Good day, ladies and gentlemen. Welcome to the Big 5 Sporting Goods Second Quarter 2019 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 2019 second quarter conference call. Today, we will review our financial results for the second quarter of fiscal 2019 and provide general updates on our business, as well as provide guidance for the third quarter.I will now turn the call over to Barry to read our Safe Harbor statements..

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 on our behalf..

Thank you, Barry. We’re pleased to report second quarter 2019 results that reflect our third consecutive quarter of positive same store sales, along with earnings that exceeded our guidance for the period.

With our sales execution over the course of the quarter, combined with our continued focus on managing expenses and inventory, we delivered year-over-year improvements in earnings, operating cash flow, inventory levels, and revolving credit borrowing and further strengthened our balance sheet.Second quarter net sales were $241 million, compared to $240 million in the prior year period.

Same store sales increased 0.7% during the quarter.

Sales comparisons year-over-year reflect a small negative impact on the second quarter of 2019 as a result of the calendar shift of the Easter Holiday when our stores were closed.Looking at the rollout of the quarter, as previously reported, we had a slow start in April with comp sales down in the low-single-digit range, primarily due to the negative impact of the Easter calendar shift.

In May, although we comped positively in the low single digit range for the first three weeks of the month, sales with a high-volume week leading up to the Memorial Day holiday were [solid], primarily because summer related products were adversely impacted by significantly cooler-than-normal temperatures across virtually our entire geography.While cooler weather remained a headwind over most of June, we were able to comp positively in the mid-single-digits for the month, mainly on the strength of strong demand for ammunition in California to advance the new legislation that took effect on July 1.

For the quarter, our hardgoods category was up low-mid-single-digits on a store basis benefiting from the strong ammunition sales that I just mentioned.Our apparel category was down low-single-digit impacted by soft licensed apparel sales, compared against the strength we saw last year related to the Las Vegas Golden Knights – Golden State Warriors in Men's World Cup Soccer.

Excluding licensed apparel, our apparels category comped positively for the quarter. Our footwork category was down in the low-mid-single-digit range for the period.

Although this was our softest category for the second quarter, footwear sales trends improved over the course of the period and that improvement has continued into the third quarter.Overall, for the second quarter, we experienced a slightly decrease in customer transactions and a modest increase in our average sales versus the prior year period.

Our merchandise margins for the quarter were down 80 basis points, compared to the second quarter of last year when margins increased 42 basis points.

The margin contraction in the second quarter was primarily a function of a shift in our sales mix during the period, reflecting decreased sales of certain higher margin, warm weather seasonal products, and increased sales of lower margin ammunition products.Now, commenting on store activity.

We opened one store in the second quarter in Grand Junction, Colorado, ending with 434 stores in operation. Our current plans for the 2019 full year has us opening approximately 4 stores and closing approximately 5 stores, reflecting our continuous efforts to optimize our store base.Turning now to the third quarter.

Our quarter-to-date sales are running down low-single-digits versus the prior year. The stronger sales of ammunition in California in June pulled forward some sales in that category, which has impacted our July sales.

Additionally, we were facing more challenging comparisons in July as it was our strongest month of the quarter last year benefiting from very favorable summer weather.Compared to last year, summer weather this year has been relatively slow to arrive, particularly in the Pacific Northwest.

Over the remainder of the quarter, our sales comparisons become more favorable, given the sales last year during the period for adversely impacted by wildfires, as well as fairly unfavorable weather in many of our market areas.A strong positive for the start of our third quarter is that our July merchandise margins were running up nicely from the prior year period.

A key strength of our business model is our ability to position our product assortments to satisfy seasonal consumer demand for the convenience of our store format.

Our strong sales last winter season currently illustrated the strategic advantage.With much of the summer season still ahead of us, we believe our promotional plans and inventories are well-positioned to drive positive sales over the remainder of the quarter.

In addition to capturing seasonal demand, we are focused on continuously fine tuning our merchandise assortments to reflect product trends, as well as aggressively pursuing opportunistic buys.We are pleased that these efforts are generating positive response across the broad array of product categories throughout our store.

We are also very encouraged by the steps our team is taking to mitigate the cost pressures that our business is facing, which were reflected in our favorable SG&A result.

We will continue to focus on actively managing the cost structure, inventory, and other assets on our business to ensure that we maintain a healthy balance sheet, which should provide us with the flexibility to capitalize on opportunity as they arise.Now, I will turn the call over to Barry, who will provide more information about the quarter, as well as speak for our balance sheet, cash flows, and provide third quarter guidance..

Thanks, Steve. Our gross profit margin for the fiscal 2019 second quarter was 30.3% of sales versus 31.4% of sales for the second quarter of fiscal 2018.

The reduction in gross profit margin largely reflects an 80-basis points contraction in merchandise margins, primarily due to the shift in sales mix that Steve discussed, as well as lower distribution cost capitalized into the inventory.Our selling and administrative expense as a percentage of sales [decreased] to 30% in the fiscal 2019 second quarter from 31.1% in the second quarter of the prior year.

Overall, selling and administrative expense for the quarter declined 2.5 million from the prior year, primarily due to a favorable settlement related to the termination of the software contract along with lower print advertising expense and employee benefit-related costs, partially offset by higher employee labor expense.Now, looking at our bottom line.

For the second quarter, we reported net income of 28,000 or $0.00 per diluted share, including a $0.03 per diluted share net benefit related to the favorable settlement of a software contract termination that I just mentioned. This compared to a net loss for the second quarter of fiscal 2018 as 0.2 million or $0.01 per share.

Briefly reviewing our 2019 first half results, net sales were 486.3 million, compared to net sales of 474.1 million, during the first six months of fiscal 2018.

Same store sales increased 2.7% during the first half of fiscal 2019 versus the comparable period last year.Net income for the period was 1.7 million or $0.08 per diluted share, including a $0.03 per diluted share net benefit related to the favorable settlement of a software contract termination and a $0.02 per diluted share charge for the write-off of deferred tax asset.

This compared to a net loss for the first 26 weeks of fiscal 2018 of $1.6 million or $0.07 per diluted share, including a $0.01 per diluted share charge for the write-off of deferred tax assets.Turning to the balance sheet. Our team continues to do an outstanding job managing inventory levels.

Chain-wide inventory was 318.6 million at the end of the second quarter, which reflected a year-over-year reduction in our inventory of 27 million or 7.5% on a per store basis.Our revolving credit borrowings totaled 62.4 million at the end of the second quarter in 2019, reflecting a reduction of 28.2 million or 31%, compared to the same period in the prior year.

These reductions in our borrowing and inventory levels have substantially strengthened our balance sheet as we continue to focus on maintaining a healthy financial condition and the flexibility to invest appropriately in our business.Looking at our capital spending.

Our CapEx, excluding noncash acquisitions totaled 4 million for the first half of fiscal 2019, primarily representing store-related remodeling, distribution center investments, and computer hardware and software purchases.

We expect total capital expenditures for fiscal 2019, excluding noncash acquisitions of approximately 9 million to 13 million.From a cash flow perspective, our cash flow from operations was a positive 5.6 million in the first half of fiscal 2019, compared to a negative $21.9 million in the prior year period.

This 27.5 million year-over-year improvement in operating cash flow in the first half of fiscal 2019 reflects our working capital improvements in inventory and accounts payable, as well as higher net income.For the second quarter, we paid a 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 third quarter of fiscal 2019.Now, I’ll spend a minute on our guidance.

For the fiscal 2019 third quarter, we expect same-store sales to be in the flat-to-positive low-single-digit range and earnings per diluted share to be in the range of $0.15 to $0.23. Our fiscal 2019 third quarter guidance reflects an anticipated increase in merchandise margins over the prior year period.

For comparison purposes, for the fiscal 2018 third quarter, same-store sales decreased 2.0% and earnings per diluted share were $0.15.Steve, I'll now turn the call back to you for some closing remarks..

Thank you, Barry. Our team is working hard to continue the current momentum in our business. Thank you for joining us on today's call. We look forward to speaking with you again after conclusion of our third quarter..

This concludes today's call. Thank you for your participation today..