Hibbett Inc (HIBB) 2004 Q2 法說會逐字稿

Please stand by, we're about to begin. Good day, everyone, and welcome to this Hibbett Sporting Goods incorporated 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 Mr. Mickey Newsome. Please go ahead sir.

Good morning everyone, this is Mickey Newsome. I have with me today Gary Smith our CFO and Jeff Rosenthal our VP of merchandise. We appreciate your interest in Hibbett Sporting Goods and your participation in this call today. Before we get started, Gary Smith 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 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. As you know from our press release late yesterday, Hibbett Sporting Goods had another successful quarter. Earnings per share increased 21.8%. Sales increased 8.8%. Same-store sales increased 1.1%. We opened 16 new stores and closed 2 underperforming stores. We expect to open a net of 55 to 60 new stores this year, continuing to operate in small markets in a 21-state area.

Now for some comments on our second quarter sales. As we have said before, one year ago, we have added a merchandise financial planning department in Hibbett. The reason why was, we were not happy with our inventory turns, and we wanted to do something about it. We have done something about those turns. We're turning much faster than we were one year ago. In fact, at the end of the quarter, we had 11.6% less comp store inventory. This resulting in a $25 million cash position. Because of the emphasis on inventory turn in the last 12 months, we have had a lot less clearance merchandise this year versus last year, especially in the second quarter, resulting in some less comp store sales, but certainly higher gross profit margins in a great cash position.

Currently, in the third quarter, this year, we will not be compared against as much clearance merchandise as we were last year in the third quarter. We expect comps to be much higher. In fact, through yesterday, our comp store sales through the first 20 to 25 days is up 6.8%, much higher than the second quarter, and not going against nearly as much comp store inventory. In regard to rain, everybody knows that especially in the deep and mid-south, we set an all-time record this year in the second quarter for rainfall. In fact, it was the most since they started keeping records 113 years ago. I would like to think this impact to comp some, but let me tell you, it has continued to rain in August, and comps have certainly turned around. I don't know how much we can blame on rain. I think probably more important reason why comps might have been a little lower than we would like to have had is just like Christmas is coming later and later the last 10 days before Christmas, back to school is being pushed back more and more into August and people are buying closer to when they actually start to school or even after they start to school, relative to what they were doing several years ago.

Now for comments on specific areas of the business. Remember at Hibbett, we represent three major areas, athletic apparel, athletic equipment, and athletic footwear. First, apparel. Apparel was positive, high single digits. Keep in mind, there is two major areas of apparel. One is active wear, which is the branded, like Nike, Under armor (ph), Reebok, Adidas. Active wear was flat, but we had a lot of clearance in active wear and margins were positive relative to one year ago in active wear. Nike and Under armor (ph) were our two leaders. Licensed products, the other piece of our apparel business, and that divides into pro and college. College was negative in sales -- I should say low double digits, minus 13%, but on average, we had 25% less college inventory in our stores. We were going against a ton of clearance merchandise in the second quarter a year ago. We're not concerned about college. It has already approved in August if the new goods had come in, we were selling new college goods daily, we expect it to be positive in the third quarter. In fact, it's already back to flat, so we think we'll be fine in college. Pro licensed products, I can't explain to you how hot this area is. It is on fire. Comp store sales in the second quarter in pro were up 70%. NBA was up 147%. NFL, MLB were up 20%. We received 9,000 Michael Jordan Washington Bullet jerseys, or Retro jerseys. He never actually played for Washington when they were the bullets. They did wear them one game, the Wizards did. We sold 95% of that 9,000,000 at $45 in the second quarter. Michael Vick, the new Falcon jersey that's out, we sold 4500 of 5500 that we received at $65. There's going to be a new Michael Vick jersey coming out on October the 1st and I want to assure you that it will blowout. This category is very hot. LeBron James, we received 3700 jerseys on Thursday in the second quarter, sold 3300 that weekend at $70 each. There is another release of LeBron James, October the 1st and a Carmello Anthony release. These products are going to be very hot. Pro is going to be great in the third quarter and we expect it to certainly continue into the fourth quarter. Equipment. Equipment was negative low single digit. Baseball, softball was negative in the second quarter. That's the largest piece of the equipment business. Baseball, football and exercise were actually positive in the second quarter. They've become a bigger piece of the business in the third and fourth quarter. The first 23 days of August is positive in the equipment. Comps are now up. We expect it to stay up. Footwear was flat in the second quarter. Men's, ladies and boys were all flat. Units were slightly up, but the unit pricing was slightly down. Basketball and cross training were up. They were positive, but running was negative and that's the biggest piece of the business. Footwear has turned around in the third quarter and is positive again. Brand wise, Nike, Converse, Reebok and K-Swiss are gaining market share in the footwear arena. Classic and Retro shoes are still what's hot. But in addition to that, Nike has some technical shoes that are good, especially the spirit on shoe in men's, lady's and kids' at $100.00 . Our business has improved in August and we're much encouraged. Now, operator, we're ready for questions. I'm sorry, we're not ready for questions, we're ready for Gary Smith to make his comments.

For the quarter total sales increased 8.8% to 71.7 million versus 65.9 million in the prior year. Comp store sales were up 1.1%. The company opened 16 new stores in a 13-week period and closed 2 stores. There are 390 stores in operations as of 8/2. Gross profit improved 20 basis points as a rate to sale from 30.45 to 30.65. This was achieved by a decrease in markdowns due to less clearance merchandise and an increase in mark on in leveraging the warehouse cost. For a period, store operating, selling and admin costs decreased 35 basis points to 21.06. The reduction in rate was due to the favorable leveraging of salaries, credit card fees, advertising and inventory taking expense. The company had interest income for the quarter versus expense last year. That net income for the quarter was 3.2 million versus last year's 2.7 million, and earnings per diluted share came in at 21 cents versus 17 cents the previous year. Year to date results are as follows. Total sales increased 10.7% to $151.3 million. Versus $136.7 million last year. Comp store sales increased 2.9%. The company opened 24 new stores for the year and 5 stores were closed. Gross profit improved 20 basis points year over year. This was due to the reduction in markdown rates and the positive leveraging of warehouse costs. Of these offset by rising freight and occupancy costs as a rates to sales. Store operating selling and admin costs decreased 43 basis points, due to favorable leveraging of salaries, credit card fees, advertising and inventory taking expense. This improved presumptive was made while the company's medical insurance increased 17 basis points, versus last year. However, this increase moderated somewhat in the second quarter. Net income year to date was 8.5 million versus last year's 6.9 million and increased to 23.2%. Earnings per diluted share came in at 55 cents versus 45 cents an increase of over 22%. From a balance sheet perspective, the company ended the quarter with $23 million in cash, versus $5 million in debt last year. In average inventories, we're down approximately 11% on a year to year comparison.

Thank you, Gary. Now, operator, we're ready for questions.

Thank you, Mr. Newsome, our question-and-answer session will be conducted electronically. If you would like to ask the question, press the star key, followed by the digit 1 on your touchtone telephone. We will come to you in the order that you signal, and if you find that your question has been asked and answered before you could ask it and I would like to remove yourself from the question roster press the pound key. If you are on the speaker phone, make sure that your mute button is disengaged so you can reach our equipment. Again, press the star key, followed by the digit one.

For our first question, we go to David Magee with SunTrust Robinson Humphrey.

Good morning, guys, good quarter.

Thank you.

My question has to do with real estate. I'm curious what you are seeing in terms of new store performance and how you feel about what you are paying for new real estate and just, you know, the pace of openings here going into the third quarter and how you feel about all of that.

David, our plan is to open 20 stores in the third quarter, and 20 stores in the fourth quarter. All of our leases are done for the third quarter and they are substantially done for the fourth quarter. We've added two people to our real estate staff, one in June, and one this month. Now, they are rookies and won't help a lot initially, but they'll certainly help long range. That gives us five deal chasers, plus our head of real estate. I think the pricing today is about like it was last year. It started escalating about three years ago, but it stopped, and I think it's probably pretty much back on track.

And as you look at the stores you've opened in the last 12 months, how would you describe their performance?

Certainly this year's group of stores is on the model. Last year's group of new stores is slightly below the model.

Great. Thanks a lot.

Thank you.

We go next to Rick Nelson with Stevens Company.

Thank you, good morning.

Good morning, Rick.

Your inventory turns last year and actually previously year as lagged most of your competitors. You are making terrific gains there. What sort of targets do you have in mind for inventory turn?

You know, I think sporting goods in general is a low turn industry. Of course, at Hibbett, we have a lot of products that's real basic, especially the equipment piece and the cleated piece. Your biggest risk there is additional interest expense by carrying inventory rather than marketing. I don't think there will ever be a fast turn company. I think we can certainly get in the 2-5 range. I think it'll probably level off about there.

Uh-huh. You are what, 2-3 last year, I believe?

Somewhere in that range. We can do better than that, but I don't think we'll ever be 3-4 turns. We might get close to 3, but I think 2-5, 2-6, 2-7 in that range is going to be more realistic.

What is the hard lines piece of the business, what sort of turns do you get there and maybe if you can discuss footwear and apparel as well.

Of course, the fastest turn is apparel and the slowest turn is the equipment piece.

Uh-huh. What's the biggest opportunity being in equipment?

Probably not. I think the biggest opportunity is in apparel and footwear. I think equipment is going to always be slow.

Thank you. The -- you've got no doubt in the building cash position. It likely will continue to grow. What are the plans for that cash? Can you ramp up more openings or dividends? What are your thoughts there?

Of course, we just had a board meeting yesterday and that was certainly one of the hot topics, and our first choice is to ramp up store openings. We just added to the real estate staff. We're probably going to add some more to our real estate staff. It's all about deal makers. I think the deals are out there to be made. The markets are there to be had. It takes time and good deal makers to make the deal. That's our number one priority. Do you want to speak to that?

Well, you know, certainly we've talked about -- we would like to invest in ourselves, which we think is the best return, and certainly we talked about a number of things in the board meeting. We would certainly be in supporting our stock if something happened, and that's basically it.

Do you have a ’04 store opening target?

15% store growth.

15%. Do you see that ramping up?

It may be hard to ramp it up next year above 15%. I think the year after when we our fully staffed and have additional real estate guys to make deals, we may have a chance to ramp it up -- that's 65, 65 net for next year. We're certain we can do that. We're comfortable we can do it. There is a possibility it could ramp up some, but not substantially.

Okay, thank you.

Thank you.

We go next to Michael Weisberg with ING.

Good morning, everyone. First, could you give us a rough sense, Mickey, of the pro license business, which is booming now, roughly how big of that is a percentage of sales?

Well, we don't give exactly percent.

I know that. I'm thinking roughly.

Some analysts guess at 40, 40-20, and I guess it was about half of the license fees, isn't it? So, 20% of the business? I don't know that without doing some calculations. We don't give those exact numbers.

So roughly speaking, though, to the nearest 5 percentage points, it could be about 20% of the base busy?

This time of year it gets much larger, I think in the third and fourth quarter than it does in the first and second quarter.

Okay. And the second thing for Gary, I was surprised you were able to get some SG&A leverage on relatively weak comps. Was there anything unusual in the numbers and what's your thought about SG&A leverage going forward?

Certainly we always look to leverage expenses, you know, regardless of the comp level. We talk about expanding margins 20 plus basis points, and we think that we certainly can leverage, you know, expense rates 20 basis points on, you know, on those particular sales that we do.

Okay. So, if there wasn't anything unusual in the second quarter in terms of the SG&A?

Well, if you take a look last year, if you recall, we took all of our inventories last year because we had the warehouse problem.

Right.

So now we're back on the normal cycle. So there was some of that giveback this year because we didn't take all of those inventories.

I got you.

And then the advertising, like in the first quarter, we didn't have as much clearance, so we didn't have to advertise clearance in the first quarter and in the second quarter, we didn't have to advertise clearance also. Those two items, advertising and the inventory taking were probably things that were different this year versus last.

Thanks a lot.

Okay.

We go next to David Turner with BB & T capital markets.

Thanks, good morning. I just wanted to get an idea if there was any change in the way the inventory flowed this year versus last year and if that relates to the pickup in sales in August. You're not receiving product later this year. I mean, it obviously was down 11% per store at the end of the quarter, but as we look at it as it is now, where does it stand, and do you think that's tied to the pickup in sales in the first 25 days of the quarter?

I don't think so. I mean, I think the inventory -- if we calculate our comp store inventory today, it would still be down probably 10% over last year. We are flowing the goods much more efficiently than we were a year ago. Before we put our new warehouse system in 18 months ago, we had to bring product in the first two or three weeks of the quarter in order to get it into in the stores and hope to get some sales in that quarter. But we have gotten good at distribution. We spent a lot of money on it. We should be good, but now we can bring product in one week and it be in the stores the next, and I think we're bringing it in more evenly, which just makes a lot more sense. I think it's going to get a lot of leverage on our warehouse expenses that way, also, but we had too much inventory a year ago. There is just no question. We're getting down to a level where we ought to be, and I don't think additional inventory is what's caused our august sales to go up. I think more importantly is the back to school buying season just seems to be pushing further and further back, just like Christmas. And that's the big one, plus we don't have as much clearance merchandise. So --

Okay. And related to the apparel, is there any, I guess, how flexible are you in terms of expanding the -- or any interest plus flexibility in terms of expanding the pro part of the business or, you know, while it's so hot and maybe scaling back the active wear segment?

We'll let Jeff speak to that. He's on top of that.

We're expanding the pro license apparel as we speak. We continue to grow that part of the business. Even our active wear business has been pretty positive for the first 20 days of this quarter. So, we see opportunity in apparel quite a bit.

You know, the vendors are doing a tremendous job in this arena. Reebok has done a great job in NFL. I think there are 7 different teams that's going to come out with a third color, NFL teams, and they are going to wear them at least one time. I think a lot of the teams are going to wear a Retro jersey one time. The cowboys on Thanksgiving giving are going to wear that old 2-star jersey. The vendors are doing a great job on managing it.

Great. I guess one last question on the sales trends. Has it been -- it sounds like not only is traffic up, but average ASPs and average units are up as well?

Yes, they are.

Okay. Thank you.

Thank you.

We go next to John Shanley with Wells Fargo.

Good morning, guys. Mickey, I wonder if you can walk us through a little bit about what may be causing the strong increase in sales activity over the last 25 days. Is there something noticeable that you've seen either further increase in those states that may have a tax free holiday or any positive impact from the child credit tax rebate that came through recently? Is there something that's driving the business other than just consumer demand levels, in other words?

John, all of the tax free holidays fell in July, so -- but I will say it was the second year for the tax free holidays in about five states. The first year is always bigger. It's a little less publicity the second year, and the newness wears off. I think last year the tax-free holidays in July pulled sales out of August, but this year, I don't think they pulled as many sales out of August.

So just strong consumer demand to get back into the athletic product category?

I think so. Traffic is up, and I think last year we had a great Labor Day week. I'm telling you the back to school business is coming later and later, just like Christmas.

It's very encouraging if it's this strong early in the season, it should build as you get closer to Labor Day.

We're hopeful.

Okay. You also mentioned that licensed pro apparel is doing particularly well. I was wondering if you or Jeff could comment historically in terms of how long that product category generally has legs in Hibbett stores going into the back half of the year. Is it something that traditionally builds as the second half unfolds so you get both a pop at back to school as well as in the holiday selling season? Or is there some time frame where it's thought to wane in terms of consumer interest.

Actually, the second half of the year usually gains a lot of momentum, especially third and fourth quarter. We see that continuing. They keep bringing out new product and we see that going into next spring, also.

You see this, Jeff, as part of your holiday sales package where you normally do a very nice job in terms of increased apparel?

Absolutely.

Okay. Can you comment on the gross margin contribution that you may be getting in pro license goods versus sportswear -- active sportswear or the collegiate product lines? Is it comparable to or greater than other categories of apparel?

It's greater than, right now.

Is there less promotional activity in the marketplace for that product category? Is that why it's greater?

Yeah, we have not had to promote any of it, and there is a little bit of promotional out there, but most people aren't promoting it.

Okay, super. The average price points of footwear in the second quarter were -- was it up? I know you mentioned about all categories, but footwear specifically.

Yeah, John, it was slightly down.

And what -- is that due to the classic in Retro -- and Retro products or is there something else going on?

That was most of what it was, lower price points from $60 to $80, it's been a typical market. Over $100 -- some of $100 shoes we've done fine with, and from $40 to $60 it's been fine, but $60 to $80 has been a nowhere zone right now. We've struggled there.

Is that in classic or technical footwear as well, Jeff?

It's in both.

Do you see that changing any time soon or do you think that's going to be the case for the back half of the year as well?

I think it'll get better. The Shock product from Nike has helped spear it on spirit-on and shoes like that have done well. We have seen the high end do well, and then the lower -- to us what is lower has done well. The middle that we haven't seen much progress yet.

Okay. And then just summarizing in terms of looking at where you are placing your buy dollars for the back half of the year. Are you taking way some open buy dollars from the hard line and footwear categories to beef up your efforts on the apparel side that you are doing so well on in that category?

Well, we'll be up from the apparel, especially in license. Some of the -- is less because we've gotten out of a lot of categories. So, like tennis and golf, which we're no longer participating in.

Those dollars are going primarily into apparel is what I understand you to say?

Yes.

Super. Thanks a lot, I appreciate it.

We go next to Murray Wansrath with Hibernia South Coast.

Hi, guys. Most of my questions have been answered, but I have one quick question on the Nike in-store shops and wondering how those are performing. And how many you have and you've put up in your stores to date.

They are doing very well. There's they are selling much faster. Their sales increase is much higher than the rest of the chain. We're -- we have about 18-19 stores right now, and I think we're on track for the third quarter, another 18-19 stores, and we'll continue that every quarter.

Okay, great. The foot locker, and reuniting with Nike. Any thoughts there on potential impact to you all's business?

I guess we don't know as much about that as we should, and we don't -- we don't really know. We don't see Nike taking anything back away from us, if they've given us --

You guys earn 25% of your market?

Yes, about 25%, but that's dropping. It's probably more like 23% now. It's dropping as we open new stores.

Overall, you wouldn't expect Nike to start pulling back?

No, we don't expect to loosening. We expect to continue to gain.

Okay. That's great. That's it, thanks.

Thanks.

Again, if you would like to ask a question, please firmly press the star key, followed by the digit 1. We go next to Sean McGowan with Harris, Nesbitt and Garrard.

A couple of questions. Let me refer to Gary first. Can you give us detail of the timing of store openings for the balance of the year and any expected closings?

We might. We'll probably, 20 plus in the third quarter and 20 plus in the fourth quarter and we may have the opportunity to close two or three stores that are underperforming.

Would those be closed after the holiday season?

Probably one. Yeah, probably one or two, third quarter, one in the late fourth quarter.

Okay, thanks. And can you give us a little bit of flavor on how the sales progressed throughout the quarter, you know, how did July stack up against June versus May?

It was actually pretty flat. All three months were positive, but it was just slightly positive. It didn't get any stronger in July than it was in May and June. It was all about the same, but it absolutely picked up in August.

So it was just something as soon as it turned to Augusts, it started getting strong.

As soon as it turned to August, it absolutely started getting strong.

Finally, can you talk in more detail on the specifics of the rebound in equipment sales that you've seen in the last 25 days?

Of course, our foot ball sales have been up pretty dramatically. Of course, in football, it's pretty important in the third quarter. Our exercise business is up. It's up -- football is up double digits. Exercise is up good, but we weren't good in exercise a year ago. We've really gotten our act together there and got our product straightened out. We expect exercise to continue to be good. It does become more important in the third and fourth quarter. Now, basketball actually has been good. All year long. And I think it'll continue to do well.

Anything in equipment that hasn't rebounded lately?

Baseball-softball -- it's rebounded. It's gotten positive.

That's been the hardest part.

Yeah.

Thank you very much.

Thank you.

We go next to Sam Pulsar with Mosaic research.

Good morning, and congratulations.

Thank you.

I just finished shopping a lot of stores around the country during back to school, and I definitely saw the increase in the traffic patterns in there. I also saw a big difference in the focus, and your results are quite different than a lot of other people out there right now. Can you speak to you know, sort of what's separating you from the pack in a broad sense?

Well, Sam, you know, at Hibbett, I guess we've always been contrarians. We usually do the opposite of what everybody else does. We didn't stop advertising, but we advertise a whole lot less than we used to, and probably a lot less than most people. We're small market operators is the big key. We go where there is a need for our goods and services on the front end, and I think that greatly helps us. We don't have as much competition. Most of the time when we market product down, it's not to meet competition, it's because the consumer didn't buy it at the price we had it. And he tells us to mark it down. I think the biggest thing is we go to small markets where we're needed by vendors, by landlords and certainly by consumers is what really sets us apart.

And thank you. You spoke of your store openings. You were moving into -- when I met with you, you were moving into Nebraska, Kansas. What's next out up in that direction?

Well, we're going to do several more stores in those two states this year. I think we did two stores in Kansas last year, and we're going to do, I think, three in Nebraska this year, this fall, and a couple more in Kansas. Most of our stores are going to be a little bit closer to the deep south than that.

But, and the conversation about the cash and the increase in the store openings, are you looking -- are you still looking for acquisition an acquisition candidate?

We're pretty familiar with who is available out there. There is one or two that's available, but it would be a fairly small acquisition, and we keep talking to them. We don't have anything that's specifically hot on that. I don't think anything is going to happen any time soon, but we continue to explore that. If an opportunity presents itself, we'll certainly be ready to do it.

One last question, you talked briefly about the Nike shops. Can you talk in footwear, can you talk about other key driving brands?

Yeah, Sam, K-Swiss on a lot of the all-white leather has been extremely good. Reebok classic and derivatives have been very strong. And those would probably be the two biggest drivers.

Do you see that continuing or do you see that continuing through the back half of the year?

It has continued. I see it continuing, and also Converse, I did not mention Converse has also been pretty strong for us.

Thank you very much.

Thank you, Sam.

And with a follow-up question, we return to Murray Wansrath.

Hi, guys, on your guidance, you're turning 6-8%. Your overall guidance for comps is 3-4%. What are you factoring in for your 24-26 cents EPS? Are you expecting it to be in the 3-4% range or -- I'm just trying to get a feel for what you guys might be factoring in there.

It's 3-4, Murray.

3-4?

That's it, thank you.

And ladies and gentlemen, we have no further questions on our roster at this time. Therefore, Mr. Newsome, I'll turn the conference back over to you for any closing remarks.

Thank you, operator. We're really proud of what we've accomplished here at Hibbett in the last year. We know we're a stronger company. Inventory turns have improved. It's showing up in our cash position at $25 million at the end of the quarter. Sales for august are strong. So far, 6.8, new stores appear to be good this year. We expect to open 20 stores in the third quarter. We're going to stay in small markets. Stay intact geographically, and we think our future will be very successful in Hibbett sporting goods. Thank you for being on the conference call today. We look forward to reporting third quarter earnings in November. In fact, it will be November 20th on a Thursday at 9 00, central standard time. Thanks for participating.

Ladies and gentlemen, this does conclude today's Hibbett Sporting Goods conference call. We do appreciate your participation. You may disconnect at this time.