Hibbett Inc (HIBB) 2005 Q1 法說會逐字稿

Good day, 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'd 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, Matt, and good morning everyone. This is Mickey Newsome. I have with me also, Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our VP of Merchandise. We appreciate all of you participating today in the conference call. We appreciate your interest in Hibbett Sporting Goods.

Before we start, Gary Smith will cover the Safe Harbor language.

Thank you. 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 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 an outstanding first quarter. Net income increased 53.4%, all store sales increased 21.3%, and comp store sales increased 8.8%, which was consistent with our first quarter and the first few days of the second quarter are consistent with both of those quarters, but I might remind you, June and July are much more important to the second quarter than May is.

We opened eight new stores and closed three. We opened them mostly late in the quarter. We believe we're on target to open approximately 65 new stores this year net of any closings. New stores will continue to be in the 21 states that we currently operate in.

Now for some brief comments on first quarter sales. All three months were consistent and strong, which we had great weather this year relative to last year. We have improved in our in-store presentation, visually, over last year, customer service is improved, and we're more on target with our merchandise than we ever have been.

We operate in enclosed malls and strip centers. We always operate in the number one center in a small market. 70% of our stores are in strip centers. Our strip center comp store sales for the first quarter were 9.3%, and the malls were 7.2.

Now for some comments about our merchandise and merchandise trends in the first quarter, Jeff Rosenthal will speak with you.

We have three major areas of business, athletic apparel, athletic footwear and team equipment, which is made up of baseball, football, basketball and soccer, and fitness. Apparel posted a double-digit gain. Two areas of apparel business are active wear and license. Men's active wear continues to be driven by UNDERARMOR and Nike performance products. Women's active wear was up double digits led by Nike performance and cheer-leading shorts.

Licensed apparel, both pro and college -- college was up high single digits led by authentic (ph) college wear from Nike. Pro was up high double digits led by NBA and NFL jerseys. Rewind jerseys, Carmelo Anthony, LeBron James, Kobe Bryant led the way, and in football it was Michael Vick.

Footwear was up mid single digits. Trends, classic footwear was led by K-Swiss, Reebok and New Balance 574s and performance shoes such as Nike Shox. Kids and women's footwear was up double digits. Team equipment was low single digits. Some of the highlights was baseball was up high single digits led by uniforms, bats from Easton and Louisville Slugger, baseball accessories by Nike and Shut (ph). Soccer was up double digits led by Adidas.

Thank you Jeff. Now Gary Smith will comment more specifically on our financials.

For the quarter total sales increased 21.3% to 96.5 million. Comp store sales grew 8.8%. The company opened eight new stores in the 13 week period and closed three. There are now 433 stores in operation as of quarter end. Gross profit increased from 31.4% to 32.9%. This was due to selling a larger percentage of merchandise of full price, improved mark-on and favorable mix with the positive leverage of occupancy and warehouse costs. For the period store operating, selling, and administration costs decreased to 17.73%. The year-over-year reduction in rate was due mainly to the favorable leveraging of store and corporate salaries as well as other store related costs.

Operating income for the quarter was 13.23% versus 10.36, a 287-basis-point increase, our highest ever. The effective tax rate increased due to certain state legislative action and local tax credits that are fixed in dollars, the result being higher tax rates as our income increases.

Net income for the quarter was 8.1 million versus last year's 5.3 million, a plus 53% gain. Earnings per diluted share came in at 34 cents versus 23 the previous year.

From a balance sheet perspective the company ended the quarter with 44 million in cash versus 22 million last year, and zero debt. Average inventories per store were down approximately 3.5% on a year-to-year comparison.

Thank you Gary. Matt we are ready for questions.

Thank you sir. If you would like to ask a question on today's call, please signal by pressing star, 1 on your touchtone telephone. Again it is star, 1 to ask a question. If you are on speaker phone equipment, please be sure that your mute function is disengaged so your signal can reach us. Again star, 1 for questions. We'll pause a moment to assemble our roster. We'll go first to David Magee with SunTrust Robinson Humphrey.

Hi, good morning, and great quarter.

Thank you, David.

Can you talk about what you think is -- whether there's much impact from consolidation or closed stores in terms of your numbers? I know there was some out there. Was it meaningful in terms of your overall comp performance in the quarter?

David, we don't really think so. Of course, a lot of the Just for Feet stores did close, and we're not around very many of them. It's just not enough to make any impact one way or another. I don't think it meant much to us either way.

As far as the gross margin, if you had to say what was the single most important factor there, which of the factors that you mentioned would it be?

Well, you know, the -- probably two-thirds of the growth in the gross margin was due to increased product margin. It was split pretty evenly between reduction in net markdowns, the change in mix, the equipment was positive, and that's a high gross margin, and, you know, we're getting better prices and have additional mark-on to work with.

And lastly, to what degree did traffic play into the comp number?

You know, hard to tell. Traffic may have been up because the weather was so much better but I think the key thing is we're more on target with our merchandise by market by store. And there's a lot of reasons for that. One, we installed some new software more than a year ago that's really beginning to help us get on target by store, by market. Our buyers are probably doing -- buyers and merchandisers are doing more and more store visits because we are tight geographically and we can visit stores and you get a lot of good ideas when you visit stores in terms of really merchandising to that store. That's probably a lot to do with it.

Great. Thanks, guys.

Thank you.

We go next to Dan Wewer with CIBC.

Yeah, I'd like to start with my congratulations as well. Mickey, in your 10-K for the previous year it indicated that the portion of purchases and revenues from Nike had declined somewhat from '02 and curious if this is part of a strategy to diversify your vendor base or maybe it was just more of a blip. Are you seeing your portion of business with Nike increasing here in the first quarter of '04?

Our purchases are actually up with Nike in the last few months. They've had great product and --

In total dollars or as a percent of your total business?

Both. As a percent, it is up. Isn't it in mid-30s, Gary?

Yes.

It's in the mid-30s now of all of our purchases, and their product really looks good, back to school and for Christmas for that matter. We see ourselves growing with Nike. Number one, even in equipment we're growing with them because they're not into discounters. That brand is not in a Wal-Mart or a K-Mart or a Target, and the equipment is really checking out well with Nike.

Okay. And then the other question, Gary, you had noted your inventory per store is down about 3% but we measure your sales per foot was actually up about 6, and curious as to your thought, you know, how long can this phenomenon of less inventory driving, you know, a significant increase in revenues can that continue?

I mean, we see it certainly moving through this year and we think there's opportunities through next fiscal year also.

What would you say is changing in your logistics or distribution capability that enables you to do that today whereas a couple of years ago that wasn't the case?

I think a lot of it is cross-stock and vendor-managed inventories.

Some of it is also, we've eliminated a lot of those categories that didn't mean anything to us. Games and golf and mostly tennis and we're concentrating on something that does mean something to us, our presentations are much better.

Just the last question on the cross-stocking ratio. Are we north of 60% now?

Probably closer to 80%.

Closer to 80%. And a year ago it would have been tracking at --?

60 or 65.

Great. Well, appreciate it. Good luck.

We go next to Robby Ohmes with Banc of America Securities.

Thanks. I was hoping -- congrats on a great quarter. I'm actually surprised by the continued strength of the licensed apparel, particularly the NBA, NFL stuff. Can you comment, just sort of looking forward -- I mean at some point I think we're going to be anniversarying this strength -- what you guys see happening on the branded apparel side of your business or how you see anniversarying those comps? Thanks.

The license that is not selling, it's slowing down a little bit and we're still comping it but we see that performance is getting better like with UNDERARMOR and Nike. We also see some of the urban brands getting stronger so we feel like we can overcome that.

Can you get a little more specific on the urban brands that are performing well?

Yeah, Echo, Aniche, those are two of our major brands.

Keep in mind, in license, college is very important to us, and that's a fan-based department and we expect that to be strong this fall. In fact, we've got a lot of stores in Georgia, I think what are we, about 60 stores in Georgia now? University of Georgia we heard was going to be ranked number one in more than one poll, so we could have a big year in college. We think it will be good.

What percent of your business would be pro licensed or replica stuff?

You know, we don't disclose exact numbers on that but apparel, some of the analysts guess that we're 40% apparel and we don't argue with that but the active wear piece is larger than the license business, you know, active wear and the team clothing like baseball/softball pants.

All right, thanks a lot, guys.

Thank you.

We go next to Rick Nelson with Stephens.

Thank you, and congratulations also, guys.

Thank you, Rick.

Mickey, question on store openings. You got eight stores in the first quarter. You're planning 65 for the year. Was the first quarter consistent with your expectation as we entered the year? Was there any slippage?

We're probably a couple short in the first quarter. We think it will make it up in the second quarter but we're absolutely back-end loaded in the third and fourth quarter as we usually are.

How do you see the openings shaking out on a quarter by quarter basis?

Gary, you've got those numbers exactly?

It's -- you know, for all intensive purposes it's probably close to 20/20/20, somewhere in there.

Okay. You've got a terrific balance sheet, no debt, kind of this growing cash position. Is there an opportunity to accelerate the store openings and are you, in fact, gearing up from a real-estate standpoint to do that?

I think there's an opportunity and staffing up the real-estate department is probably the key, and we're certainly trying to do that. It's not easy, but we have built it up somewhat since last year, and we're going to add two more people, but they'll be relatively green in that area, and it will take them a few months to get up to speed, but we are staffing up.

How big is that department today that you're adding to?

What was the question?

How big is it now, Mickey, the real-estate department?

The deal chasers, we have a head of real estate, Jeff Gray, does a great job, he has five deal chasers, three of which have a lot of experience, and the other two have less experience but they're certainly getting up to speed and we're adding at least one more in the very near future and add another one in the fall. I think this is one of the keys. We think there's 400 markets out there in the existing states that we can do stores in, you know, but a lot of times you have to wait for real estate, you have to wait for something to be built. Wal-Mart builds a freestanding Wal-Mart Super Center and there's really nowhere to go until somebody develops a strip center nearby. So you have to wait a lot of times but getting the deals is the -- that's the only restraint we have to the growth is getting the deals. We can do everything else.

Great. Thanks a lot.

Thank you.

We go next to Sean McGowan with Harris Nesbitt.

Good morning guys. Couple of questions. Can you share with us what your experience has been in the past with years when there is a summer Olympics and what your expectations are for what impact might be this year? Secondly, regarding college apparel is the strength now do you think a function of which teams particularly won or are you seeing strength even in, you know, teams that didn't go to the Final Four, Sweet 16, or win the BCS, or et cetera?

I'll do the Olympic part. When they were in Los Angeles, it was good for us. When they were in Atlanta, it was spectacular. The 2000 Olympics in Australia were so-so, they weren't that highly commercialized it didn't seem like, and we got a little something out of it. This year it's kind of up in the air. We have really no idea exactly how big it could be. I think it should be better than Australia but not nearly as good as Atlanta but it will give us a shot in the arm. For instance, after the Olympics, that Christmas season you always sell a lot of tumbling mats. Every little girl five to ten years old wants to be a gymnast and we sell a lot of tumbling mats as a result of the Olympics. Another thing you'll sell as a result of the Olympics, believe it or not, is a lot of boxing gloves afterwards. I'm not real sure why but it happens every time. So we'll get a little boost out of it. How much remains to be seen. Jeff, you want to address the college part?

The college part is just a lot more consistent. It does matter a little bit who wins or not but in the Southeast we have so many stores and so many good -- we always have a winning team out of the Southeast or Oklahoma or something like that, so it's more of just a consistent business.

Okay. Thank you very much.

We go next to John Shanley with Wells Fargo.

Good morning, guys. Jeff, I was intrigued by your comments about the marquee products that you're doing so well with. Are you putting products like Shox and Carmelo Anthony in the majority of your stores, or are those more select in terms of which units can effectively sell that kind of product?

It's in the majority of the stores, John.

Are you moving more towards marquee in terms of the athletic footwear assortment? Does it seem to be demand that's kind of motivating you to give more, you're open to buy to (ph) those kind of products?

Some of that is and, you know, with Nike, you're allocated so much, but we continue to grow hopefully we'll continue to get more allocations.

Are you still doing well with the classic product, or has some of this marquee goods taken some of the emphasis off of the classic program?

We're still doing well with the classics.

Great. On apparel, the double-digit gains in license apparel certainly is very impressive, particularly in comparison to what we heard the Footlocker guys say yesterday and the Finish Line guys a week or two ago. Are you merchandising it differently, Jeff, than the in-mall guys are doing? Do you have a different customer that would be more motivated? I know you indicated that there was a little bit of a slowdown in the product category but what's causing Hibbett to still do so well in that product?

Making sure you keep fresh product in there and keeping the assortment pretty tight and watching your inventory, keeping it fresh.

Are you still micro merchandising it for each individual store?

Yes.

Is that one of the key drivers?

Yes.

Okay. Super. And then on the active wear, will that gain a substantial portion of your fall open to buy, do you think, at the expense of license product, or will they both have opportunity to grow?

It will gain some market share in the active wear because, you know, we -- we do see a slowdown a little bit on the licensed end so we will see some shift in dollars there and in our college business because we think the college business is going to be very good.

You think college will outperform pro?

Yeah, it will.

Okay. Super. Mickey, I had a couple of quick questions on real estate. The 65 new stores that will open this year, are you going into any new states or any new markets, or are you still pretty much backfilling in your existing areas?

John, for the most part they're going to be backfills. We don't intend to go outside our 21-state area this year. If we do, it might be one store somewhere in Eastern New Mexico which will be real close to our West Texas stores but basically they'll be backfills.

Okay, great. And you're still a 5,000-square-foot box for the most part?

Yes, still 5,000 square feet.

Going into next week's leasing convention do you have any sense in terms of the landlords, particularly the power strip guys, in terms of their willingness to deal? Is there ample opportunity for you to continue to get the kind of low occupancy costs, or is real-estate tightening up a bit?

John, we think there's still opportunity because you know we're going to these smaller markets, and we're the only sporting goods stores that goes to them so we're sincerely needed by the landlord where we are going, and we think that trend will continue.

Okay. Can you give us a sense of how the spread will be between power strip versus regional mall? Are you planning on adding many or any regional mall properties this year?

You know, there will be some. It will be about 70/30, 70% strip centers versus 30% mall.

What would that take us to by the end of this year in terms of the break between strip versus regional mall?

It'll be pretty consistent with that 70/30.

Ok that's great. That's all I got. Thanks a lot, guys.

John, I had one other comment I'd like to make about that pro piece. Our license is still performing, I think one reason is we're in these smaller markets with less competition, in the larger markets there's a lot more of that pro product up and down that mall than it was previously, so I think that might be one of the reasons we're continuing to perform pretty good in the license area.

And I think you may be right. The Footlocker guys indicated that there's an abundance of that in the mall, and clearly that's one of the reasons I asked you about your real-estate profile. It may well be that you just have an opportunity because you're not so heavily concentrated as they are in malls.

I agree.

We go next to Anthony Lebiedzinski with Sidoti & Company.

Good morning. Couple of questions. If you look at your product categories, you know, the hard goods had the lowest comp. Are you doing anything with new products there to try to get the comps to be more in line with the other categories?

Yes. The reason -- we're concentrating on is the team part. And our team part was up double digits. We're getting out of -- still liquidating some of the categories that we're getting out of, such as golf and tennis, (inaudible) those type things. So that's why the comps were a little bit lower, but what we we're going forward with, we were up double digits.

So you still have some inventory with respect to the golf and tennis merchandise?

A little bit. We're almost completely out.

When do you foresee that being totally out of those?

By the end of this quarter.

Gotcha. Okay. At what point do you see yourself going, you know, beyond the current 21-state area? I know, Mickey, you mentioned that you may open one store in New Mexico but at what point do you actually see yourself opening more stores beyond the current 21-state area?

It's probably three to four years out before we start spreading out. If we do we'll stay in the sun belt because those markets are more like what we understand, and we would certainly stay in the sun belt, but I don't think we really need to add any states to any extent in the near future. It will be several years.

Gotcha. Okay. Last question for Gary. With respect to tax rate, should we assume the higher tax rate going forward?

Yeah, the intent is that would be the tax rate for the entire year.

That's all I had. Thank you.

Thank you.

As a reminder to our participants, it is star, 1 for questions. We go next to Ralph Jean with Wachovia Securities.

Great. Thank you. Mickey you mentioned you thought you were more on target with your merchandise. Couple ways to measure that might be your conversion rate or units per transaction. Do you notice a meaningful change in either of those?

Do you have those numbers, Jeff?

I don't have them on me.

No, I don't have those numbers right here with me. I don't think there's any meaningful change. I think our price points have increased pretty significantly in apparel, and I think that's certainly helped. We sold a lot more merchandise at regular price because we were more on target with it, so I'm not sure about items per transaction. We have that number, I just haven't got it with me.

Okay. Then --

I would suspect it's not up, because probably a year ago we were selling a lot more clearance at a lower price point, and that adds to the items per transactions, so I would guess that we're not up in that.

Okay. And then secondly, you mentioned the consistency throughout the quarter and your comments in the press release are pretty bullish. Are you seeing any kind of slowing in the trends as we've moved into Q2, sales trends?

Not really. They're pretty consistent with what happened in the first quarter.

Thank you very much.

But remember now, the first three weeks of May is not -- that doesn't tell the whole story about the second quarter.

Okay. Understood. Thank you.

We go next to Clinton Specter with Lipton Financial Services.

Good morning all. Couple of housekeeping questions. First of all, what was the Capex for the quarter?

I believe it was like 1.2 or 1.3 million.

And are you -- as I recall, is it going to be about 9 million this year?

Closer to 10.

Okay. Am I to understand that you've closed all the stores that you're going to close this year?

No there's still some on -- we'll probably close five to ten.

We'll probably open 75 new stores and close eight or ten.

Then I must have misunderstood Gary's earlier comment that you'd be opening 20 stores each quarter.

That's net.

Oh that's net. Can you give us an idea then of the store closing by quarter?

Not really. A lot of it, you know, depends on the lease and what we try to work out and saving or get lower, or get lower rates.

Okay. But you said eight to ten?

Yes.

For the whole year?

Correct.

Okay. Let's see. I think that's all my questions. Thank you very much.

You might keep in mind, when we close a store, it's not a big deal financially for us. The write-off is usually in the $20,000 range. It won't be significant. We've done this before. Our leases are short-term, and they're short-term for a purpose. If we get a bad store, we just don't want to be stuck with it. We'll move on.

Right. Oh, that did remind me, though, a few years back you had opened up some smaller -- you had experimented with some smaller stores. Will this class of closings take care of all of the disappointing stores?

It's pretty --.

For the most part. As far as size goes, it would take care of it.

Okay. Thank you.

Thank you.

We go next to Christina Henry with Berman Capital.

Hi, good morning. Congratulations on another great quarter.

Thank you.

I just had one question about footwear. I was hoping you could comment on running and how that category is doing and perhaps what brands are performing strongly, if possible.

Yeah, running is doing well. The brands that are driving it is Nike and New Balance are the two main drivers of that.

Anything with a pink trim.

Anything with a pink trim. Okay. Thanks so much.

Thank you.

Again, as a reminder, that is star, 1 for questions. We go next to Sam Poser with Mosaic Research.

Good morning. Can you talk about any changes as your inventory turn has improved and everything and changes in the amount of product on automatic replenishment?

I don't have, Sam, exact percentages but we are changing pretty rapidly on -- especially on basic-type items, especially in hard goods, to be on more auto replen.

What percent of your total business would be a target that you want to get to?

That's a tough one.

We're just looking at it as we grow and as we look at each vendor and what the product is so we're not shooting for exact percentages right now.

But it is growing?

The higher the better, I'll tell you that. It really works well.

And then back to footwear for a second, you mentioned that the classics, K-Swiss, Reebok, and so on were doing well, is that planned -- is that going to be planned up going forward this year? That category?

Yes, a little bit.

Are you putting most of your footwear growth into the sort of the higher end fashion/technical product?

Yeah, more performance, yes.

Okay. Great. Then just one more question on licensed. Just want to confirm, the college license business sounds like it's being planned up for the balance of the year.

Yes.

And fan-base -- then fan-based pro, is that being planned up or down?

Fan-based, yes. The fashion piece is the tricky one on where to play it, but it will slow down some.

Of that pro license business how much of it was fashion versus --?

I wish I knew that answer. That's a hard question to answer.

I'd say a lot of it is probably fashion. We're not in big cities where they have pro teams. We're in small cities, in Illinois and -- around St. Louis, around Nashville, but ours is probably more fashion than fan-based.

Okay. Great. Well, thanks. Congratulations.

Thank you.

Again, it is star, 1 for questions. There are no further questions at this time, gentlemen. I'd like to turn the call back to you for any additional or closing comments.

Okay. Thank you. As y'all know we had a great first quarter and we feel pretty good about the second quarter. We're an improved company year-over-year. I think our product is much better, our customer service is better, we're better visually in the stores, merchandise is more on target by store, by market. Our new software has certainly helped us in this regard and, of course, vendor-managed inventory has certainly helped us and more and more store visits by our buyers and merchandisers has certainly helped but we're tight geographically so it's easy for us to visit stores and very important. We're going to continue opening stores where our products and services are needed by customers and landlords and by vendors. We're (technical difficulty) small markets and we're going to stay tight geographically in that 21-state area. Thanks for being with us today. We look forward to speaking with you on August the 20th at 9:00 Central Standard Time with our second quarter results. Thank you.

That does conclude today's teleconference. Again, thank you for your participation. You may disconnect at this time.