Hibbett Inc (HIBB) 2004 Q1 法說會逐字稿

Good day and welcome to the Hibbett Sporting Goods first quarter earnings 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, Chief Executive Officer and Director, Mr. Mickey Newsome. Please go ahead, sir.

Thank you and good morning everyone. This is Mickey Newsome and I have with me also Gary Smith our Vice President of Finance who will be speaking with you, and Jeff Rosenthal, our Vice President of Merchandise who will also be speaking with you. We certainly appreciate everybody's interest in Hibbett Sporting Goods and being on this call today. But 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 that any projections or statements made today reflect our current views with respect to future events and 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 I describe 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 another great first quarter. Our net income increased 24.4%, same store sales increased 4.5%. We have had several great first quarters back-to-back. It seems that Hibbett's being in the deep South is becoming more and more of a first quarter business. We opened eight new stores mostly late in the quarter and expect to open approximately a net of 60 new stores this year. New stores will be in the current 20 states that we operate in, plus we will be adding Nebraska this year.

We added Kansas last year and did very well, and we think Nebraska will act a whole lot like Kansas. We're going to continue to do small markets we're very disciplined to do small markets and we'll continue to do that. Now, comments on the first quarter sales. February we were plus low single digits, I think the weather could have affected us a little bit in February because we had a lot of rain. March and April were positive mid single digits. Now, for or merchandise report, we'll turn the meeting over to Jeff Rosenthal.

We have three major areas of business, athletic apparel, which is branded and licensed apparel, equipment is made up mostly of team, which is made up of baseball, soccer, football, basketball, and we also include fitness in that. Our footwear area is also -- we emphasize cleats. First, apparel. We had double-digit comp.s with double-digit comp. store inventory reduction. The three major areas of apparel are active wear branded, pro licensed and college license.

First, active wear. Under Armour continue os to perform very well for us. It's a high performance fabrics made up of short sleeve, long sleeve and sleeveless. They range in price from 30 to $35. Another great performer was Nike dry fit, also a performance fabric. These performance fabrics we sell all at regular price. Another item that was very good for us in the active wear were cheerleading shorts. We sold over 100,000 pair at $8. Private label continues to be a part of our business which makes up about 15% of our business. We continue to keep that percentage about the same, we're more about brands. We're -- even though the margins are better on private label, we like to get our price points up.

In our license area, pro is the strongest by far, led by the NBA, retro, rewind jerseys from Nike and Reebok. We sell them for $80. A couple examples of those are Dr. J old 76ers jerseys. Michael Jordan's Washington Bullet's jersey. Michael Vick, Reebok came out with a Michael Vick jersey for the Atlanta Falcons at $70. We expect retro to be strong this fall. And we will have hats to match.

Our college business is more of a core fan business. We were positive with less inventory. One of the items that was extremely hot was a butt print short. What this is is a short with, like, the school nickname on the back, like BAMA across the back of the short. We expect to sell 60,000 pair the first six months at $12.98. We expect apparel to remain positive throughout the rest of the year.

Equipment: It was our weakest piece. We had negative low single digits. However, we had some bright areas. Our baseball, softball gloves were up, high end softball bats were up. A couple of negatives, we had a baseball -- our baseball bats were down, and our exercise equipment was down. We needed new hot TV item to help drive these sales. However, our units are up in equipment, we are gaining market share. Our price points are down just a little bit.

Our footwear area. Up mid single-digit covers with less inventory. The number one area was basketball, all three genders were up. Our running area, running shoes are a little bit soft. Some of the brands that that were very good for the first quarter have been K-Swiss, Reebok Classics, Converse Weapons and Nike with retro shoes, Jordans, Shock and Z, sold at $100. Now to turn to financials over to Gary Smith.

For the quarter, total sales increased 12.4% to 79.6 million versus 70.8 million in the prior year. Comp store sales grew 4.5%. The company opened eight new stores in the 13-week period and three stores were closed. There were 376 stores in operation as of 5/3. Gross profit improved as a rate to sale from 3107 to 3135. This was due to improved mark-on and a decrease in retail reductions from last year, despite pressure on freight costs. Also, the company leveraged its warehouse expense in the quarter. For the period selling in admin cost decreased 46 basis points to 1878. The reduction in rate was due to favorable leveraging of salaries, credit card fees, and advertising.

This improvement was made while the company's medical insurance increased 28 basis points from last year, however, we see this getting back in line the remainder of the year. The company had interest income for the quarter versus expense last year due to no borrowings for the quarter. Net income for the quarter was 5.2 million, versus last year's 4.2 million and earnings per diluted share came in at 51 cents versus 41 cents the previous year. A plus 24% increase. From a balance sheet perspective the company ended the quarter with 22 million in cash versus 4 million in debt last year, and average inventories per store were down over 10% on a year-to-year comparison.

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

Thank you, sir. Today's question-and-answer session will be conducted electronically. If you would like to signal for a question, you may do so by pressing the star key followed by the digit one on your touch-tone phone. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is "star 1" for questions. Our first question comes from David Magee of SunTrust Robinson Humphrey.

Good morning, good quarter.

Thank you.

The number I liked most is the operating profit margin number being double digit for the first time. I'm curious, though, what the impact of maybe of some of the slower store opening schedule would have had on that. Had you opened more stores in the quarter, maybe similar to what you opened last year in the first quarter, would you still have done a -- you know, as high an operating profit margin?

I think last year we opened nine, this year we opened eight. So I don't think that would have had as much impact. But certainly when we open them in the quarter, it drains that operating margin down a bit. But I think we still would have been over 10.

With a similar percentage opening?

Yes.

Okay. Thanks.

And we'll go next to Michael Weisberg of ING.

Yeah. What was the square footage growth in the first quarter? And where do you expect it to be for the year?

Well, it would be five times 5,000. It would be 25,000 square feet.

Right.

And then our stores on average would be 5,000 times 60.

I'm sorry, I guess I meant on a percentage basis.

Oh, on a percentage basis, a little over 1% for the quarter and we expect to be mid teens for the year.

Only 1% for the quarter on a year-to-year basis? That can't be right.

That was from the end of the year.

No, I meant on the year-to-year basis, I'm sorry.

Hold on just a minute, Michael, we'll get it for you.

The reason I'm asking, it looked like the differential between sales and comps was maybe a little less than I would have expected. That's why I'm asking.

Michael, while we're getting that, do you have another question?

I guess, Mickey, the square footage growth for the year will be 15 or so?

Right. Mid teens.

Great.

It was about 11% for the first quarter.

Okay. That was probably -- that would probably explain it. So it was lower than the first quarter than it will be for the full year?

Yes.

Got it. Okay. Great. Any -- Mickey, any comment about current business conditions?

Well, May is not as good as we'd like to see it, but this is a new record for rainfall in the deep South this May. Of course, the second quarter, everything depends on June and July. Those are the two big months and especially July with back-to-school in the South. So we're not too concerned, it's a little softer than we'd like.

Great. Thanks a lot.

Thank you.

Our next question comes from John Shanley of Wells Fargo Securities.

Good morning, gentlemen, this is Christopher Svezia calling in for John. Congratulations on a really good quarter in a tough environment.

Thanks, Chris.

Just a couple quick questions. Just first with regard to your strong cash flow, $22 million in cash on the balance sheet. You know, without getting into too much detail, can you talk a little bit about possible plan uses for your cash position? I mean, do you anticipate likely accelerating your store opening schedule for fiscal year '05, kind of beyond what you're looking at for this year of about 60 net new stores?

Well, you know, we're discussing some different things that we might be doing with our cash, we expect it to keep building. We want to grow about mid teens in store growth. And of course that number, the sheer numbers will get larger next year, but the percent won't go up. Of course if we continue to build cash and as a possible acquisition somewhere in the future, we might do it pretty easily. We're not sure what we're going to do with it yet.

Okay. Looking real quick at your inventory, it was down, you know, year-over-year. Can you add a little color in terms of what you're looking at in the inventory, and if anything in particular was down, was it down in footwear, was it down more in apparel, was it down in equipment? Kind of what you're looking at on the inventory line and what you're looking at follow balance of the year.

The biggest majority of the inventory reduction was in apparel. And then footwear and a little bit in equipment. And we see that continuing throughout the year.

We had a great first quarter in apparel with a lot less inventory, and I think what happened, we eliminated some styles that just weren't productive and some brands that weren't productive and we were able to present what we did have much more effectively to the consumer. And it paid off in a pretty big comp store sales increase in apparel.

Is it -- probably looks like your inventory turns are increasing probably pretty substantially, first quarter, if you're doing it on -- getting that kind of sales off of significantly less inventory?

That has been more of our goal since last spring is to increase inventory turn, and we added two financial planners last spring. They have really helped. They've helped in the merchandise flow, flowing it by week, by month, by quarter where, we used to bring it all in early in the quarter. And it's just really helping. It's made us a better company.

So for the year, then, can we look at inventory being up slightly, inventories up first quarter or down or . . .

It will be down.

Down slightly?

Yeah.

Okay. And I was just wondering, kind of looking at back-to-school, is there any particular products -- I mean, obviously the NBA and NFL and retro jerseys are strong, can you anticipate strength in the classic and retro footwear product categories? There's a lot of talk about brown-shoe athletics being strong towards the back half of the year. Can you talk a little bit about that? Are you kind of looking to increase any of your open-to-buy for any of these classifications, whether it's apparel or footwear? Can you add a little color on that possibly?

Yeah, we see that, especially in apparel, we see the retro classic thing continues through back-to-school. We still see retro shoes and classic, a lot of white leather shoes continuing to be good throughout back-to-school. We have seen some -- we're looking at some of the brown athletic-type looking shoes for holiday. But we see a lot of the same going on, but very retro classic will continue.

And the last question, I'll turn it over, just on the apparel, are you getting the same margins on your -- on the NBA and NFL license and retro jerseys, is it comparable to what you're getting on the footwear products, specifically the retro and classic, are they similar?

It's higher in apparel.

It is higher?

Yes.

Okay. Thank you very much.

Thank you.

We'll now go to Dan Wewer of CIBC.

Good morning. A follow-up on the inventories we're estimating that your inventory per square foot is down about 11% year-over-year, just to make sure I understand, that's the level of reduction that you're expecting for the balance of the year?

I don't think it would be quite that much, Dan, because we started second quarter last year so we really, the first quarter was that nine months work, but it should be down comp store, maybe a little bit less than it is now.

That was really the key driver to the inventory -- excuse me, cash build, isn't it, the fact that you have, you know, less inventory than a year ago? So I would assume that, you know, the cash would still grow, we may actually see it diminish from where it was at the end of the quarter as you begin to add inventory back?

I don't think we'll be over last year's dollars on maybe an aggregate basis. Or maybe just a shade over. But I would expect to continue building cash through the year.

We had a significant reduction inventory per store, and then I think Mickey alluded to wishing that May was better. How do we know that maybe May is not where it should be because, you know, the inventories are less as opposed to, you know, weather?

I guess you don't really know. Our comp. store inventory is down some, but I don't think we're missing anything. You're in Atlanta, you know how much it's rained. I mean --

Yeah.

The first two weeks of May in Alabama has set a new record for the entire four-week May period in the first two weeks. So your equipment is not good when it rains ever day.

Can you look at any of your merchandising trends and determine if maybe it's the weather influence as opposed to the categories that you've cut back, like apparel?

I think it's probably softer in equipment, I think that's somewhat weather-related. We don't get too concerned about May. The first quarter has been strong for several consecutive years, and May has been weak or several consecutive years. In July it's gotten real strong for consecutive years, and you do your numbers in July. Georgia's going to have the tax-free holiday at the end of the July, it will be a huge deal and several states will probably have it like we did last year, we're certainly feel like we're okay in the second quarter at this point.

Two other questions, if I may. One, occupancy costs, Gary you, back in the fourth quarter, alluded to, you know, more stores in percentage rents and laying against share gross margin rate. I may have missed it, but what did you say about the occupancy impact on margin in this quarter?

I didn't say anything bit, but it was flat.

Why would it have been an issue in the fourth quarter and not in the first quarter?

Because of the percentage rents we paid when we went into percentage rents in the fourth quarter based on our sales.

Okay. So the fact that you had these really good same-store sales in the first quarter didn't put you into a percentage rent --

No it's on an annual basis.

Then the last question, the underwriting for the quarter, obviously terrific, 4 cents ahead of plan. But if I'm looking at the guidance for the year, it looks like you're maybe pushing it 2 cents up, not four?

Well, our guidance was 48.50, it came in a little bit better than we expected, and we're just cautiously optimistic going forward. That's pretty much our budget.

Uhm-hmm. All right, are you more cautious on the second quarter because of your you're trending in May or --

Well, no.

No, I mean, the second quarter tends to be a little bit more of a difficult quarter because there's not a whole lot of new stuff coming in. But now, I mean, these were the numbers that we had come up that we formulated you know back in the end of last year. So we hadn't revised them done or up, one way or the other, we feel pretty comfortable with those numbers.

Great. I appreciate it. Thanks.

Thanks.

Our next question comes from Quinton Specter of Lipton Financial Services.

Good morning, gentlemen, great quarter.

Thank you, Quinton.

Mickey, can you tell us a little bit about what's going on in the first quarter that you said you're becoming a first quarter business? What's different?

Just seems like the first quarters have been really good for several years, and, you know, a lot of vendors come out with new product in January. And, you know, the vendors don't come out with new product in May, they come out in late June, July for back-to-school. They come out with all the good fresh product in the first quarter and baseball, softball traditionally has been good in the deep South, and it seems like our industry's become a, as far as Hibbett is concerned, has become a first quarter industry. We make almost as much in the first quarter as we do in the fourth, Gary?

Yes.

You made more.

[INAUDIBLE] as we do in the fourth so we love the first quarter, it seems like it's pretty easy each year.

Okay. A few guidance or householding questions. Can you give us a schedule for the new store openings for the balance of the year and closings?

Gary, if you -- Uhm heavy in the third quarter. We're probably going to do somewhere between 15 and 18 in the second quarter. And then we had 20-20 sort of -- whatever -- Let's put a pencil to it, we'll get it for you.

Okay. While you're doing that, let me ask a couple of others. Cap ex, what was that for the quarter?

Cap ex for the quarter?

1.9 million.

1.9.

Uhm-hmm.

That was higher than I thought. Which makes your cash build even more interesting. I think another element of the cash build was your payables went way up. Is that --

Percentage of the inventory went up about 10%.

And is that something that we can look forward to going forward or is this a fluke?

Well --

In time?

We're going into uncharted waters with the way we're flowing our merchandise, so I would think, you know, we sort of always had planned around 30%. And it may be a little bit high this quarter compared to where we are because we used to always just front load everything, now we're flowing it much better. So I think it's going to give us a better payment stream and hopefully we can be plus of the 30.

Okay.

Quinton, on the new stores, it's more like 20 in the third quarter, 20 in the fourth quarter, and more like 15 in the second quarter.

I heard you say before, 15 to 18, so just 15?

15 would be fairly conservative. I think we can beat that.

Okay. What about closings, do you have any more closings planned for the year?

Two more planned.

In which quarter?

Probably the third.

Okay. Okay. And finally, I notice that the net PP&E was down a bit. Why would that happen when you're adding stores, you're net adding stores? This is sequentially.

We didn't understand the question.

Your property and equipment net was down about 600,000, even though you've added some stores. I just wondered why that would happen. It's down -- it was down at year-end versus May, too. Maybe you've got some cap ex in your PP&E that hasn't been -- represents stores that haven't opened or something?

I'm not sure, I'll have to take a look at that.

We may have to get back to you on that, coincident be, we're not sure.

All right. That's my question. Thank you.

Thanks.

Once again, that is "star 1" for questions. We'll go next to Anthony Lebiedzinski of Sidoti & Company.

Good morning, nice job. As far as the cap ex for the year, what do you expect for that to come in?

Mine million.

How much?

Nine million.

As far as your inventory, I know you've done a good job with reducing the inventories, do you feel comfortable with those possibly not having enough inventory in the stores or do you feel comfortable with that, with where it is?

We feel very comfortable where it's at. We've looked at categories that weren't performing, that's where we reduced the inventory, we feel very comfortable.

Okay. Also I notice that you guys have increased the direct vendor shipments to your DC and also increased cross-docking at the DC. How is that relative to last year?

The cross-docking is up first quarter this year. We're in the 60 to 65% range. Last year we were in the 45% range. It's increasing and, man, that's the way to go, it's made us a better company. That's helped that cash flow, I might add, too. You can bring it in later and get it in the stores immediately and you don't sell a lot of it before you have to pay for it. So that really helps.

And the vendor, director vendor shipments, how much of that is flowing into your DC?

It's not -- the director vendor shipments from overseas is not up, you're talking the containers?

Yes.

Is it about the same? It's about the same as last year.

Okay. Thanks.

Thank you.

and next to Steven O'Brien of Wellington Management.

My questions have been answered thank you.

We'll go onto Patrick Vanansi of Fidelity.

Hi, guys, how are you doing?

Hi, Patrick.

When did you start to see this retro classic theme emerge in footwear and jerseys?

It's been other than a year [INAUDIBLE] and it keeps building, but it's been over a year.

Okay. And then how about when did you start to see Nike allocation get a little bit better?

For us, it's gone up every year as we've grown. It's gone up a little bit higher this year than past years. I think part of the Footlocker thing, we did get some more allocations.

Okay. And final whether I, what is the -- what's the comp that you're expecting for the second quarter?

Three to four range.

Okay. And that's even though the May's been a little bit tough so far?

That's four guidance for each quarter, actually, three to four.

Got it. Great, thank you.

Thanks, Patrick.

We'll now return to John Shanley of Wells Fargo Securities.

Hi, guys, this is Christopher Svezia. Just one follow-up question. Just looking at the second quarter, when you're talking about May kind of being a little soft primarily due to the weather as you indicated, can you give us an idea of the importance of maybe in a percentage term, of May, June and July for the second quarter, how important July is? Thank you.

Well, of course you got to keep in mind, June of a five-week month and July's a back-to-school month, both of them are margin larger than May. I don't know the numbers for sure, but it's much larger. Hold on just a minute, we might get some idea. 25% of the quarter.

May is 25% of the quarter?

In round numbers.

Okay. Thank you.

Thank you.

And we have a question now from Stacy Sears of Emerald Advisors.

Good morning.

Good morning.

I was wondering if maybe you could quantify at all the impact on apparel sales from the rollout of the Nike in-store shop that you're doing?

Good question.

We're up to about 12 stores right now, so it's gradually building. We expect to have over 40 by year-end. And we are significantly up in those stores with Nike product and our apparel sales overall have increased quite a bit.

The good thing about it, these apparel shops, is selling through at retail. We're not having to promote or be -- or discount anything.

When you say significantly up, would you say maybe more than double the company average?

Yes.

Okay. Thank you very much.

Thank you.

Gentlemen, it appears we have no further questions at this time. I'd like to turn the call back over for any additional or closing remarks.

Okay, thank you, operator. Hibbett Sporting Goods today is a much improved company over one year ago. I can assure you of that. With all the new software we've installed in the last two years, our distribution center merchandise flow is significantly improved. Adding financial planners has certainly made us a better company. We're doing more business with less inventory, we think we can probably continue to do that. Our cash position continues to amaze me. 22 million in cash at the end of the quarter versus 4 million in debt last year for the $26 million turn around, we're proud of that. At Hibbett, we're going to continue to go after the small markets, stay in that 21-state area, stay tight geographically, I think our future will be bright. Thanks for being on the call today, we look forward to reporting on our second quarter in August. In fact, it's going to be on Wednesday, August 20 at 9:00 o'clock, central standard time. Thanks for participating.

Once again, that does conclude today's conference. You may disconnect at this time.