Hibbett Inc (HIBB) 2002 Q2 法說會逐字稿

Good day, everyone. Welcome to the Hibbett Sporting Goods conference call. Today's call is being recorded. For opening remarks, I would like to turn over to the president and chief executive officer, Mr. Mickey Newsome.

Thank you and good morning. This is Mickey Newsome. I have with me our chief financial officer, Gary Smith, and our Vice President of Merchandising, Jeff Rosenthal. We appreciate your interest in Hibbett Sporting Goods and your participation today. Before we get started, Gary Smith will cover Safe Harbor language.

In order to take advantage of Safe Harbor rules, I would like to remind you projections or statements made today reflect our current views with respect to future events in our financial performance. There is no assurance such events will occur or 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. As you know from our press release, Hibbett Sporting Goods had a solid second quarter. Earnings per share were 26 cents. Profits increased 30.1%. Sales increased 18.5. We are very proud to say that same-store sales were up 4.1%. Now, for comments on first - second quarter sales.

May was down low single digits. It was a tough month. June we were up mid-single digits. We came back nicely. This year, the calendar caused the week of July 4th to fall into June. It was especially strong. It seems like peaks are getting taller and valleys deeper in retail. You have to capitalize on the big events like fourth of July. July, we were again up mid-single digits. The last week of the month was very strong. It is the second largest week in our back-to-school time frame. The tax free days in Georgia, South Carolina and North Carolina certainly did help this last week.

Hibbett presents three major areas of merchandise: athletic equipment, athletic apparel and athletic footwear with emphasis on cleats. In athletic equipment we are not hunting, camping, golf or tennis, but athletic equipment. I will speak to athletic apparel, which was very strong. Positive mid-single digit increases. Now, in athletic apparel, we are two major categories: licensed products and active wear. In the licensed product area, we are college and pro. The college piece of the business was negative low single digit comps. We had less inventory by design and in the second quarter of the year, it is more of a fashion purchase for the customer. University of North Carolina baby Blue was our number one school last year, was weaker this year. It was not a fashion color and not desired. North Carolina did not have a great year in basketball and that hurt in college.

In the fall, this college purchase becomes more fan-based and team specific. We expect it to come back nicely. Pro apparel was outstanding. Double digit comp store sales increases. Nab NBA was unbelievable, high double digit comps. The hardwood classic shooting shirts at $70, were especially strong. It is totally color driven. it is not team or player driven. Red, white and blue were the color. Old Sixers and Old Clipper shooting shirts were absolutely strong.

Active wear, we look at two different ways: branded and basic. We were double digit comps in active wear. NIKE basketball shorts and shirts were strong. UnderArmour, which is technical performance product, was excellent in the Hibbett basic private label was strong. Ladies' was good, especially the performance products like lycra and Dry-Fit. The shorts were strong, especially with butt prints. It is a fashion item. I think merchandisers did a great job in active wear, placing the right product in the right store, which is a very complicated thing, but we are getting good at it.

Headwear or caps were weak. Last year visors were a big percent of business in the second quarter. They were a fashion item. This year, they were not there. Equipment. This was the weakest part of the business. Apparel and footwear were excellent, equipment was down. Teen equipment and dual and individual sport equipment, I will speak to each of them. Baseball and softball was negative low single digits. Uniforms and bats were positive, but fielders and gloves and protective equipment and batters' gloves were negative. In last two to three years batters gloves were a fashion item and the kids category.

Each kid had to have two batters gloves on his hand when he played. It has ceased to become a fashion item and this hurt that category some. Dual and individual sports, our largest category is exercise and it was weak. We did not have any hot items such as the ab-roller or ab-doer that were T.V. items a year ago. Footwear positive mid-single digits. Men's and kids' positive high single digits. Ladies' was flat. Cleats was positive mid-single digits. Basketball was strong on top of an especially strong basketball second quarter last year. Men's and kids' footwear are moving from cross-training to basketball. Ladies' cross training and running and moving to sandals and flip-flops, which you do not purchase at Hibbett to any great extent. Ladies' apparel was good, but footwear was flat.

The tennis category was up big. Of course, the base is not as large as other categories like running, cross- training or basketball. Tennis was up, mostly k-Swiss driven and more fashion-driven than function. The whole footwear today is retro, retro, retro, such as Adidas super star, Reebok classics, NIKE Cortez. From footwear, NIKE and Reebok were up on comp store basis. K-Swiss was the largest gainer as percent, they are on a smaller base than the other two.

Our distribution center we reported at the end of last quarter, we were having issues. If you remember, we went live on a new system in January. We thought everything was going fine until late April or early May, we began to suspect we had problems because product was not flowing out of the warehouse. At end of May, first of June, store inventory had gotten inaccurate. We reinventoried stores to make sure they were accurate for back-to-school season. We did expense that event in the second quarter. We had planned to do that in the second, third and fourth quarter spread more evenly. We did it in the second quarter. I am happy to report today our warehouse/distribution center is operating more efficiently than it ever has before. We leveraged our DC expenses in second quarter. We are proud of that.

Gary Smith will comment more on that. I think we have a chance to be good in logistics. We have the product and I think we have it under control.

New stores. New stores are open store model for this year. Our goal originally was to open 60 net new stores. We think we will actually hit between 50 to 55. We opened 9 in Q1, 10 in Q2 and expect to open between 31 and 38 in the next two quarters. Some of this year's new stores are flipping into the first quarter of next year. This uncertain economy, some of the smaller developers that we deal with are not taking the chances they did at one time because of the economy and it has slowed things down in real estate. But, we still have 500 markets we can put stores in. We have them on paper and know the demographics and know we can put store necessary a 21-state area. We have to make sure we go to the number one shopping center in the area and stay tight geographically and be patient and wait on the real estate if that is what we have to do. We expect it to pick up next year.

For financial comments, vice president and CFO Gary Smith will speak to you.

Thank you. For the quarter total sales increased 18.5% to 65.9 million, versus 55.6 million in the prior year. Comp store sales grew 4.1%. The company opened 10 new stores in the 13-week period and one store was closed. There were 347 stores in operation as of August 3. Gross profit improved to 30.5% from 29.8%. This was due to additional discounts and incentives from vendors and freight costs, which were under last year's dollars. The company also had positive leverage of both warehouse and occupancy costs in the quarter.

Store operating, selling and admin costs increased from 21% last year to 21.4% this year. The increase fell into two categories: previously mentioned increase in property and casualty insurance and the company due to issues regarding the implementation of the new warehouse system. Inventory to stores to validate the stock for important back-to-school period. This will be offset in the third and fourth quarters.

Without the increase in this item, the company would have leveraged this line. Interest expense was less than last year's dollars due to significantly reduced average borrowings. Net income for the quarter was 2.6 million, versus last year's 2 million. Earnings per diluted share came in at 26 cents versus 20 the previous year. Year to date results are as follows. Total sales increased 17.9% to 136.7 billion versus 116 billion in the prior year. Comp store sales increased 4.1. The company opened 19 new stores in the 26-week period and one store was closed.

Gross profit improved 60 basis points year over year. This again was due to additional discounts and incentives, to reduce cost and positive to leverage in warehouse and occupancy. Store operating, selling and admin costs increased. This was due to increase in property and casualty and increase in inventory costs. Net income for the year was 6.9 million, versus last year's 5.5 million. Earnings came in at 67 cents versus 54 from the previous year. From a balance sheet perspective, the company entered the quarter with 5.5 million in borrowing versus 12 million last year and average inventories were down on year to year comparison.

Thank you. Operator, we are ready for questions.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, press the * key, followed by the 1 key is your touchtone phone. We will come to you in the order you signal. One moment to assemble the roster.

Our first question comes from David McGee with Suntrust Robinson Humphrey.

Good morning, guys. Nice quarter. My question has to do with what you are seeing in terms of rent costs right now with new stores. I know the Wal-Mart centers were getting expensive a year ago. Are you finding yourself stepping up in that regard or locating to the next best location? What is happening there?

You know, I would say a year ago - two years ago rents were certainly creeping up on the Wal-Mart centers. I think it has softened in the last 12 months. I think we are paying $1 to $2 less than we were two years ago. It is because the economy has softened and there is less demand for the space. I think that certainly stabilized if not a down trend. Now, we have tested a couple of stores where we did not go into the Wal-Mart center, but maybe went to the second best center, back toward the population from Wal-Mart. That has worked very well. It has to be a good quality center.

We can do that. When we do that, we typically go 5000 square foot, not 55 to 6000. We get a loss less rent that. That works well, also.

Great. Flexibility there, obviously?

We do have flexibility. We can go to the second best center, but it needs to be back toward the population from Wal-Mart center and we will be okay.

Thank you, Mickey.

Next from Bobby Cannan with Bobby Edwards.

Congratulations. First of all, on gross margin, I assume you are buying cheaper, too, Gary, is that correct?

Yes, once you figure in the discounts and made close-outs.

Okay. Then, question for Mickey and Gary on the systems. I know there are issues, language issues between the Manhattan and Island Pacific software coming out of the second quarter into the first quarter. I am assuming that hurt May sales. I am wondering if you could describe that issue and just let us know if it has been fully addressed?

Good question. We are proud of our results on that. We did have interface issues. They were not big, but enough to mess things up. It did affect May. We got it straightened out and reinventoried the stores. We are operating better today in our dc than we ever have before. We have two trucks in the yard to be unloaded today. This time last year, we probably had 24. We are much more current and it is flowing very quickly. We are doing more cross-docking. Last year we cross-docked 43% of the product. This year it will be closer to 58%, which means the vendor pre-boxes by store and comes in and goes right back out in a matter of hours. It was a matter of minutes sometimes. We are proud of where we are. We have a chance to really be good at logistics. And that may be one of the keys to retailing, about logistics. Wal-Mart has proved that. That is our goal is to be the best in the industry in logistics.

In terms of the data integrity issue, did that have to do with the island pacific store software or with the Manhattan store software?

Neither, the interface between the two.

As a result of interface issues, you were overcounting what was being sent to the stores?

Basically it was putting inventory in the stores that wasn't there and didn't give us the opportunity to replenish it.

Okay. So, in other words, the system showed you had put more into the store than you actually had?

That is correct.

We are in good shape now?

Yes.

To Rick Nelson with Stevens.

Thank you. Hi, guys. (inaudible) sporting good section?

You know, I think probably the reason is we are in the small markets. We don't have a lot of competition. Nobody else wants to go there. We stay tight to hold expenses down to do less business and make money. I really think that is probably what it is about. I think we have improved as a company over one year ago. I think we are much better company today than one year ago.

Also think we can say that again next year. You have to keep improving and getting better. I believe this logistics thing will make us a much better company. I think getting back to the original question, it is about small markets and that is the reason.

And do you have preliminary store openings planned for next year?

Yes, preliminary plans.

How many?

In the 70-range.

Step up from the prior thinking?

Not - we have tentatively budgeted 70 for next year. That is what we have been thinking.

Thank you.

Our next question comes from David Turner with DDT capital Markets.

Good morning. Following on the last question. The 70 you budgeted for next year, how much of spill-over from this year does that include? I think you said because of the retail space being delivered late, there would be some falling into first quarter and first half of next year?

We think five or six spill-over.

Basically, does that included in the 70 or is it going to be 75 open next year?

Included in the 70.

Thank you. And have you noticed any pricing or - if you could give units versus price in the quarter, there has been some noise from other retailers about pricing pressure. Can you break that down or maybe you can give us color on what pricing assumptions are baked into the comp guidance you gave?

Price per unit?

Right. Yes, correct.

Price per unit in second quarter was up 13 cents, is that what it was? It was up 13 cents and had been down for several quarters. It has probably been down for three years. We have had deflation in sporting goods for three executive years because of the deflation factor. We get the numbers monthly. Ours flattened in the second quarter. Shoes were up. Apparel was actually down a little bit. Footwear was stable.

Okay. So, the 13 cents - on percentage basis, that is about flat. It was really increase in number of unit that is drove the comp?

Yes. We were flat, really on the price. 13 cents is just noise.

Okay. Thank you. Last question is can you give us read on August sales thus far in August?

August, we are certainly positive in August. It is way too early to tell anything about the third quarter. We are positive.

I mean, safe to say you are tracking in line with guidance you gave?

That is true. Probably August sales got pulled into July because of the tax-free weekend in three states. Probably little bit got pulled in there. We are positive for August.

Thank you.

Our next question comes from Anthony Lavinski with Sadonny and Company.

Good morning. Good quarter. Most of the questions have been answered. Couple here. As far as timing of the opening of the range of 31 to 38 stores in the second half, can you break that down between the third and fourth quarter?

Do you have that Gary, specifically? I don't have it broken down.

We don't have it broken down.

31 to 38 in the third and fourth quarter.

31 to 30 in the second half, are mostly opened in third quarter or -

About half and half. A lot of January openings.

Okay. All right.

Most of the fourth quarter will be January. We don't like to open stores in December.

Sure. Okay. All right. What is your comp assumptions for the third quarter?

It is probably mid-single digit, probably 5 or so.

Okay. All right. Thank you very much.

To ask a question, press * 1. To John Shanley with Wells Fargo.

Good morning. Mickey, the strong back-to-school selling season that you have been experiencing, it is being driven by footwear, apparel or equal in terms of the customer reaction to the product offerings right now?

Pretty even. Apparel and footwear are strong. Equipment has weakness in it. Back-to-school really, two key weeks is last two weeks of July and first week of August. That is the two largest weeks. We are really past back-to-school almost. We are down hill from it. Our schools start in August. Apparel and footwear are both good.

Are gross margin contribution for both products about equal or are you getting richer contribution on one versus the other?

Jeff, you want to speak to that?

Apparel better margins on than in footwear. But, both increasing.

Okay. The promotional climate right now, Jeff, in footwear, are you saying ramifications from some of the athletic specialties that are still out there bogoing and with the other guys doing?

Yeah, we are still seeing quite a bit of that. A lot of the market is not a factor. So, we don't have to participate.

You did not participate in the bogos?

25% of the markets have Foot Lockers or Champs. Foot Locker in the south. One or two have Champs. When they bogo about 80 markets. When we bogo, we do it on clearance shoes, only.

Okay. Looking at how well you did in apparel and footwear, any thought being given to shift in merchandise offerings in the back half of the year to perhaps deemphasize the hard lines and give more selling space to footwear and apparel?

We have talked about it, yes. Yes. The answer to that question is yes, we considered that.

We can maybe think about hard lines being less of a contributor in the back half? I am just trying to adjust our models. We try to break our model down between the three merchandise categories?

Maybe a little bit. I think team sports arena we would not deemphasize at all. Maybe exercise and we do water sports, that is the categories we would probably look at more. We are really - we think team sports category is what we are about. I don't think we will mess with them.

Okay. Last question on merchandising. Are you seeing any possible benefits from some of the issues between NIKE and Foot Locker in terms of willingness of NIKE to give you better terms or better deals than you may have gotten in the past? Will that be a factor in terms of your margin contributions?

We have seen things from NIKE already and expect to see more, you know, special products. We have gotten some already and expect to get more in the second half.

Okay. That is helpful. Mickey, on real estate front, I know we have been hitting you up with real estate questions. I think a lot of us model on your new store openings schedule. Are those 70 or so stores planned for next year going to be within the same geographic parameters of your existing base? Are you going into new states or markets you haven't previously serviced?

Our goal is to stay within the 21-state area. If we add a state, it will be Nebraska, which acts like the deep south, more small towns. We will generally stay in the 21-state area. Our goal is to stay there for five years, at least. If we do that, it gives us advantages from a distribution standpoint and understanding the markets better. I think that is a real key.

How far out from Birmingham can you effectively service a store with the dc center located in that? I think you talked about 500 mile radius. Can you go beyond that?

600 miles.

Great. Thanks a lot. Appreciate it.

We will go to Quinton Spectre with Lipton Financial Services.

Good morning, gentlemen. Most of my questions have been answered. But, maybe you could tell me how much capex was this quarter and if you can tell me what the rest of the year is, even with the uncertainty about the store opening schedule?

I believe 16, Mr. Spectre.

1.6?

Yeah.

I wanted to tie together some of the comments you made because it sounds like logistics is the hero this quarter. You said Mickey, that a lot of credit can be given to having the right product in the right store and solving some of your dc issues. Can you give me - give us some idea of exactly how much - Well, tell us a little bit about how that has worked? Elaborate more on it? Also, can you give us quantify what those benefits are and also give me the cost that you expensed for the reinventory of the stores this quarter? I assume that will not reoccur next year or so forth? Should we take it out of our models?

We are looking at it was worth 15 basis points in rates on the inventory counting. We are looking from a distribution standpoint on the expense line to reduce that by 20 basis points.

Over which period of time?

Year over year.

So, every quarter going out, we can expect that? is that what you are saying?

That is our plan, yes.

Good.

Certainly, I would think some of the margin improvement has come from the fact we are getting product out there quicker and we are first in our markets or at least equal to the competition and having some of the product out there. You know, not to mention the fact as we do more cross-docking, we are able to make this warehouse more efficient and able to make the footprint last a lot longer. So, there is really intangible going forward with improvement in logistics.

As far as the right product in the right store, you know, that is a complicated issue. We have markets that are 99% white and 60% black. High income markets and low income markets. Average age is 40 in one market and 25 in another. That is a very complicated issue. I think our merchandisers and distributors and buyers have done a great job in this regard. They all have more experience now than they did a year ago. They are really learning where to put what product.

I guess that is one disadvantage of staying tight geographically. You have to adopt the demographics. We have done a great job and will get better in the future.

Is this largely your buying and merchandising team just getting more experience with the existing market or is it also enhanced by tools that you have, systems tools? Your pos system?

They have better tools to work with today. Of course, all of the bonuses include store visits. We don't let them count store visits in the state of Alabama. We understand they understand those markets. We want them to get out and do store visits outside of Alabama. They have done a lot of store visits. Nothing like getting into the store. That is where you learn. You don't learn sitting in an office building somewhere. They have done a great job of getting out and listening to managers and district managers and talking with customers. The key is having the right product in the right store and selling at full-price rather than marked down price.

Okay. Thank you. The last question on the capex, let's see - I have you down this year for I guess, 20 - I'm sorry just under 7 million, is that about the same?

About right, 7 to 7.5.

Thank you very much. Keep up the good work.

Once again, * 1 for questions. Gentlemen, it appears there are no further questions. I will turn back to you for additional or closing remarks.

Thank you. In closing. I want to say we feel positive about our future and growth and profitability prospects at Hibbett Sports Goods. We will stay in small markets and stay tight. We understand small markets and think we can continue to be successful. We appreciate you being on the call today. We look forward to speaking with you about our third quarter numbers on Wednesday, November 20th, at 9 o'clock central standard time. Thanks for participating.

This does conclude today's conference call. You may disconnect at this time.