Hibbett Inc (HIBB) 2006 Q1 法說會逐字稿

Good day and welcome to this Hibbett Sporting Goods Inc. 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. Good morning everyone, and welcome to the Hibbett Sporting Goods conference call. I'm Mickey Newsome. We also have Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our Vice President of Merchandise, on the call. We appreciate all of you being on the call and for your interest in Hibbett Sporting Goods today. We sincerely appreciate you being on the call and we will do everything we can do please you in the second, third and fourth quarter. 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's 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. Sales increased 19%, comp store sales increased 8.2%, and I will remind you that last year's first-quarter comp store sales was 8.8%. So we were going against a strong first quarter one year ago. Earnings per share increased 39.4%. Net income increased 33.9%. Of course, last year's net income in the first quarter increased 53.4%.

Last year's new stores and this year's new stores continue to exceed our plan. We opened 11 new stores in the first quarter net of closings. Last year we opened five new stores in the first quarter net of closings. We're substantially ahead of last year's pace in new store lease commitments.

We've increased our real estate staff. If you remember, a little over a year ago we added 2 new people, and it typically takes them about 12 months to become a real effective deal maker. They're now helping us, helping us substantially. Our goal this year is 73 new stores net of closings. We will continue our small market focus where we're needed by customers, landlords and vendors.

Now some comments on first-quarter sales. February was very strong. Comps were doubled digits. March and April comps were mid-single-digits with April being slightly stronger than March. The quarter all in all was very consistent (technical difficulty) sales. Second quarter continues to be strong. For the first 19 days we are in the mid-single-digit range. Of course we're positive, which is consistent with our guidance for earnings per share for the second quarter.

Jeff Rosenthal, our VP of Merchandise, will comment on comps related to specific areas of our business. Jeff?

We have three areas of business, apparel, footwear and equipment. When you think equipment we're talking team equipment and -- starting off with apparel, we break apparel into two different areas, licensed apparel and branded apparel. Licensed apparel is college apparel and pro apparel. It continues to be down double digits (technical difficulty) college was down low single and pro was down double (technical difficulty) however, the margins should increase as the inventory will go against those numbers from a year ago.

Branded apparel, up double digits. Women's Nike, Under Armour, Adidas and technical fabrics continue to perform very well in women's branded apparel. Men's apparel, such as Under Armour and Nike, continue to perform well.

Urban apparel -- Enyce, Scar Face T-shirts, Dickies -- continues to push very, very well.

Footwear was up double digits. Men's, women's, kids and cleats were all up. It was led by technical footwear, Nike, Asics, Mizuno and Reebok.

Key styles – Shox, Impacts, New Balance 554's, and a cleat from Nike called Keystone (ph) were our key styles.

Equipment was up high single digits. This consists of baseball, football, basketball soccer and volleyball. Some of the key items have been skateboards during the quarter, baller bands, baseball gloves from Nike and bats from Easton called the Stealth. One of the key items and fitness which also showed positive growth was Ab Loungers.

As we continue throughout the year, we see key trends continuing both in women's and kids continue to be our biggest growth. Inventories turns continue to improve and our inventory is as fresh as ever.

Thank you, Jeff. Gary Smith will now give you some detail on our financials.

For the first quarter, total sales increased 19% to 114.8 million, the second consecutive quarter of plus $100 million in sales, while comp store's grew at 8.2%. And again, each class of Hibbett stores had positive comp store sales.

The Company opened 15 new stores and closed 4, and there are now 493 stores in operation as of quarter end.

Gross profit increased over 100 basis points due to improved product margins in footwear and equipment, due to better sell-throughs and reduced aged inventory. This was offset somewhat by lower year-over-year margins in apparel.

Occupancy and warehouse costs also leveraged positively for the quarter. For the period selling and admin costs decreased 11 basis points. Reduction in rate was due mainly to the favorable leveraging of salaries and benefits. while some store other costs grew faster than anticipated, I would expect those to be back in line next quarter and for the remainder of the year.

Operating income was 14.6% versus 13.1 for the same quarter last year, a 32% increased in dollars. Net income for the quarter was 10.7 million versus last year's 8 million, a 34% increase. And earnings per diluted share came in at $0.46 versus a restated $0.33 in the previous year, a plus 39% increase.

From a balance sheet perspective the Company ended the quarter with 61 million in cash versus 44 million last year. I will remind you that we have spent approximately 19.5 million on the stock buyback. Average inventories per store were down approximately 2%, and the Company repurchased 16,000 shares during the quarter, and since the Board authorized the buyback over 861,000 shares have been repurchased.

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

(OPERATOR INSTRUCTIONS) Ralph Jean, Wachovia Securities.

Mickey, I was just wondering what the outlook is for fall merchandise, what you might have that's new and fresh. Footwear has been strong now for more than a year. Do you feel that can continue for a while based on the product flow you're seeing?

I will let Jeff answer that question too, but I think footwear will certainly remain strong for another year. It really looks good for the fall. Our allocations look good and technical footwear is selling. The higher priced footwear is selling, which is really good.

I might add on our comp store sales increased, about half of it came from increased price points, and about half came from more items. So we feel really good about the middle to upper price points of all our products. We think it will be good in the fall.

You want to add something to that?

Yes, we see a very positive trend. We feel very good about merchandise and the colors that are coming out in the fall, and we still see it as pretty positive.

One thing I would like to add, footwear has been the driver for about a year, and apparel has been pretty tough. But we think apparel will get turned around. If we can ever start clicking on all three cylinders at one time -- footwear, apparel and equipment -- we could really be going strong.

Well, Mickey, if this isn't strong performance then I'd like to see you hit on all three and see what it looks like.

One other thing, NBA exposures, an article in The Journal today about how it's down pretty significantly. Your total licensed pro I think is about 8% of your total mix, but what's the NBA exposure?

We really don't give out exact percentage, but we have in our plans to be significantly down already. And we feel like we will comp with it being significantly down.

Remember, last June is when we hit the wall related to pro licensed products. The year before we had that LeBron James jersey and Camilla Anthony (ph) and a bunch of other stuff. And so we should start going against much softer numbers in NBA in June this year.

We've accounted for, as we did in the first quarter and the second quarter and the third quarter going forward, that we account for it to be significantly off.

Last question and I will let you go. You guys have a lot of cash. With your stock up to about $35 today it doesn't look like necessarily it would continue with this share repurchase. So it looks like the cash balance is going to build. What are some of the top one, two or three uses of that cash you see going forward?

Certainly, Ralph, that's going to be topic of conversation at the Board meeting on 5/31. So we realize that it's growing at an incremental rate, and we will be talking about the different ways to put that cash into use and increase shareholder value.

Okay, thanks guys.

Rick Nelson, Stephens.

Congratulations guys. A question, a follow-up, I guess, to Ralph's about the cash. If you do achieve your earnings targets and the store opening pace as you currently lay them out, what sort of cash position do you see at the end of the year?

Certainly we could be in the $90 million plus range.

And in terms of leases, where do you stand today in terms of commitments compared to the prior year?

We're substantially ahead on commitments. We're probably 12 to 14 stores ahead of last year's pace easily. Probably more than that. But we're substantially ahead of last year's pace. We have six deal makers now, and of course last year at this time we had four. But two of them were -- one of those was very inexperienced. Now we've got six that have gained some experience. We're going to add another one the first of the month, the 1st of June, but he will be inexperienced. It'll take him a year to get up to speed. Then we will add another one before September 1st. So our goal is to have eight deal makers this time next year, six of which will have some experience; two will still be relatively new, but they will start to do deals and make things happen.

What sort of potential would that group have in terms of store openings for next year as they mature?

It takes them about a year to figure it out really, because it's a whole different game, a whole different way of life. Our goal is 15% store growth. We think we will be ready to hit that.

In terms of compares, you mentioned things get much easier. You did a 2.5% comp in 2Q a year ago. How did that progress as the quarter progressed? You're facing tougher compares now, is that right? And in June things --

In fact, on our conference call last year in the second -- about this time of year, we were up. If my memory serves me right, we were probably up mid-single-digits. It had gotten really tough. It may have been higher. And it was higher. Jeff is shaking his head. It got tough in June. We started going against those really strong pro numbers of the year before. Our apparel has got a chance to be positive in the second quarter. We thought it would be the third quarter before it turned positive, but there's a good chance in the second quarter now.

How about pro licensed, what are the expectations there? Would that still remain negative?

Yes, we're planning on negative. The college piece we hope to get back to flat. But the pro piece we still see it as being a negative, but not as much as it's been as the first quarter.

Let me add that activewear piece is really good. And the urban piece has been good.

And the activewear piece is the bigger percentage than the licensed part.

Sounds like a winner, and you sound like you're doing quite well. Thank you.

Robbie Ohmes, Banc of America Securities.

Great quarter guys. The question I had is you had a terrific gross margin in this quarter, and as we look into the second quarter can you just help us understand how we should think about it in terms of, you're against that depressed gross margin last year from the clearance or licensed apparel? Can you rebound back to sort of the levels that you were at, or maybe even higher than the levels you were at, two years ago in the second quarter? And also, you're talking about apparel being positive. So is it also a big comp opportunity once we get beyond June where your comps could reaccelerate from the mid singles you're doing now because your apparel kicks back in?

We believe our margins will improve a lot of ways, and we do believe that the apparel margins will come back this quarter quite a bit.

We also think certainly on the second quarter nobody likes to see that come around here, because it's probably the quarter that we're most at risk since it's a clearance quarter and our aged inventory is down significantly. And it's a promotional quarter, and we just don't advertise or promote our products. So a lot of it depends on back-to-school, and a lot of it depends on tax-free holidays that we comp in the calendar, which was against us last year. But I would think we would tend to normalize those margins from a couple of years ago and get back more on a straight line growth in margins that we've seen historically.

We should get some help on average price point because our inventory is very clean, very fresh. We should get some help on the average price point.

So is there any reason why your merchandise margins wouldn't rebound all the way back to or even be higher than what you were achieving in fiscal '04 when you didn't have the licensed apparel blowup?

Those may have been extraordinarily high. I wouldn't go out on a limb and say we would be at that level or above.

Really basically the licensed piece is the piece that won't be driving it, and the margins were significantly higher back then in the licensed area, and it's not a growth area for us. So it's part of it also. The activewear margins aren't as good as the licensed were two years ago.

So a rebound, but not necessarily back to that peak when licensed was on fire?

Right.

Terrific, really helpful guys. Thank you.

Dan Wewer, CIBC Investment Bank.

I was curious, demand for brown shoes, and we're hearing from other sources it may be picking up a bit, and if that would be any kind of threat to your athletic footwear sales.

Traditionally we haven't been a big brown shoe company. We have pretty much stayed athletic.

Right. No, I was thinking that in general would that reflect many an overall shift in industry demand?

We haven't seen it. There's so many new and innovative products that we feel like the athletic business is going to stay hot for a while. So we don't see it taking away too much. We do a pretty good brown shoe business with Timberland in the fall and some other brands. But we really see that the athletic has so many new and fresh technology coming out that we see it continuing to be pretty strong. We don't see it taking away.

On the athletic on the athletic apparel segment, Under Armour has been introducing a lot more color, a lot more fashion in their assortment. But I was thinking (indiscernible) also be higher clearance markdown exposure in the future, if you see that as a risk or not.

Anything you buy is always some type of risk. They're getting a little bit more, but they still tie all their fabrics back to technical and for a purpose. There are a little bit more color. There is some risk there right now. We haven't experienced any markdowns from Under Armour, so it's been pretty good.

Gary, I had a question for you on the operating expenses. Given the strength in your comps sales growth we were looking for a little bit more leverage. You had cited other store expenses, but that would not be initially going forward. Just kind of curious what were those (multiple speakers) examples of those others expenses?

We had some maintenance issues, some insurance and some supply issues that we cleaned up in the first quarter. I don't see it going forward affecting us.

So let's say if you were to make your 5% comp plan in 2Q, you would expect to leveraged SG&A similar to what you had in the first quarter?

I would expect it to be a little better, Dan.

(indiscernible) even better than what you had in the first quarter, even if the comps sales growth was a bit less?

Yes.

And then just finally, I was just kind of curious. Going back to that NBA issue, I guess there is also speculation these guys are going to do a lockout. And if that were to happen would it impact the forecast you have on the pro licensees?

It would impact it just a little, but we've already cycled all the real downtime. So we more than can make that up in other apparel. It really shouldn't affect us very much at all.

It sounds like that's just a real small part of your business now. Is that--?

It really has become essentially NBA. We're not in any major cities really, so it's really not as a big piece as it was.

Right, Atlanta doesn't have a pro basketball team. Last question I had was on the college license segment. Historically that's been fairly stable. What do you think has accounted for the shortfall there?

Well, my personal feeling is it is just over-distributed; a lot of licensees out there. You can find product in a lot of places even though we buy from vendors that don't sell a lot of other places. It's just oversupplied. There is some growth in some other areas of it like kid's and women's, but overall it's just overdistributed.

Great. Thanks and good luck.

Sean McGowen, Harris Nesbitt.

I have two questions. One, on capacity in your DC, if you are adding all the deal makers and forecasting 15% sales growth, is there any change in your forecast versus a need for additional distribution --?

Not really. We think we can go from 850 to 1000 stores from this DC, and we just keep getting better. The guys in the warehouse just keep moving it through faster.

Okay. Second, are there any factors affecting either gross margin or operating margin in this quarter which you might say are unsustainably positive or positive in an unsustainable way?

No.

That's good. Thank you.

David Magee, SunTrust Robinson Humphrey.

Good morning. Good quarter. A couple of questions. First, with regard to the gross margin improvement that you're seeing over time, we hear a lot about fresher inventory and supply chain efficiencies. How important is buying leverage to the improvement? And is that a source, a meaningful source, going forward?

Yes it is. That is a big part. As we (technical difficulty) we've seen significant increase in discounts, our initial margin in areas, and that's definitely helped us. It's also made us more efficient by getting more containers and saving money that way, and also getting more things that come in store ready, and also has helped and saved on labor and (indiscernible) in the stores. So we're looking at all those things, and as we grow we get more and more -- I call them add-on services.

But as far as just the discount itself do you see more opportunity there over the next year or so?

Absolutely.

Secondly, what was your experience with freight costs in the first quarter year-over-year.

It was interesting. Last year our freight costs were less dollars than they were from the year before. Containers, backhauls, more truckloads -- our freight cost leveraged positively in the first quarter.

And then lastly, it seems like in the last couple of years you all have gotten maybe better co-op money for the modest amount of advertising that you do. DO you see that as opportunity as well to take down the net advertising costs?

Probably, but it wouldn't be a big number.

Thanks.

John Shanley, Susquehanna Financial.

Jeff or Mickey, on the merchandise sector, was there any major shift in the first quarter due to the strength that you had in performance footwear and team in terms of the percentage business that you're doing in footwear and hardlines versus maybe a pull back or a little bit in the apparel category?

We've seen a little bit of a trend and our footwear has picked up a little bit as a percent, and we see that continuing for a while. And we see that is where some significant growth. And hardgoods and apparel, apparel lost a little bit just because of the license piece. That last quarter was the toughest quarter we were in.

Jeff, what are the product margin level comparisons between footwear and apparel? Is there much of the difference as you lose some of the apparel business and pick up the footwear? Are you getting better product margin levels on an average basis?

We're getting better margin on an average basis. As the shoes have gotten better and the sellthrough have gotten better, our margins increased in footwear. So that's helped offset some of the license margins that we had.

Are you likely to expand your open to buy position in footwear as a result of that from the back half of the year?

Yes we will.

What were the average ticket prices on footwear in the first quarter versus the first quarter of '04?

We don't have that number. We could get back to you on it, but the average cost of footwear was up pretty good.

But it was up based on, I guess, the performance end of the business?

Yes.

Super. Mickey, are you looking at any new markets or any new states that you may go into with the 73 store expansion program we're going to roll out this year?

Not really. We think there's at least 400 additional markets we could put stores in in the 22 state area that we work and. And staying tight geographically is just so important in a lot of ways; just a lot of reasons to stay tight geographically. (multiple speakers) to spread out this year or next year. Now somewhere down the road we will probably have to add a state or two, but we would most likely stay in the Sunbelt.

And based on how well the Company is doing I'm sure the landlords are lining up. If you get some really great deals offered to you at ICSC convention is their likelihood that you could expand your new store opening beyond the 73 and maybe use up some of that $60 million in cash you guys are sitting on?

I don't think we'll probably -- if we went beyond the 73, it wouldn't be but 1 or 2 stores. The landlords certainly are seeking us out. But remember now, we have to have really good deals. We don't take many chances with real estate. And we have to have Hibbett type rents and Hibbett type occupancies, and we really work hard on that one. But we might go a little above 73, but I wouldn't think it would be much.

You're still getting the same kind of lower occupancy deals in terms of what's being offered to you now?

Pretty much, yes. We're hanging in there on occupancy costs. It's pretty consistent.

That's super. Thank you very much.

Anthony Lebiedzinski, Sidoti Brokerage Firm.

A couple of questions. I unfortunately joined the call late, so you may have answer these questions already. In terms of the comp sales growth in the quarter, what was the breakdown between traffic versus ticket?

About half and half.

About half and half? Okay.

(multiple speakers) to get the average ticket up.

Now in terms of the brands, what brands are you seeing the most success with with footwear and also activewear (indiscernible) brands? Maybe you could just talk a little bit about that.

We're seeing the most success with Nike, Asics, Under Armour, K-Swiss.

And the urban brands?

The urban brands we're doing well with Enyce, Dickies, those type items.

And in terms of the operating margin expansion, certainly it was a very good performance on your part. Just wondering how sustainable is this kind of improvement that you saw here in the first quarter?

We think that there for the other three quarters that we should have expanded operating margins two, three and fourth quarters.

And as far as how much of operating margin expansion, do you think it's going to be quite as high as this or to a lesser degree?

I would think to a lesser degree. I don't think this was a flukey quarter. We've been working hard for a couple of years to get things lined up, and I think we deserve some of the success that's come our way with this. So I would -- last year we were in 10.5 range. Certainly I would think 11.5 plus for the year ought to work.

Okay, very good. Thanks.

Sam Poser, Mosaic Research.

Good morning. Congratulations. I just want to follow up. Besides the margin, I guess you gotten improved in initial markups based on your growth. How about on dating? I noticed on dating you're probably getting some improvements there. Do you expect that to continue as well?

We would think that we were over I think 40% plus on ending (ph) inventory, which is probably a little bit higher than I expected it to be. But it would probably come down to the 35 to 40 range going forward.

You mentioned -- can you talk about the classic business in general? You mentioned K-Swiss, but can talk about how you're seeing that play out in both of your formats?

K-Swiss business has been pretty strong. We've seen some slowdown in some shoes, but some shoes continue to be strong 574's, even some classic Reebok still continue to be fine in certain markets. So it's not as fast as the higher price points are taking some of that business, but it's still running pretty good.

Are you finding that you're performing better in the urban markets with the classics than in your strip center stores?

Yes.

What was your CapEx for the quarter?

I think it was in the 3 million range.

Great. Thank you. Congratulations again.

(OPERATOR INSTRUCTIONS) John Lawrence, Morgan Keegan.

This is actually Adam for John. I guess most of our questions have been answered. Considering how well everything is going, is there anything that keeps you up at night?

The big challenge is always hiring and training new store managers. Successful new stores are usually successful because you've got good, well-trained managers. That is always a challenge. As we speak we're having a Hibbert University in this building. We have a group of 20 new managers, or soon-to-be managers, that's been here since Sunday. And we will continue to do this monthly. We spend a lot of time and money and effort in training. It's critically important, and we think that's the key to our future, is our training program to continue to develop managers who are ready to run successful stores.

About how many people do you have in the program right now?

Well, it's an ongoing deal. We (multiple speakers) 20 people a month.

Oh really?

Yes.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Ralph Jean.

Just a quick follow-up. We had a lot of discussion today about apparel and the margins. I know you've been a full-service, full-priced brands house forever. Any thought about getting deeper into private-label, particularly in the apparel category?

No, we're about brands and (indiscernible) because our stores are so small increasing per hanger the price points. And we're just contrary to what everybody else does on that.

We're real protective of our partnerships with our vendors. We think brand names are really important in these small markets. Our private-label is almost nonexistent, and we intend to keep it that way.

Thanks guys.

Mr. Newsome, there appears to be no further questions. At this time I would like to turn the call back over to you, sir.

Thank you. We had another outstanding first quarter at Hibbett and our second quarter has started out on plan. Last year and this year's new stores are performing above plan. We will continue the major in smaller under-served markets and continue to stay tight geographically.

On our fourth-quarter conference call we shared some of our fiscal 2006 major goals, but I would like to go over just three of them. Number one, we said we would grow our store base by 15%, and we think we're on plan to do that. Number two, we said we would grow our topline sales a minimum of 15%, and we're certainly above plan with 19% in the first quarter. Number three, we said our goal for income growth was 20% plus. Of course we're above plan with 33.9. We think we're off to a great year.

We will open our 500th store in the second quarter in Philadephia (ph), Mississippi. It's it took us 40 years to grow from 1 to 500 stores. Our plan is to grow from 500 to 1000 stores in 6 years.

We thank you for being on the call today. Please join us again on August 19th at 9 o'clock Central Time for our second-quarter results. Thanks for being on the call.

This does conclude today's conference call. At this time you may disconnect.