Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales for the second quarter were consistent with guidance.
- Inventory levels were reduced by 10.8%, aligning with current sales trends.
- Selling and administrative expenses decreased by $0.2 million year-over-year.
- The company remains committed to optimizing store labor hours and managing expenses.
- The balance sheet remains healthy with zero borrowings under the credit facility and a cash balance of $4.9 million.
Negative Points
- Net sales for the second quarter decreased to $199.8 million from $223.6 million in the prior year.
- Same-store sales were down 9.9% for the second quarter.
- Gross profit margin decreased to 29.4% from 32.2% in the prior year.
- Net loss for the second quarter was $10 million, compared to a net loss of $0.3 million in the prior year.
- The company suspended its quarterly cash dividend to maintain financial flexibility.
Q & A Highlights
Q: Can you provide more details on the factors contributing to the decline in same-store sales?
A: Steven Miller, CEO: The decline in same-store sales, down 9.9% for the quarter, was influenced by several factors, including sustained pressures on consumer discretionary spending and unfavorable calendar shifts. Specifically, the Easter holiday fell in Q1 this year, providing an extra sales day, but this was offset by the 4th of July holiday shifting further into Q3.
Q: How did the different product categories perform during the quarter?
A: Steven Miller, CEO: Performance was consistent across major merchandise categories with apparel down approximately 8%, footwear down approximately 9%, and hard goods down approximately 11%. The average ticket was down low single digits, and transaction count was down high single digits, reflecting broad-based macroeconomic challenges.
Q: What measures are being taken to manage inventory levels given the sales headwinds?
A: Steven Miller, CEO: We closed the quarter with a 10.8% reduction in inventory. Our team is focused on aligning inventory levels with current sales trends to optimize gross profit dollars and remain well-positioned for potential opportunistic buys in the marketplace.
Q: Can you elaborate on the decision to suspend the dividend?
A: Steven Miller, CEO: Given the uncertainty of the macroeconomic environment and our priority of maintaining a healthy balance sheet, suspending the dividend is a prudent step to provide added financial flexibility. We remain committed to maximizing shareholder value and will continue to evaluate opportunities to return value to shareholders.
Q: What is the outlook for the third quarter?
A: Barry Emerson, CFO: For Q3, we expect same-store sales to decline in the mid-single digit range. This reflects ongoing economic pressures affecting consumers. We anticipate benefiting from easing year-over-year comparisons as the quarter progresses. Net loss per basic share is expected to be in the range of $0.15 to $0.35.
Q: How did gross profit and margins perform in the second quarter?
A: Barry Emerson, CFO: Gross profit for Q2 was $58.7 million, down from $71.9 million in the prior year. The gross profit margin decreased to 29.4% from 32.2%, primarily due to higher store occupancy and distribution expenses. Merchandise margins decreased by 27 basis points compared to the prior year.
Q: What were the key drivers behind the reduction in selling and administrative expenses?
A: Barry Emerson, CFO: Selling and administrative expenses decreased by $0.2 million year-over-year, primarily due to lower employee labor and staffing expenses, and reduced performance-based incentive accruals. However, as a percentage of net sales, these expenses increased to 36.1% from 32.4% due to the lower sales base.
Q: Can you provide an update on store openings and closures?
A: Barry Emerson, CFO: For fiscal 2024, we anticipate opening approximately three new stores and closing around 11 stores as part of our ongoing efforts to optimize our store base. We expect to have approximately 422 stores in operation by the end of the year.
Q: How is the company managing cash flow and capital expenditures?
A: Barry Emerson, CFO: Net cash used in operating activities was $2.9 million in the first half of fiscal 2024, down from $3.3 million in the prior year. CapEx for the first half was $6.3 million, primarily for store-related remodeling and distribution center equipment. For the full year, we expect CapEx to be in the range of $9 million to $14 million.
Q: What is the company's current financial position?
A: Barry Emerson, CFO: Our balance sheet remains healthy with zero borrowings under our credit facility and a cash balance of $4.9 million, consistent with our position at the end of Q2 2023. The decision to suspend the dividend reflects our objective of maintaining a strong financial condition amid the challenging economic climate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
