Good day, ladies and gentlemen, thank you for standing by. Welcome to the Big 5 Sporting Goods Fourth Quarter 2018 Earnings Results Conference Call. Today's call is being recorded. With us today are Mr. Steve Miller, President 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'd like to turn the conference over to Mr. Miller. Please go ahead, sir..

Thank you, operator. Good afternoon, everyone. Welcome to our 2018 Third Quarter Conference Call. Today, we will review our financial results for the fourth quarter of fiscal 2018 and provide general updates on our business as well as provide guidance for the first 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. As we reported back in mid January, our sales at the end of December and beginning of January benefitted from favorable seasonal winter weather in our markets and I am pleased to report that this momentum has continued to provide us with a very strong start to the year.

Our turns team has done an outstanding job of merchandising and operating our stores to take advantage of the opportunity the winter weather conditions have presented.

Our success this winter illustrates our moral stability to serve our customer's sporting goods needs by offering a unique combination of product selection, value and convenience, particularly during key periods with seasonal demand. Before we get into our outlook for the first quarter, I'll first touch on the fourth quarter performance.

Net sales for the fourth quarter increased to $247.1 million from $242.9 million for the fourth quarter of fiscal 2017. Same-store sales increased 1.1% during the quarter and we saw improvement in trending over each month of the period.

Same-store sales decreased in the low single-digit range in each of October and November and then increased in the mid single digit range for December from straight an outstanding winter product sales later in the month. Overall for the quarter, we achieved a slight increase in both customer transactions and average sales.

From a product category standpoint, apparel performed very well up, up in the high single-digit range for the fourth quarter, driven by seasonal outerwear. Our footwork category was up in the positive low single digit range, but our hard good category was down low single digits.

We continue to experience softness in firearms-related products during the period. Our merchandise margins for the quarter decreased 11 basis points compared to the fourth quarter of fiscal 2017.

Now commenting on store activity, during the fourth quarter we opened one store in Sacramento California and closed one store in Paradise, California, unfortunately lost as a result of the tragic Northern California wildfires. We ended the quarter with 436 stores in operation.

During the first quarter, we had closed three stores to not open any new stores. For the full year, we currently anticipate opening approximately five stores and closing approximately four. Turning now to current trends in the first quarter.

As I mentioned at the outset, the momentum in our winter business has continued into February as we had very favorable winter weather conditions throughout our market. These are currently comping up in the low double-digit range for the quarter to date.

We've experienced a tremendous sell-through of our winter inventory, including the inventory that we carried over from last year. As a reminder, in the first quarter of 2018, weather conditions were exceptionally unfavorable during January and February.

Winter finally arrived in March, driving extremely strong late season winter sales last year, which will be a headwind to sales comparison for the balance of the quarter this year.

That said, we believe we have an opportunity to largely offset that anticipated negative impact with solid sales of spring-related products, particularly in our baseball category.

The key though is that we need to see a transition from a strong winter weather conditions that we've been experiencing to more normal spring-like conditions that would be more conducive to getting hit out on the field playing ball.

Looking more broadly to the future, we remain focused on a number of initiatives that should benefit us as we navigate the dynamic retail environment. We're targeting product categories, which we believe have the greatest opportunities for growth.

In some areas that include narrowing the overall assortment while increasing the depth of certain key selling skews, to better position ourselves to fully meet customer demand.

We also continue to aggressively pursue opportunistic buys, to drive traffic and probable sales and reinforce our value proposition to help differentiate us in the marketplace.

We continue to be encouraged by the response to our digital marketing program and expect to further benefit from the expansion of our enhanced customer relationship management capabilities.

Along with our merchandising and marketing efforts, we remain very focused on actively managing the cost structure across our business including strategy that we have implemented in an effort to mitigate the heavy wage pressures that are impacting us along with most retailers.

Now I will turn the call to Barry who will provide more information about the quarter as well as speak to some of the positive developments with our balance sheet and cash flows to provide first quarter guidance..

Thanks Steve. Our gross profit margin for the fiscal 2018 fourth quarter was 28.5% of sales versus 30% of sales for the fourth quarter of fiscal 2017. A decrease in gross profit margin largely reflects lower distribution costs capitalized in inventory as a result of reduced inventory levels.

Additionally, we experienced a slight reduction in merchandise margins as Steve mentioned earlier. Our selling and administrative expense as a percentage of sales was 30.9% in the fourth quarter versus 33.3% in the fourth quarter of fiscal 2017.

Overall selling and administrative expense for the quarter decreased $4.5 million from the prior year, primarily due to asset impairment charges in the prior year totaling $5 million compared to asset impairment and contract termination charges totaling $1.9 million in 2018.

Absent these charges in both periods, the company achieved modest expense leverage in the fourth quarter of 2018 due in part to a $1.6 million reduction in advertising expense.

Now looking at our bottom line for the fourth quarter we reported a net loss of $5.1 million or $0.24 per share, included in this figure are after-tax charges of $1.4 million for asset impairment and contract termination cost and $0.3 million for a deferred tax asset valuation allowance for certain income tax credit or $0.08 per share.

Excluding these charges, fourth-quarter loss per share was $0.16, which was at the midpoint of the updated range we provided in January.

This compares to a net loss in the fourth quarter of fiscal 2017 of $13 million or $0.62 per share, which included after-tax charges totaling $10.9 million or $0.52 per share, primarily related to the revaluation of deferred tax assets as a result of the new Tax Act and goodwill impairment.

Briefly reviewing our full year 2018 results, net sales were $987.6 million compared to net sales of $1.01 billion during the full year of fiscal 2017.

Same-store sales decreased 2.7% in fiscal 2018 in part due to lower sales of cold-weather winter products in the first quarter of 2018 resulting from unfavorable warm and dry weather conditions in most of our major markets.

Net loss for the full year was $3.5 million or $0.17 per share, including $0.09 per share related to the after-tax charges in the fourth quarter noted previously as well as $0.2 million deferred tax asset write-off related to stock compensation in the first quarter.

This compares to fiscal 2017 net income of $1.1 million or $0.05 per diluted share reflecting after-tax charges totaling $10.9 million $0.52 per diluted share as I previously discussed.

Turning to the balance sheet our chain-wide inventory was $294.9 million at the end of fiscal 2018, compared to $313.9 million at the end of fiscal 2017, reflecting a year-over-year decrease of $19 million, which approximates the winter-related product carryover from last year, due to unfavorable warm and dry weather.

On a per store basis, merchandise inventory was down 7.3% versus the prior year. As discussed on prior calls, we reduced our inventory purchases for this season to adjust for the winter-related product carryover from last year.

Looking at our capital spending, our CapEx excluding noncash acquisitions total $15.5 million for fiscal 2018, primarily representing investments in store-related remodeling and new stores, IT systems, our distribution center and the purchase of a parcel of land with an existing building adjacent to our corporate headquarters.

We currently expect capital expenditures for fiscal 2019, excluding noncash acquisitions of approximately $12 million to $16 million. This reflects continued investment in store-related remodeling, new stores, our distribution center and IT system.

From a cash flow perspective, our cash flow from operations was a positive $24.5 million in fiscal 2018 compared to a negative $4.4 million in the prior year period. The increase in operating cash flow primarily reflects decreased funding from merchandise inventory and prepaid expense, largely related to rent.

For the fourth quarter, we paid our quarterly cash dividend of $0.05 per share and our Board of Directors also declared a quarterly cash dividend of $0.05 per share for the first quarter of 2019.

Our long-term revolving credit borrowings totaled $83.5 million at the end of the third quarter of 2018 and totaled $65 million at the end of the year compared to $45 million at the end of the prior-year and we've continued to reduce debt levels during the current period.

With our anticipated sales performance and year-over-year reduction in inventory levels for the first quarter, we expect quarter end debt levels to decline to below $50 million compared to $68.9 million at the end of the first quarter last year.

In other words, we project that over the course of the current quarter our debt will move from being $20 million above the prior year at year-end to roughly $20 million below the prior year at the end of the first quarter, which substantially strengthens our balance sheet. Now I'll spend a minute our guidance.

For the fiscal 2019 first quarter we expect same-store sales to increase in the mid-single-digit range and we expect earnings per share in the range of $0.04 to $0.10.

First quarter guidance reflects a small anticipated benefit to sales as a result of the calendar shift of the Easter holiday when our stores are closed, out of the first quarter of fiscal 2018 and into the second quarter of fiscal 2019. Operator, we're now ready to turn the call back to you for questions-and-answers..

[Operator Instructions] And we'll take our first question today from David Schick with Consumer Edge Research..

Hi there. Thanks for taking my question. A couple questions, on baseball, you mentioned optimism, is that an expansion or new lines for you or is that some product cycle stuff you're looking for out of baseball..

I am not sure what you mean by adding, I am not sure I understand the question Dave..

So is it stuff you're bringing in, net new furnished baseball or is there something in the baseball introductions in the industry this year that has you optimistic about baseball impacting your business?.

Yeah what I tried to imply in our prepared remarks is that key for the balance in the quarter is the performance of our baseball business.

Last year we had a very difficult January, February due to lack of winter and then in March we had a lot of winter business, which will be a headwind to our current quarter as we can possibly come the sales last year if for no other reason that I wouldn’t even strong sell through of winter product business, strength of our winter business in January and February, our winter inventory is rather depleted.

So the key for us is that our baseball business which has been soft for the first two months given the significant winter weather that we had and so there has been rain out of radar and number of leagues that are yet running behind having that try out, so prior to just if these piece are rolling.

So the key for us to offset the strength of our winter business for March is that we pick up in our baseball business which to a large degree is going to be dependent on yet a more normalized weather patterns moving from the winter that we've been experiencing to warmer and dryer spring-like condition..

Okay. So you're talking about whether, the and still like champions enter my Manny Machado keep my Manny Machado streak alive, but everybody maybe was waiting for Manny.

Okay so we can move to a more second question then, having mentioned Manny, the margin of this depleted winter because it's going so well early, you mentioned you didn't have to buy winter but you're going to have this more difficult.

How should we think about that carried over inventory and its impact on the gross margin line for the first quarter?.

Well, we sold through that carried over inventory with very little lines to margins. So the winter business is generally positive to margins. That said, the baseball business there has been soft for this part of the quarter, is also a very strong margin generating business. So I would put it all together and call relatively neutral..

Okay. Thanks.

Last question is I know you've been moving to more digital, you mentioned it briefly with the digital engagement on the marketing side, how should we think about the net effect of those change you're making in calendar '19 and '20? Should net advertising come down or is it more neutral?.

We would anticipate that much like what has occurred in the last several years, we will continue to bring down our total advertising expense.

We continue to reduce current advertising and then to some degree, support becomes those less circulation to buy and we replaced a portion of that with digital advertising, but the economics of the digital were somewhat more favorable. So all things being equal at this point in time, we would continue to have trend to remain..

[Operator Instructions] That will conclude today's question-and-answer session. At this time, I'll turn the conference over to Mr. Miller for any additional or closing comments..

All right. Thank you, operator. We appreciate your interest in Big 5 and look forward to speaking with you on our next call. Have a great afternoon..

That does conclude today's conference call. Thank you for your participation. You may now disconnect..