UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____________________ to ____________________
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: ( |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
There were
BIG 5 SPORTING GOODS CORPORATION
INDEX
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Page |
PART I – FINANCIAL INFORMATION |
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Item 1 |
3 |
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Unaudited Condensed Consolidated Balance Sheets as of September 29, 2024 and December 31, 2023 |
3 |
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4 |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) |
20 |
Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3 |
29 |
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Item 4 |
29 |
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PART II – OTHER INFORMATION |
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Item 1 |
30 |
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Item 1A |
30 |
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Item 2 |
30 |
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Item 3 |
30 |
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Item 4 |
30 |
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Item 5 |
30 |
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Item 6 |
31 |
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32 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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September 29, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Merchandise inventories, net |
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Prepaid expenses |
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Total current assets |
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Operating lease right-of-use assets, net |
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Property and equipment, net |
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Deferred income taxes |
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Other assets, net of accumulated amortization of $ |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Total current liabilities |
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Operating lease liabilities, less current portion |
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Finance lease liabilities, less current portion |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Less: Treasury stock, at cost; |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
- 3 -
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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13 Weeks Ended |
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39 Weeks Ended |
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September 29, |
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October 1, |
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September 29, |
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October 1, |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling and administrative expense |
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Operating (loss) income |
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( |
) |
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( |
) |
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Interest expense (income) |
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( |
) |
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( |
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(Loss) income before income taxes |
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( |
) |
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( |
) |
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Income tax expense |
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Net (loss) income |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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(Loss) earnings per share: |
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Basic |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
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$ |
( |
) |
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$ |
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Weighted-average shares of common stock |
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Basic |
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Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
- 4 -
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
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13 Weeks Ended September 29, 2024 |
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Additional |
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Treasury |
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Common Stock |
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Paid-In |
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Retained |
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Stock, |
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Shares |
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Amount |
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Capital |
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Earnings |
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At Cost |
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Total |
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Balance as of June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Dividends on common stock ($ |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Forfeiture of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Balance as of September 29, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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13 Weeks Ended October 1, 2023 |
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Additional |
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Treasury |
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Common Stock |
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Paid-In |
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Retained |
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Stock, |
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Shares |
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Amount |
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Capital |
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Earnings |
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At Cost |
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Total |
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Balance as of July 2, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Dividends on common stock ($ |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Exercise of share option awards |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Forfeiture of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Balance as of October 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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39 Weeks Ended September 29, 2024 |
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Additional |
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Treasury |
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Common Stock |
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Paid-In |
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Retained |
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Stock, |
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Shares |
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Amount |
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Capital |
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Earnings |
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At Cost |
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Total |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Dividends on common stock ($ |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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Exercise of share option awards |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Forfeiture of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Retirement of common stock for payment |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
) |
Balance as of September 29, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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39 Weeks Ended October 1, 2023 |
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Additional |
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Treasury |
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Common Stock |
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Paid-In |
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Retained |
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Stock, |
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Shares |
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Amount |
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Capital |
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Earnings |
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At Cost |
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Total |
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Balance as of January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Dividends on common stock ($ |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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Exercise of share option awards |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Forfeiture of nonvested share awards |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Retirement of common stock for payment |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
) |
Balance as of October 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
|
See accompanying notes to unaudited condensed consolidated financial statements.
- 5 -
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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39 Weeks Ended |
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September 29, |
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October 1, |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net (loss) income to net cash |
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provided by operating activities: |
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Depreciation and amortization |
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Impairment of assets |
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— |
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Share-based compensation |
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Amortization of other assets |
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Gain on disposal of assets |
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( |
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— |
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Noncash lease expense |
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Proceeds from insurance recovery - lost profit margin and expenses |
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— |
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Gain on recovery of insurance proceeds - lost profit margin and expenses |
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— |
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( |
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Gain on recovery of insurance proceeds - property and equipment |
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— |
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( |
) |
Deferred income taxes |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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( |
) |
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Merchandise inventories, net |
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Prepaid expenses and other assets |
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( |
) |
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Accounts payable |
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( |
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Operating lease liabilities |
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( |
) |
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( |
) |
Accrued expenses and other long-term liabilities |
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( |
) |
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( |
) |
Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
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Proceeds from insurance recovery - property and equipment |
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— |
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Proceeds from disposal of assets |
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— |
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Net cash used in investing activities |
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( |
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( |
) |
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Cash flows from financing activities: |
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Changes in book overdraft |
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( |
) |
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Principal payments under finance lease liabilities |
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( |
) |
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( |
) |
Proceeds from exercise of share option awards |
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Tax withholding payments for share-based compensation |
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( |
) |
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( |
) |
Dividends paid |
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( |
) |
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( |
) |
Net cash used in financing activities |
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( |
) |
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( |
) |
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Net decrease in cash and cash equivalents |
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( |
) |
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( |
) |
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Cash and cash equivalents at beginning of period |
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Cash at end of period |
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$ |
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$ |
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|
||
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Property and equipment acquired under finance leases |
|
$ |
|
|
$ |
|
||
Property and equipment additions unpaid |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
See accompanying notes to unaudited condensed consolidated financial statements.
- 6 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting goods retailer in the western United States, operating
The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its 100%-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented.
The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
Consolidation
The accompanying Interim Financial Statements include the accounts of Big 5 Sporting Goods Corporation, Big 5 Corp. and Big 5 Services Corp. Intercompany balances and transactions have been eliminated in consolidation.
Reporting Period
The Company follows the concept of a
Recently Issued Accounting Updates
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06, Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates into the Accounting Standards Codification (“ASC”) certain incremental disclosure requirements introduced by the Securities and Exchange Commission (“SEC”) as part of its disclosure update and simplification initiative. The amendments in this update are intended to clarify or improve presentation and disclosure requirements around a variety of ASC Topics, improve entity comparability for users, and align ASC requirements with SEC regulations. For entities subject to the SEC’s existing disclosure requirements, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the ASC and not become effective. Early adoption is prohibited. The Company does not expect the issuance of this ASU to have a material impact on its consolidated financial statements.
- 7 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has not early adopted the ASU for interim periods. The Company will adopt this ASU for its annual period ending December 29, 2024, and the Company is evaluating the future impact of the issuance of this ASU on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, which include improvements to income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. This ASU also includes certain other amendments to better align disclosures with Regulation S-X and to remove disclosures no longer considered cost beneficial or relevant. This ASU is effective for public entities for annual periods beginning after December 15, 2024, with earlier or retrospective application permitted. The amendments in this ASU should be applied prospectively for annual financial statements not yet issued or made available for issuance. The Company is evaluating the future impact of the issuance of this ASU on its consolidated financial statements.
Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.
General Concentration of Risk
The Company purchases merchandise from over
A substantial amount of the Company’s inventory is manufactured abroad and, from time to time, shipping ports may experience capacity constraints (such as delays associated with the novel coronavirus “COVID-19”), labor strikes, work stoppages or other disruptions that may delay the delivery of imported products. A contract dispute may lead to protracted delays in the movement of the Company’s products, which could further delay the delivery of products to the Company’s stores and impact net sales and profitability. In addition, other conditions outside of the Company’s control, such as adverse weather conditions or acts of terrorism or war, such as the current conflicts in Ukraine and the Middle East, could significantly disrupt operations at shipping ports or otherwise impact transportation of the imported merchandise we sell, either through supply chain disruptions, or rising freight and fuel costs.
Use of Estimates
Management makes a number of estimates and assumptions relating to the reporting of assets, liabilities and stockholders’ equity and the disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and reported amounts of revenue and expense during the reporting period to prepare these Interim Financial Statements in conformity with GAAP. Certain items subject to such estimates and assumptions include the carrying amount of merchandise inventories, property and equipment, lease assets and lease liabilities; valuation allowances for receivables, sales returns and deferred income tax assets; estimates related to stored-value cards and the valuation of share-based compensation awards; and obligations related to litigation, self-insurance liabilities and employee benefits. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after September 29, 2024 may result in actual outcomes that differ from those contemplated by management’s assumptions and estimates.
- 8 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Revenue Recognition
The Company operates solely as a sporting goods retailer, which includes both retail stores and an e-commerce platform, that offers a broad range of products in the western United States and online. Generally, all revenue is recognized when control of the promised goods is transferred to customers, for an amount that reflects the consideration in exchange for those goods. Accordingly, the Company implicitly enters into a contract with customers to deliver merchandise inventory at the point of sale. Collectability is probable since the Company only extends immaterial credit purchases to certain municipalities and local school districts.
In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company disaggregates net sales into the following major merchandise categories to depict the nature and amount of revenue and related cash flows:
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
September 29, |
|
|
October 1, |
|
|
September 29, |
|
|
October 1, |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Hardgoods |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Athletic and sport footwear |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Athletic and sport apparel |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Substantially all of the Company’s revenue is for single performance obligations for the following distinct items:
For performance obligations related to retail store and e-commerce sales contracts, the Company typically transfers control, for retail stores, upon consummation of the sale when the product is paid for and taken by the customer and, for e-commerce sales, when the product is tendered for delivery to the common carrier. For performance obligations related to stored-value cards, the Company typically transfers control upon redemption of the stored-value card through consummation of a future sales transaction. The Company accounts for shipping and handling relative to e-commerce sales as fulfillment activities, and not a separate performance obligation. Accordingly, the Company recognizes revenue for only
The Company recognized $
In the accompanying interim unaudited condensed consolidated balance sheets, the Company recorded, as prepaid expense, estimated right-of-return merchandise cost of $
Share-Based Compensation
The Company accounts for its share-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The Company recognizes compensation expense on a straight-line basis over the requisite service period using the fair-value method for share option awards, nonvested share awards and nonvested share unit awards granted with service-only conditions. See Note 11 to the Interim Financial Statements for a further discussion on share-based compensation.
- 9 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Valuation of Merchandise Inventories, Net
The Company’s merchandise inventories are valued at the lower of cost or net realizable value using the weighted-average cost method that approximates the first-in, first-out (“FIFO”) method. Average cost includes the direct purchase price of merchandise inventory, net of vendor allowances and cash discounts, in-bound freight-related expense and allocated overhead expense associated with the Company’s distribution center.
Management regularly reviews inventories and records valuation reserves for damaged and defective merchandise, merchandise items with slow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds net realizable value. Because of its merchandise mix, the Company has not historically experienced significant occurrences of obsolescence.
Inventory shrinkage is accrued as a percentage of merchandise sales based on historical inventory shrinkage trends. The Company performs physical inventories of its stores at least once per year and cycle counts inventories at its distribution center throughout the year. The reserve for inventory shrinkage primarily represents an estimate for inventory shrinkage for each store since the last physical inventory date through the reporting date.
These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive environments differ from expectations.
Valuation of Long-Lived Assets
In accordance with ASC 360, Property, Plant, and Equipment, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”), usually at the store level. The carrying amount of a store asset group includes stores’ property and equipment, primarily leasehold improvements, and operating lease right-of-use (“ROU”) assets. The carrying amount of a store asset group is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the store asset group. Factors that could trigger an impairment review include a current-period operating or cash flow loss combined with a history of operating and cash flow losses, and a projection that demonstrates continuing losses or insufficient income over the remaining reasonably certain lease term associated with the use of a store asset group. Other factors may include an adverse change in the business climate or an adverse action or assessment by a regulator in the market of a store asset group. When stores are identified as having an indicator of impairment, the Company forecasts undiscounted cash flows over the store asset group’s remaining reasonably certain lease term and compares the undiscounted cash flows to the carrying amount of the store asset group. If the store asset group is determined not to be recoverable, then an impairment charge will be recognized in the amount by which the carrying amount of the store asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as contemplated in ASC 820, Fair Value Measurements.
The Company determines the cash flows expected to result from the store asset group by projecting future revenue, gross margin and operating expense for each store asset group under evaluation for impairment. The estimates of future cash flows involve management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning, and include assumptions about sales growth rates, gross margins and operating expense in relation to the current economic environment and the Company’s future expectations, competitive factors in its various markets, inflation, sales trends and other relevant environmental factors that may impact the store under evaluation. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions. If economic conditions deteriorate in the markets in which the Company conducts business, or if other negative market conditions develop, the Company may experience additional impairment charges in the future for underperforming stores.
The resulting impairment charge, if any, is allocated to the property and equipment, primarily leasehold improvements, and operating lease ROU assets on a pro-rata basis using the relative carrying amounts of those assets. The allocated impairment charge to a long-lived asset is limited to the extent that the impairment charge does not reduce the carrying amount of the individual long-lived asset below its individual fair value. The estimation of the fair value of an ROU asset involves the evaluation of current market value rental amounts for leases associated with ROU assets. The estimates of current market value rental amounts are primarily based on recent observable market rental data of other comparable retail store locations. The fair value of an ROU asset is measured using a discounted cash flow valuation technique by discounting the estimated current and future market rental values using a property-specific discount rate.
- 10 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company recognized a non-cash impairment charge of $
Leases
In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at inception. The Company has operating and finance leases for the Company’s retail store facilities, distribution center, corporate offices, information technology (“IT”) systems hardware, and distribution center delivery tractors and equipment. Operating leases are included in operating lease ROU assets and operating lease liabilities, current and noncurrent, on the interim unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment and finance lease liabilities, current and noncurrent, on the interim unaudited condensed consolidated balance sheets. Lease liabilities are calculated using the effective interest method, regardless of classification, while the amortization of ROU assets varies depending upon classification. Finance lease classification results in a front-loaded expense recognition pattern over the lease term which amortizes the ROU asset by recognizing interest expense and amortization expense as separate components of lease expense and calculates the amortization expense component on a straight-line basis. Conversely, operating lease classification results in a straight-line expense recognition pattern over the lease term and recognizes lease expense as a single expense component, which results in amortization of the ROU asset that equals the difference between lease expense and interest expense. Lease expense for finance and operating leases are included in cost of sales or selling and administrative expense, based on the use of the leased asset, on the interim unaudited condensed consolidated statements of operations. Variable payments such as property taxes, insurance and common area maintenance related to triple net leases, as well as certain equipment sales taxes, licenses, fees and repairs, are expensed as incurred, and leases with an initial term of 12 months or less are excluded from minimum lease payments and are not recorded on the interim unaudited condensed consolidated balance sheets. The Company recognizes variable lease expense for these short-term leases on a straight-line basis over the remaining lease term.
ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the reasonably certain lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses a collateralized incremental borrowing rate (“IBR”) to determine the present value of lease payments. The collateralized IBR is based on a synthetic credit rating that is externally prepared on an annual basis. This analysis considers qualitative and quantitative factors based on guidance provided by a rating agency for the consumer durables industry. The Company adjusts the selected IBR quarterly with a company-specific unsecured yield curve that approximates the Company’s market risk profile. The collateralized IBR is also based upon the estimated impact that the collateral has on the IBR. To account for the collateralized nature of the IBR, the Company utilized a notching method based on notching guidance provided by a rating agency whereby the Company’s base credit rating is notched upward as the yield curve on a secured loan is expected to be lower versus an unsecured loan.
The operating lease ROU asset also includes any prepaid lease payments made and is reduced by lease incentives such as tenant improvement allowances. The operating lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term.
Certain of the leases for the Company’s retail store facilities provide for payments based on future sales volumes at the leased location, which are not measurable at the inception of the lease. Under ASC 842, these contingent rents are expensed as they accrue.
See Note 6 to the Interim Financial Statements for a further discussion on leases.
- 11 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognized a non-cash impairment charge of $
The carrying values of cash, accounts receivable, accounts payable and accrued expenses approximate the fair values of these instruments due to their short-term nature. Book overdrafts for checks outstanding are classified as current liabilities in the Company’s interim unaudited condensed consolidated balance sheets. The carrying amount for borrowings, if any, under the Company’s credit facility approximates fair value because of the variable market interest rate charged to the Company for these borrowings. When the Company recognizes impairment on certain of its underperforming stores, the carrying values of these stores are reduced to their estimated fair values.
The Company’s only significant assets or liabilities measured at fair value on a nonrecurring basis subsequent to their initial recognition were assets subject to long-lived asset impairment related to certain underperforming stores. The Company estimates the fair values of these long-lived assets based on the Company’s own judgments about the assumptions that market participants would use in pricing the asset and on observable real estate market data of underperforming stores’ specific comparable markets, when available. The Company classifies these fair value measurements as Level 3 inputs, which are unobservable inputs for which market data are not available and that are developed using the best information available about pricing assumptions used by market participants in accordance with ASC 820. As of September 29, 2024 and December 31, 2023, there were $
The major components of accrued expenses are as follows:
|
|
September 29, |
|
|
December 31, |
|
||
|
|
(In thousands) |
|
|||||
Payroll and related expense |
|
$ |
|
|
$ |
|
||
Occupancy expense |
|
|
|
|
|
|
||
Stored-value card liabilities |
|
|
|
|
|
|
||
Sales tax |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued expenses |
|
$ |
|
|
$ |
|
- 12 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company has operating and finance leases for the Company’s retail store facilities, distribution center, corporate offices, IT systems hardware, and distribution center delivery tractors and equipment, and accounts for these leases in accordance with ASC 842.
Certain of the leases for the Company’s retail store facilities provide for variable payments for property taxes, insurance, common area maintenance payments related to triple net leases, rental payments based on future sales volumes at the leased location, as well as certain equipment sales taxes, licenses, fees and repairs, which are not measurable at the inception of the lease, or rental payments that are adjusted periodically for inflation. The Company recognizes variable lease expense for these leases in the period incurred which, for contingent rent, begins in the period in which it becomes probable that the specified target that triggers the variable lease payments will be achieved. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
September 29, |
|
|
October 1, |
|
|
September 29, |
|
|
October 1, |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Other information related to leases was as follows:
|
|
39 Weeks Ended |
|
|||||
|
|
September 29, |
|
|
October 1, |
|
||
|
|
(In thousands) |
|
|||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
|
|
|
|
|
|
||
Operating cash flows from finance leases |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
|
|
$ |
|
||
Weighted-average remaining lease term—finance leases |
|
|
|
|
||||
Weighted-average remaining lease term—operating leases |
|
|
|
|
||||
Weighted-average discount rate—finance leases |
|
|
% |
|
|
% |
||
Weighted-average discount rate—operating leases |
|
|
% |
|
|
% |
- 13 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Maturities of finance and operating lease liabilities as of September 29, 2024 were as follows:
Fiscal Year Ending: |
|
Finance |
|
|
Operating |
|
||
|
|
(In thousands) |
|
|||||
2024 (remaining three months) |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Undiscounted cash flows |
|
$ |
|
|
$ |
|
||
Reconciliation of lease liabilities: |
|
|
|
|
|
|
||
Weighted-average remaining lease term |
|
|
|
|
||||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
Present values |
|
$ |
|
|
$ |
|
||
Lease liabilities - current |
|
|
|
|
|
|
||
Lease liabilities - long-term |
|
|
|
|
|
|
||
Lease liabilities - total |
|
$ |
|
|
$ |
|
||
Difference between undiscounted and discounted cash flows |
|
$ |
|
|
$ |
|