Hibbett Inc (HIBB) 2005 Q4 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 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, operator, and good morning, everyone. This is Mickey Newsome. I have with me Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our Vice President of Merchandise. Appreciate your being on the call today and your interest in Hibbett Sporting Goods. Before we get started, Gary Smith will cover the Safe Harbor language.

Good morning, everyone. 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. Also, please be aware that the results we will discuss for both the fourth quarter and fiscal year ended January 29, 2005, and for comparable prior periods are provisional. The Company has announced that these results are subject to adjustment based on the outcome of a pending review of the Company's lease related accounting. Like many other companies in the retail industry, Hibbett has determined to change the way it accounts for buildout periods, construction allowances, and the depreciation of leasehold improvements.

We have determined to review and restate our financial statements for fiscal '05, '04, and '03 to implement these corrections. We expect to complete this review in conjunction with the regular audit of our fiscal 2005 financial statements. We plan to include revised results when we file our Form 10-K for the fiscal year ended January 29, 2005. We anticipate filing the Form 10-K on time.

Thank you, Gary. Tell from our press release late yesterday, Hibbett Sporting Goods had an outstanding fourth quarter. But as stated in yesterday's press release, our comments on 2005 and 2004 quarterly annual numbers are preliminary (technical difficulty).

Overall sales increased 17.5%. Comp store sales increased 5.2%. We did that with less comp store inventory that Gary will speak to. Net income increased 26.8%, and I will remind you that we were going against an outstanding fourth quarter last year when net income increased 36% and comps were 8.3%.

We had a record year. Comps were up 5.7%. Pretax profit up 25.6%. We opened 63 new stores and closed nine underperforming stores. Our goal for fiscal 2006 is 70 new stores, net of closings. The primary retail focus will continue to be all markets where we are needed by the consumer, by the vendor, and by the landlord.

Comments on fourth quarter sales. November was positive low single digits. Friday after Thanksgiving was positive low single digits. Saturday after Thanksgiving was disappointing, as was the next two weeks of December, really about the first 18 days of December. But we knew that we were okay based on 1999 sales trends, when we had the two extra days before Christmas and the dates fell exactly the same. We did not panic, we stayed the course.

We were fortunate that we did that, because we came out really well. The week of Christmas and the week after Christmas were very, very strong. In fact, each day, Thursday before Christmas and Friday before Christmas, was larger in sales volume than the Friday after Thanksgiving. We ended December mid single digits positive; for the two months November and December we were 5% on a comp store basis positive. January was a little stronger and we ended at 5.2% comps.

The first quarter has continued to be strong. We are comping in the high single digit range. Now for some specific comments about the merchandise and the sales, Jeff Rosenthal, our Vice President of Merchandise will speak with you.

We have three major areas of business, apparel, footwear, and hard goods. First apparel. We break apparel down into licensed and branded activewear. First, apparel was down low single digits. Activewear, which is branded apparel from Nike and Under Armor, was up high single digits. Women's led the way; Nike, Adidas, Under Armor in women's was very good. Men's up high single digits. High-end technical and performance products were the key drivers; Under Armor and Nike again led the way.

Another category that we're having significant double-digit increases are urban apparel such as Enyce and Rocawear and selected items such as cargo fleece pants; novelty tees such as John Deere, Dickey's and that type of product is doing well.

The license business continues to be tough just as we planned. College was down single digits. The biggest issue in college was we were going to give LSU national championship from a year ago. In college the women's and kids' business continues to perform at double-digits.

Pro continues to be down double digits. We planned that against huge comps from a year ago, and as a fashion shift has happened, and we feel that this will continue for a while.

Footwear was up double digits. We had higher price points, better technology in products, and the classic footwear continues to strive well. Nike, New Balance, Reeboks, and K-Swiss continue to be strong. Some of the shoes that have been extremely strong have been Nike Shox, New Balance 574, Reeboks Classic, and K-Swiss classics.

Hard goods. The team equipment piece, which we have put a major focus on, was up double digits during the first quarter. Some of the highlights were inflatables, both football and basketballs from Nike, Shock Doctor mouthpieces, and boller (ph) bands. Skateboards also continues to grow. Complete sets from $69 to $99 did extremely well. Fitness was down in the fourth quarter, but we started to see some positive comps as we got later in the quarter. They have been improved with basic weights and Ab Loungers.

Overall, our strategies are working. Better quality, higher price points, cleaner inventory, and increased turns continue to be our focus. Thank you.

Thank you, Jeff. Vice President of Finance Gary Smith will now comment more specifically on our financials.

Please be advised that my discussion of earnings and other related financial numbers should be considered preliminary and unaudited. The below-mentioned numbers exclude the changes we are making to the way we account for leases. Corrected figures will be available when we complete our internal review and KPMG completes its audit for fiscal 2005.

For the fourth quarter total sales increased 17.4% to 107.1 million, while comp store sales grew 5.2%. Again each class of Hibbett stores had positive comp store sales. The Company opened 15 new stores and closed one. There are now 482 stores in operation as of quarter end.

Gross profit increased 59 basis points due to a reduction in markdowns, improvements in shrinkage and freight, which was offset by reduced mark-on due to the shift to footwear. Occupancy and warehouse costs were also leveraged positively. For the period, selling and admin costs decreased 15 basis (technical difficulty). Reduction in rate was due mainly to the favorable leveraging of salaries as well as other store and corporate related cost, which was offset by a 35 basis point increase in stocks related fees.

Operating income for the quarter was over 12% versus 11.1% for the same quarter last year. Net income for the quarter was 8.2 million versus last year's 6.5 million, 26% (technical difficulty). Earnings per diluted share came in at $0.35 (technical difficulty) $0.27 (technical difficulty). Year-to-date results show that total sales increased 17.6% to 377.5 million, while comps were 5.7%.

Gross profit increased slightly year-over-year, mainly due to improved occupancy and warehouse costs, which were offset by reduced apparel margins as well as a shift towards lower margin footwear. Selling and admin cost decreased 45 bps due to the reduction (technical difficulty) due to the favorable leveraging of salaries as well as other store and corporate related cost, which again was offset on an annual basis by a 22 basis point increase in tax related fees.

Net income was 25.6 million versus last year's 23.3 million, an increase of over 25%. Earnings per diluted share came in $1.07 versus $0.86 the previous year.

From a balance sheet perspective the Company ended the quarter with 58 million in cash versus 42 million last year. We spent approximately 19 million on the stock buyback where we repurchased over 845,000 shares. Average inventories per store were down approximately 3%, this in spite of bringing in approximately 70% more receipts in January than we had the previous year. Our inventories are fresher than ever.

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

(OPERATOR INSTRUCTIONS) Rick Nelson, Stephens Inc.

Good morning and congratulations. Good quarter. The acceleration in comp, Mickey, that you indicated in the first quarter, what merchandise categories are driving that? Is it still footwear and team equipment?

Footwear is certainly a driver. Activewear is good, the branded piece, and the team equipment is good.

Does footwear traditionally become a bigger proportion of sales as you move into the spring?

Yes. (multiple speakers)

But the comparison you are bumping up against is pretty difficult, 8.8% for the quarter. Do the comparisons get easier or tougher as we move through the remainder of the first quarter?

What do you think, Jeff?

It's a little bit easier.

It's a little bit easier? We think it's a little bit easier. This year you have got an earlier Easter. It could be a benefit.

Got it. In terms of inventory turn, we have seen really good improvement over the last two or three years. How much more opportunity do you see to improve the turnover?

We think probably 10 to 15 basis points for the next couple of years on an annual basis.

That has positive implications for cash flow as well. How do you rank the alternatives now between accelerating store openings, buybacks, and potentially a dividend?

We would certainly like to open more stores, but we're not going to press the envelope to open marginal stores. Certainly the buyback is certainly important to us, and we have had discussion of dividends or special dividends. (technical difficulty) has come up. But we should generate 25 to $30 million more in cash (technical difficulty).

We have seen some shortfalls actually in terms of store openings. How comfortable are you that that number of 70 can be met or perhaps even exceeded?

About one year ago we added three people on our real estate staff, and it takes them about a year to learn the language and be able to do deals. They were not real productive last year, but they were learning the business; and they are beginning to produce this year. Thus far this year, we are far ahead of last year on new store approvals and leasing. We're comfortable we will get them done this year, because we have a much larger staff, more experienced.

The first quarter, is that a step up in store openings? Is that due to delays from the fourth quarter, or is it just being able to get things done earlier this year?

It's probably a little of both. We did have some delays that did not open in the fourth quarter. But we're on top of our game a lot better on real estate than we were a year ago, because of the additional experience.

Great. Any preliminary thoughts on how the new options accounting might affect EPS?

Not really, Rick. The Board is still evaluating different approaches to it. It's a little premature for us to discuss that right now.

Okay, thank you.

David Magee, SunTrust Robinson Humphrey.

Congratulations. It's actually Jennifer calling in for David. Three quick things. First of all, Gary, you mentioned that each class of the stores was comping positively. That means, I'm assuming, that the new stores from this year are at least on plan.

The new stores for this year, their annualized run rate is running a good bit above the model.

Great. Secondarily, do you have a CapEx number in mind for this year?

11 million.

Okay. Lastly, Jeff, you mentioned fitness starting to look better. Is there anything in particular that is in the stores that would make that -- that is helping that? I know you mentioned weight benches. Anything else? Any color you could give us there?

There is a (technical difficulty) new product called Ab Lounge, and it is doing extremely well. It's a $100 item (technical difficulty) very well.

Great, okay, thank you very much. Congratulations again.

Robby Ohmes, Banc of America Securities.

Just a couple of quick questions. On the store growth plan for this year, can you talk a little bit more about new markets versus the existing markets?

Second, I missed it; it might have been on the year overall. But when you were talking about gross margin you talked about a shift towards lower margin footwear. Can you just help us out in what are the lower margin footwear that is gaining share in that category? Thanks.

First of all, on the real estate piece, all of our expansion this year will be in the 22 existing states. We think there's another 400 markets that we could put stores in, in that 22-state area. Do not see the need to go outside of that. I think all of our stores this year will be within a two-hour driving distance of existing stores. So we're going to stay tight geographically. We think that gives us the best chance of being very successful. (technical difficulty) speak to the footwear?

The clarification of the shift to lower margin footwear, it's a shift from apparel to footwear, which is lower margin than the apparel. In fact, our (technical difficulty) in footwear are probably actually up versus last (technical difficulty).

Got you. So your margins within the footwork category are up?

Yes, they are up, but they are less than the apparel that it's replacing.

Got you, thank you very much.

Anthony Lebiedzinski, Sidoti & Co.

Could you just tell us what the fiscal '04 CapEx was?

The year just ended?

Yes.

8.3.

8.3, so that is going up, so around 11 million?

11 million is the budget. Last year the budget was close to 10. We don't necessarily spend what we budget.

As far as your distribution capacity, your DC in Birmingham, how many stores can that support? When do you think you will need to add to that distribution capacity?

We feel good 850 to up to 1,000 stores. We just getting better in the distribution center in moving product through. So we think we are fine for the next two to three years.

Is March Madness significant to your business in the first quarter?

It can be; it is really depending on the teams, how far they go. So if they make it to the Final Four or anything like that, it could give a good bump.

We need Kentucky or North Carolina or Duke (multiple speakers) the Final Four.

Is it possible for you to quantify the impact?

Yes, it is not a huge impact. It is pretty small on the overall scheme.

Okay. All right, thanks.

Dan Wewer CIBC World Markets.

I just wanted to get some help with the quarterly guidance. Gary, the first quarter EPS growth at the high-end implies about 24% year-over-year, which is the same forecast that you have for the year as a whole. Yet your business was quite strong in the first quarter of last year and then weakened in 2Q and 3Q. One would think that the opportunities in 2005 would be in the second quarter and the latter half of the year. Yet we have got this first quarter budgeted about the same as the year as a whole. So I was trying to square that, and if there is a possibility that we are being maybe a bit conservative in the second half of the year.

I will tell you, we certainly don't like to see the second quarter come around here at Hibbett. It is not a quarter that we do our best work in. It is a clearance quarter and a promotional quarter, and that is not what Hibbett is about. We are very conservative on the second quarter.

Okay, that would make sense. The other question I have was on looking at the gross margin improvement a bit further. You had highlighted a reduction in shrink. Is that the reduction in the amount of inventory per store reducing the opportunity for shrink?

That is part of it. But the other part is we put a good deal of emphasis on it. We have made some operational changes and some systemic changes where we're doing periodic counts in the stores of what we consider high-theft items on a weekly basis. We are paying more attention to shrinkage in some of those particular items.

So that is a program that has been adopted by the Company basically in the second half of the year. I think it is giving a some pretty good results.

Then on the reduction in the distribution expenses, does that reflect the fact that a couple of years ago, that you were warehousing about 60% of the products; and I think it's down to about 20% today?

Absolutely. Our crossdock two years ago, three years ago was at 42%; at the end of this year it was 84. So we have gone from a warehouse to a distribution center.

Not wanting to look at the glass half empty, but would that suggest that future reductions in distribution expenses will be more difficult to achieve, giving your crossdock ratio is already in the mid-80s?

The incremental improvement will be more difficult to obtain as we (technical difficulty) going forward.

Okay, great. Good luck.

John Shanley, Susquehanna Financial Group.

Jeff, I wonder if you could give us an idea of when you sought to anniversary the pullback in the pro license product that you encountered? When will we see Hibbett basically starting to come up against a more normalized market environment for that product category?

John, it really closed down tremendously. We really started hitting (technical difficulty) and we think June of last year was probably the numbers that are more realistic.

So the back we're going to basically be up against the easier comparisons in that category?

Definitely.

Are you seeing any improvement recently, Jeff, in either pro or collegiate? Or is it still as tough as it had been in the fourth quarter?

The comparables are high because you're going against fashion, and it has gone more to a fan base. So it is hard. But we do have items that are selling very well in those categories. It is just the fashion piece was such a huge part two years ago or a year ago, that (technical difficulty) going to get comped. But there are some life.

We happened to be in markets even last year in NFL, there was none of our teams really made it to the playoffs, and there was no Southeast or Midwest teams. The business has really become more fan based not fashion based. Hopefully if we have any luck at all next year, one of our teams will do a little bit better. But we think it's going against (ph) more fan based which should be easier to comp.

That sounds great. Also, Jeff, on the footwear product category, you mentioned you had strong demand for both classic and some of the performance products from Nike and so on. Can you give us an idea of whether or not the product margins for classic is comparable to performance? Or is at a little bit better?

Right now, it is comparable.

Are you looking to increase one versus the other, going into back-to-school and the whole second half of the year?

We see that still the better performance things, such as Nike Shox, those type of things, $100 items, we still see a lot of growth there. Better performance type goods. Not that the classic is going to go away, but we see a lot of it moving more towards higher performance.

Right. But you still feel good about classic in the back half too?

Yes.

On the equipment side of your business, are the margins in equipment -- did they run higher in the fourth quarter in the last fiscal year? I know historically that has been a very profitable product category for you. Was that the case also in the fourth quarter?

Yes, it did. A year ago we were getting out of a lot of the individual sports. So we got cleaned up all that and that was all gone. So yes, it improved quite a bit. The team aspect of the hard goods business, which our concentration is, is much better margins than the individual (technical difficulty) .

Are you likely to increase or pretty much maintain your open buy position for equipment in the current fiscal year from where it had been the last year?

It should maintain. Because we are putting better quality goods, higher price points in; and so far we have been very successful on trading that customer up.

Would some of this equipment sales likely offset whatever margin you may give up on the apparel side of the business?

A little bit. A little bit, but apparel the margins were -- especially on the licensed side -- were extremely large.

Right. Okay. Thank you very much on that, Jeff. Gary, just a quick question on the -- can you give us an update on all the new stores that you have added in the past year and the likelihood of the 70 new stores for this year? Can you give us an update in terms of what percentage of your store count at the end of this year is likely to have direct competition with a Foot Locker or a Finish Line or a big box guy like Sports Authority or Dicks?

I will answer that. We really don't go where the big boxes go in general. Out of our 485 stores or so, probably less than 10% are in a market with one of the big boxes. Typically that is probably getting smaller going forward. Now with Foot Locker, we will have a Foot Locker as a competitor around 35% of the time.

Is that about the same percentage, Mickey, as it has been running?

It's about the same. It could be up slightly because we have done maybe a few more enclosed malls last year, but it is right at 35%. We have competition in the other stores too in footwear, but it's usually a self-service operator.

Right, right. It's not direct competition. In terms of the 70 stores, can you give us a rough idea of how many are going to be adjacent to a Wal-Mart and how many may be in enclosed malls, percentagewise?

This is going to be strictly an estimate. I think probably 30% enclosed malls; and the rest will be in either power centers or in Wal-Mart centers.

Okay, thanks a lot guys.

Sean McGowan, Harris Nesbitt.

Two questions. One, Gary, can you give us an idea of your estimated tax rate for 2005? Second, any even broad parameters for what stock expense could be? Option expense? Are you going to take that this year in any quarter prior to the end? Any general idea what it could be? Thank you.

Our tax rate, we are planning it at 37.5 from 37.25. On the 123R, we are going to adopt that, of course, in third quarter. I would just hesitate to give you any sort of a number at this point in time, because the Board is looking at different alternatives.

All right, thank you.

Sam Poser, Mosaic Research.

Congratulations. Jeff, you mentioned some of the more fashion products, I assume they are selling inside the malls, like Enyce and so on. Can you talk about the growth of that category? Because I assume some of that is going to offset the licensed business and just give us more color there.

It is not just sold in the malls. We have a lot of strip centers and urban centers in small towns next to Wal-Mart that sells a lot of these too. But it is a significant growth part of our apparel, making the difference like you said on some of the pro license piece. It won't take all of the pro license piece fashion shift, but it will take a good portion of it.

Is there any footwear that corresponds with that as well?

Yes.

What would that be?

From time to time we will do different brands. We have done DaDa, Phat Farm, those type of brands. We do do those from time to time depending on the shoe and the timing to hook up with the apparel.

In the stores that are doing well with that more urban piece, going into the back half of this year, are you seeing any nonathletic product or a growth of the nonathletic product in the footwear area that would correspond with that?

Not really. It is still primarily driven by athletic. It is just a very small, small piece.

Okay. Gary, can you discuss your margins? What your targeted gross margins are for the year, next year?

We're planning them to be up, certainly, reflecting probably a higher percentage of footwear business due to the strength in the footwear business.

That would more be geared towards the back half when it balances out?

I don't think I quite understand that question.

Well, the margins on the footwear is less than the margins were on the licensed apparel; so you should benefit from that more in the back half when everything normalizes.

Yes. Yes.

Great, thank you very much.

Ralph Jean, Wachovia Securities.

One of the common themes we have heard from retailers is those markets that were impacted by the hurricanes in August and September have been very strong since the end of the hurricane season. So number one, is that continuing? Then does that become a concern for you guys as you go up against those numbers in Q3 and Q4 this year?

We didn't have that many that were impacted (technical difficulty) as a percent of our stores. I don't it is going to be that big a deal for us. We did get a pop in sales in October and November, mainly, and December from that handful of stores. But it was not very many and I don't think it's going to impact.

Okay, thanks, guys.

(OPERATOR INSTRUCTIONS) Ryan Rehira, (ph) Solyasni (ph) Asset Management.

Congratulations on a great quarter. My only question is just trying to understand, your business picked up fairly notably at the end of December and January; and right now in February you're putting up some extremely strong same store sales against a tough comparison. Would you say that the macroenvironment for that sporting goods consumer has improved notably? Or would you attribute it to something else? Maybe you can just shed some light.

I personally think shopping trends have changed in recent years. That first three weeks of December has just gotten real soft. But that week of Christmas and the week after and January has gotten continuously stronger each year. I think it is a change of shopping patterns.

For Hibbett specifically, I think our merchandise is so much fresher this February versus last February, because we increased our inventory turns, we reduce our aged inventory, and we brought in a lot of fresh inventory in January that we haven't been bringing in till February. I think that caused a pop in sales also.

Now the gift card thing is also an issue. You don't get the sales on the gift cards until they redeem them. That really helps after Christmas.

Thanks very much.

Robby Ohmes, Banc of America Securities.

I was hoping you could remind us; I apologize if you mentioned it already. Can you just walk us through your AUR versus traffic for your comps? And kind of put that into context of what is going on in February. Also can you help us with the AURs by category? So apparel versus footwear versus hard lines. Thanks.

Our average price point has been going up (technical difficulty) traffic, our units are holding about the same. But we are having an average price really in all categories.

In the fourth quarter we got a lot of our comps with average price points going up. We did sell a few more units. But we made a real effort in getting our price points up, added (ph) less low-end product. We stand for quality, upper end product, and we're making an effort to push those price points up.

I will say there has been deflation in the sporting goods industry, and probably a lot of other industries (technical difficulty) 1995, according to our national association. But we were able to reverse that trend last year, and we think we can continue to reverse it this year.

So do the high single digit comps in sort of the first quarter, are they a further acceleration in average price points, would you say? Or has there been a pickup in traffic?

A little bit of pickup in traffic. It is probably half-and-half.

Great, thank you very much.

At this time, we have no further questions. I would like to turn the conference back over to the speakers for any additional or closing remarks.

Okay, thank you, operator. We had a great fourth quarter and an even greater year, and we started strong this year. We have improved in many areas at Hibbett Sporting Goods over the last year. We will be striving, I promise you, to improve in all areas again this year, because we realize if we don't sooner or later the financial results will start down. That is not our goal.

We will continue to major in small underserved markets. We will stay tight geographically. (technical difficulty) our major goals this year is a minimum 15% store growth, 15% sales growth, 20% earnings growth. May I remind you that over a seven-year period we have averaged better than 20% earnings growth.

Appreciate you being on the call today. We look forward to speaking with you on May 20, at 9 AM Central Time with our first-quarter results. Thank you for being on the call.

That does conclude today's presentation. We thank you for your participation and you may disconnect at this time.