10-Q 1 bgfv-20240929.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _____________________ to ____________________

Commission file number: 000-49850

 

BIG 5 SPORTING GOODS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4388794

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

2525 East El Segundo Boulevard

El Segundo, California

 

90245

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (310) 536-0611

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BGFV

The Nasdaq Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

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 22,699,800 shares of common stock, with a par value of $0.01 per share, outstanding as of October 22, 2024.

 

 


 

BIG 5 SPORTING GOODS CORPORATION

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets as of September 29, 2024 and December 31, 2023

3

 

Unaudited Condensed Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended September 29, 2024 and October 1, 2023

4

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Thirty-Nine Weeks Ended September 29, 2024 and October 1, 2023

5

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended September 29, 2024 and October 1, 2023

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

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

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4

Controls and Procedures

29

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

30

Item 1A

Risk Factors

30

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3

Defaults Upon Senior Securities

30

Item 4

Mine Safety Disclosures

30

Item 5

Other Information

30

Item 6

Exhibits

31

 

 

SIGNATURES

32

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

September 29,
2024

 

 

December 31,
2023

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$

3,991

 

 

$

9,201

 

Accounts receivable, net of allowances of $64 and $48, respectively

 

 

9,644

 

 

 

9,163

 

Merchandise inventories, net

 

 

265,984

 

 

 

275,759

 

Prepaid expenses

 

 

9,235

 

 

 

16,052

 

Total current assets

 

 

288,854

 

 

 

310,175

 

Operating lease right-of-use assets, net

 

 

260,572

 

 

 

253,615

 

Property and equipment, net

 

 

54,081

 

 

 

58,595

 

Deferred income taxes

 

 

-

 

 

 

13,427

 

Other assets, net of accumulated amortization of $2,807 and $1,954, respectively

 

 

8,307

 

 

 

8,871

 

Total assets

 

$

611,814

 

 

$

644,683

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

64,395

 

 

$

55,201

 

Accrued expenses

 

 

60,260

 

 

 

61,283

 

Current portion of operating lease liabilities

 

 

69,939

 

 

 

70,372

 

Current portion of finance lease liabilities

 

 

3,758

 

 

 

3,843

 

Total current liabilities

 

 

198,352

 

 

 

190,699

 

Operating lease liabilities, less current portion

 

 

202,049

 

 

 

191,178

 

Finance lease liabilities, less current portion

 

 

9,462

 

 

 

11,856

 

Other long-term liabilities

 

 

6,129

 

 

 

6,536

 

Total liabilities

 

 

415,992

 

 

 

400,269

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 50,000,000 shares; issued 27,007,055 and
   
26,747,617 shares, respectively; outstanding 22,699,800 and 22,440,362 shares, respectively

 

 

269

 

 

 

267

 

Additional paid-in capital

 

 

130,553

 

 

 

128,737

 

Retained earnings

 

 

119,257

 

 

 

169,667

 

Less: Treasury stock, at cost; 4,307,255 shares

 

 

(54,257

)

 

 

(54,257

)

Total stockholders' equity

 

 

195,822

 

 

 

244,414

 

Total liabilities and stockholders' equity

 

$

611,814

 

 

$

644,683

 

 

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)

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 29,
2024

 

 

October 1,
2023

 

 

September 29,
2024

 

 

October 1,
2023

 

Net sales

 

$

220,598

 

 

$

239,889

 

 

$

613,849

 

 

$

688,395

 

Cost of sales

 

 

156,387

 

 

 

160,331

 

 

 

430,516

 

 

 

461,790

 

Gross profit

 

 

64,211

 

 

 

79,558

 

 

 

183,333

 

 

 

226,605

 

Selling and administrative expense

 

 

75,039

 

 

 

76,575

 

 

 

218,645

 

 

 

224,114

 

Operating (loss) income

 

 

(10,828

)

 

 

2,983

 

 

 

(35,312

)

 

 

2,491

 

Interest expense (income)

 

 

187

 

 

 

(95

)

 

 

392

 

 

 

(265

)

(Loss) income before income taxes

 

 

(11,015

)

 

 

3,078

 

 

 

(35,704

)

 

 

2,756

 

Income tax expense

 

 

18,886

 

 

 

1,220

 

 

 

12,487

 

 

 

987

 

Net (loss) income

 

$

(29,901

)

 

$

1,858

 

 

$

(48,191

)

 

$

1,769

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.36

)

 

$

0.09

 

 

$

(2.20

)

 

$

0.08

 

Diluted

 

$

(1.36

)

 

$

0.08

 

 

$

(2.20

)

 

$

0.08

 

Weighted-average shares of common stock
   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,000

 

 

 

21,801

 

 

 

21,929

 

 

 

21,731

 

Diluted

 

 

22,000

 

 

 

22,045

 

 

 

21,929

 

 

 

22,003

 

 

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)

 

 

13 Weeks Ended September 29, 2024

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Treasury

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stock,

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

At Cost

 

 

Total

 

Balance as of June 30, 2024

 

 

22,708,865

 

 

$

269

 

 

$

129,880

 

 

$

149,147

 

 

$

(54,257

)

 

$

225,039

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(29,901

)

 

 

 

 

 

(29,901

)

Dividends on common stock ($0.00 per
   share)

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Share-based compensation

 

 

 

 

 

 

 

 

673

 

 

 

 

 

 

 

 

 

673

 

Forfeiture of nonvested share awards

 

 

(9,065

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 29, 2024

 

 

22,699,800

 

 

$

269

 

 

$

130,553

 

 

$

119,257

 

 

$

(54,257

)

 

$

195,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 Weeks Ended October 1, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Treasury

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stock,

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

At Cost

 

 

Total

 

Balance as of July 2, 2023

 

 

22,451,992

 

 

$

267

 

 

$

127,358

 

 

$

185,047

 

 

$

(54,257

)

 

$

258,415

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,858

 

 

 

 

 

 

1,858

 

Dividends on common stock ($0.25 per
   share)

 

 

 

 

 

 

 

 

 

 

 

(5,590

)

 

 

 

 

 

(5,590

)

Exercise of share option awards

 

 

5,875

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Share-based compensation

 

 

 

 

 

 

 

 

677

 

 

 

 

 

 

 

 

 

677

 

Forfeiture of nonvested share awards

 

 

(13,445

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of October 1, 2023

 

 

22,444,422

 

 

$

267

 

 

$

128,051

 

 

$

181,315

 

 

$

(54,257

)

 

$

255,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39 Weeks Ended September 29, 2024

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Treasury

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stock,

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

At Cost

 

 

Total

 

Balance as of December 31, 2023

 

 

22,440,362

 

 

$

267

 

 

$

128,737

 

 

$

169,667

 

 

$

(54,257

)

 

$

244,414

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(48,191

)

 

 

 

 

 

(48,191

)

Dividends on common stock ($0.10 per
   share)

 

 

 

 

 

 

 

 

 

 

 

(2,219

)

 

 

 

 

 

(2,219

)

Issuance of nonvested share awards

 

 

366,660

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Exercise of share option awards

 

 

5,725

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Share-based compensation

 

 

 

 

 

 

 

 

2,117

 

 

 

 

 

 

 

 

 

2,117

 

Forfeiture of nonvested share awards

 

 

(26,050

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of common stock for payment
   of withholding tax

 

 

(86,897

)

 

 

(1

)

 

 

(310

)

 

 

 

 

 

 

 

 

(311

)

Balance as of September 29, 2024

 

 

22,699,800

 

 

$

269

 

 

$

130,553

 

 

$

119,257

 

 

$

(54,257

)

 

$

195,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39 Weeks Ended October 1, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Treasury

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stock,

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

At Cost

 

 

Total

 

Balance as of January 1, 2023

 

 

22,184,495

 

 

$

264

 

 

$

126,512

 

 

$

196,265

 

 

$

(54,257

)

 

$

268,784

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,769

 

 

 

 

 

 

1,769

 

Dividends on common stock ($0.75 per
   share)

 

 

 

 

 

 

 

 

 

 

 

(16,719

)

 

 

 

 

 

(16,719

)

Issuance of nonvested share awards

 

 

327,112

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Exercise of share option awards

 

 

36,550

 

 

 

1

 

 

 

108

 

 

 

 

 

 

 

 

 

109

 

Share-based compensation

 

 

 

 

 

 

 

 

2,060

 

 

 

 

 

 

 

 

 

2,060

 

Forfeiture of nonvested share awards

 

 

(23,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of common stock for payment
   of withholding tax

 

 

(80,065

)

 

 

(1

)

 

 

(626

)

 

 

 

 

 

 

 

 

(627

)

Balance as of October 1, 2023

 

 

22,444,422

 

 

$

267

 

 

$

128,051

 

 

$

181,315

 

 

$

(54,257

)

 

$

255,376

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

- 5 -


 

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

39 Weeks Ended

 

 

 

September 29,
2024

 

 

October 1,
2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(48,191

)

 

$

1,769

 

Adjustments to reconcile net (loss) income to net cash

 

 

 

 

 

 

    provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

13,613

 

 

 

13,665

 

Impairment of assets

 

 

663

 

 

 

 

Share-based compensation

 

 

2,117

 

 

 

2,060

 

Amortization of other assets

 

 

853

 

 

 

351

 

Gain on disposal of assets

 

 

(55

)

 

 

 

Noncash lease expense

 

 

51,813

 

 

 

52,474

 

Proceeds from insurance recovery - lost profit margin and expenses

 

 

 

 

 

619

 

Gain on recovery of insurance proceeds - lost profit margin and expenses

 

 

 

 

 

(338

)

Gain on recovery of insurance proceeds - property and equipment

 

 

 

 

 

(21

)

Deferred income taxes

 

 

13,427

 

 

 

1,013

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(156

)

 

 

3,587

 

Merchandise inventories, net

 

 

9,775

 

 

 

12,236

 

Prepaid expenses and other assets

 

 

6,528

 

 

 

(83

)

Accounts payable

 

 

8,318

 

 

 

(4,791

)

Operating lease liabilities

 

 

(48,657

)

 

 

(53,540

)

Accrued expenses and other long-term liabilities

 

 

(920

)

 

 

(7,937

)

Net cash provided by operating activities

 

 

9,128

 

 

 

21,064

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,923

)

 

 

(8,246

)

Proceeds from insurance recovery - property and equipment

 

 

 

 

 

60

 

Proceeds from disposal of assets

 

 

96

 

 

 

 

Net cash used in investing activities

 

 

(8,827

)

 

 

(8,186

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Changes in book overdraft

 

 

619

 

 

 

(297

)

Principal payments under finance lease liabilities

 

 

(3,001

)

 

 

(2,722

)

Proceeds from exercise of share option awards

 

 

12

 

 

 

109

 

Tax withholding payments for share-based compensation

 

 

(311

)

 

 

(627

)

Dividends paid

 

 

(2,830

)

 

 

(17,036

)

Net cash used in financing activities

 

 

(5,511

)

 

 

(20,573

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(5,210

)

 

 

(7,695

)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

9,201

 

 

 

25,565

 

 

 

 

 

 

 

 

Cash at end of period

 

$

3,991

 

 

$

17,870

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 Property and equipment acquired under finance leases

 

$

522

 

 

$

2,946

 

 Property and equipment additions unpaid

 

$

1,069

 

 

$

1,154

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 Interest paid

 

$

878

 

 

$

458

 

 Income taxes paid

 

$

10

 

 

$

24

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

- 6 -


 

BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(1)
Description of Business

Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting goods retailer in the western United States, operating 424 stores and an e-commerce platform as of September 29, 2024. The Company provides a full-line product offering in a traditional sporting goods store format that averages approximately 12,000 square feet. The Company’s product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, home recreation, tennis, golf, and winter and summer recreation. The Company is a holding company that operates as one reportable segment through Big 5 Corp., its 100%-owned subsidiary, and Big 5 Services Corp., which is a 100%-owned subsidiary of Big 5 Corp. Big 5 Services Corp. provides a centralized operation for the issuance and administration of gift cards and returned merchandise credits (collectively, “stored-value cards”).

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.

(2)
Summary of Significant Accounting Policies

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 52-53 week fiscal year, which ends on the Sunday nearest December 31. Fiscal year 2024 is comprised of 52 weeks and ends on December 29, 2024. Fiscal year 2023 was comprised of 52 weeks and ended on December 31, 2023. The interim periods in fiscal 2024 and 2023 are each comprised of 13 weeks.

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 600 suppliers, and the Company’s 20 largest suppliers accounted for 39.3% of total purchases in fiscal 2023. One vendor represented greater than 5% of total purchases in fiscal 2023, at 5.1%.

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,
2024

 

 

October 1,
2023

 

 

September 29,
2024

 

 

October 1,
2023

 

 

 

(In thousands)

 

Hardgoods

 

$

131,565

 

 

$

141,108

 

 

$

335,462

 

 

$

375,105

 

Athletic and sport footwear

 

 

52,592

 

 

 

58,292

 

 

 

153,349

 

 

 

170,397

 

Athletic and sport apparel

 

 

35,264

 

 

 

39,006

 

 

 

121,489

 

 

 

138,331

 

Other sales

 

 

1,177

 

 

 

1,483

 

 

 

3,549

 

 

 

4,562

 

Net sales

 

$

220,598

 

 

$

239,889

 

 

$

613,849

 

 

$

688,395

 

Substantially all of the Company’s revenue is for single performance obligations for the following distinct items:

Retail store sales
E-commerce sales
Stored-value cards

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 one performance obligation, the sale of the product, at shipping point (when the customer gains control). Revenue associated with e-commerce sales was not material for the 13 and 39 weeks ended September 29, 2024 and October 1, 2023.

The Company recognized $1.2 million and $3.9 million in stored-value card redemption revenue for the 13 and 39 weeks ended September 29, 2024, respectively, compared to $1.2 million and $4.3 million in stored-value card redemption revenue for the 13 and 39 weeks ended October 1, 2023, respectively. The Company also recognized $0.1 million and $0.2 million in stored-value card breakage revenue for the 13 and 39 weeks ended September 29, 2024, respectively, compared to $0.1 million and $0.2 million in stored-value card breakage revenue for the 13 and 39 weeks ended October 1, 2023, respectively. The Company had outstanding stored-value card liabilities of $8.6 million and $9.2 million as of September 29, 2024 and December 31, 2023, respectively, which are included in accrued expenses in the accompanying interim unaudited condensed consolidated balance sheets. Based upon historical experience, stored-value cards are predominantly redeemed in the first two years following their issuance date.

In the accompanying interim unaudited condensed consolidated balance sheets, the Company recorded, as prepaid expense, estimated right-of-return merchandise cost of $0.6 million and $0.9 million related to estimated sales returns as of September 29, 2024 and December 31, 2023, respectively, and recorded, in accrued expenses, an allowance for sales returns reserve of $1.2 million and $1.7 million as of September 29, 2024 and December 31, 2023, respectively.

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 $0.7 million related to an underperforming store in the first nine months of fiscal 2024. This impairment charge represented property and equipment and leasehold improvements and is included in selling and administrative expense in the accompanying interim unaudited consolidated statements of operations. See Note 3 to the Interim Financial Statements for a further discussion on impairment of assets. The Company did not recognize any impairment charges in the first nine months of fiscal 2023.

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)

 

(3)
Impairment of Assets

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 $0.7 million related to an underperforming store in the first nine months of fiscal 2024. This impairment charge represented property and equipment and leasehold improvements and is included in selling and administrative expense in the accompanying interim unaudited consolidated statements of operations. No impairment charges were allocated to the ROU assets because the fair value of the ROU assets approximated their carrying values. In the fourth quarter of fiscal 2023, the Company recognized non-cash impairment charges of $0.6 million related to certain underperforming stores. These impairment charges represented property and equipment and leasehold improvements of $0.5 million and ROU assets of $0.1 million and were included in selling and administrative expense in the consolidated statements of operations in fiscal 2023. The lower-than-expected sales performance, coupled with future unfavorable undiscounted cash flow projections, indicated that the carrying value of these stores’ assets exceeded their estimated fair values as determined by their future discounted cash flow projections.

(4)
Fair Value Measurements

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 $0.7 million and $0.6 million, respectively, of long-lived assets subject to impairment.

(5)
Accrued Expenses

The major components of accrued expenses are as follows:

 

 

September 29,
2024

 

 

December 31,
2023

 

 

 

(In thousands)

 

Payroll and related expense

 

$

20,979

 

 

$

22,331

 

Occupancy expense

 

 

10,221

 

 

 

8,655

 

Stored-value card liabilities

 

 

8,640

 

 

 

9,172

 

Sales tax

 

 

5,719

 

 

 

7,581

 

Other

 

 

14,701

 

 

 

13,544

 

Accrued expenses

 

$

60,260

 

 

$

61,283

 

 

 

- 12 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

(6)
Lease Commitments

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. The components of lease expense were as follows:

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 29,
2024

 

 

October 1,
2023

 

 

September 29,
2024

 

 

October 1,
2023

 

 

 

(In thousands)

 

Lease expense:

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease expense

 

$

21,015

 

 

$

21,236

 

 

$

63,264

 

 

$

63,350

 

Variable lease expense

 

 

4,741

 

 

 

4,656

 

 

 

14,460

 

 

 

14,133

 

Operating lease expense

 

 

25,756

 

 

 

25,892

 

 

 

77,724

 

 

 

77,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

 

1,213

 

 

 

904

 

 

 

3,514

 

 

 

2,803

 

Interest on lease liabilities

 

 

204

 

 

 

74

 

 

 

652

 

 

 

232

 

Finance lease expense

 

 

1,417

 

 

 

978

 

 

 

4,166

 

 

 

3,035

 

Total lease expense

 

$

27,173

 

 

$

26,870

 

 

$

81,890

 

 

$

80,518

 

Other information related to leases was as follows:

 

 

39 Weeks Ended

 

 

 

September 29,
2024

 

 

October 1,
2023

 

 

 

(In thousands)

 

Operating cash flows from operating leases

 

$

59,857

 

 

$

64,904

 

Financing cash flows from finance leases

 

 

3,001

 

 

 

2,722

 

Operating cash flows from finance leases

 

 

671

 

 

 

239

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

63,529

 

 

$

67,865

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

1,338

 

 

$

2,986

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

58,795

 

 

$

45,927

 

Weighted-average remaining lease term—finance leases

 

3.8 years

 

 

3.9 years

 

Weighted-average remaining lease term—operating leases

 

5.0 years

 

 

4.9 years

 

Weighted-average discount rate—finance leases

 

 

6.3

%

 

 

5.3

%

Weighted-average discount rate—operating leases

 

 

5.7

%

 

 

5.4

%

 

 

- 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
Leases

 

 

Operating
Leases

 

 

 

(In thousands)

 

2024 (remaining three months)

 

$

1,273

 

 

$

22,125

 

2025

 

 

4,373

 

 

 

80,466

 

2026

 

 

4,057

 

 

 

66,435

 

2027

 

 

2,824

 

 

 

47,615

 

2028

 

 

1,796

 

 

 

34,994

 

Thereafter

 

 

594

 

 

 

62,388

 

Undiscounted cash flows

 

$

14,917

 

 

$

314,023

 

Reconciliation of lease liabilities:

 

 

 

 

 

 

Weighted-average remaining lease term

 

3.8 years

 

 

5.0 years

 

Weighted-average discount rate

 

 

6.3

%

 

 

5.7

%

Present values

 

$

13,220

 

 

$

271,988

 

Lease liabilities - current

 

 

3,758

 

 

 

69,939

 

Lease liabilities - long-term

 

 

9,462

 

 

 

202,049

 

Lease liabilities - total

 

$

13,220

 

 

$

271,988

 

Difference between undiscounted and discounted cash flows

 

$

1,697

 

 

$

42,035

 

 

(7)
Long-Term Debt

The Company, Big 5 Corp. and Big 5 Services Corp. are parties to a Loan, Guaranty and Security Agreement with Bank of America, N.A. (“BofA”), as agent and lender, which was amended on November 22, 2021, October 19, 2022 and May 16, 2023 (as so amended, the “Loan Agreement”). The Loan Agreement has a maturity date of February 24, 2026 and provides for a revolving credit facility with an aggregate committed availability of up to $150.0 million. The Company may also request additional increases in aggregate availability, up to a maximum of $200.0 million,