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This excerpt taken from the BGFV 10-K filed Mar 16, 2006. Fiscal
2005 Compared to Fiscal 2004
Fiscal 2004 was a
53-week
period for the Company. As a result, the following discussion of
fiscal 2005 versus fiscal 2004 reflects a comparison of a
52-week
period in fiscal 2005 to a
53-week
period in fiscal 2004. Exceptions to this comparison are noted
where appropriate.
Net Sales. Net sales increased by
$31.8 million, or 4.1%, to $814.0 million for the
52 weeks in fiscal 2005 from $782.2 million for the
53 weeks in fiscal 2004. The growth in net sales was
primarily attributable to an increase of $4.2 million in
same store sales and an increase of $25.6 million in new
store sales, net of sales for closed stores, which reflected the
opening of 31 new stores, net of relocations, since
December 28, 2003. Net sales for the fourth quarter of
fiscal 2005 also included $1.2 million related to our
initial recognition of Gift Card Breakage (gift cards sold and
store merchandise credits issued where the likelihood of
redemption by the customer is remote). Same store sales
increased 0.6% for the 52 weeks in fiscal 2005 compared
with the 53 weeks in fiscal 2004. The extra week in fiscal
2004 contributed $14.2 million to net sales. On a
comparative
52-week
basis for both fiscal 2005 and fiscal 2004, net sales increased
6.0% and same store sales grew 2.4%. We are providing
information regarding sales on a comparative
52-week
basis in addition to a fiscal period to fiscal period basis
because of the additional week included in fiscal 2004 results.
The increase in net sales for fiscal 2005 was attributable to
higher sales in each of our three major merchandise categories
of footwear, hard goods and apparel. Store count at the end of
fiscal 2005 was 324 versus 309 at the end of fiscal 2004 as we
opened 18 new stores, of which two were relocations, and closed
one store.
Gross Profit. Gross profit increased by
$2.6 million, or 0.9%, to $288.2 million in fiscal
2005 from $285.6 million in fiscal 2004. Our gross profit
margin was 35.4% in fiscal 2005 compared to 36.5% in fiscal
2004. Product selling margins for fiscal 2005, which exclude
buying, occupancy and distribution costs, increased 10 basis
points versus fiscal 2004. Inventory reserve provisions, such as
those for shrinkage, slow moving and returned merchandise,
increased $3.2 million, or 30 basis points, from the prior
year primarily as a result of the volume of returned goods
inventories and related realizability of the value of these
returned goods. Distribution center costs increased by
$8.8 million, or 100 basis points, during the period, due
primarily to the commencement of operations at our new
distribution center, higher payroll-related costs and increased
trucking expense reflecting higher gasoline prices. Distribution
center costs capitalized into inventory for fiscal 2005
increased $2.2 million, or 30 basis points,
Table of Contents
compared to fiscal 2004, primarily due to higher costs related
to our new distribution center. Store occupancy costs increased
by $3.0 million, or 10 basis points, over fiscal 2004,
due mainly to new store openings. Our gross profit for fiscal
2005 reflected the negative impact of an asset write-off of
$0.7 million. Gross profit for fiscal 2005 also benefited
by $0.2 million from a fourth quarter reduction of reserves
related to workers’ compensation claims due primarily to
better than expected loss experience.
Selling and Administrative. Selling and
administrative expenses increased by $13.8 million to
$222.8 million, or 27.4% of net sales, in fiscal 2005 from
$209.1 million, or 26.7% of net sales, in fiscal 2004. The
increase reflected a $4.6 million, or 50 basis point,
increase in legal and audit fees in fiscal 2005, due primarily
to costs related to the restatement of our prior period
financial statements (see Note 2 to the accompanying
consolidated financial statements in Item 8,
“Financial Statements and Supplementary Data” for
additional information on the restatement). This increase in
legal and audit fees was partially offset by $0.5 million
of proceeds received from the settlement of two legal claims.
Store-related expenses, excluding occupancy, increased by
$6.9 million, or 20 basis points, during fiscal 2005,
due primarily to an increase in store count and higher labor and
benefit costs. Expenses for the fourth quarter of fiscal 2005
benefited by $0.9 million from a fourth quarter reduction
of reserves related to workers’ compensation claims due
primarily to better than expected loss experience. The remaining
increase was primarily a result of various higher administrative
expenses in support of our overall sales growth.
Depreciation and Amortization. Depreciation
and amortization expense increased by $3.2 million in
fiscal 2005 compared to fiscal 2004 primarily due to the
increase in store count to 324 stores at the end of fiscal 2005
from 309 stores at the end of fiscal 2004, as well as the
commencement of operations at our new distribution center.
Premium and Unamortized Financing Fees Related to Redemption
of Debt. Premium and unamortized financing fees
related to redemption of debt was zero in fiscal 2005 versus
$2.1 million in fiscal 2004. The $2.1 million charge
in fiscal 2004 resulted from a $1.5 million premium paid
related to the redemption of $48.1 million face value of
our 10.875% senior notes and the related carrying value of
applicable deferred financing costs and original issue discount
which totaled $0.6 million in fiscal 2004.
Other Income. In fiscal 2005, we recorded
proceeds from the settlement of a claim related to the required
relocation of one of our stores, which was located on land
acquired by a city redevelopment agency through eminent domain.
Settlement proceeds totaled $1.8 million, of which
$1.4 million was recorded as other income and
$0.4 million was recorded in selling and administrative
expense primarily as a reduction in legal fees incurred in
connection with this eminent domain proceeding.
Interest Expense. Interest expense decreased
by $1.0 million, or 14.7%, to $5.8 million in fiscal
2005 from $6.8 million in fiscal 2004. Interest expense
benefited from the redemption of $48.1 million face value
of our 10.875% senior notes during fiscal 2004 through
borrowings under our lower cost financing agreement. Because all
of our 10.875% senior notes have now been redeemed, we do
not expect that our interest expense will decline as rapidly as
it has in recent periods.
Income Taxes. The provision for income taxes
was $17.9 million for fiscal 2005 and $21.8 million
for fiscal 2004. Our effective tax rate was 39.4% for both
fiscal 2005 and fiscal 2004.
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