Hibbett Inc (HIBB) 2004 Q4 法說會逐字稿

Please stand by for the Q4 2004 Hibbett Sporting Goods, Inc. Earnings Conference Call. Please continue standing by. Hi, everyone. Please stand by. We are about to begin. Good day and welcome to the Hibbett Sporting Goods, Inc. conference call. Today's call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to the Chairman of the Board, President and Chief Executive Officer Mr. Mickey Newsome. Please go ahead, sir.

Thank you, Steve. And good morning, everyone. This is Mickey Newsome, and I have with me our Chief Financial Officer Gary Smith and our Vice President of merchandise Jeff Rosenthal. Both of them will be speaking with you in just a minute. We appreciate your interest in Hibbett Sporting Goods, Inc. and your participation in this call today. Before we start, 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 in our financial performance. There is no assurance that such events will occur or that any projections will be achieved. Our actual results could differ materially from any projections due to various risk factors. Which are described from time to time in our periodic reports with the SEC.

Thank you, Gary. As you know from our press release late yesterday, Hibbett Sporting Goods had a great, great fourth quart irand an outstanding year. In fact it was a record-breaking year for Hibbett Sporting Goods. For the quarter, income increased 36.7%, comps were 8.3% with less inventory.

Gary Smith will give you more detail on that in a minutes. For the year, income up 38.1 with comps at 5.3%. We opened 24 new stores in the quarter and 65 for the year and closed 8 underperforming stores. Our goal this year is 15% store growth or a net of 60 new stores net of closings. Comments on fourth-quarter sales. November was stronger than expected. It was in the 8% range. December was mid single-digit comps but came very, very late. For instance, Christmas eve, which is a short day, we closed at 6:00, it was stronger in more dollars than the day after Thanksgiving and that was the first time we have experienced that, but really came late.

Of course, January was strong as expected. We were up in the 14% range on comp store basis and that was going against double-digit comps in the past two years. January seems to be getting stronger and stronger. Now the first quarter this year has continued strong. Comps in the mid to high single-digit range. All three categories, footwear, apparel and equipment are in the mid to high single-digit range. Now for specifics in the fourth quarter as it relates to what categories were really good. Jeff Rosenthal will cover it.

We have three major areas of business. Athletic apparel, food wear and hard goods. Our hard goods business is mostly team sports which is football, basketball, baseball and fitness. Apparel was up double digits in the fourth quarter. Apparel is broken down into two areas of business, active and licensed. Active wear was led by UnderArmour and Nike dry fit product. Hooded fleece from Nike. Women's apparel up high double digit lead by Nike and private label.

Our license business is pro and college. Our college business was up high single digits, led by LSU and Oklahoma. Our ladies and youth college apparel was up high double digits. Nike on-field apparel led the way at full price. Our pro apparel was up high double digits led by NBA jerseys and also NFL was up high double digits. Both categories were up led by Michael Vick jerseys, LeBron James and Carmelo Anthony. Retro jerseys continue to be hot, led by old Celtic jerseys, 76's, Laker at $60 to $70 price point. Footwear was up mid to high single digit. Performance led the way such as Nike Shocks.

Retro and classic shoes continue to be hot such as New Bound 574s, Reebok classics, K-Swiss classic and Nike limited edition products. Women's up, the highest in footwear, up high digits. Men's and kids cleets, low to upper mid-single digits. Hard goods was up, in the team area as we have weeded out of golf and tennis team sports continued to come on strong. Basketball led the way, up high double digits. Inflatables, basketball goals from lifetime were the big winners. Overall product, we have fresher merchandise, we're less promotional, and we continue to focus on higher margins and higher profits.

Thank you, Jeff. Gary Smith will comment on our financials.

For the quarter, total sales increased 20.9% to 91.2 million versus 75.5 million in the prior year. Comp store sales grew an astounding 8.3%. The company opened 24 new stores in the 13-week period. There are now 428 stores in operation as of 1/31, an increase of 57 from last year's count or 15% growth. Gross profit increased from 30.6% to 31.8%. This was due to selling a larger percentage of merchandise at full price and the positive leverage of occupancy and warehouse costs. For the period, store operating selling and administrative costs decreased from 18.65 to 18.57% of sales.

Last year benefited from 61-point basis point reduction on favorable settlement of a lease. On an adjusted basis, the SG&A expense was 1926 last year versus 1857 this year a 69-basis point improvement. The year-over-year reduction in rate was due mainly to the favorable leveraging of salaries. Operating income for the quarter was 11.1% versus 9.6% last year for the same quarter. The company had interest income for the quarter versus expense last year, due to no borrowings. Net income for the quarter was 6.5 million versus last year's 4.6 million, a plus 40% gain. Earnings per diluted share came in at 41 cents versus 30 cents the previous quarter or 28 cents adjusted. Year to date results are as follows: Total sales increased 15% to 320.9 million versus 279.2 million in the prior year.

Comp store sales for the year increased 5.3%. The company opened 65 new stores for the year and 8 stores were closed. Gross profit improved 117 basis points year-over-year. This was due to an improvement in initial mark-on, the reduction in markdown rate, and a reduction in inventory shrinkage. And the positive leverage of both warehouse and occupancy costs. Store operating, selling, and administrative cost decreased 28 basis points as a rates to sale excluding the leasehold gain, these costs increased 44% -- 44 basis points as a rate to sale.

Operating income for the year was 995 versus 836 last year. Net income for the year was 20.3 million versus last year's 14.7 million, a plus 38% increase. Earnings per diluted share came in at $1.29 versus $.96 the previous year, a plus 35% increase. From a balance sheet perspective, the company ended the quarter with 42 million in cash versus 12 million last year, and average inventories per store were down approximately 5% on a year-to-year basis.

Thank you, Gary. Steve, we are now ready for questions.

Thank you. Today's question-and-answer section will be conducted electronically. If you'd like to signal for a question, you may do so by pressing the star key, followed by the digit one on your touch-tone telephone. If you are on a speakerphone make sure your mute function is off to allow everybody to ask a question. Once again everyone star 1 at this time for questions. And we'll go first to David Turner, BB&T Capital Markets.

Thanks, good morning. Just a couple of questions about the margins. I know I think in previous years you've gotten some benefit on the gross margin side from a percentage rent, you know, as you have comped positive throughout the year. Was there any -- did that play out this year as well? Was there any gross margin improvement from percentage rents?

Well, with the 8% comps in the fourth quarter, we really -- yeah, we did get good leverage in the occupancy cost part of it, and some -- we opened stores throughout the year, so percentage rent kicks in throughout the years so, last year we had a little bit of a blip with it, but this year we just sailed right through.

Okay, so there was, it wasn't a -- There wasn't any abarrent gross margin bump in the fourth quarter because of the -- it was smoother than it was last year I guess?

That's correct.

Okay. And on previous calls you've mentioned your -- some advertising -- well, I guess savings on advertising because there is not as much promotional activity that looks like that's going to be the case next year as well. And, you know, just wondering if you could give a better -- or tighter -- I mean you gave an EPS guidance but is there anyway to put a number quantify how much margins are going to improve next year?

Well, we always talk about -- we think we can grow the top line at least 15% with -- certainly 15% store growth in our comps, 3 to 4, 5 to 6, whatever. We expect product margin to increase 15 to 20 basis points. We expect SG&A, our expense line to increase 15 to 20 basis points. So we think with 15% top-line growth, we ought to be able to grow the bottom line 20% or so.

Okay. One -- thank you. One last question. Just for Feet, well I guess Just for Feet's parent just filed for bankruptcy. Is there any...do you overlap in any markets with them? Any impact from that chain potentially closing or going away entirely? Does it open up real estate? You know if you could just talk about what the contingencies are for just For Feet.

In general the Just For Feet stores are larger than we like to take and they are also in larger markets than we would like to go to. Having said that, it's probably three or four that we could look at, and, there's a couple of them that's not as big as the others that might be possibilities. We don't see any great opportunity in Just For Feet. There is some and you know if, if they do go out, there is a lot of shoe business freed up and we should get some of that, but probably we may have a better opportunity on some of the Foot Action stores that are supposed to be closed. Some of those are in the 4,000to 6,000 square-foot range, that fits Hibbett. And we may have some opportunity there

And even though they are mall-based, the real estate is too prime to pass up, is that the argument?

It, it just you know, it all depends on the occupancy charges. We are -- we are very conservative and we're known not to pay a lot of rent, and we would not abandon that policy. So, you know, if the mall has some vacancy and they'll cut our deal, then we can take a look at it. It won't be a big deal. It would be a handful of opportunities.

Right. Okay, thank you.

Thank you.

Go next to David Maghee with Sun Trust Robinson Humphrey.

This is actually Jennifer Neal calling in for David. Great quarter, guys. I wanted it to touch on three things, first on the Nike in-store shops. How you see -- how those are doing, and secondly what the rollout is looking for this year and I will ask my second one in a minute.

Yes, we are continuing with those. They have been very good, especially in our women's area. We are negotiating right now to grow with Nike, x amount each quarter and we haven't finalized that for this year yet.

Okay, and the number, how many are you guys going to do this year?

We haven't finalized that. It is probably going to be -- it's going to be more than 40 or 50, but we haven't finalized that yet.

Okay. And, Jeff, too, on the Retro trends, how are those looking, is that still -- is that still carrying weight for you guys?

Umm, we are still growing. It is still growing and we are still having positive gains out of it.

Great. Okay. And then lastly on the growing cash balance. What are we -- is a - are you guys going to improve a-- grow stores or looking at a dividend, what's going on with that?

Of course our first choice is to grow stores, but, you know, we're going to look at a dividend or a stock buyback program, you know, one or the other at some point in time.

Okay. Great, thank you.

Next up John Shanley with Wells Fargo.

Good morning. Jeff or Mickey, I wonder if you could give us some indication of whether or not there were any major changes in the -- in the three merchandise categories in terms of their percentage of the overall revenues in the fourth quarter from what they had been in the fourth quarter of the previous year.

Yeah, our equipment business has gotten a little bit better. We got a little, gained a little bit of market share and apparel gained a little bit of market share.

And does that come with reduced sales in footwear or just that those other categories have grown more rapidly than footwear.

It is that they have grown more rapidly.

Okay. Give me an indication, Jeff, in terms of approximately what percentage of your business last year was done with Nike and what the open buy commitment for Nike is as a percentage of your total for this year?

It, it's, John, it is about 35%.

In both years or is it going to be richer this year?

It will be a little stronger this year, definitely.

Okay. And then in terms of the gross margin improvements that the company recorded, which were very impressive in the fourth quarter, how much of that, Jeff, was attributable to product margin enhancements, and do you see further product margin enhancements getting into the current fiscal year?

Half of that, John, was product margin enhancement, and we expect that to continue going forward.

Is it more focused, Gary, on one specific merchandise area or are you getting it across the board?

We are getting across the board. We are becoming more important to our vendors as we're consolidating and narrowing.

Do you think you are getting the same level of discounts and deal-making that perhaps some of the larger chains have historically gotten?

I don't think we're there. Jeff thinks we are, I don't...I think we have some room to grow there. I don't think we are getting the same -- you know we've certainly improved as we've grown and we've gotten more and more important to vendors and we've consolidated vendors which has made us even more important to fewer vendors but we got some room to wiggle there.

Great to hear, Mickey. I am sure you can do a lot of wiggling if you really put your mind to it. In terms of some the other vendors, you talked about some the people that seem to be doing really well. Do you have any new accounts or anything that is really got you excited? Any TV product areas in the hard lines category? Any new or perhaps even exclusive products that you are now getting from some of your key vendors that could set Hibbetts apart from some of its competitors.

One of the TV items that's real hot for us is six second ABS. That's been a info-mercial which has been very good for us.

It's called what? I'm sorry, I didn't hear that.

Six-second ABS.

Six-second ABS, okay.

That's been something that has been new. As we continue to grow, we are continuing to sell a lot of more high-end products especially in hard goods, like higher-end bats, higher-end baseball, baseball gloves and that type of thing. We are definately seeing the higher price points across all categories, getting stronger which really plays well for us especially in small markets.

That sounds great. Last question I have is on real estate. Mickey, are you continuing to focus your attention in terms of the new stores planned for year on proximity or close proximity to Wal-Mart locations? Or has there been any change in that strategy?

Not really, that's our major focus is to go to the number one center in a small market and most of the time it will be the Wal-Mart center. Occasionally the market may have a small enclosed mall like a Diresburg, Tennessee but it's usually the Wal-Mart center. 75% of our stores are in strip centers. Probably 90% of that 75 is in Wal-Mart centers.

That's great. Super. Good work, guys. Nice job on the quarter.

Thank you.

Take our next question from Sam Poser with Mosaic Research Equities.

Good morning. I have a just a follow-up on the SG&A. You said the SG&A was going to go up 15 basis points?

Down. As a rate to sale it will go down.

Oh in pure dollars it will go up.

That's rate, -- as rate, Sam, rate to sales.

It will go down.

Yeah.

Oh, okay, I thought you said up that's why I was confirming. Okay. And then in -- in the new stores, just to follow up on what John asked you, are you going to be continuing to roll out into the Midwest and so on?

You know, we are in 21 states, and we think we can stay within that 21-state area so we will be putting some stores in all the states. Probably more in the deep south and across the sun belt than in the upper Midwest.

Okay,and then, um in -- as you said you said you were consolidating the vendors, can you -- can you talk to the vendors that have gained importance and those who may have lost a little ground with you?

Yeah.

Most of the consolidation is really come out the hard goods area from a vendor standpoint. You know, overall, you know, pretty much footwear has been pretty much the same vendors. You know, Nike is gaining a little bit of market share this year in the footwear categories, but really the consolidation of vendors is mostly coming out of hard goods this year.

And just to follow-up, in footwear, how um--I mean, at whose expense may that, may that come from? With Nike's growth?

A little bit from Adidas, a little bit from New Balance.

Thanks very much. Congratulations.

Thank you.

Our next question comes from Murray Weinstraub with Hibernia Capital.

Hi, guys. Most of mine have been asked already but I have one question on the balance sheet and that's with your AP to inventory ratios is now at about 40%. That increase, I belive you've commented on it in past quarters but is that a going rate that we can assume going forward and can you add a little color on to -- is it vendor -- you know, is it the -- is it vendor driving that or are you guys driving that?

Well, I think part of it is 40% is a good rate for us. Going forward, I don't think we can get much higher than that. I think part of it is just flowing to merchandise on a -- on a more timely basis and everything just seems to be working well.

Okay. Is that -- that has to be a -- also attributing to some of your cash flow position as well.

Yeah, ten points is worth about $9 million.

Okay. Excellent. All right, that's it. Congrats, guys.

Thanks.

Thanks Murray.

Once again Star 1 for questions, everyone. Next up Quentin Specter with Lipton Financial Services

Good morning, gentlemen. Let me add my congratulations on the quarter. Also, to you, Mickey, for your promotion or your added new title. Just a couple of housekeeping questions. What was the Cap Ex for the quarter? And what were the shares outsta... basic primary shares outstanding at the end of the quarter?

I don't have that in front of me.

Okay. Well, Cap Ex for the year then?

Around 7-3.

7-3. That's lower than I think you had been guiding to before. So you must have --.

No, I don't think so. We talked around 7 -- you know 7 to 7-5, I do believe.

Okay. Well, in that case, given your -- your good inventory results and so forth, your cash flow from operations must be -- must be very high and your free cash flow must be very high.

Yeah.

Do you have a number for CFO? Cash flow from operations?

For this year or next year?

This year -- well, either, both.

Yeah, it is mid-teens.

Mid-teens, okay. And then -- and then -- can you give -- give us an idea of how many stores -- I know you said 15% store growth, but how many stores per quarter do you expect to be opening?

There'll be a lot more in the third and fourth quarter than the first and second quarter as has been our history. I don't have that in front of me but on a net basis, what is it going to be, Gary, in the 8 range the first quarter.

Probably.

And it will step up the second quarter and most of them will be in the third and fourth quarter.

Okay. And if you -- if you get some of the Foot Action stores, would that be incremental or would you just substitute them for ones that you are looking at now?

Could be a little of both, but we would probably do more substituting. I don't think that would greatly increase our store count.

Okay. All right. Thank you very much.

Thanks.

We'll go to Robert Olms with Banc of America Securities.

Good morning, Ben Rosen for Robby. Can you comment on the level of promotional activity you expect in 2004 versus 2003.

We believe it is going to be less.

Significantly less or --.

You know, Jeff gave his opinion. I'll give you mine. I think it will probably be less. It seemed to be a lot less last year than the year before. And you know -- I am speaking for Hibbett really because we're in the smaller markets and we -- it probably effects us less. We're not big advertisers anyway. You know, we're full-price people, and until the customer don't buy it, then we have to certainly market down but, it's just something that we are not really into that much really.

Okay.

That promotional activity.

And just one more question. What do you think the next drivers to the success of the license apparel business will be? Or what do you think you can transition that business into if it slows down.

Usually, you know, it runs into something else. We think you know, some of the more urban brands will get hot like an Echo, Fat Farm or, or someone like that. We see there is opportunity in [ Inaudible ] We feel like that, it will probably transition into something like that.

License was extremely strong in the early '90s, early to mid-'90s and started down and transitioned into the brands, the Nikes and the Adidas of the world. I remember back in '96, anything with a swoosh on it would sell. If it was a calculator, I think people would have lined up to get it in '96. So it will probably transition into brands like Jeff is saying, and, of course, we're in the college piece, and that piece stay with you. That's a real loyal customer fan base, and they continue to buy.

Okay. Great. Thanks and congratulations, gentlemen.

Thank you.

We will take a follow-up question from Murray Weinstraub.

Hi, guys, can you quickly review your store opening model because it appears that it may be coming down a bit on your costs, looking at your Cap Ex versus how many stores that you've opened up in the past.

Yeah, it looks like instead of the 75,000 that we have for FF and E, it's net of landlord contributions, probably closer to 65. And what we've done with the inventory, we had 120,000 net and that may be down 5,000 to 10,000 also.

Okay. Is -- is any of that financed? I guess obviously with the payable side. But how much -- what percentage of that would you say is vendor financed?

Well, certainly, you know, the 40 cent -- 40% on the AP side --.

Okay, it's 40%?

Yeah.

Yeah.

And we probably get, what, half from the vendor from the landlord.

Yeah,I'd say at least that.

50% from the landlord. Okay. Thanks.

Okay.

Go to another follow-up question from David McGhee.

Hi, it's Jen again. Just wanted to make sure -- Gary, I don't know if you mentioned this. What is the Cap Ex expectation for 2004?

I believe it is around 10 million.

10 million? Okay. That was just a quick follow-up. Thanks.

Okay.

And there are no further questions at this time. I'd like to turn the conference back over to you Mr. Newsome for any additional remarks.

As you'll know we had a great year at Hibbett and we certainly have started strong this year. I think we're an improved company year-over-year. I mean we're much better than we were a year ago and we expect to be able to say the same thing again next year, we can continue to improve. We're going to stay in small markets, stay generally tight geographically. There's over 400 additional markets we could put stores in in the states that we operate in. And we think we have a great, great future at Hibbett's, and remember that on a compound basis, the last seven years we've grown earnings over 20%. We appreciate you being on call today and look forward to speaking with you in the third week of May concerning our first-quarter results. Thank you for being on the call.

Thank you. Once again, everyone, that does conclude today's teleconference. We appreciate your participation and you may disconnect at this time.