.

Same-store sales comparisons were not materially impacted by the calendar shift because same-store sales comparisons are made on the true comparable week basis. Our same-store sales were consistently strong throughout the quarter.

We realized a mid-single-digit increase in customer transactions, a low single-digit increase in average ticket versus the prior year period.

From a product category standpoint, all of our major merchandise categories benefited from a competitive store closures with our apparel category up low double-digits, our hard good category up high single-digits, and our footwear category up in the solid low single-digit range for the period.

Merchandise margins increased 39 basis points for the third quarter compared to the third quarter of fiscal 2015, benefiting from favorable sales mix shift and some opportunistic buys resulting from the competitor liquidation. Now, commenting on store activity. During the third quarter, we opened two new stores and closed five stores.

We opened new stores in Espanola [ph], New Mexico and Banning, California. We ended the quarter with 432 stores in operation. During the fourth quarter, we plan to open one new store and close one store, which would keep our store count at 432 at year end.

We continue to watch the ongoing developments in our market and believe the rationalization that is taking place could create additional opportunities for us after the competitive landscape shakes out.

Now, turning to current trends, we are off to a strong start in the fourth quarter with same-store sales for the quarter-to-date up in the high single-digit range as we continue to benefit from the competitive rationalization of a retail sporting goods factor and more customers recognize the convenience, value, service and selection that Big 5 Sporting Goods offers.

While we're very pleased with current trending, we should note that October represents the lowest sales volume month in the quarter and a key winter and holiday selling season right ahead of us.

There's always a degree [ph] of unpredictability as to how consumers will spend during the holidays and often even more unpredictability as to how winter weather conditions will play out.

As a reminder, during the fourth quarter, we will be comping against favorable winter weather conditions that we experienced last year, particularly over the Christmas and New Year's holiday period.

That said, we do feel well-positioned to produce strong results over the course of the quarter, sales continue to benefit from the competitor rationalization and we continue to work hard to gain market share as a result of this opportunity.

We have been and continue to implement marketing plans to reach former Sports Authority and Sport Chalet customers and I'm pleased with our team's progress in pursuing new product lines and expanded assortments, cultivating new vendor relationship and pursuing opportunistic buys.

We believe our inventories are well-positioned as we move into the holiday and winter selling season. 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 2016 third quarter was 32.2% of sales versus 31.5% of sales for the third quarter of fiscal 2015. The increase in gross margin for the period reflects the 39 basis point improvement in merchandise margins that Steve mentioned, as well as a decrease in store occupancy cost as a percentage of sales.

Our selling and administrative expense as a percentage of sales was 27.3% in the third quarter, down from 27.7% in the third quarter of fiscal 2015.

On an absolute basis, SG&A expense increased $1.4 million year-over-year due primarily to a $1.1 million pretax charge for store closing cost and higher employee labor expense, reflecting the incremental impact of minimum wage rate increases in California, partially offset by a decrease in print advertising expense.

Now looking at our bottom-line, we've reported net income for the third quarter $8.2 million or $0.38 per diluted share including $0.02 per diluted share for store closing cost. This compares to net income in the third quarter of fiscal 2015 at $6.1 million or $0.28 per diluted share.

Briefly reviewing our 2016 first nine month results, net sales were $755 million compared to net sales of $754.1 million during the first nine months of fiscal 2015. The calendar shift from a 53 weeks fiscal year in 2015 negatively impacted net sales comparisons by approximately $6 million in the first nine months of 2016.

Same-store sales increased 1.2% during the first 39 weeks of fiscal 2016 versus the comparable period last year. Net income for the period was $9.2 million or $0.42 per diluted share, including $0.07 per diluted share of charges for store closing costs and the write-off of deferred tax assets related to share-based compensation.

This compares to net income of $11 million or $0.50 per diluted share including $0.06 per diluted share of charges for a legal settlement and expenses associated with our publically disclosed the proxy contest for the first nine months of last year.

Turning to our balance sheet, our chain-wide inventory was $289.8 million at the end of the third quarter, down 9% from the prior year. On a per store basis, merchandise inventory was down 8.7% versus last year and we feel good -- very good about our inventory position as we enter the holiday and winter shopping season.

Looking at our capital spending, our CapEx excluding non-cash acquisitions totaled $10.2 million for the first nine months of fiscal 2016, primarily reflecting existing store enhancements, investment in new stores and our distribution center, and computer hardware and software purchases, including amounts related to the development of the new point of sales system.

We currently expect capital expenditures for fiscal 2016 excluding non-cash acquisition of approximately $14 million to $16 million.

From a cash flow perspective, our operating cash flow was a healthy $55 million for the first nine months of fiscal 2016 compared to $25.3 million for the same period last year, largely due to reduced funding of merchandise inventory. For the third quarter, we continue to pay our quarterly cash dividend of $0.125 per share.

Also as Steve mentioned, we announced that our Board of Directors has approved a 20% increase in our quarterly cash dividend to $0.15 per share. Additionally, during the third quarter, we repurchased 122,999 shares of our common stock for a total of $1.6 million.

As of the end of the third quarter, we had $23.4 million available for stock repurchases under our 25 million share repurchase program.

Our long-term revolving credit borrowings at the end of the third quarter were $22.9 million, down 55% from $65.3 million at the end of the third quarter last year and down 58% from $54.8 million at the end of fiscal 2015. Now, I'll spend a minute on our guidance.

For the fiscal 2016 fourth quarter, we expect same-store sales to be in the positive mid-single-digit range and earnings to be in the range of $0.25 to $0.35 per diluted share. As a reminder, the fourth quarter of fiscal 2016 will include 13 weeks compared to 14 weeks in the prior year period.

However, our same-store sales guidance reflects comparable 13-week period. We did not expect fourth quarter earnings comparisons to the prior year to be meaningfully impacted by the extra week last year because the calendar shift moved a relatively low volume sales week out of the fiscal fourth quarter this year.

For comparative purposes, in the fourth quarter of fiscal 2015, same-store sales increased 0.1% and earnings per diluted share were $0.20 including charges of $0.02 per diluted share. Operator, we're now ready to turn the call back to you for questions and answers..

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] And our first question, we'll hear from Mike Baker with Deutsche Bank..

Thanks. A couple of questions.

One, can you quantify if you can the pick-up, how of your 6.8% comp do you think is because of the incremental share gains? And maybe one way to think about that would be can you compare the comps -- and I think it’s the 250 stores that overlap with -- previously overlapped with one of those stores versus trends in stores that were not in a previously competitive situation?.

Michael I think its fair [ph] to say that the -- that lion share came from the stores that were impacted by competitive closures, but I think it's noteworthy to comment that our stores that were not impacted comp positively during the quarter..

Okay. That's helpful.

And then as a follow-up, can you just remind us what your leverage points are on some of your cost items, for instance, SG&A, occupancy, distribution, et cetera, what kind of comps you need to leverage those line items?.

Yes, Michael, on the SG&A side, we need a comp of about 3% to 4% for SG&A and then on the occupancy, its lower, it's about 1% to 2% comp or so. And then on the -- on distribution, honestly, on distribution, we're looking at a comp of about 3% to 4%..

Okay.

And if I could follow-up real quick on that, does that SG&A -- that 3% to 4%, does that change at all with some of the wage issues going in California, do you think that leverage point will increase at all over the next couple of years?.

Well, really -- Michael, they are definitely going up. Costs are going up. It really depends on -- we've contemplated we had in increase in January of this year. So, we had a full dollar increase this year. That's contemplated in those numbers.

As it goes out, it really -- our leverage points could have tend on -- the -- how we structure and deal with the increase in minimum wage and those kinds of things. So, I would say for now, I would keep it relatively constant.

But I'm not going to sign-up for, we're going to have to see how the dynamics of our overall expenses change and how we are able to mitigate some of these increases over time..

Understood. Thanks. Thanks and good job on the quarter..

Thank you..

And next we'll move to David Magee with SunTrust..

Yes, hi, good afternoon.

Can you hear me?.

We can.

David, how are you?.

Good. Thanks Steve, and congratulations on a terrific quarter..

Thank you..

Can you -- you mentioned merchandize margin benefiting from both the mix being better this year and--.

David, can you speak a little louder. Now, we're having--.

Okay. So, the question I have is, you mentioned merchandise margin benefiting from a better mix this year and also the opportunistic buys.

Can you talk a little bit about what was more important there -- sort of how that broke down? And is it fair to say that all the stores would benefit from that opportunistic buy I guess throughout the chain?.

Yes. I think it's fair to say that the opportunistic buys we make benefit the entire chain.

So, I think -- no, I'm not sure I can put the -- in terms of quantify and how much more benefit of opportunistic buys were relative to mix shifts, I think some of the - sort of shift [Indiscernible] on the products, from the products that benefited most significantly from the closures tended to be favorable to our overall point of sale margins and that may have -- probably the analysis played out to be the most significant contributor to the margin enhancement.

It was also somewhat of a less promotional environment which needless to say we're happy to see and that probably favors the margins well..

Is it -- are those buys still available? Are there still opportunities here as you go towards holiday season?.

Well, I think we have buys in the pipeline that will certainly benefit us moving forward into the holiday season, absolutely..

And at this point, is weather sort of neutral year-to-year, I know the comparison gets hard by [ph] the year, but just sort of as we look at October, November, is it comparable right now?.

The weather, sort of an October weather is typically not a major factor. We're really now waiting for cold to hit us and we really haven’t had the benefit of -- what I would call, a real shot of cold through most of our markets. So, it's just early in the game and we're clearly waiting for cold weather right here at the moment..

Yes, aren’t we all? Thank you. And last question, I just sort of step back and obviously, this has been a great narrative with regard to the competitive environment, but that aside, my sense is the stores look sharper now than they had in the past, that explains some work on signage, maybe some of the assortment things like that.

Can you talk a little bit more broadly about the business itself and what's going on there away from just the consolidation impact?.

Well, sure. We've been -- we've had initiatives in place now over a number of years to touch more of our stores and we're really pleased with the progress and the enhancements that we've made throughout [Indiscernible] in terms of how we're showing the products, enhanced pictures, better adding and contributing to the look of our stores.

So, it's something that we’ve been working hard at and I appreciate the fact that you're recognizing it..

And David yes, just to kind of add onto that, so our -- we've in fact, doubled the investment that we've made probably over the last four years in the look and feel of the stores. As we've slightly changed the branded content of the mix, just to make sure that look and feel of the stores was keeping up with and showing the product appropriately.

We have been making those investments. Again, it is not new, it is something that's been going on for now for quite a while and so it is -- I would echo what Steve said and that's it's nice to see that you've actually noticed that as you gone in and visited the stores..

Great. Thank you. And good luck in the fourth quarter..

Thank you, David..

And we'll move onto our final question from Mark Smith with Feltl and Company..

Hi, this is Aaron Steele on for Mark Smith. I was wondering if you call out any strengths or weaknesses in some of the different geographic areas that you saw on the quarter..

We don't get to granular in terms of talking about individual market performance. I think the benefit from the competitive closures was pretty widespread geographically. So, I don't think just for competitive reasons that we're going to get into individual geographic performance,.

Okay. I understand..

Strong performance throughout the -- firstly all regions..

Okay. Good to know.

And then just how does comp look sequentially? Was there a trend within the quarter and then kind of that starts with the fourth quarter as well?.

I'm sorry, can you just repeat that?.

How did Q3 trend--.

Yes, strong throughout the quarter. We were up in the mid to high single-digit range in July. We were up high single-digit in August and a very solid mid-single-digit in September. So, reasonably consistent. The momentum's carried over and accelerated somewhat in the fourth quarter as we're up high single-digits fourth quarter-to-date..

Okay. Thank you. That's all from me..

Thank you..

Thank you..

And there are no further questions. I would like to turn the call back to Mr. Steve Miller, any additional or closing remarks..

Thank you, operator. And we appreciate your interest in Big 5 Sporting Goods and look forward to speaking to you on our next call. Have -- all have a wonderful holiday season..

And that will conclude today's call. We thank you for your participation..