Hibbett Inc (HIBB) 2021 Q2 法說會逐字稿

Greetings, and welcome to the Hibbett Sports Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded on Friday, August 28, 2020.

I would now like to turn the conference over to Jason Freuchtel, Director of Finance and Investor Relations. Please go ahead.

Good morning. Please note that we have prepared a slide deck that we will refer to during our prepared remarks. The slide deck is available on hibbett.com via the Investor Relations link found at the bottom of the Home page. These materials may help you follow along with our discussion this morning.

Before we begin, I would like to remind everyone that some of management's comments during this conference call are forward-looking statements. These statements, which reflect the company's current views with respect to future events and financial performance, are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks.

It should be noted that the company's future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued this morning and the company's annual report on Form 10-K, the most recent quarterly report on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information.

Also to the extent non-GAAP financial measures are discussed on this call, you may find a reconciliation to the most directly comparable GAAP measures on our website.

Lastly, I would like to point out that management's remarks during the conference call are based on information and understandings believed accurate as of today's date, August 28, 2020. Because of the time-sensitive nature of this information, it is the policy of Hibbett sports to limit the archived replay of this conference call webcast to a period of 30 days.

The participants on this call are Mike Longo, President and Chief Executive Officer; Bob Volke, Chief Financial Officer; Jared Briskin, Senior Vice President and Chief Merchant; Bill Quinn, Senior Vice President of Marketing and Digital; and Ben Knighten, Senior Vice President of Operations.

I will now turn the call over to Mike Longo.

Thanks, Jason. Good morning, and welcome to the Hibbett Sports Q2 earnings call. If you're following along using the slide deck, I'm on the third slide entitled Introduction. This quarter was a remarkable outcome from a financial perspective for the company. From sales to gross margin, to profits and cash flow, this was an unprecedented quarter.

As you saw in the press release, we reported a nearly 80% sales comp, with a brick and mortar comp of 65% and e-commerce of 212%. This resulted in an operating income of almost $70 million and non-GAAP earnings per share of $2.95. These remarkable results were made possible by the hard work of our 10,000 teammates in the stores, the store support center and the distribution center. They put in the time, they made the right decisions in this very challenging time. Those of us on the call are proud to represent our teammates today, and we're extremely proud of them. And as I'm fond of saying, retail is the ultimate team sport, and I couldn't have picked a better team to compete with.

Speaking of our team, I did want to highlight in the press release that came out earlier this week about recent changes to our store operations team. These new regional vice presidents of stores, reporting directly to Ben Knighten, our Senior Vice President of Ops, allow us to both improve our capabilities and better represent our consumer base. We're very excited about the team and their ability to further improve our consumer experience in the stores and in the omnichannel business.

Next slide that we're going to cover is the COVID response. As a reminder, since mid-March, Hibbett adopted a stance that we would remain open in the stores and online as long as it was in compliance with state and local restrictions. At the same time, we extended paying benefits to our full timers in order to help them during the time when their individual stores were closed. While running those stores, we made sure we followed federal, state and local guidelines to ensure the safety of our consumers as well as our employees. As a result of these actions, when we reopened our stores, we were fully staffed, and we believe that our consumers felt safe to shop. And since we continue to do business throughout this time, we reopened with the freshest and newest inventory to sell.

So the next slide that we're going to cover is the sales drivers slide. And in that, we wanted to break down the factors that we believe drove the second quarter sales and continue to produce strong sales results into Q3.

As we discussed previously on our July 20 update, we believe the increases in sales are driven by a number of factors, including temporary closures of competitors, which we believe gave us the advantage of accessing new consumers, both in-store and online; second one was accelerating consumer adoption of e-commerce that gave us yet another set of new consumers who could test drive our best-in-class omnichannel experience; and the pent-up demand for March and the boost from fiscal stimulus gave consumers, both new and existing consumers, even more reasons to shop with us. And our data shows us a handful of important facts that I wanted to highlight.

First, this situation drove traffic to our stores and to our website and yielded what we believe to be increased market share and resulting higher sales. Approximately 27% of store traffic and approximately 49% of our online business came from these new consumers.

Second, now that these new consumers have experienced our trademark service and best-in-class omnichannel experience, it's our belief that we have the opportunity to retain many of them and drive higher sales volumes in the future. In fact, our data shows that we've done a good job retaining these new consumers so far.

And on top of all this, we believe that we have tailwinds going into the third quarter and beyond. We're just now beginning to see the benefits of the permanent closure of a number of competitors in similar businesses who also sell apparel and footwear. These competitors, specifically J.C. Penney and Stage Stores have announced the closure of approximately 250 stores within 2 miles of an existing City Gear or Hibbett Sports location. That presents a meaningful upside opportunity for us in both fashion and athletic categories. These are just the announced closures of stores and publicly traded companies in a very narrowly defined channel. The total number of closures will ultimately be higher than that when we include other smaller chains.

In order to capitalize on these opportunities, the merchandising team, led by Jared, made specific buys for these stores to handle the additional business that we anticipate. Additionally, we see what we believe is continued consumer adoption of omnichannel. This plays to our strength with our best-in-class omnichannel consumer experience. And finally, we believe that many of the new consumers we attracted last quarter and continue to attract will continue to shop with us in the future.

In total, we believe these changes in the competitive landscape and changes to consumer behavior will result in an approximate $20 million to $40 million annual incremental sales opportunity for Hibbett. For this and a number of other reasons, we are very confident in our future. While we won't likely report another quarter like this one, we do expect continued sales momentum into the third quarter.

But before we go any further in the future, I'm going to ask Bob Volke to provide some detail on the financial results. Bob?

Thanks, Mike, and good morning. If you will, please refer to the second quarter results slide. As a reminder, we treat City Gear as an extension of the Hibbett business, and these results are reported on a combined basis.

For the second quarter, total net sales increased 74.9% to $441.6 million, and consolidated comp sales increased 79.2%. This compares to second quarter fiscal 2020 sales of $252.4 million and a comp sales increase of 0.3%. Brick and mortar comp sales were very strong and came in at 65.2%, while the momentum in the e-commerce business we saw at the end of the first quarter carried into the second quarter and resulted in a 212.2% comp. For the quarter, e-commerce sales accounted for 15.7% of net sales compared to 8.6% in the second quarter of last year.

Our GAAP gross margin expanded significantly to 37% of net sales compared to 30.3% in the prior year second quarter. This approximate 670 basis point improvement was due to higher initial sell through, a reduction of inventory reserves and leverage of store occupancy costs that are included in our gross margin calculation. There is a slight offset due to the higher volume of e-commerce sales which carry a slightly lower margin due to the incremental shipping costs associated with these sales. Excluding the reduction of inventory reserves in the current period, adjusted gross margin was 36.7% this year compared to adjusted gross margin of 30.3% last year.

Store operating, selling and administrative expenses were 22.6% of net sales in the second quarter compared to 31.8% in the second quarter of fiscal 2020. This decrease of approximately 920 basis points was primarily due to the leverage from the strong sales performance. Excluding certain expenses related to the COVID-19 pandemic and City Gear acquisition and integration expenses, adjusted SG&A was 19.3% of net sales compared to adjusted SG&A of 28.5% in the prior year second quarter.

The primary non-GAAP adjustment in the current quarter was an approximate $14.5 million increase in the liability for the year 2 earn-out related to the City Gear acquisition. This was driven by the strong 2Q results and the optimistic outlook for the remainder of the fiscal year.

Let me remind you that we took in a $11 million reduction in this liability in the first quarter based on the uncertain business outlook at that time. Depreciation and amortization declined approximately $200,000 due to store closures in fiscal 2020 as part of the company's strategic alignment plan, partially offset by the new capital expenditures over the last several months.

On a GAAP basis, we generated $56.3 million of operating profit which compares to last year's operating loss of $11.6 million. Excluding all non-GAAP adjustments for the quarter, adjusted operating income was $69.7 million or 15.8% of sales compared to an operating loss of $3.2 million in the second quarter of fiscal 2020.

GAAP earnings per share were $2.38 for this year's second quarter, and non-GAAP earnings per share were $2.95. We generated $175 million of operating cash flow during the quarter and spent approximately $8.4 million in capital, most of which was related to new, relocated and remodeled stores. In the prior year second quarter, operating cash flow was $2.1 million, and capital expenditures were $3.4 million.

I'll now have you move forward to the year-to-date results page. On a year-to-date basis, sales increased 19.4% to $711.4 million from $595.7 million over the first 6 months of the prior year. Comp sales on a year-to-date basis are 22.2%, with brick and mortar posting 8.9% and e-commerce coming in at 150.9%. On a year-to-date basis, e-commerce sales are 18.2% of our total net sales compared to 8.4% for the first half of last year.

Our GAAP gross margin was 33.4% of net sales compared to 32.7% in the first 6 months of 2020 as the strong second quarter margin performance lifted the overall year-to-date results. Excluding year-to-date inventory reserve adjustments in the current year and City Gear acquisition costs in the prior year, adjusted gross margin was 33.9% this year compared to 32.9% for the first half of last year.

First half GAAP SG&A expenses were 26.6% of net sales compared to 25.9% in the first 6 months of last year. This increase of approximately 70 basis points was primarily due to first quarter adjustments for noncash intangible impairments attributable to the COVID-19 pandemic. Adjusted SG&A was 21% for the first 6 months of the current year compared to 24.2% for the same period last year.

On a GAAP basis, we produced $34.2 million of year-to-date operating profit compared to last year's operating profit of $25.7 million. Excluding all non-GAAP adjustments in both years, adjusted operating income was $77.5 million this year compared to operating profit of $36.8 million for the first half of last year.

GAAP year-to-date earnings per share were $1.50 for the current year compared to $1.05 in the prior fiscal year, and non-GAAP earnings per share were $3.30 this year compared to $1.50 for the comparable period of fiscal 2020. We generated $178.9 million of operating cash flow on a year-to-date basis and have spent $12.5 million in capital, once again, with a focus on new relocated and remodeled stores.

Over the first 6 months of the prior year, operating cash flow was $74.1 million, and capital expenditures were $5.9 million.

Turning to the balance sheet. We ended the quarter with $217.8 million in cash versus $97.8 million a year ago. We paid off all amounts outstanding under our secured credit line during the quarter and currently have no debt. We have $75 million of borrowing capacity available to us but do not anticipate the need to borrow under our secured credit line on current -- based on current cash projections.

Inventory at the end of the quarter is $182 million, a 32.7% decline from last year's second fiscal quarter. The strong sales in both the brick and mortar and online channels drove the decrease. We did not purchase any shares during the second quarter under our authorized share repurchase plan. We have just over $143 million of remaining authorization through January 29, 2022, for future share repurchases at management's discretion.

I'll now turn the call over to Jared for a review of merchandising.

Thanks, Bob. If you'll refer to the merchandising slide. Our incredible comp performance was driven by apparel and footwear, with significant gains in sales and share of our mix. Team sports was impacted by COVID, was down in the mid-teens and had a reduced share of our mix. Apparel business was up in the mid-80s. This increase was driven primarily by significant gains in branded apparel, licensed products and accessories. All genders were significantly positive.

Within our apparel business, sneaker connectivity in our assortment remained critical and helped us achieve growth of units in the transaction as well as transaction dollar growth. From the athletic brands, we saw an acceleration in our performance business as well as the lifestyle business. This was driven as fitness, wellness and casual lifestyle trends all accelerated.

Our fashion brand performance was exceptional as we're able to capitalize on strong performances in denim, twill and tees. Our licensed product business had significant growth in the quarter as we advanced our strategy of sneaker connectivity. Caps, jerseys and tees all performed well.

Accessory business also achieved significant growth as socks, hydration and sunglasses all were significant gainers. New category investments in masks and underwear added incremental sales and are quickly becoming meaningful categories.

Footwear business is up in the mid-90s. This increase was driven by significant gains across performance, lifestyle, basketball and our sandal category, which includes slides. All genders were significantly positive with Women's growth outpacing Men's and Kid's. In the Performance business, the health and wellness trend acceleration lined up with our investment strategy and business was very strong.

Lifestyle and basketball results were explosive during the quarter as the launch calendar was favorable and key franchises sold through very quickly. Slides and sandals also saw a significant acceleration as consumers are spending more time at home being impacted by COVID.

Specific to footwear and apparel, our Women's business was exceptional, growing triple digits for the quarter. This was followed closely by Men's, which grew in the mid-80s and Kid's, which grew in the mid-70s. Inventory at the end of the quarter was significantly down. This is a result of increased sales as well as a fantastic job of inventory management by our team. Inventory declines will moderate in the back half. We've made appropriate investments to balance our trend with potential uncertainty.

Aged inventory is slightly elevated, mostly due to the effect of COVID on team sports. Our team has managed this incredibly well and we do not see this as a risk moving forward.

I'll now turn the call back over to Mike.

Well if you will, please turn to the final slide called Future. We're confident in our ability to deliver improvements to the business in the second half of fiscal year '21. We anticipate that several of the factors that we noted earlier that drove sales will continue into the second half; most notably, permanent competitive closures, our best-in-class omnichannel platform and new consumer retention.

Additionally, a number of initiatives are underway that will significantly improve our connectivity to the consumer and drive further competitive advantages. Again, on the omnichannel experience, we have same-day delivery that we're working through. While we're doing it today, we continue to expand that. We've got improvements to our Raffle system and a number of other initiatives with regards to our app and mobile.

Second, the in-store consumer experience. We're going to talk about this further in the next earnings call, but we're doing store refreshes. We've got the new store design that we're working through on our new prototype. Ben is pioneering sales training as well as a change of the culture at the store level, and that is going incredibly well.

And then on the part of the business that we don't talk a lot about but is incredibly important to what we do as retailers every day on the supply chain. A lot of work being done, both in the distribution center as well as in the transport of those goods and some of the things that we can do to increase frequency of delivery, speed to market and then there's a hub store initiative that we'll speak to more in the future. All of those things combined help us to continue to improve our business model and continue to improve our competitive advantages.

And more important than all of that, our team of dedicated people who day-in and day-out deliver on our commitment to our consumer. We're so proud of what they do. And so thank you to our employees.

Bob, can you outline our future guidance, please?

Certainly. We continue to experience a great deal of economic uncertainty as longer-term consumer behavior is difficult to predict in light of the ongoing COVID-19 pandemic, high unemployment rates and gridlock regarding additional stimulus measures. However, we are very confident in our business model and the trends we have seen over the last couple of months. As a result, we will provide some limited GAAP guidance for the back half of fiscal 2021.

First, we anticipate comp sales will be in the mid-single digits. Gross margin is expected to improve by approximately 50 to 70 basis points in comparison to the back half of fiscal 2020. SG&A, as a percent of sales, is projected to be approximately 70 to 90 basis points below the comparable 6-month period of fiscal 2020. Diluted EPS is forecasted to be in the range of $0.85 to $1, with an assumption that the effective tax rate will be approximately 26% and the diluted share count will be approximately 16.9 million. We do not anticipate the difference between our GAAP measures and our non-GAAP measures will be material in the second half of the year.

That concludes our prepared remarks. We have provided quite a bit of information for you to digest, and we know you will be needing additional questions answered. So operator, please open up the call for questions.

(Operator Instructions) Our first question comes from Alex Perry with Bank of America.

Congrats on an exceptional quarter. Just first, you mentioned in the press release your strong vendor relationship should allow you to meet customer demand. Can you talk through more what you mean there? Are you getting better product allocations from your vendor partners on a year-over-year basis? And then since the brands presumably have cut orders with their manufacturing partners, is inventory shortage with the high heat product not a concern in the back half?

Yes. So I won't get specific with regard to allocations, but our partners have been incredible in helping us manage the flow of inventory. Obviously, with the results at the end of the quarter, we're selling it as fast as we get it. We've been able to work closely with our partners. Our team has done an incredible job of making incremental buys for the back half of the year. Based on our expectations and our flow, as I said, our declines in inventory are going to moderate some. We'll still be down, but we expect to be in a better inventory position throughout the back half than we saw towards the latter end of the second quarter.

Perfect. That's really helpful. And then just a follow-up on the e-commerce business. The growth has been pretty exceptional here. Like, I guess, what do you think were the main drivers to the 49% new customer adoption since the competitor's websites were also open? Like what do you think is sort of driving people to your e-commerce business versus others?

Well yes, we had an exceptional Q1 as well as Q2. We've done a lot of things from a marketing standpoint to drive new customers to the website. We've seen increases across every channel. Part of that has been omnichannel activity as well as e-commerce. So we've got a lot more people both shopping online and in our stores. So that is also attributed to a gain in overall traffic as well. But we're also seeing really, really good gains in mobile traffic, and part of that is the strength of our app. You look at our launch calendar over Q2 was very, very favorable. So we had a lot of people coming to the website at that point and shop as well as the apps, and that also drove online traffic.

Our next question comes from Sam Poser with Susquehanna.

And I have quite a few despite the good information that you provided in your release and in the presentation. I guess, first of all, about the inventory. Does -- understanding that the inventory is going to -- not going to be as low year-over-year going forward, does the results from the second quarter, given with your inventory levels, give you an opportunity to rebase your inventory and increase your churn versus what it was historically going forward if we think about fiscal '21 and even this year? But I mean do you now bring your inventories back to a lower base level than they used to be?

Yes. Jared, do you want to...

Yes, Sam. So I mean, obviously, the second quarter levels are not sustainable, but we're absolutely utilizing this opportunity to reset our base. Certainly, we believe we can have significant improvement in KPIs from a pre-COVID levels based off the reset. I do want to be clear that the second quarter levels, we don't believe to be sustainable, but we do believe we can have significant improvement going forward with regard to inventory KPIs.

And then going forward on store openings and given that you probably had a significant benefit being off-mall, being able to keep your -- less stores sort of forced to close versus many competitors, what is your store opening plans both in the near term and sort of more theoretically, I guess, in the long term, given where things are right now and the success you're having?

Sure. Ben?

Yes. Sam, it's Ben Knighten. We're really focused, obviously, on both banners or both brands out there, City Gear and Hibbett. And kind of looking forward, we anticipate double-digit unit growth in both of those City Gear and Hibbett brands going forward.

[Does that mean] this year or talking beginning next year?

Yes, it's both.

We're going to look at -- in Q3, Sam -- this is Mike again. In Q3 and Q4, and we were going to talk about this because we're pretty sure it's going to come up, we're going to begin to work on some multiyear guidance for you, which will include a number of openings per year and leverage that we expect to get. And that will dovetail nicely with -- we'll have the Q3 results, and we'll be able to do a little bit better job for you talking about the future.

Can you give us some idea of your store opening plans by quarter this year for the route down to the -- for the balance of the year -- of this year?

I think we'll hit the total number. We don't typically talk about quarter-to-quarter. Let me say this though to help answer your question. We are having no problems with disruption of store openings, and we're having no disruptions in terms of running the stores that we have.

Okay. Great. And then just the margins, can you give us what the merchandise and the fixed cost -- where your merch margin was up or down in the quarter and your fixed cost leverage?

Yes. Sam, it's Jared. Merch margins were up. Obviously, our -- the health of our inventory and the fast turns that we saw certainly help that. We believe our inventory is positioned incredibly well right now, although lean. We're very clean where it matters in this environment and, obviously, are very confident in the flow going forward. On top of that, from a marketplace perspective, we were very concerned about the health of levels of inventory in the marketplace, and the marketplace feels fairly clean. So we do think that there's some opportunity for continued expansion.

I really just wanted the history -- what the merch margin was in the quarter, in Q2.

It was -- well we reported it in the earnings, right? So it's in the press release.

Total, not merchandise. Total margin.

Yes. We comment on margin in the press release, and it is what it is. So we don't go beyond that level of detail.

Yes. Sam, the second part of your question, I think just the occupancy or the fixed cost. So we do capture store occupancy costs within our gross margin calculation. So as you can imagine, rent and property taxes and things that go along with the building are relatively fixed. There are some variabilities as we open and close stores, obviously. But for the most part, as our sales lift was so substantial, we obviously had significant leverage on that occupancy component.

Well, historically, you've given the -- you've given both. You've given the fixed cost and the merch. So is this a change in the way you're now going to report?

No, that's not a change. And we're consistent with our past practices.

Okay. Then a few other things. Nike has now decided to pull their product out of quite a few stores in your neighborhood, Dillard's and Belk being primary. How do you view that as potential help when we go into next year?

I'll start that off. This is Mike, and Jared will follow up. We stated what we're comfortable stating because that's in the public domain. The commentary about Stage Stores and J.C. Penney publicly traded companies have made public announcements and those are facts. We're not comfortable talking about other people's businesses. And Jared?

Yes. I think, Sam, we'll obviously watch other competitor closures and any changes from a distribution perspective. And as we get more information, we'll run a similar play to what we've run already for J.C. Penney and Stage.

Okay. And then two more. One, with your e-commerce business, can you give us idea of what percent of that business was a BOPIS or/and curbside pickup? And what curbside is looking like going forward? And then, Jared, I just want to get you on the allocations one more time, especially in the fourth quarter when it comes to some of the big launch shoes. I mean are your allocations going to be in line with last year on the key items in the fourth quarter?

Why don't we start with Jared?

Yes, I'll start. I mean I'm not going to get to the specific levels of details and allocation. I'll just reiterate what I said earlier. We're very confident in our flow of inventory. So we feel, again, and based on our guidance, we feel good about our back half.

And then back to omnichannel. I don't know if I've mentioned it yet a couple of times, but we have a best-in-class omnichannel consumer experience. And so part of that is the BOPIS, the ROPIS, the curbside. And I do like to brag on the team that the day that we decided to go to curbside, it took up 6 hours to get it up and running. So that's the kind of team that can execute and represented here by Ben Knighten and Bill Quinn. So Bill, you want to give an additional flavor to that?

Yes. Sam, I can't talk about specific percentages for curbside. What I can say is we're happy with the performance. We've surveyed the customers who have done it as well as our stores, and everyone likes the program. So we're very, very happy with it. We also added a new omnichannel program, Buy Online, Ship to Store. That was done over the summer -- early summer. So we're continuing to invest in omnichannel. The other thing I would say is, there's certainly these programs, but also just the general behavior of customers shopping in both channels has increased pretty significantly. So we've got a lot of customers who are shopping in-store and online.

(Operator Instructions) Our next question comes from Peter Benedict with Baird.

Mike, so the mid single-digit comp plan for the second half. Just curious, is there any 3Q versus 4Q dynamic that we should be aware of. Maybe anything on how August is influencing that spread. That's my first question.

As you know, August is a significant portion of the Q3 sales. We feel very confident about what's going on. There's been a lot of commentary in the public about back-to-school. While the timing is disrupted, we don't believe the amplitude of it has changed. We believe that back-to-school spending will have a positive versus previous year, and our experience in Q3 is in line with that. And the results that we're seeing are in line with the guidance that we've given. So we're pretty confident about Q3 as well.

Okay. So at this point, no material difference, I guess, between how you're thinking about 3Q and 4Q, understanding, obviously, there's a lot of just general uncertainty.

Sure. But we -- and that uncertainty is mostly around timing with specifically Q3. The other uncertainties that we've mentioned, both in print and during our commentary here, about the macro situation and all the other things going on in the world, those uncertainties exist. But the rest of it we feel pretty confident in.

Great. That's helpful. How should we think about the flow through on that incremental revenue that you guys are expecting from the closures of J.C. Penney and Stage Stores? So $20 million, $40 million. I guess, as we kind of cut through the noise of this year, how are you thinking about flow through margins and that type?

Well, if you're talking about operating income, what we've typically seen in just all the retail that have ever been, and this one included, approximately 1/3 of incremental revenue falls to the bottom line inside a relevant range. If we were talking about doubling revenue, that range doesn't hold. But in this case, it's in the relevant range. So generally, about 30% of incremental revenue falls to the operating income line in most retailers.

Okay. Perfect. That's helpful. And then I guess the last question would be just the plans for allocating the excess cash. Obviously, you're going to rebuild the inventory levels to some degree. But beyond that, what are the priorities here? Do you have any buyback that's baked into the second half? Doesn't look like it, but just curious when you might turn that back on. And just any thoughts on CapEx? I apologize if I missed anything on CapEx.

We didn't give much guidance on that. So let me fill in some blanks here. As you pointed out, we've got approximately $13 per share in cash on the balance sheet that's substantial. We will use some of that, although not a tremendous amount, to replenish the inventory as it comes in through Q3 inventory builds, which will then also take care of that metric on aged inventory percentage. As that inventory builds, it will be somewhat of a use of cash. Then we're going to come back in Q3, Q4 and talk about our strategic alternatives on uses of cash. But we're not comfortable talking about it further than that. Bob?

Yes. I mean, the big thing, obviously, is share repurchase plan, which we've done historically. We did not do any of that in Q2 due to the great amount of uncertainty. We are certainly considering and talking about our options as far as doing some share repurchase. I think at the end of the day, obviously, we want to try to find the best use of our cash regardless of what that use is for, but we're going to keep looking for ways to beef up the business and bring more profitability to the bottom line.

Okay. Great. And just one follow-up. I apologize for asking so many. Just -- when you think about the back half of the year, I mean the plan has mid single-digit comps. It seems like it implies roughly flattish operating margins. Is that kind of how we should be thinking about the business longer term? I know you're going to give us more information. But given the penetration of digital, et cetera, how the sales are coming through the door, the kind of a mid-single-digit comp is something where you would be able to maintain operating margins?

We think that the operating margins go up from here. So we're going to walk back through the guidance one more time, make sure that we're answering your question appropriately. So gross margin leverage is 50 to 70 basis points. SG&A leverage, 70 to 90 basis points. And then on top of that, we've got the mid-single-digit comp, which should drive incremental margin on top of that on the operating income. And so as a result, earnings per share. And in here, you will see a flat share count. So...

A slight increase.

Yes. So that's where we got to the $0.85 to $1.

Yes. So if you think about it, Peter, last year, I think we did, on a GAAP basis, $0.47 in the second half of the year. And here, we're talking about a range of $0.85 to $1, and it's not all related to share repurchases in prior periods. It is truly kind of a mix between that share count as well as some additional profitability.

Yes. I guess I was thinking about it on an adjusted basis. I understand the GAAP guidance. I was thinking more adjusted. We can walk through some of this offline.

Our next question comes from Jim Chartier with Monness, Crespi, Hardt.

I just wanted to touch on the store opening plan. I think last year, you closed 7% of your stores. And just wanted to understand the rationale for now starting to return to double-digit growth. And within that, where do you see the opportunity for new stores? Maybe from geographies that you aren't in or is it more within existing geographies?

We certainly did historically close some stores. They were poor performers. And they were closed when the lease came up for renewal so that the company didn't have any extraordinary cost in closure, and the capital was reallocated. That historically was happening, given the health of the current fleet of stores, plus the underlying changes to the competitive landscape, plus the changes to our business model, which have been relatively substantial, we really are very optimistic about the fleet of stores that we have today. And that comes from a number of things, not the least of which is the improved selection of merchandise in the stores, the improved morale in the stores as well as the sales training that's going on and morale comes from winning.

And it's as simple as that. People like to win. And when you win, they want to win some more. And winning deals in the store level, I hit my bonus target, and every day I go home, I feel like I won. So winning begets winning. And the sales training that's going on in the stores is helping that flywheel turn even faster.

And I don't know if I had mentioned omnichannel yet, but that is a substantial portion of our business. And we really like what's going on there, right? Pure play e-commerce businesses have a problem. Pure play brick and mortar businesses have a problem. Good retail is omnichannel, where you have both, and you do them both very, very well. And I will say Bill Quinn and Ben Knighten's teams are executing at a very high level with regards to the omnichannel business.

So as a result, we believe that there is a tremendous opportunity to turn back on the net store growth. We will always have a handful of stores that are underperforming. Because when you have a portfolio of stores, you're going to open some that aren't as good as others. So we'll close a handful every year when the leases come up, and that's the appropriate way to do it. At the same time, we have a lot of white space opportunities. While we're not comfortable commenting on specifically where those stores go, we'll be able to give further guidance in the future. We don't like to talk about exactly where simply from a competitive stance.

Understood. And then just on the store refreshes, what percentage of your existing store base do you think needs a refresh? How many refreshes do you think you'll do per year? And then what's the cost of that? And what kind of sales lift have you seen from doing refreshes in the past?

We're going to come back with some facts and figures and where we're at in Q3, but we have an initiative underway to improve the look and feel of every store in the chain. We believe it is incredibly important. It's retail 101, 1 store model, 1 look, 1 feel, 1 way of doing business. And that should -- we should be substantially done in Q3.

We have a follow-up question from Sam Poser with Susquehanna.

Just for clarification. The double digit -- when I asked the question regarding double-digit store growth -- or you mentioned double-digit store growth. Does that mean more than 10%? Or does that mean as a percent?

Everybody in the room shaking their head because they knew it's unit growth, it's store growth and store growth is not percentage growth. Thank you. Thanks for the clarification.

Okay. And then just -- I was just wondering, if you can call out, Jared, maybe some of the brands that are performing or not performing right now or improvements you're seeing or brands that you see slowing down, any color you want to give us there?

Yes. I'm not going to get too detailed here, Sam. But I mean, overall, with the results that we've had, business was really strong overall. I would say certain categories performed better than others, and that led to brand performance, both positive and negative. Just a few that I will comment on. Certainly, business with Nike was exceptionally strong. Business with Jordan was exceptionally strong. Our business with Adidas was very strong. But overall, it was a really, really good result.

There are no further questions at this time. Please continue with your presentation or closing remarks.

Well, thank you, everyone. We really appreciate your time and attention during the call. We know that there was a lot of information. We appreciate the questions. We appreciate the feedback. And we look forward to doing this again very, very soon. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.