Hibbett Inc (HIBB) 2002 Q4 法說會逐字稿

Please stand by. Good day and welcome to this Hibbett Sporting Goods, Inc. conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Office Mr. Michael Newsome. Please go ahead, sir.

Thank you, operator. Good morning, everyone.

This is Mickey Newsome. I have with me Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our VP of Merchandise. Jeff will be available during the questions-and-answers period.

We appreciate your interest in Hibbett Sporting Goods and your participation in this call. Before we get started, Gary will cover the Safe Harbor language.

In order for us to take advantage of Safe Harbor rules, I would like to remind you that any projections or statements made today reflect our current views with respect to future events in our financial performance. There is no assurance that such events will occur, or that any projections will be achieved. Our actual results could differ materially from any projections, due to various risk factors which are described, from time to time, in our periodic reports with the SEC.

Thank you, Gary. As you know, from our press release late yesterday, we had an outstanding fourth quarter in Hibbett Sporting Goods. Same store sales increased 7.4 percent of a 13-week quarter, compared to the same 13 weeks of last year.

Earnings per share were 35 cents for the 13-week quarter, and is being compared to the 14 week quarter last year, which was worth - which was 34 cents. We estimate that the extra week in the fourth quarter last year was worth approximately 5 cents a share.

New stores last year, we opened 53 for the year. And I'm happy to report that last year's new stores are performing above our store model. We plan to open 60 stores this year all in the same states that we currently operate in.

Now for some comments on fourth quarter sales. November was low-single digit comps. The Friday after Thanksgiving was extremely strong. But starting the next day on Saturday through about December the 15th, things were relatively soft. Then things got very strong over the last 10 days of December and strong the week after Christmas. And as you know, for the first nine weeks our comps were 5.2 percent.

January was stronger than both November and December and we wound up with the 7.4 percent comps for the 13 weeks.

Hibbett Sporting Goods presents three major product areas in our stores: athletic equipment, athletic apparel and athletic footwear. And remember we operate in small markets in the deep south and lower Midwest, and what's happening in our markets is not always what's happening in the larger markets.

First, we'll speak to equipment. Equipment had positive low-single digit comps, although we lost $450,000 in sales to scooters last year, and could not replace that, we were still positive in equipment.

In equipment we're three major - two major departments, team sports and dual and individual sports. Team sports were very strong. Baseball/softball was excellent, especially protective equipment and accessories.

Basketball was good. Equipment, such as backboard, rim and pole sets was excellent at $300 price point and a $500 price point. Basketballs themselves were good, especially some Nike models and Wilson.

Exercise equipment had a good item. The Abdoer, the TB item at $149, it was a great seller. Boxing equipment was good, bags, gloves and jump ropes.

Apparel was flat for the quarter. We think that's a major accomplishment, and we'll explain that in just a minute. In apparel we have three major departments, college license, pro license and active wear.

College license was certainly negative due to the $500,000 in sales that we had done the previous year because of the University of Oklahoma national championship. In Alabama, we hope that's a nonrecurring event. We hope it's Alabama next year.

Pro was negative because of the previous year's Tennessee Titans run. We lost over $1 million in Tennessee Titan sites. But NFL without Titans was certainly positive. Especially the jerseys were good - Michael Vick jerseys, Ray Lewis, Donovan McNabb, Peter Warrick and some others were very good.

MLB continues to be negative. NBA was very good. The Michael Jordan jersey led the way, along with Allen Iverson and Kobe Bryant.

In active wear - that was the best piece of our apparel business. It was mid-single digits. Ladies led the way. Especially, the management apparel, like Nike dry fit, was very good in ladies.

Basic, real athletic apparel was strong, including our own private label apparel. Basic athletic apparel like sweats, basketball shorts and basic tees led the way. Brand-wise, in apparel, Nike led the way - especially Nike-related - basketball-related Nike apparel as - such as mesh shorts and tear-away jerseys. I should say tear-away pants.

Under Armour was excellent. It's a tight-fitting spandex material. The brand Under Armour is very important. It started as a function piece of athletic apparel. It has switching over - it's remaining a function, but is also becoming a fashion piece. If any of you have young children that's in athletics, they are probably wearing Under Armour. It's more of a fashion piece to them, probably, but it's actually a function piece.

Apparel headwear - because of the Tennessee Titans and Oklahoma, headwear was negative. But things such as headbands - Nike and Adidas - wristbands, earbands and visors were excellent, as were Fossil watches and Oakley sunglasses.

Now, the strongest piece of our business in the fourth quarter, without a doubt, was footwear. Mid-teem comps - it was very good - led by basketball.

Basketball is important because, I think, in the sporting goods channel, basketball is disproportionally important because it is not as widely distributed as running shoes. And the price points sometimes are higher.

Five years ago, people - customers were asking for specific basketball shoes. Well, it happened in the fourth quarter this year. They again started coming in and asking for the Reebok Allen Iverson shoe, especially in Tennessee, Kentucky, North Carolina - the good basketball states.

Of course, they're asking of the Nike Air Jordan in all of our stores. They were asking for the Adidas Tracy McGrady shoe, which sold very well. Basketball was good.

Running remains strong, and New Balance lead the way there. New styles brought it in early in the quarter such as the $80 - $85 price point New Balance, and the 601 $65 price point in New Balance were very strong.

Reebok classics were excellent. In Alabama, Mississippi, Georgia, and South Carolina, especially strong, but they were good overall. Adidas Superstars, the retro look was excellent in Texas, Oklahoma, Missouri and Arkansas and is spreading across the balance of our states. It started with the skateboard customer and is moving toward the urban customer.

Hiking was good for Hibbett this year. I think we did a better job of buying and staying in stock in the correct styles in the correct stores. lead the way with the and the models.

Cleats, which is one of our most important businesses, was excellent, led by Nike. The weather was very warm. This helped cleat sales. It hurt the outwear sales a little bit, but we don't do a lot of outerwear anyway.

Wrestling shoes were excellent, especially in the states of Oklahoma, Missouri and Arkansas. All footwear departments were positive in the fourth quarter. Men's, boy's and cleats were mid-teen comps. Ladies was low-double-digit comps in the fourth quarter.

Ladies had been negative this year up until the fourth quarter. In ladies, the Nike product, the improved styles and the improved color helped.

We feel good about footwear this spring, we think it will be excellent.

Now for some financial comments, Gary Smith, our Chief Financial Officer will speak with you.

Good morning.

As we have talking about all year, the shift in the retail calendar has made getting a true comparison of year-over-year results have been difficult. Even with this shift, however, you will note that we posted a very strong finish to the year and have momentum heading into fiscal 2003.

The fourth quarter fiscal 2001 included an extra week. In my comments I will break up sales on both the comparable 13 week basis, as well as our accounting calendar. As for earnings, I'd like to note that this extra week in the fourth quarter of last year was worth approximately 5 cents per share.

When we compare gross margin and SG&A year-over-year we have to remember that this extra week had a definite impact on these comparisons. With that said, let's get to the details.

Total sales increased 11.6 percent to 67.4 million versus 60.4 million in the prior year. While total sales increased 19.5 percent on a 13 to 13-week basis. Comp store sales for this 13-week period increased 7.4 percent. The company opened 15 stores for the quarter and there were 329 Hibbett stores in operation at quarter end.

Product margin continued to show positive improvement, due to additional discounts and incentive from vendors, less freight dollars this year versus last year and a very strong year in reducing inventory shrinkage. Occupancy and administrative expenses did not leverage positively, due to the 14 versus 13-week sale comparison and a lower productivity of some of the smaller format stores open in 2001.

Interest expense is less than last year, due to lower borrowing cost and carrying balances. Net income increased 3.6 million from 3.4 million, while diluted earnings per share has increased to 35 cents versus 34 cents in the 14-week period.

Sales on a year-to-date basis increased 15 percent to 241.1 million, compared with 209.6 million for the 53-week period last year. Total sales increased 17.3 percent on a 52 to 52-week basis. Comp store sales for this 52-week period increased 2.7 percent. And the company opened 53 stores during the year.

Net income for fiscal 2002 increased 6.9 percent to 11.6 million, compared with net income of 10.8 million for the fiscal 2001 53-week year. Diluted EPS increased to $1.15 for the 52 weeks, from $1.09 in the prior 53-week period.

From a balance sheet perspective, the company ended the year with only $4 million in debt, as compared to $9.7 million at the end of the previous year. Inventory growth was in line with both sales and store growth.

Thank you, Gary. , we're now ready for your - for questions.

Thank you. The question-and-answer session will be conducted electronically today. If you would like to ask a question, please press star-one, on your touch-tone phone. We'll pause for one moment to assemble the rosters.

We'll take our first question from with .

Yes, hi. Good morning and congratulations on a good quarter.

Thank you .

Thanks .

I had a couple of questions. You mentioned freight costs being lower. And I was - could you talk a little bit more about that? How you achieved that and whether there's further improvement this year.

And the second question - would the same nature on the issue of shrink. How much more improvement might we have this year in shrink?

The freight - we would expect that to improve this year as we get into the full compliment of container programs, and also as we expand our back hall. So we're looking forward to improving that this year.

Our shrinkage results were very good this year. And our plan is to at least stay at the same level we were this year.

Great. Thank you, Gary.

OK, .

Moving next to from Stevens Incorporated. Mr. your line is open.

Yes, thank you. Congratulations.

Thank you.

Thanks, Rick.

Any comment Mickey, on early '02 comps? I might be hearing the industry had a pretty good February and early March.

You know our '02 - our first quarter comps are fine. I mean the industry did have a good February.

The warehouse management system, have you implemented that now? And wondering what sort of financial benefits you see?

Well we did go live, I think, January the 2nd. And it's been very successful. It is not without its problems. We expected problems. We're processing at least as good as we were a year ago. And as we get used to the system, and of course the people we bought the system from told us it would be a six month process, that we expect to get much more efficient in the warehouse.

It's operating well. But it has had problems that we were able to fix and - which we expected. And warehouse systems are a big challenge, but ours has been a successful conversion.

OK. Secondly, that tax rate, I know this dropped a bit in the fourth quarter, and I'm wondering what sort of tax rate we should look for in '02.

Something probably 25 basis points out south of the annual rate.

Thirty-six, seven, five.

Somewhere in there.

OK. Thank you.

OK, Rick.

Thanks Rick.

Our next question comes from John Shanley with Wells Fargo.

Good morning. And let me add my congratulations as well on a nice quarter.

Thanks John.

Thanks John.

Mickey, can you give us a little bit of an idea in terms of the percentage breakdown in the fourth quarter in the merchandise categories between the hard lines, footwear and apparel? How did it break in terms of revenue?

We never have pat numbers on that, but no one of the three is as much as 50 percent. And apparel and footwear are more than equipment, especially in the fourth quarter. I think some of the people think if you guess 40-40-20 percent, and we don't argue with that.

But equipment does go down a little bit in the fourth quarter and it comes up on the first quarter and the second quarter.

OK, that's fine. And either Jeff or Mickey, the level of promotional activity in the footwear category - was it more pronounced or less pronounced in the fourth quarter than what you had run in the early part of the year? And what's going on so far as you get into the spring selling season, in terms of promotional activity? Do you see any margin pressure at all in footwear?

It didn't at all. We saw a lot of it out there, but we didn't need for our fourth quarter sales. And it seems like the has slowed down a little bit in the first quarter so far.

Is that with your stores, Jeff? Or is that just the industry as a whole?

We saw a lot during the fourth quarter, but the industry, as a whole, during February, we didn't see a lot of like we did a year ago.

That's very encouraging. Going into the full fiscal year, do you see footwear being still the main driving factor in terms of both your operating profitable performance as well as your top-line performance? Is that going to be the category that's really going to help drive your business?

I'll let Jeff give a comment on that, too, but I think yes. And our margins were up last year in footwear. And the that we're referring to is the buy on, get one-half price, for those of you who don't know sporting goods language.

But, you know, it's things like more of the buy one, get one half-price now is on clearance shoes, which is probably fair, as far as our competitors are concerned. Jeff, do want to add to that?

Yes. We see footwear still driving the business, John, for this year.

Is it basketball, Jeff, or are you getting a renewed interest in the running shoe category, particularly, as we get into the spring season?

We're seeing running holding its own, but we're gaining market share in basketball.

That's great. Is basketball a little bit higher with gross margin contributed for you?

No, because sometimes there's higher price points involved, which helps drive the margin up a little bit.

Super. Then, looking at your hard lines category, is - we pretty much are through anniversary-ing all of the scooter stuff. Are we likely to see a little bit more expansion in terms of both the sales and the operating profit margins as you get into this current fiscal year? Are you optimistic about the growth prospects of hard lines?

I think, hard goods - it's a consistent business. You don't get wild growth there. Negatives there, usually, either. I think it's just going to be a good, consistent business this year, really. We're not going to guess anything big, like a scooter.

OK. That's great. And last question on the apparel merchandise category. About how much of your merchandise mix is no in the private label category? Again, either Jeff or Mickey.

About 20 percent of our apparel mix.

And do you expect that to grow at all as the year progresses?

Trying to stay pretty consistent to that. We're not really going to be growing from a percent standpoint. We consider keeping it pretty consistent.

Yes, we have larger margins in that private label, but your price points are not as high.

Sure.

We want the brands to come back. And Nike came back nicely in the fourth quarter in apparel. And we need the brands to come back and get our price points back up.

And I guess also, just what seems to be facilitating the improvement in the women's category? That had been a - kind of weak category in the past. Did you remerchandise some of the product liens to attract a different female customer into the stores?

Yes, both from a footwear and apparel standpoint we're really calling it out in the stores better. We're doing a special shop with Nike on - in the apparel arena to call it out better. And also on the footwear wall, we're calling it out so you can actually find it.

And what's driving it, and especially and apparel it's like moisture management-type products like dry fit and any other type of moisture management fabric.

John, I'd like to add one thing to that. I think there's another piece of the puzzle on our women's business.

We added a buyer that had 20 years experience about a year-and-a-half ago, and I think he's made a huge difference in that footwear arena. He's made us a better company.

Well that's good to hear. Thank you very much guys. I appreciate it.

from has our next question.

Hi, gentlemen, a very good quarter. Just a quick question about the long-term debt, that decreased to 4 million, which was pretty impressive from last year's $10 million. Is this a level of debt that we can expect to continue for next year?

We would hope that we could drive those balances down, .

OK. And you also mentioned in your press release that the percentage of vendor shipments that are delivered directly to your distribution center is going up. I mean, how does that compare with a couple of years ago?

Well, we're referring to the direct shipments from the orient that we started receiving last May in limited numbers. As the year went on, we received more and more containers each month. We just expect that to continue to grow, direct shipments from the orient, because we're getting to the size where we can do it now from a quantity standpoint.

Of course, when you do that, you get a little bit better discount and a freight advantage.

OK. So what is a realistic expectation for gross margin in the next couple of years?

You know, we would think that, certainly, the freight and maybe the discount would add 20, 30 basis points to the margin.

OK, good. All right. And also, you plan to open 60 stores in the fiscal three. Are you guys planning to close any stores, perhaps, maybe some of the smaller format stores that you opened last year?

Well, we will probably close four or five stores. But the 60, we're looking at as a net number.

OK; OK. Well, thank you, very much.

Thanks .

Thanks.

Our next question is from with Financial Services.

Good morning, gentlemen. Good quarter. I add my congratulations.

A couple of questions have been answered, but I'd like to follow up with it on the tax rate question. Can you tell us why the tax rate has been coming down? And when you say it's going to - it's going to stay down about 25 basis points, is that over the fourth quarter, or is that on the whole year?

That would be on the whole year, , next year. We've just moved in some tax planning.

OK. And as far as the debt goes, you said you wanted to drive that down. Do you have any targets of what you want to end the year with?

Well, we'd like it to zero.

You want to know what he's got to hit to get his bonus?

Yes. That'll give us some good clues. On the store count, how do you plan to add those, or will they be by quarter? How will they be added?

Just a minute. We'll give you those numbers. They're going to be heavily loaded toward the third and fourth quarter, as always . Let's see. Here it is - 7 - Q1, 16 - Q2, 27 - Q3 and 15 - Q4.

OK. And should we assume that that would be in the last couple of weeks of the quarter?

Yes.

OK. And what - and those numbers that you gave us - those - I didn't add that up, but is that the net number? It doesn't look like it.

No, that's the new store opening plan.

Yes.

That's not net.

OK. So do you - can you tell us when the closings would be?

No, we really can't. I mean, a lot of it depends on the leases and negotiations and so forth, .

OK. And the only other thing I had was - did you have a sales - growth in your sales assumption that was built into the EPS guidance, and some of the margin assumptions that you can share with us?

Well we certainly plan a 3-4 percent comp store growth in that range.

Yes.

You know, we always - we plan for some margin improvement.

On both the - well it's clear you're planning on some gross margin improvement, what about SG&A? I mean, you said something in the release about the insurance. Is that going to hit all four quarters?

Yes, it's going to hit all four quarters. Our insurance was three-one to eight. So it will hit March and April. And then it will hit the remaining 11 months. Our SG&A is going to be up a little bit.

OK; primarily because of the insurance?

The insurance was a huge shock. I mean, unfortunately we had to renew this year, and it was a tough time to renew.

Yes.

Because I bet some other people are running into the same issue.

Yes. So basically the - that $1.2 million is going to be mostly born in the last three quarters. Am I understanding you correctly?

Yes, that's correct.

OK. So the first quarter will probably we as good - will be comparable with last year, SG&A margins. And the other ones will be adversely effected primarily by the insurance?

We got two of the three months in the first quarter that's going to be effected.

Yes, I mean...

Oh, two of the three months, OK.

I mean, so you're going to have some deterioration just because of that.

OK; OK. I had misunderstood you. OK. I think that answers all my questions for now.

Thanks.

Thanks, .

As a final reminder, if you would like to ask a question today, please press star on your touch-tone telephone.

Our next question will come from with Chartwell Partners.

Good morning, Mickey. How are you doing?

Good morning, .

Hey, just a quick question for you on the some of the manufacturing environment here in footwear. Some of the analysts have recently said that Nike and Adidas are gaining momentum at retail, while Reebok may be losing momentum. So I'm wondering if you could comment on that.

And then, are you familiar with the RBK Collections coming out from Reebok? And what do you think of that?

And then lastly, have the vendors - footwear vendors - stepped up their promotions, discounts or advertising co-op dollars recently as they fight for market share?

Jeff, you will...

Yes, retail - Nike and - is really still gaining market share again. They seem to be coming back. But we're also gaining with New Balance and Adidas and Reebok's holding their own right now, so we're not seeing the decline in Reebok.

And the RBK Collection - we've seen it and we really think that Reebok's going to have some momentum going, especially that they have all this lead licensees with NFL and NBA. So that hasn't deteriorated at all for us.

OK. And have they stepped up, at all, in terms of promotions, discounts or advertising money?

Some of those guys have. We have seen increases in both - in - between discount and co-op money coming towards us from just about every brand.

OK.

It's probably more the function of our growth, I would think.

Yes, right; OK. Thank you very much.

Thanks, .

Thanks Mick.

Moving next to from and Associates.

Hi. Good morning. I was just wondering if you could elaborate a little bit more on this property and casualty insurance premium increase. How does that - what's the percentage increase and how does that compare to prior increase? And will you have to renegotiate it again next year? Could you give us more color on that?

Well, the company had a very advantageous program. They were in a portfolio program and got some great group pricing. The contract ran out this year. It was a three-year contract.

And unfortunately we were not able to see the same savings. It was a significant, significant increase over the prior years. And we're looking at different alternatives to try to run down that - the cost of the insurance and make it more acceptable from a percent-to-sales rate. And it's only for one year, so we're hoping to renegotiate it next year.

OK. Thanks.

OK.

Our next question comes from from .

Thank you. Mickey, could you repeat your comment you made at the beginning of the call about new stores and their sales performance last year?

Yes. Our new stores last year - we opened 53 new stores. They are currently performing above our new store model. We're real happy with last year's new stores. It's an excellent group.

OK. Which would be different from the year 2000 openings?

Yes.

OK.

2001. Fiscal 2001.

Right, right, right. Calendar. All right. And then, the SG&A being up, what, 93 points in the fourth quarter year-over-year? Would this relate to the new stores or can you tell us, Gary, what was driving that again?

Well, you know, the unfavorable 14 versus 13-week sale comparison is part of that because last year, there were 14 weeks in the fourth quarter.

Right; the occupancy is going to be in the gross margin, you said, right?

Right.

So you've got some other fixed costs. But, I mean, the majority of the SG&A is variable, but nonetheless that would be impactive of that week.

Right.

I mean, what would it have been X that week? Would SG&A actually been down or flat?

Well, I mean, that's just sort of hard for me to speculate on. But some of the smaller format 2001 stores helped drive that - those rates up two, .

OK. Yes, last - all right, I mean I was curious, if you looked at the comp stores their SG&A percentage would have been down because of the high comp sales numbers, is that right on a week-to-week basis, 13 week basis? Or have you not - you don't have that at hand?

I don't have that at hand.

OK. All right. Thank you, gentlemen.

Thank you.

All right.

It appears there are no further questions.

At this time, I would like to turn the conference back over to you, Mr. Newsome, for any closing or additional remarks.

Well, thank you.

To sum up, we feel very positive about our business. We're happy with last year's new store performance. This year's new stores will continue to be located in existing states that we have identified on paper more than 500 small markets in our 20 state area that need a Hibbett Sports store. And we feel that the future is very positive for Hibbett Sporting Goods.

Thanks for participating. We look forward to our next conference call on May the 24th, when we will discuss our first quarters results. Thank you.

That concludes today's conference. Thank you for your participation.