Big 5 Sporting Goods Corporation
Q4 2007 Earnings Call Transcript

Published: 28 Feb 2008

[Operator:]

Good day ladies and gentleman and welcome to the Big 5 Sporting Goods fourth quarter 2007 earnings results conference call. At this time all participants are in a listen-only mode. Following today’s presentation instructions will be given for the question-and-answer session. (Operator Instructions) On the call today is Mr. Steve Miller President and Chef Executive Officer and Mr. Barry Emerson, Chef Financial Officer. I would like to turn the conference over to Mr. Steve Miller. Please go ahead sir.

[Steve Miller:]

Thank you. Good afternoon everyone and welcome to our fiscal 2007 fourth quarter Conference Call. Today we will review our financial results for the fourth quarter and full year of 2007 and provide general updates in our business as well provide guidance. At the end of our remarks we will open the call for questions. I will now turn the call over to Barry to ready our Safe Harbor statement. Barry Emerson Thanks Steve. Except for statements of historical fact any remarks that we may make about our future expectations, plans and prospects constitute forward-looking statements made pursuing to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in current and future periods to differ materially form forecasted results. These risks and uncertainties include those more fully described in our annual report on form 10K for fiscal 2006, our quarterly reports on form 10Q for the first second and third quarter of fiscal 2007 and other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward looking statement that may be made from time-to-time by us or on our behalf. Steve Miller Thank you, Barry. Today we reported fourth quarter and full year results which we believe very much reflect the challenging macro economic environment facing many retailers. As we previously reported our fourth quarter sales in detail, I will now provide a brief recap. In the fourth quarter our same store sales declined 4.7% which was by far our weakest quarterly comp store sales performance since 1995. We believe that the primary effect factor effecting sales was the soft consumer environment that has impacted our markets for nearly a year. Sales and product margins were also negatively impacted in a material manner by the significant drop-off in roller shoe sales. This one category accounted for 45% of the decline in same store sales and nearly all of the 35 basis point decrease in product margins for the quarter. Sales of winter related products were slower than the prior year due to unfavorable weather conditions in our markets up until the last week of the quarter. As a result of our soft sales, we generated earnings of $0.28 per diluted share in the fourth quarter versus $0.42 per diluted share for the prior year period. This was a disappointing finish to the year as we have been able to mange though increasingly challenging retail conditions for most of the first three quarters and had posted a slight gain in net income for the nine month period. Our fourth quarter results led to full year earnings per diluted share of a $1.25 versus a $1.35 per diluted share for the prior year. Turning now to current trends. Its no secret that the softness in the retail environment has continued into the first quarter. Although in mid January weather conditions turned favorable for our sales of winter related products we have not experienced strength in many of our other product categories. We continue to be particulate impacted by the roller shoe category, both in terms of sales and product margins. Our margins have also been pressured by the fact that more of our winter business occurred later in the season at reduced prices this year than the prior year. Additionally margins are being impacted by inflationary factors which have become much more significant over the past few months and by our own promotional activity. We have been slightly more aggressive with our promotional pricing in order to drive sales and reduce inventories in this difficult environment. Our team has made tremendous progress toward bringing our inventories back in line, and we expect that by the end of the first quarter, our inventories should actually be down year-over-year on a per-store basis. Barry will provide more details on inventories in a few minutes. The data points that we have seen suggest that these difficult retail conditions are being driven by the challenging macro economic environment and factors that are external to our business including the housing market, job market, credit issues, gas prices and general inflationary pressures. These are just difficult economic times for a lot of people within our Western markets and customer demographic. Despite these macro issues, we remain confident in the effectiveness of our overall business model as a reminder we have a strong historical track record of possibly driving sales even in difficult times. We had achieved 45 consecutive course of comp store sales growth into our narrow midst in the second quarter of 2007. We believe that what is affecting us now is arguably the most difficult retail environment we have encountered in many, many years. While we can’t control the economy we can and will continue to focus on areas within our influence including strengthening our market position through enhancing our merchandise mix and promotional plan, securing quality new store locations and controlling expenses. We believe that these long term strategies will prepare us for strong earnings growth when the consumer spending environment improves. Before I turn the call over to Barry. I will bring you up to date on store openings. We previously reporter on our ten store openings for the fourth quarter which concluded our 2007 store growth of 20 net new stores for a total of 363 stores at year end. We expect to open approximately 20 net new stores during 2008 with one opening slated for the first quarter in Red Bluff, California. We believe we have a very strong group of stores positioned to come on board during 2008 and to maintain our positive but controlled growth will allow us to further secure our market position and better fit us when the consumer climate improves. At this time I will turn the call over to Barry who will provide more information about the quarter and full year as well as speak to our balance sheet, our capital expenditures, our cash flows and provide guidance.

[Barry Emerson:]

Thanks Steve. Our gross profit margin for the fourth quarter was 34.1% of sales compared to 34.3% of sales for the fourth quarter of 2006. This slight decline was primarily due to the decrease in product selling margins that Steve discussed and higher store occupancy costs. These items were partially offset by a decrease in distribution centre expenses resulting from operational efficiencies realized in our new facility. Our selling and administrative expense as a percentage of net sales was 28.8% in the fourth quarter of 2007 versus 26.6% in the fourth quarter of the prior year. The higher rate year-over-year was due primarily to lower than anticipated sales, higher store related expenses reflecting an increased store count and higher advertising expenses resulting in part from the timing of co-op advertising programs. As mentioned in the footnote to our press release financials the Company has historically presented total depreciation and amortization expense separately on the base of its consolidated statement of operations and corporate headquarters occupancy cost within cost of sales. In the fourth quarter of fiscal 2007 the Company changed its classification of distribution centre and store occupancy depreciation and amortization expense to cost of sales and changed its classification of store equipment and corporate headquarters depreciation and amortization expense to selling and administrative expenses. As a result of this reclassification, depreciation and amortization expenses no longer presented separately in our consolidated statement of operations. Our corporate headquarters occupancy costs are now included in selling and administrative expense. This reclassification had no effect on the Company’s previously reported operating for net income. This reclassification was done in order to confirm our financial statement presentation to what is becoming a more standard presentation of these items in the retail industry. To assist with any modeling of historical gross profit and selling and administrative expense, the reclassified cost of sales figures for the first three quarters of fiscal 2007 were a $141.3 million for the first quarter, a $143.1 million for the second quarter and a $151.9 million for the third quarter. The reclassified figures for selling and administrative expense for the first three quarters of fiscal 2007 were $68.1 million for the first quarter, $63.5 million for the second quarter and $64 million for the third quarter. Now moving on and looking at our bottom line net income for the fourth quarter was $6.2 million or $0.28 per diluted share compared to net income in the fourth quarter of 2006 of $9.6 million or $0.42 per diluted share. Briefly reviewing our full year results sales increased 2.5% during fiscal 2007 to $898.3 million from $876.8 million in fiscal 2006. Same store sales decreased 1.0% in fiscal 2007 versus the prior year. Net income for fiscal 2007 was $28.1 million or $1.25 per diluted share compared to net income of $30.8 million or a $1.35 per diluted share in fiscal 2006. Now turning to our balance sheet, total chain inventories amounted to $252.6 million at the end of fiscal 2007 up $23.9 million from $228.7 million at the end of fiscal 2006. On a per store basis year end inventories were up approximately 6.0% from last year. The increase was primarily attributable to lower than anticipated sales levels during the holiday season. However as Steve mentioned our team has worked hard towards bringing inventories back in line with sales conditions. As of this week our overall inventories are up approximately 1.5% on a per store basis. We are very comfortable with where our inventories are headed and we believe that by the end of the first quarter inventories will be down year-over-year on a per store basis. Looking at our capital spending CapEx excluding non-cash acquisitions total $21.8 million for fiscal 2007. CapEx for 2007 was used to fund 20 net new store openings, store related remodeling and security, distribution center enhancements and computer hardware and software purchases. We expect capital expenditures for 2008 excluding non-cash acquisitions of approximately $23 million to $24 million primarily to fund the opening of approximately 20 net new stores; store related remodeling, corporate office and distribution center improvements and computer hardware and software purchases. The higher CapEx for 2008 also reflects the first half of a two year initiative to replace the point of sale terminals in our stores. We generated cash flow from operations of $25.7 million for fiscal 2007 compared to $45.4 million for fiscal 2006. For fiscal 2007 we purchased larger quantities of inventory earlier in the year to ensure adequate product availability for the holiday and winter selling season. Accounts payable associated with these inventory purchases were paid by fiscal 2007 year end resulting in substantially lower accounts payable leverage compared to the prior year. The higher inventory levels and related timing of purchases combined with lower than anticipated sales in the fourth quarter of fiscal 2007 resulted in reduced operating cash flow for the year. We expect our operating cash flow to improve in fiscal 2008 as we right size our inventories and we will continue to evaluate the best use of cash including paying share holder dividends, reducing debt or repurchasing the Company’s common stock. Our long-term debt at the end of fiscal 2007 was a $103.4 million versus $77.1 million as of the end of fiscal 2006. Contributing to the higher debt levels for fiscal 2007 were lower operating cash flow for the year amounts paid to repurchase our stock and higher capital expenditures. To update activity under our share repurchase program in the fourth quarter and through February 27, 2008 we repurchased 216,551 shares of our stock for a total of $3.3 million. In making these repurchases we utilized a remaining availability under our initial $15 million share repurchase program authorized in the second quarter of fiscal 2006 and approximately $1.7 million of the $20 million available under the share repurchase program authorized in the fiscal 2007 fourth quarter. Since the inception of our initial share repurchase program we have repurchased the total of 858,086 shares for a total expenditure of $16.7 million. Now, I will turn to guidance. As Steve mentioned despite strong sales of winter products in the first quarter, our top line continues to be impacted by the overall soft retail environment and weakness in the roller shoe product category. Product margins also continue to be unfavorably affected by Roller shoes, late season sales of winter products, inflationary pressures and promotional pricing activity on our part. Additionally we expect first quarter same store sales to be impacted by approximately a 100 basis points as result of the loss of a business day during the quarter due to shift of the Easter holiday when our stores are closed out of the second quarter last year and into the first quarter this year. Our fiscal 2008 first quarter and full year guidance assumes that the consumer environment will remain challenging throughout the year. Based on that assumption we are providing the following guidance. For fiscal 2008 first quarter a decline in same store sales in the low-to-mid single digit range and earnings per diluted share in the range of $0.17 to $0.23 and for the fiscal 2008 full year a decline in same store sales in the low to mid single digit range and earnings per diluted share in the range of $0.75 to a $1. While we are hopeful that the environment will improve with projected lower interest rates and the federal economics stimulus plan on the horizon we cannot at this time predict the magnitude or timing of the improvement. Due to that uncertainty and given our current trends we are maintaining a cautious outlook. A material improvement or decline in the overall consumer environment during the year could materially impact our performance relative to this guidance. To will give you some perspective on how EPS guidance might be affected by a change in sales either positive or negative assuming all other items remain constant we would expect each one percentage point change in the Company’s same store sales to impact our annual earnings per diluted share by approximately $0.10. We remain confident in the effectiveness of our proven business model. We believe we will strengthen our market position in 2008 and expect to achieve higher levels of earnings when the consumer spending environment improves. Operator I think we are now ready to turn it back to you for questions-and-answers.

[Operator:]

Our first question comes from the line of Brian Nagel, UBS. Please go ahead.

[Brian Nagel:]

You guys have now been suffering in a weak environment for a while. As you look out into 2008 are there areas that you could potentially get more aggressive with respect to cost controls or may be some other levers that you could pull to somewhat offset what’s likely to be a continued weak top line for Big 5?

[Steve Miller:]

Clearly this is a more difficult environment that we have seen in many years, I mean we operate as a reasonably lean business and have for many years. We think it’s certainly evaluating our advertising, our decision at this point in time is to remain reasonably consistent in terms of our advertising guidance. We are obviously managing our store payroll on a week-to-week basis and we will adjust accordingly, moving forward consistently with our new store growth program.

[Barry Emerson:]

Brian we had good luck in reducing in our distribution center salaries and improve deficiency out of the distribution centers and salaries have certainly come down at the distribution center, we are looking for additional improvement there for 2008, some of that’s going to be -- well I guess all of that’s going to be offset really by higher distribution and trucking expenses. But from a labor standpoint certainly we are seeing efficiencies there. We have been able to do I think a reasonable job but bringing down our audits and SOX consulting fees. As Steve mentioned we are very focused weekly on store labor in trying to do the right thing there. Interest expense is expected to be coming down and we had some pretty reasonable savings in our overall insurance program as well.

[Brian Nagel:]

Okay along those same lines, the weaker environment and the outlook for a continued weak environment caused you to think differently about may be the way you use your capital as you decide between store opening plans, share repurchases, debt repurchases definitely that kind of thing.

[Barry Emerson:]

Brian, the -- we certainly evaluate the best use of our cash clearly and looking at in store growth we have evaluated the stores that we have as prospects for 2008 and we are very excited about those stores and the opportunities that they provide. We are really in this for the long term and want to make sure that frankly I think we are expecting some pretty decent potential real estate opportunities kind of given the current environment.

[Steve Miller:]

I though that the key Brian is that we are managing this business for the long term and we are certainly moderating conditions but I mean as we see it I mean right now we are being impacted by a soft consumer environment. We’ve been continuing to execute our business model certainly watching the expenses carefully we will just further strengthen us to position ourselves for good solid growth as the environment improves.

[Brain Nagel:]

One final quick one. Barry I don’t think I heard you mention inventory cost cap in your prepared remarks. If you -- did we past that call out now on the income statement?

[Barry Emerson:]

Yeah Brian I mean certainly for the full year we don’t expect -- for the full year of 2008 we don’t expect a big impact. There will be a little bit of impact, there will be an impact intra quarter as we move through the year little bit. Most significantly because of the change in our inventory values so with our inventories -- our inventories went up last year pretty significantly and now they are going to come down pretty significantly in 2008. So there will be some what of an impact on a quarterly basis but for full year the impact should be negligible.

[Brian Nagel:]

Okay. Great very and good luck for the next few quarters.

[Barry Emerson:]

Thanks.

[Operator:]

Our next question comes from line of Ralph Jean with Wachovia. Please go ahead.

[Ralph Jean:]

Steve, are there any categories that are showing strength right now? Baseball typically might be getting started around this time. Do you have an early read on that?

[Steve Miller:]

As I mentioned our winter business has been strong. We’ve had favorable weather comparisons for the most part over the first quarter. Our fitness business which was strong in the fourth quarter has remained strong, we have other isolated categories within our markets that are performing very, very positively. Baseball has generally been soft first quarter to date. This softness is not surprising us even the fact that many of our markets have experienced significantly more range. It’s been about eight times the rainfall in Los Angles for example this year, quarter to date that the last year there has been a lot of soggy fields and I think some leads are a little bit behind schedule in terms of getting going. We expect to get the some of this business back certainly as this fields dry out and leagues kick in. It’s really hard at this point in time to evaluate how the baseball season will turn out.

[Ralph Jean:]

Sure and then Barry even though you are not going to continue to show depreciation, amortization on the income statement you will still be showing it I am sure in this statement of cash flows what was that for the full year in 2007?

[Barry Emerson:]

Ralph that was about 17. -- let me give you the exact number. It was about 17.7 but let me give you the exact figure and for next year just because of some of the increased CapEx for the year we are anticipating that the D&A for next year is going to closer to -- it’s going to be up about 5% or so.

[Ralph Jean:]

Okay. You have that, the exact number?

[Steve Miller:]

Let me check it out here. For full year, $17.7 million.

[Operator:]

Our next question comes from the line of John Shanley with Susquehanna. Please go ahead.

[John Shanley:]

Thank you and good afternoon. Barry I wonder if you could drill down a little more on this inventory issue. Inventory up 10% total inventory up 10% and a 1% decline in sales what constitute majority of an inventory build and how much of it is dated goods, either fall or winter ‘07 or earlier products? Can you give us an insight in terms of what constitutes the inventory?

[Steve Miller:]

The build up really was the fact that we positioned ourselves for a successful holiday season unfortunately it didn’t play out so fundamentally the lower sales volume caused the year end build up. We feel good about the inventory. In fact as we mentioned our team has done a great job of bringing the inventory levels down. It wasn’t dated product, it was just for the most part too much inventories needed to support the sales level of the fourth quarter. At year end our inventory is roughly 6% as I think Barry mentioned in the scripted remarks on a per store basis from last year. As we speak our inventories were up 1.5% on a per store basis. By the end of the first quarter we believe we will be comfortably down in terms of inventories. So it’s just a build up of product, we’ve done a good job of bringing it in line and I think we are really positioning ourselves to be very healthy in terms of inventory and really have a great flexibility in terms of being able to take advantage of opportunistic buys that may come our way.

[John Shanley:]

It seems a little odd that you are forecasting negative low to mid single-digit comps all the way up in the entire fiscal year. Can you share some insights in terms of how Big 5 has performed in terms of previous economic down ticks either at 2001 and 2002 or maybe 94 to 95? Obviously part of that time you guys were part of [inaudible] so we really didn’t have great insights that we can have now in terms of what unfolds in terms of the economic factors on Big 5’s performance.

[Steve Miller:]

Well we played through the 2000, I guess 2000, 2001 period pretty positive. That was sort of right in the midst of our 45 quarters of consecutive positive comps, we were down over 1995 when particularly they got to be in California particular was very soft. We had some struggles as I recall in the early 90’s, I think generally speaking we have out performed the market as a whole during challenging times. I think that we are feeling right now arguably as more challenging that we have experienced certainly through this entire period that we have just spoke of. It’s in particularly in many of our markets of the California. In California, Arizona, Nevada amongst others that are I think very challenge. I think our consumer definitely having their pockets pinched, we are certainly hopeful that the measures taken by the government economic stimulus plan lower and lower interest rates will have a positive effect in consumer pending, but we are not common to this thing we really feel that we’ve its not our position to drive -- predict how consumers will react to those measures.

[John Shanley:]

It seems like you are taking a much more negative viewpoint in terms of the outlook than most other either athletic or sporting retailers are taking, and most of them are anticipating obviously the front half of the year is going to be tough, but feel a little bit more comfortable with the back half. What make you so negative all the way through for the entire fiscal year?

[Barry Emerson:]

We certainly hope that the measures taken by the government and lower interest rates we will have a positive on consumer spending but we have no real way of predicting how consumers are going to react to these measures. Currently we are not seeing any indication that the consumer spending environments improving. I mean with the housing issues have worsened, the inflation is worsened and the gas prices are still high and still going up, for that reason we are maintaining a cautious outlook for the full year.

[John Shanley:]

Okay fair enough. Last question I have is, can you tell me how many Big 5 stores are in the trading area that checks down the San Diego market area.

[Steve Miller:]

In San Diego.

[John Shanley:]

Not just San Diego wherever Chicks is -- how many Big 5 stores are in the same trading area as the Chicks.

[Steve Miller:]

Well I -- roughly all remain Chicks have which I think is somewhere in the neighborhood of 16, some 15 or 16 but we are all in different purposes I wouldn’t think we would say we are in all those trade areas certainly.

[John Shanley:]

So it is like 15 stores will that be fair or be more than that?

[Steve Miller:]

I mean it’s the best I guess I need to find half of the funded trade areas. I mean Chicks can have a store some place and we can have a store, three miles to East and two miles to west so if you want to count both of them I guess arguably one could.

[Operator:]

Our next question comes from the line of David Magee, SunTrust Robinson Humphrey. Please go ahead. David Magee - SunTrust Robinson Humphrey Hi Good afternoon. A couple of questions one as you evaluate your sales performance here and you recognizing the fact that over a time a lot of supporting good have been somewhat defensive in nature that so much of it’s replaced in product and what not, are you worry that may you are losing share to somebody else right now.

[Steve Miller:]

I don’t believe there is data points that I have seen just trying to follow the general retail world that suggest that we are losing market share. I mean others in our -- carrying our product lines certainly in our geographical regions for the most part than I’ve been reporting, reporting results not to dissimilar and I would argue that in some cases I mean most cases we have generally outperformed as I said by some definition will suggest we made in the gaining market share. So I really feel that it’s more a case of just a very soft consumer environment and particularly in our markets that is effecting the general retail population and which we are a member. David Magee - SunTrust Robinson Humphrey Given the current forecast for this coming year do you anticipate the ability to pay down that further during this year?

[Barry Emerson:]

David it really depends on use the cash and we are going to continue to evaluate that just like we always do in terms of interest rates in the market price of our stock and so on. So, it really is contingent on those factors. We do certainly expect to get back to generating operating cash flow and free cash flow but consistent with historical trends which have exceeded $20 million a year so depending on how we utilize that cash it is certainly a portion of it could be used to pay down debt. David Magee - SunTrust Robinson Humphrey How secure is the dividend given the current forecast?

[Steve Miller:]

We feel it is very secure. David Magee - SunTrust Robinson Humphrey But that’s of very high priority till you relative this amount uses the cash.

[Steve Miller:]

Yes. David Magee - SunTrust Robinson Humphrey And then lastly did you entertain the thought of slowing down the growth this year in terms of stores just given the environment and everything else.

[Steve Miller:]

Well I mean its certainly something that we looked hard and though about, so I guess to entertain arguably yes but we took a hard look at the stores that are earning the pipeline, we feel that it’s a strong group store by store and definitely we think that there is a possibility of the general softness made and provide us with opportunistic real estate situation so we feel at this point of time that maintaining our growth, solid growth to allow us to further secured market position and certainly it’s going to benefit in the long run as the consumer climate improves. David Magee - SunTrust Robinson Humphrey Thank you and just the last question. Exactly you are correctly in saying that you are continue to better leverage the distribution facility but at 2008 that benefit will be offset by higher distribution cost I guess in the form of higher energy cost? Do I have that correctly?

[Barry Emerson:]

Yeah that’s right our overall and we continue to become even more efficient in that operation and from an operations in labor stand point that in our trucking cost are going up with store growth and so on, so we are going to deliver actually slightly in our warehousing jus based on the soft sales conditions. David Magee - SunTrust Robinson Humphrey Is that because also because of higher fuel costs or did you say just because we are opening the stores, the stores the new stores.

[Barry Emerson:]

Yeah I mean that’s a combination of the new stores, shipping to the new stores that we opened. We opened -- our store openings were back loaded this year we opened 10 new stores in the fourth quarter and we expect to open 20 new stores next year and so the additional store count in those markets causing us to of course to ship more and increase cost go along with that. We haven’t anticipated significant increases in fuel prices but that’s certainly the distance we have to travel to our new stores. David Magee - SunTrust Robinson Humphrey I thought that the additional new stores would help you lever the DC costs over time as you build up the store network that will help to bring down the lower distribution cost.

[Steve Miller:]

It’s really -- well as the sales climate improves I think what -- and hopefully will be between now and the end of the year we will see improvement in the climate and our sales numbers will allow us to lever. Again we are maintaining a cautious outlook at this point of time.

[Barry Emerson:]

Just to put it in perspective, our overall DC costs were down just under $4 million this year in 2007 and that was offset in large part by the switch in the inventory cost cap but for this year, for the coming year in 2008 we do have a higher DC cost budgeted because of the higher trucking costs. David Magee - SunTrust Robinson Humphrey Okay thank you and good luck.

[Barry Emerson:]

Thanks.

[Operator:]

Our next question comes from the line of Rick Nelson, Stephens. Please go ahead.

[Rick Nelson:]

Thank you and good afternoon. Steve is there a way you can separate California from the rest of the store based for accounts measurably, whereas in California then elsewhere is there any regions that are performing okay, Texas for example.

[Steve Miller:]

Now we are not going to get overly specific in geographic performance. There are other impacts, I mean the weather impact has influenced, California in different ways and some of our other regions and frankly the roller shoe impact has been more -- the Roller shoe decline and the impact of decline has been more significant outside of California than in California. I think partially because the trend picked up soon or earlier in California and it kind went up faster in some areas and came down harder so it’s very difficult for us to totally quantify the economic impact in California.

[Rick Nelson:]

Following up probably on the Roller issue where do you stand now with inventories of Roller shoes and when do you cycle the down turn in that product.

[Steve Miller:]

Alright, well it’s certainly very meaningfully impacting our results in Q1 and we will have a significant drag in sales in Q2 less than in Q1. From an inventory stand point I mean we have made good progress in selling down our inventory. We are actually trying to be in a buying mode for product. I mean our inventory that we have on hand it’s a little choppy in terms of having side runs and I would argue -- we are arguably under achieving this work. We are not filled in as positively as we should be and we are in the process of freshening up our product mix. As we do this, it’s going to help us -- certainly help margins, the margin drag improve. I think again meaningful impact in Q1. Meaningful but not nearly as due to number negative number into Q2 by the time we get to Q3 I don’t think that the impact will be very, very material to our overall results and depending on -- we think this is a go forward category for us and go forward item and in Q4 we are highly confident that there is a strong upside in terms of the margin within the product and you will see how the sales evolved into the prior growth.

[Rick Nelson:]

How about other merchandise -- the Under Armor shoe for example are you going to be getting that and will that be a benefit to your footwear business?

[Steve Miller:]

We are part of the Under Armor process training roll out in early May. We hope for that to be a plus, I don’t know that I could characterize it and the overall has been highly significant to our footwear business but certainly we look for good results there.

[Rick Nelson:]

And will you get that in all of your stores?

[Steve Miller:]

We will not -- we have determined not to put it out into all of our stores.

[Rick Nelson:]

How about the Olympics, do you see that having impact?

[Steve Miller:]

We have never found the Olympics to be extremely meaningful one way or the other to our business.

[Rick Nelson:]

And then just a follow up on the promotional environment. You indicated you’re planning promotional guidance consistent with prior year. What are you seeing from competitors. Now are things getting more promotional subsequent to holidays we move into the first quarter year-over-year.

[Steve Miller:]

No, I don’t from what I am seeing I don’t believe its materially different from what it might have been a year ago.

[Rick Nelson:]

Okay, thank you good luck

[Steve Miller:]

Thank you.

[Operator:]

Our next question comes from the line of Anthony Lebiedzinski - Sidoti. Please go ahead.

[Anthony Lebiedzinski:]

Good afternoon just with respect to the guidance basically you guys are assuming that same store sales will continue at the current pace even though in the fourth quarter you will be phasing much easier comparisons, is that to say of assumption say assessment of how you view the guidance.

[Steve Miller:]

We Anthony, we are just -- our guidance is based on in the current challenging environment just continuing through the full year.

[Steve Miller:]

We think that assuming the consumer environment remains just as it is today we will get a little benefit in the back half of the year because we will not have the drag of the Roller shoes due to our top stores.

[Anthony Lebiedzinski:]

And also whether you mentioned before that you are seeing some nice positive results from sales of winter products how much of your first quarter sales are typically from winter products?

[Steve Miller:]

I am not sure I have that number that at the tip of my tongue. I mean its.

[Barry Emerson:]

And Anthony while Steve is looking for that let me just comment again on just the forecast here or the guidance, clearly we’ve purposefully kind of laid out our assumptions here and based on those assumptions we would earn the EPS that we had indicated within that range but purposefully that range is wide and clearly if the economic conditions either improve materially or decline materially I mean our results will change with that economic climate.

[Anthony Lebiedzinski:]

Got you okay and Steve is still looking for that number for the product.

[Steve Miller:]

I know I’ll give you a wrong number, let’s take a stab at it, I mean its -- we don’t look I mean over the course of the year. I mean its something certainly -- something more than 10 and probably less than 20 but on -- I won’t sign up for that.

[Anthony Lebiedzinski:]

Okay so between 10 and 20 okay and also as far as the store growth that you are planning for 2008 are you mostly looking to back for your market so are you going into any new markets?

[Steve Miller:]

We are primarily looking at staying within our current footprint at this time. So it’s pretty much our plans at this point of time. We may -- last year we opened stores 20 stores three of them were in California in terms of our net new openings. I think we will have a few, potentially a few more within California little closer to home which we think will be a positive for us this year.

[Anthony Lebiedzinski:]

I don’t see you guys mentioned that you are looking to upgrade your point of sales has comes up. Is that already started and when do you expect that to be completed and also just curious as to which firm are you using as far as the point of sales systems.

[Barry Emerson:]

I can’t tell Anthony. The program is going to take place in the second half of this year and it’s a two year program and we are doing roughly half our stores in one year and half our stores the next year. Our terminals are eight to nine years old and we certainly want to upgrade the initiative. It is really needed to update the technology and to avoid down time and also to comply with PCI. I don’t honestly have the vendor name with me here today but that’s -- so its really a two year program.

[Anthony Lebiedzinski:]

Okay thanks.

[Steve Miller:]

Thanks.

[Operator:]

Ladies and gentleman that does conclude our question and answer session. I will turn the call back to management for concluding remarks.

[Steve Miller:]

Thank you very much for being on our call today and we look forward to speaking to you with our first quarter results in a couple of months. Thank you.

[Operator:]

Ladies and gentleman that does conclude the Big 5 Sporting Goods fourth quarter 2007 earnings results conference call. We would like to thank you for your participation and have a pleasant day. You may now disconnect.