The following discussion and analysis of the
Our fiscal year ends on the Sunday nearest
Overview
We are a leading sporting goods retailer in the western
In the first quarter of fiscal 2022 and 2021 we did not open or close any stores. For fiscal 2022, we anticipate opening approximately four new stores and closing approximately two stores.
Executive Summary
Net income decreased in the first quarter of fiscal 2022 compared with historically-high net income in the first quarter of fiscal 2021 as a result of decreased net sales and increased selling and administrative expense, partially offset by the favorable impact of higher merchandise margins year over year. Decreases in net sales and earnings in the first quarter of fiscal 2022 reflected comparison to the first quarter of fiscal 2021, which represented our highest first-quarter net sales and net income as a public company as a result of strong consumer demand associated with the COVID-19 pandemic. While earnings in the first quarter of fiscal 2022 decreased from the prior year, net income remained healthy compared to pre-pandemic levels due mainly to a continuation of improved merchandise margins.
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Net sales for the first quarter of fiscal 2022 decreased 11.3% to
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Gross profit for the first quarter of fiscal 2022 represented 35.5% of net sales, compared with 35.9% in the first quarter of the prior year. The decrease in gross profit margin primarily reflects higher store occupancy expense as a percentage of net sales, partially offset by higher merchandise margins, compared with the prior year.
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Selling and administrative expense for the first quarter of fiscal 2022
increased 7.4% to
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Net income for the first quarter of fiscal 2022 was
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Operating cash flow for the first quarter of fiscal 2022 was a negative
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Capital expenditures for the first quarter of fiscal 2022 increased to
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Cash and cash equivalents were
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We paid cash dividends in the first quarter of fiscal 2022 of
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We repurchased 94,983 shares of common stock for
Results of Operations
The results of the interim periods are not necessarily indicative of results for the entire fiscal year.
13 Weeks Ended
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:
13 Weeks Ended April 3, April 4, 2022 2021 (Dollars in thousands) Net sales$ 241,981 100.0 %$ 272,806 100.0 % Cost of sales (1) 156,048 64.5 174,913 64.1 Gross profit 85,933 35.5 97,893 35.9 Selling and administrative expense (2) 75,317 31.1 70,144 25.7 Operating income 10,616 4.4 27,749 10.2 Interest expense 184 0.1 342 0.1 Income before income taxes 10,432 4.3 27,407 10.1 Income tax expense 1,329 0.5 5,861 2.1 Net income$ 9,103 3.8 %$ 21,546 8.0 % (1)
Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, including depreciation and amortization, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes and insurance.
(2)
Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges, if any.
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Same store sales decreased by
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The decrease in same store sales compares to a 31.8% increase in same store sales for the first quarter of fiscal 2021, which at the time was our highest quarterly increase in same store sales as a public company. Sales in the first quarter of fiscal 2022 were impacted by unfavorable warm and dry winter weather conditions in our markets, as well as reduced customer traffic due to COVID-19 and product availability constraints resulting from ongoing supply chain disruptions.
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The record increase in our same store sales achieved for the first quarter of fiscal 2021 resulted from strong consumer demand for many categories of sporting goods products last year as certain COVID-19 pandemic restrictions were lifted, and also reflected favorable comparisons against temporary store closures related to COVID-19 in the first quarter of fiscal 2020.
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Our lower same store sales reflected a decrease in each of our major merchandise categories of hardgoods, apparel and footwear.
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Same store sales comparisons are made on a comparable-week basis. Same store sales for a period normally consist of sales for stores that operated throughout the period and the full corresponding prior-year period, along with sales from e-commerce. Same store sales comparisons exclude sales from stores permanently closed, or stores in the process of closing, during the comparable periods. Sales from e-commerce in the first quarter of fiscal 2022 and 2021 were not material.
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We experienced decreased customer transactions and a lower average sale per transaction in the first quarter of fiscal 2022 compared to the prior year.
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The decrease in net sales was partially offset by a favorable calendar shift related to the Easter holiday, during which our stores are closed, from the first quarter in fiscal 2021 to the second quarter in fiscal 2022.
Gross Profit. Gross profit decreased by
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Net sales decreased by
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Store occupancy expense increased by
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Merchandise margins, which exclude buying, occupancy and distribution expense, increased by a favorable 119 basis points compared with the first quarter of last year when merchandise margins increased by a favorable 350 basis points. Our continued strong merchandise margins primarily reflect favorable promotional pricing, a shift in our product sales mix and higher sales prices in response to increases in product purchase costs. The higher product purchase costs we are experiencing continue to reflect increased raw material, labor and freight costs initially resulting from shortages related to COVID-19. Shipping capacity constraints and labor shortages at the ports also continue to contribute to higher freight costs and are adversely impacting our ability to obtain sufficient quantities of certain products in our stores to meet customer demand.
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Distribution expense, including costs capitalized into inventory, decreased by
Selling and Administrative Expense. Selling and administrative expense increased
by
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Store-related expense, excluding occupancy, increased by
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Administrative expense increased by
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Our advertising expense increased by
Interest Expense. Interest expense decreased by
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Income Taxes. The provision for income taxes decreased to
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash and cash equivalents on hand, cash flows from operations and borrowings from the revolving credit facility, when necessary.
As ofApril 3, 2022 , we had$62.0 million of cash and cash equivalents compared to$100.1 million of cash and cash equivalents as ofApril 4, 2021 . Our cash flows from operating, investing and financing activities are summarized as follows: 13 Weeks Ended April 3, April 4, 2022 2021 (In thousands) Total cash (used in) provided by: Operating activities$ (23,717 ) $ 41,974 Investing activities (2,926 ) (1,493 ) Financing activities (8,739 ) (5,038 )
Net (decrease) increase in cash and cash equivalents
Operating Activities. Operating cash flows for the first quarter of fiscal 2022
and 2021 were a negative
Investing Activities. Net cash used in investing activities for the first
quarter of fiscal 2022 and 2021 was
Financing Activities. Financing cash flows for the first quarter of fiscal 2022
and 2021 were a negative
As of
In the first quarter of fiscal 2021, second quarter of fiscal 2021, third
quarter of fiscal 2021 and fourth quarter of fiscal 2021 our Board of Directors
declared quarterly cash dividends of
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Periodically, we repurchase our common stock in the open market pursuant to
programs approved by our Board of Directors. We may repurchase our common stock
for a variety of reasons, including, among other things, our alternative cash
requirements, existing business conditions and the current market price of our
stock. In fiscal 2016, our Board of Directors authorized a share repurchase
program for the purchase of up to
Loan Agreement. As of
On
Similar to the Prior Credit Agreement, we may borrow under the Loan Agreement
from time to time, provided the amounts outstanding will not exceed the lesser
of the then aggregate committed availability (as discussed above) and the
Borrowing Base (such lesser amount being referred to as the "Line Cap"). As
defined in the Loan Agreement, the "Borrowing Base" generally is comprised of
the sum, at the time of calculation, of (a) 90.00% of eligible credit card
receivables; plus (b) the cost of eligible inventory (other than eligible
in-transit inventory), net of inventory reserves, multiplied by 90.00% of the
appraised net orderly liquidation value of eligible inventory (expressed as a
percentage of the cost of eligible inventory); plus (c) the cost of eligible
in-transit inventory, net of inventory reserves, multiplied by 90.00% of the
appraised net orderly liquidation value of eligible in-transit inventory
(expressed as a percentage of the cost of eligible in-transit inventory), minus
(d) certain agreed-upon reserves as well as other reserves established by
Generally, we may designate specific borrowings under the Loan Agreement as
either base rate loans or LIBO rate loans. The applicable interest rate on our
borrowings is a function of the daily average, over the preceding fiscal
quarter, of the excess of the Line Cap over amounts borrowed (such amount being
referred to as the "Average Daily Availability"). Those loans designated as LIBO
rate loans bear interest at a rate equal to the then applicable adjusted LIBO
rate plus an applicable margin as shown in the table below. Those loans
designated as base rate loans bear interest at a rate equal to the applicable
margin for base rate loans (as shown below) plus the highest of (a) the Federal
funds rate, as in effect from time to time, plus one-half of one percent
(0.50%), (b) the LIBO rate, plus one percentage point (1.00%), or (c) the rate
of interest in effect for such day as announced from time to time within
LIBO Rate Base Rate Level Average Daily Availability Applicable Margin Applicable Margin I Greater than or equal to$70,000,000 1.375% 0.375% II Less than$70,000,000 1.500% 0.500%
The commitment fee assessed on the unused portion of the credit facility is 0.20% per annum.
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Obligations under the Loan Agreement are secured by a general lien on and
security interest in substantially all of our assets. The Loan Agreement
contains covenants that require us to maintain a fixed charge coverage ratio of
not less than 1.0:1.0 in certain circumstances, and limits the ability to, among
other things, incur liens, incur additional indebtedness, transfer or dispose of
assets, change the nature of the business, guarantee obligations, pay dividends
or make other distributions or repurchase stock, and make advances, loans or
investments. We may generally declare or pay cash dividends or repurchase stock
only if, among other things, no default or event of default then exists or would
arise from such dividend or repurchase of stock and, after giving effect to such
dividend or repurchase, certain availability and/or fixed charge coverage ratio
requirements are satisfied, although we are permitted to make up to
In the first quarter of fiscal 2021, we paid and capitalized
Future Capital Requirements. We had cash and cash equivalents on hand of
Dividends are paid at the discretion of our Board of Directors. In fiscal 2021
we paid cash dividends of
As of
We believe we will be able to fund our cash requirements from cash and cash equivalents on hand, operating cash flows and borrowings from our credit facility, for at least the next 12 months.
Contractual Obligations. Our material contractual obligations include operating lease commitments associated with our leased properties and other occupancy expense, finance lease obligations, borrowings under the credit facility, if any, and other liabilities. Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate offices. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term, and we intend to renegotiate most of these leases as they expire. Operating lease commitments also consist of information technology ("IT") systems hardware, distribution center delivery tractors and equipment. Additional information regarding our operating and finance leases is available in Notes 2 and 5 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
In the first quarter of fiscal 2022 and 2021, we had no borrowings under our revolving credit facility. Our zero borrowings reflect improved profitability and positive operating cash flow from increased consumer demand related to the COVID-19 pandemic.
In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Because most of these purchase orders do not contain any termination payments or other penalties if cancelled, they are not included as outstanding contractual obligations.
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Critical Accounting Estimates
As discussed in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of our Annual Report on Form 10-K
for the fiscal year ended
Seasonality and Impact of Inflation
We experience seasonal fluctuations in our net sales and operating results, which can suffer when weather does not conform to seasonal norms, such as the first quarter of fiscal 2022 when we experienced warm and dry winter-weather conditions across our markets. Seasonality in our net sales influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of a season and supplement our merchandise assortment as necessary and when possible during the season. Our efforts to replenish products during a season are not always successful. In the fourth fiscal quarter, which includes the holiday selling season and the start of the winter selling season, we normally experience higher inventory purchase volumes and increased expense for staffing and advertising. If we miscalculate the consumer demand for our products generally or for our product mix in advance of a season, particularly the fourth quarter, our net sales can decline, which can harm our financial performance. A significant shortfall from expected net sales, particularly during the fourth quarter, can negatively impact our annual operating results.
In fiscal 2021 and the first quarter of fiscal 2022, we experienced greater inflation in the cost of products that we purchase for resale as well as higher freight costs than in previous years. While our merchandise inventory costs have been impacted by these inflationary pressures, up to this point we have generally been able to adjust our selling prices in response to these higher product purchase costs. However, if we are unable to continue to adjust our selling prices for product purchase cost increases that might occur in the future, then our merchandise margins could decline, which would adversely impact our operating results. In fiscal 2021 and the first quarter of fiscal 2022, we also experienced increased wage expense as a result of higher demand for labor in many of our markets.
Recently Issued Accounting Updates
See Note 2 to the Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This document includes certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements relate to, among other things, our financial condition, our results
of operations, our growth strategy and the business of our company generally. In
some cases, you can identify such statements by terminology such as "may,"
"could," "project," "estimate," "potential," "continue," "should," "expects,"
"plans," "anticipates," "believes," "intends" or other such terminology. These
forward-looking statements involve known and unknown risks and uncertainties and
other factors that may cause our actual results in current or future periods to
change significantly and differ materially from forecasted results. These risks
and uncertainties include, among other things, the economic impacts of COVID-19,
including any potential variants, on our business operations, including as a
result of regulations that may be issued in response to COVID-19, changes in the
consumer spending environment, fluctuations in consumer holiday spending
patterns, increased competition from e-commerce retailers, breach of data
security or other unauthorized disclosure of sensitive personal or confidential
information, the competitive environment in the sporting goods industry in
general and in our specific market areas, inflation, product availability and
growth opportunities, changes in the current market for (or regulation of)
firearm-related products, a reduction or loss of product from a key supplier,
disruption in product flow, seasonal fluctuations, weather conditions, changes
in cost of goods, operating expense fluctuations, increases in labor and
benefit-related expense, changes in laws or regulations, including those related
to tariffs and duties, public health issues (including those caused by COVID-19
or any potential variants), impacts from civil unrest or widespread vandalism,
lower than expected profitability of our e-commerce platform or cannibalization
of sales from our existing store base which could occur as a result of operating
the e-commerce platform, litigation risks, stockholder campaigns and proxy
contests, risks related to our historically leveraged financial condition,
changes in interest rates, credit availability, higher expense associated with
sources of credit resulting from uncertainty in financial markets and economic
conditions in general. Those and other risks and uncertainties are more fully
described in Part II, Item 1A, Risk Factors, in this report and in Part I, Item
1A, Risk Factors, in our Annual Report on Form 10-K and other filings with the
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