Hibbett Inc (HIBB) 2003 Q1 法說會逐字稿

Good day. Welcome to the 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 Officer Mickey Newsome. Please, go ahead, Sir.

Good morning, everyone. This is Mickey Newsome, With us also is Gary Smith, our Chief Financial Officer and Jeff Rosenthal, our VP of Merchandise. Jeff will certainly be available in the question and answer period and Gary will be presenting information to you. We appreciate your interest in Hibbett Sporting Goods and your participation in the call today. Before we get started, Gary Smith will cover the Safe Harbor language.

Good morning. In order for us to take advantage of Safe Harbor rules, I would like to remind you any projections or statements made today reflect our current views with respect to future events and 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, Hibbett Sporting Goods had a solid first quarter. Earnings per share were up forty-one cents, profit was up 23.3%, Overall sales increased 17.3, and same store sales increased 3.9. Last year's new stores continued to operate well. We have opened nine new stores this year, mostly in April. So it's too early to tell on them. We have a goal of 60 new stores this year, and we have a goal to stay within our 20-state area to stay tight geographically. Now, for comments on first quarter sales. February was very strong. We are coming off the January momentum and we had great weather in the Hibbett heartland. We were up mid single digits in February. March was up mid single digits. April was flat due to the late Easter last year and the early Easter this year. Also, April was probably affected by some warehouse issues. Remember, we went live with a new warehouse system in January, and we spoke about this on our conference call in March. At the time we felt like everything was going fine with the warehouse but by toward the end of March, we begin to discover some problems in the system. It mainly affected the product that was put in stock. About 50% of our product is cross docked in the warehouse, and it did not affect that at all. It only affected the product put in stock and we had trouble getting it out of the warehouse. I think that affected us some in April. We don't know how much. Most of that is behind us, but not all of it. We do see the light at the end of the tunnel. We think we will be fine with our new warehouse system. Remember Hibbett presents three major areas of product, athletic equipment, athletic apparel and athletic footwear. We will speak to footwear, because that was the strongest of the three. Footwear was positive in the seven to eight percent range on a comp store basis. Men's, Lady's and Cleated, were up high single digit. Boy's was up low single digit. Boy's shoe units on a comp store basis were up nine percent indicating lower price points in kids' shoes. Nike led the way. K-swiss, Reebok and New Balance were also very strong. The look that was in is for sure the retro classic, plain white shoes in general is what's hot. Basketball is a category we are strong. Running was off slightly as a category. But, we are seeing more and more evidence that staying tight in our 20-state area helps us understand the wants, needs and brands for each markets and timing of footwear. We think it's very important. As an example K-Swiss was very strong in the lower mid-west in Texas and Oklahoma. New Balance was excellent in Alabama and Mississippi. Reebok was excellent in Georgia, Alabama and Mississippi but much weaker in the lower midwest. It will change from state-to-state, county-to-county from market-to-market. Equipment was negative low single digits, do partly with fitness was sauced, fitness was certainly negative. We did not have any AB products like last spring. The AB-Slide and the AD-Doer. We also continued to have a slight hangover from Scooters from a year ago in the equipment arena. Baseball was down slightly, due to average price points being down in Bats and Gloves. Fast-pitch softball is on the upswing, especially in the female arena and slow pitch softball is a slight downswing. Equipment has more basic product than the other two categories, which mean we had more of our product in the warehouse, that is suppose to go out to the stores, as the stores sell it. This is the area where the new system hurt us. So I think without this problem, equipment would have probably be positive for the quarter. We don't have that totally behind us, but we are very close to having it totally behind us. Apparel was up low single digits. We are two basic things in apparel. We are active wear and licensed products. Active wear, that's branded and basic product was up in the seven to eight percent range. Branded includes Nike, which was very strong and Under-Armour which was strong. Technical products in general were strong like Dry-Fit and any other moisture management product. Basic apparel includes our own private label which was excellent. It has good margins, but the price points are lower. Licensed products was the weaker of the apparel segment. College was the weaker of the weak. We were down double digit in college. We did have less inventory and we planned to have less inventory. One of the primary reasons, that College was down is that University of North Carolina the Powder Blue was not the hot fashion color this year , that it was a year ago and also the University of North Carolina had a very weak Basketball team which hurt some. In Pro we were up single digits. NBA led the way, high double digit increases. It's off a smaller base than NFL and MLB. The NBA jersey's ,is really hot, and What's driving it, is color. Previous to this year what usually drove NBA jersey's was player. Player specific. Now it is color specific and not so important as what player's on there. For some financial comments, Gary Smith will speak with you.

Total sales increased 17.3 percent to $70.8 million versus $60.3 million in the prior year. Comp store sales were up 3.9 percent. The company opened nine stores for the quarter and there were 338 Hibbett stores in operation at quarter end. Gross margin continued to show positive improvement due to less freight dollars, this year than last year and the positive leverage of occupancy. The company did not leverage its Admin expense, basically due to increase in insurance expenses which we referred to in our March call. The company also benefited from lower interest expense due to lower balances and rates during the quarter. As a result, net income increased 23.3 percent to $4.2 million versus $3.4 million last year. From a balance sheet perspective, inventories increased 11.6 percent versus last year with the reduction in per store inventories of approximately eight percent. Debt at quarter end was 10 percent below year ago levels.

Thank you, Gary. Allison, we are ready for questions.

Today's question and answer session will be conducted electronically. If you would like to ask a question at this time, press the star key followed by the digit one on your touch tone phone. Once again, to ask a question please press star one. and we'll take our first question from John Shanley with Wells Fargo.

Good morning, guys. Nice job on the quarter.

Good morning, John.

Either Jeff or Mickey. I wonder if you could give us your thoughts on any potential impact on the apparent weakness in some other retail chains on higher end marque athletic footwear products. Is Hibbett the same or is there any problem in terms of your merchandise mix? Or are you planning on making any adjustment in your merchandise mix due to the apparent fall-off in demand for stuff north of $130.00?

John, first of all on the high marque product, we don't get as much allocation as some of the big guys do. It was slow for us, too. But because we didn't have that many pair we didn't get hurt as much. But we had markdowns in the high end product, also.

Okay, That's good to hear. Also, with the strength that you had in the Pro-license area, are you planning on doing anything special for this upcoming fall season since that was such a strong category for you in the just concluded quarter? Are you doing anything with either Reebok or in conjunction with the NBA or NFL product lines that they have?

Yeah, John, we are doing quite a bit with Reebok and the NFL arena. So we feel good about the jersey's that are coming out, the NBA jersey's and Baseball jersey's and we see NFL jersey's being strong in the fall.

Is that likely, Jeff, to be substantially creative to the apparel in the fall selling season?

Probably, yes.

That's good to hear. Mickey, on the issues regarding the warehouse, are those behind you now? Are there any lingering difficulties in terms of getting product out?

John, there is some lingering difficulties. We think we understand everything now and we can get it straightened out. We think we see the light at the end of the tunnel. We still have a little of it, but not nearly as what we had four weeks ago, but there is still some issues.

Is it again, still primarily centered around the hard good category?

Yes, because that is the more basic category, our goal is to get more and more Cross Docked. That stuff just flies through the warehouse with our new system. Getting out of the warehouse once it gets put in stock , has been our problem. We think we have everything figured out. Now we have to get caught up.

When do you think that will happen?

I think it will happen in June.

Okay. How many stores can that facility handle, or will it be able to handle when it's fully operational?

We think it can and 550 stores.

550,So, basically you have another 200 stores to go before you need to think about expansion or anything?

Right, We are beginning to think about it, but we do have, you know, two or three, four years left of expansion before we have to do anything. But we certainly are looking at things.

Lastly on the warehouse. Do you have the capability to knock out walls to get any capacity out of the facility over and above 550?

We don't have any extra property to do that with now. There is some property next door that's for sale that we are looking at, but currently we do not have that capability.

Okay, alright, Thank you very much, appreciate it.

Thank you.

Next question from David McGee with Suntrust, Robinson,and Humphrey.

Good morning, guys, good quarter.

Good morning. Thank you.

Couple questions. One is are you seeing much in terms of other footwear promotion, like activity away from the marque product right now?

We have seen some bo-going going on, like this weekend I know the Foot Lockers of the world are on bo-go. It's been pretty standard of what's been going on for the last year.

You wouldn't describe it as any kind of anticipation happening? JEFF ROSENTHAL": No.

Isn't the number of stores that compete with the Locker much less than it was a year ago?

Yes, we are down to about 25% of our stores compete with them now. And it it was in the thirties a year ago. That number will continue to drop.

And secondly, looks like the inventory turn improved ever so slightly year-to-year in the first quarter, at least by our calculation. Is that something we can see further improvement on? And maybe you can touch on how you plan to do that.

John -- David, we certainly that was one of our goals is to improve that. That is a focus of ours this year. We are really getting into a planning department, which we probably should have done maybe a year ago. And we are on it. And we are going to do a lot better job of merchandise planning. We think we can certainly get some vendor help in this regard.

Great. Thanks a lot.

Thank you.

We'll go next to Rick Nelson with Stevens Incorporated. Please go ahead, sir.

Thanks. Hi, guys.

Hi, Rick.

Mickey, your footwear Comps are outpacing everything in sporting goods retailing.Wondering What do you think is driving that, and how much of a factor do you think the direct containers from the Orient has been?

The direct containers from the Orient have certainly been a factor. We started receiving direct containers last June. Not very many in the beginning. Of course, we don't receive many in May, but this June we'll receive a whole lot more than we did last year. We got in a lot of direct containers in the January/February timeframe that was three to four weeks later coming through the Nike warehouse. That's definitely impacted our footwear sales.

We also put a lot of emphasis on visuals and making the footwear stands out much better in the stores. So you can call out Women's better and Kids. It's easier to shop for the consumer.

I note some of the big box stores were indicating that cold rainy weather held back sales growth, particularly late in April. I didn't hear any weather comments in your introductory remarks. Was that an issue in your markets at all?

It probably was. Not a lot you can do about weather. We had spectacular weather in the Hibbett heartland in January, February. But March and April even today, it's cold, for us it's cold. That was a cold rainy March, April so that did not help sporting goods, I can tell you, you are actually right, but January, February was spectacular , so we need some good, hot weather.

All right. How much of a factor were the insurance costs to your SG&A? Would you have leverage SG&A without the rise in those costs?

Well, the Insurance was probably close to 25 biffs. And we had a swing in one expense item that was really just more of a timing difference. Without that, we would have been pretty close to leveraging the expenses.

Okay. Thanks a lot, guys. Great quarter.

Okay.

We'll go next to David Turner with BB&T Capital Markets.

Good morning, guys. Couple questions. Is there any way to quantify any downside to the warehouse issues. As you said you have reached the end of the tunnel but is there any material impact or any way to quantify?

David, it's hard to quantify. We think in the first quarter it probably affected our comps two percent, maybe. That would be my estimate, There's some people that estimate higher and some people that probably estimate lower. I think it certainly affected us a couple points. We were out of some basic product at the store level. By the time we figured it out, we couldn't get it out of the warehouse. Now we are just not getting it back out there. It definitely affected our comps, no question.

That two percent becomes 50 basis points or less into the second quarter and goes away completely in the second half of the year? GARY SMITH It goes away completely in the second half of the year.

Okay.

I think in the second half of the year as a result of putting in our new system, we will be a much better company.

Great. You mentioned less freight and occupancy leverage as part of the gross margin improvement. But could you give us an idea where merchandise margins were? I mean, you went into the quarter with inventory levels down two percent per square foot. Is it safe to assume that merchandise margins were up? Or, what are they going to do going forward? Your estimate?

Merchandise margins were up, David.

Okay. I mean obviously same store sales have been strong. So it makes sense. And how have sales through May been thus far in a couple of retailers have indicated it was push/pull scenario. The weather in April, you know, didn't help and was kind of hoping May sales would pick up. Can you give us an idea where you are now?

Of course, you know, we are not very far into the quarter so we don't have a good read on the quarter yet. May is by far the weaker of the three months in the second quarter. It's a little bit better than February -- I mean April. We still had cold weather. May, it's okay.

Okay. Thank you.

Thanks, david.

We'll go next to Anthony Labivinski with [INAUDIBLE].

Good morning, guys. Congratulations on a good quarter.

Thanks Anthony.

As far as the insurance cost, what is the impact on the remaining three quarters of those?

I would think it would be in the neighborhood of 25 to 30 biffs.

Okay. For each quarter?

yes.

Okay. And are you guys introducing any new brands, particularly in the footwear category?

Not really. We are pretty much staying with what we typically do, it seems like the market is wanting real basic retro shoes out there. We will not be introducing any new brands.

Okay. Looks like your average inventory per store went down a bit. Is this a trend we should expect to continue?

It's one we certainly would like to continue. This is a goal of ours this year, is to reduce inventory, do more business with a little less inventory. I think we did it in the first quarter. We are on it. This is our goal.

Okay. Thank you.

Thank you.

Thanks, Anthony.

Will go next to Quinton Spector with with Lipton Financial Services.

Good morning, gentlemen.

Good morning.

Couple questions. On the gross margin, how much of that would you say the improvement was from leveraging the occupancy cost, and how much of it was due to improved merchandise margin? And when I say improved merchandise margins, would you refer to in the press release, is that included in the freight allowances that Gary was referring to?

Yes.

Okay.

I would -- just about half. Half and half due to the improved occupancy and improvement in margins.

Okay. Thank you. And on the insurance, I'm a little confused. That's in the SG&A, not in the gross margin line, right?

That's correct.

Okay. So if you, absent whatever the timing of whatever expense occurred in Q1, if you get three percent or better comps going forward, will that 25 basis points insurance lift get leveraged?

I think it would have to be closer to four to have that happen.

To where, 4 1/2?

To four percent. The upper end of our comp range.

Okay. And I notice that depreciation was higher as a percent of sales. Is that because of Cap-X, that -- your stores at the end of the quarter?

We opened a few more stores than planned in the first quarter and that had to do with that.

Okay. You said that those stores were in April. Were they like the very last week? Or were they in operation throughout the entire month?

they probably opened second week or so in april.

Some second week, some third, and some the last day of the month.

Oh, okay. And debt, are your debt plans still to go to zero by the end of the year?

We are on track.

That's our goal. That is lofty goal.

Okay. And far be it from me to complain about your great progress in inventory, but is it conceiveable that it's a little too low given the problems that you had getting the equipment out of the warehouses, it seems, is it real -- is it too low? And also, the payables, I notice, were much lower 27 percent versus 37 percent last year.

Yeah, I think some of it -- I think you're right. I think some of it is -- while we have tried to improve our turns and lower our inventories, I think some of the inventories and payables you see on the balance sheet are an abberation due to some of the system problems we had with the new warehouse system.

Well, I would think that would make your inventories higher.

No.

If you couldn't get it out of the warehouse.

Well, part of it was, you know, getting it into the warehouse, too.

Oh.

From a receipt standpoint.

Oh, I see. So you mean it wasn't entered on your books?

It backed up a little bit.

Okay. Gotcha. Okay. Those are my questions. Thank you.

Thanks, Quinton.

We'll go next to Catherine Walsh with Capital Growth Management.

Hi. Good morning. Could you talk about your private label? Which product in private label would give basically the best to, you know, like, would add the best to the gross margin?

What we do is pretty basic apparel standard gym shorts, t-shirts and wind pants. Those are the type of items that we have which we have good gross margins in. It's real basic, very athletic driven.

Okay. And do you know, would you break down what percentage of private label you do?

Probably less than 20 percent of the apparel. And we are not as fired up about the private label as a lot of people are. We want the brands to come back. Because when the brands come back the price points go up.

Okay.

You got a lot of margin in private label, but man, the price points drop on you. )).

Okay, so it is just the appreal you do the private label on.

Yes.

Thank you very much.

Thank you.

We'll next to Maurice Diane with Arnhold and Bischroeder.

Yes, Thanks, Follow-up question on the gross margin , Gary or Mickey would you care to elaborate, just on what you are bringing in on containers now, how many lines, how much this may benefit you next year if there are more lines to come?

Pretty much all our major footwear vendors we are doing containers now. We will see that continue to grow between Reebok, New Balance, Adias days. Nike was our major one. We have started adding these other ones for back-to-school.

It has been predominantly footwear.

We are just getting into direct containers with apparel but that would be later in the year.

The benefit from apparel would be the second half of this year and next year as well in some degree?

It will be more into the spring.

More in the spring. As far as the brands beyond Nike, the benefit would start -- would have started already this spring or are you going to see that beginning this summer?

We'll start seeing it this summer.

Thank you. Beautiful annual report by the way.

Thank you.

Thanks Maurice.

Once again, that is star one if you would like to ask a question. We'll now go to Ralph Gene with Chartwell.

Good morning, guys.

Hi, Ralph.

Couple quick easy questions for you, Mickey on the classics, what brands are positioned to do well? Does that include Chuck Taylor all-stars and is it adults, kids or both?

Really, it's both but it's more in adults. It starts with probably Reebok and Adias Super Stars, K-Swiss, Nike Cortex's really across all vendors. It's both adult and kids, but we are seeing most of the results in men's.

Of course usually what happens it starts at the adult level and trickles down to the youth later sooner or later.

You mean, the parents actually set the trends for the kids? Is Chuck Taylor participating in that also, do you carry Chunk Taylor All-Stars?

We are doing some. We are testing it. It's mostly from what I have been told happening more in California and out West than the South. We are testing it right now.

On a team sports side, I know you guys historically have been strong in the team sports area. Are you seeing an acceleration in that away from individual or really no change in your business because you have always been strong in teams?

I don't see a big change there.

Okay. The last question. Softball Bats, are the average prices coming around on those? Is it still around $189.00 to $200.00?

They have dropped [INAUDIBLE] to average price, Bats and gloves have dropped some this year in price points.

Mickey is that 10 percent or 30 percent? Just ballpark.

Probably 10 to 15 percent.

10 to 15 percent.

In that range.

Okay. Then you talked about doing more with Reebok and NFL jersey's, NBA was strong this past year. Are they using that to ask you guys to give them more facings or carry more inventory?

No.

Okay. Thank you very much.

Thank you, Ralph.

Thanks.

Gentleman, there are any further questions at this time. I would like to hand the conference back over to you, Mr. Newsome for additional or closing comments.

Thank you, In summary we feel good about the future growth of Hibbett. We are going to stay tight geogrphacially in the 20-state area. We'll stay in small markets, no one else wants to do small market except for us, We think we understand them and how to make money. We sincerely appreciate all of you participating today. We look forward to talking to you on August 23rd, about our second quarter numbers. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect at this time.