Hibbett Inc (HIBB) 2007 Q2 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 and Chief Executive Officer, Mr. Mickey Newsome. Please go ahead, sir.

Thank you and good morning everyone. This is Mickey Newsome. I have with me Brian Priddy, our President; Gary Smith, our Chief Financial Officer and Jeff Rosenthal, our VP of Merchandise. They will all be available for questions when we get to that point. We appreciate all of you participating on our call today and we appreciate your interest in Hibbett Sporting Goods. 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 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 earnings per share were $0.12. Total sales increased 11%. Comp store sales increased 0.6 of 1%. We opened 15 new stores and closed three. We expect to open approximately 82 to 88 new store this year and close approximately 10 to 12. We did open one store in southern Arizona and expect to open four to five additional stores in Arizona in the coming months.

Now for some comments on the second quarter sales. May was by far the weakest month. June turned positive, low-single digits. July was positive, even with the shift of sales in the all-important last week of July and through the third quarter or the first week of August because of tax-free holiday [shifts]. We did gain momentum throughout the quarter and it certainly continued in the third quarter through the first 18 days. In fact, the first 18 days in the third quarter were positive approximately 12%.

Now how strong was the tax-free shift? I'm going to give you some examples. Alabama and Tennessee introduced tax-free holidays for the first time and it was the first weekend of August. People who might have bought in late July waited until the first week of August to buy. Here's a specific example. The state of Alabama, we have 67 stores. The last week of July, we were negative 10%. The first week of August, we were positive almost 18%, a dramatic shift. The state of Tennessee, where have 44 stores, the last week of July, we were negative 27%. First week of August, we were positive almost 28%.

Now Georgia was a little bit different. We have 65 stores there. They have had tax-frees in the past, but they have been always in the last week of July. This year, it was fixed to the first week of August and we had the same dramatic shift of sales in Georgia. Now two things contributed to our sales, our comp store sales weakness in the second quarter. Tax-frees was by far the number one, (indiscernible). But number two, we feel that people are absolutely waiting longer to buy, buying closer to the actual need, and that shifted some sales into August. And also, we had some school districts push back their starting date on back to school.

Now the first 18 days of August were up approximately 12%, but remember Hurricane Katrina last year had a very positive effect on our comps and we had 62 stores that we felt like Katrina affected last year. Here is a specific example. From August 25 through September 10 last year, we had a negative effect because of Hurricane Katrina. We were down 21% in those 62 stores. But when they all got back open, starting 9/11 through 10/29, which was the end of the quarter, that same 62 stores was up 63%. We had 8% comps last year in the third quarter. We think probably 2 to 2.5 of it was because of Hurricane Katrina. So we're our comps in the 2 to 3 range; we hope we're conservative.

Okay, strip centers in the second quarter again outperformed enclosed malls. They were up approximately 2% and closed malls were approximately down 1%. Most of our future stores, new stores, will be in strip centers. Now for more specific comments on sales as it relates to merchandise categories, Jeff Rosenthal will comment.

We have three major areas of business -- apparel, footwear and hard goods. Apparel business is divided into two business -- active and licensed. Branded was up low-single digits, led by Nike and Under Armor and [Enyce]. Youth and men's active wear were our largest gainers. Licensed apparel is broken up into college and pro; they were down mid-single digits with much better than the first quarter trend of being down double-digits. NFL was very good, led by Reggie Bush, Vince Young and Terrell Owens leading the way in jerseys. Footwear was up low-single digits. Youth footwear and cleated footwear were our largest gains. Under Armor had a very good launch in football product, as well as Nike cleats. Nike, Asics, [Props], Etnies, and DC shoes and Heelies led the way for footwear. Also, Marquis footwear continues to do well.

Equipment was up single digits. Football and soccer led the way, being up double-digits. Football was led by [Shock Doctors], Eye Shields Oakley and Under Armor and Nike mouthpieces.

Looking forward to third quarter trends, all three merchandise areas are up double-digits. Licensed business is up single digits, which we have not been able to say in a long time. Technical apparel continues to show strength both from Nike and Under Armor. Footwear is up double-digits. Men's, ladies, kid's and cleats are up. Some of the highlights for footwear are technical running shoes, New Balance Zips, Asics [Kianos], Nike Air product and Shox. Jordan Air Force was -- also continued to do well. Also for the second quarter, getting into the football season, we are up double-digits, and also soccer. Our [Ace] is inventory is the best shape is has ever been in and we're looking forward to opportunity buys.

Thank you, Jeff. Gary Smith will now comment.

For the second quarter, total sales improved 11% to 104.4 million, while comp store sales improved 0.6%. The Company opened 15 new stores and closed three. There are now 572 new stores in operation as of quarter end.

Gross profit rate decreased slightly for the quarter. Product margin rate improved due to lower markdowns. However, the deleveraging of occupancy in warehouse costs more than offset this gain. For the period, selling and admin costs increased. Half the rate gain was due to the 123 (R) effect while the remainder was due to the shortfall in sales and timing related to some JDA implementation expenses. EPS came in at 12 versus last year’s 14 and the Company's income tax rate increased year-over-year due to the permanent differences created by our incentive stock options.

For the year, the Company opened 29 stores and closed six. Gross profit increased due to lower markdowns and improved inbound freight. For the period, selling and admin costs increased 104 basis points. Stock option expense accounted for the majority of the increase while the flattish comps contributed to the rest of the deleveraging. Operating margins on a 123 (R) basis are running slightly behind last year.

Earnings for the six-month period came in at a diluted share of $0.47 versus the prior year pro forma $0.43. From a balance sheet perspective, the Company ended the quarter with over 5 million in cash versus 40 million last year. We spent approximately $8 million on the stock buyback for the quarter and 87.6 million since inceptions, having bought back approximately 4 million shares. As of yesterday, the Board authorized an additional 50 million on the share repurchase program and we now have over $62 million open to buy. Inventories increased 15% over the previous year which is somewhat over the sales and store growth, but as Jeff mentioned, our aged inventory continues to improve.

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

(OPERATOR INSTRUCTIONS). Rick Nelson, Stephens.

Thank you and good morning. Can you talk about the store opening/closing plan? I know with the first quarter, you had talked about 80 to 85 net new stores; now it looks like 70 to 78 with a pickup probably on the closing side. But what is going on there I guess, particularly with the closings?

A couple of things, Rick. We have lost several stores to next year because the landlord is not going to have it ready in time. We lost three or four that way. We lost a couple because the landlord just decided not to do the deal. When you're operating in small markets, sometimes you're also dealing with a very small-time landlord, maybe a local guy, and you cannot always depend on it happening. So what we have to do is get more new stores out there where we can afford to take the hit of losing a few. Now we did -- we are closing a few more than expected, but we're just simply getting rate of the underperformers that are dragging us down and we have the opportunity to get out and we're going to get out of it.

Okay, thank you for that. The comparisons I know get tougher as the quarter progresses. You did an [8.4] comp last year. Can you give us some feel for how the comp tracked a year ago during the third quarter and what -- that 12, what would that be bumping up against and later in the quarter, what do you have to bump up against?

The first 25 days of August, you all remember what it was?

It was mid- to high-single digits.

Mid- to high-singles, and then we went negative from 825 to 910, and then it was up dramatically. I may could give you that specifically. Rick, I'm going to give it to you pretty specifically. Through the 24th last year, 7/31 through 8/24, we were up around 8% approximately. And then, the hurricanes started hitting, and then we went flat. Actually, we were down 1, or from August 25 through the 10th of September. But after that, it really started -- it went back up to 12%. So that's kind of how it fell out.

So, you're bumping up against an 8?

Yes.

And then, I'm wondering how much sales in terms of dollar volume you think you've shifted from 2Q to the third quarter related to the tax freight.

It's anywhere between 1 to 1.5 million.

What sort of flow through, Gary, do you think on those sales you lost, pretax?

Going in July?

Yes.

On an EPS basis, we came in a 12.3. It was up to $0.01, $0.01 to $0.02.

Okay, thank you.

Ralph Jean, Wachovia Securities.

Great, thank you. In the footwear category, I was wondering if there was any new Marquis product that might be emerging as you come into this -- or as you're into this back to school season?

There was one that we just launched last week, it was called the New Balance Zip, and it was a $85 shoe from New Balance and it was a launch date of 8/8, and it was one of our best launches we've had for the year.

How about some of the Nike product, the 90 and the 180?

They have done well and that continues throughout the rest of the quarter, there's new styles coming in. And also, we also have been very successful with launching our skateboard brands, like DC and Etnies shoes.

Also, toward the end of the third quarter, and even now, but toward the end of the third quarter, the Heelies are going to be more important because we'll have a lot more in in a lot more stores, so that should help us from October through the fourth quarter.

Okay and then on Under Armor, one of the things I noticed when I go through stores is the SKUs proliferations, not just cleats, chin straps, mouth guards, practice pants, backpacks and other -- apparel is this brand gaining momentum? Is the momentum accelerating for Under Armor?

I believe it is. The more things that they go into hard goods, like a mouthpiece or an eye shield, it seems like it's gaining momentum quite a bit.

My last question is just on new store openings. It looks like to meet your full year guidance, you need to open somewhere around 30 in the fourth quarter. Are you comfortable with that level of openings in that busy quarter?

We're pretty comfortable with that. We think we'll certainly be in that range.

Thanks, guys.

Dan Wewer, Raymond James.

Mickey and Jeff, at the first quarter conference call, you had made some cautious comments about the women's athletic footwear. I'm thinking it may be suffering from a change in fashion to open-toe shoes and things like Crocs, and Dick's this week talked about weakness in athletic footwear category. Yet, you sound a little bit more upbeat this morning than you did, say, three months ago. I was curious as to what's changing there?

The women's business is pretty tough from an athletic standpoint. We are seeing Crocs, flip-flops, we are seeing some traction there. We are seeing that there still is a basic customer that -- a more technical running customer in women's staying here, which is more of a broad base. But we have seen some fashion shift away from women's particularly, but there are some other categories that we've seen in footwear that are performing very well that -- like skateboard shoes or Heelies or some of the skateboarder or some of the more technical running brands.

The underperformance in the mall stores, is that entirely due to Foot Locker having a better assortment than a year ago, or is there some other issues impact those locations.

Foot Locker certainly probably has something to do with it. I'm sure their presentation of Nike is far superior this year versus this time last year. But you can also think -- enclosed malls have to draw from a wider area, wider radius. The price of gas could be affecting them a little bit. I don't know that to be a fact, but if you're in a strip center more convenient to the consumer, the consumer might come to that strip center rather than drive those extra miles to that enclosed mall. We think that might be a little bit of a factor.

I guess the last question I had was on the move to Arizona. I'm curious as to why we're doing that now, rather than trying to fill out the Texas market, which I hear is also a great start. And then logistically, you have a huge (indiscernible) from Birmingham to these stores in Arizona, so why not wait until you get your second distribution center open so those stores can be more profitable?

You're certainly not wrong on that, but there's many, many opportunities in Texas in small towns, but it does not mean that real estate is always available when you want it to be available, you to wait on it sometimes. So we're doing some stores in New Mexico and it just looked like -- Arizona looked really good in the southern part down there. There's the type markets we understand, the type demographics we understand and we think we can be very successful. And we think we can have a lot more than one in southern Arizona pretty quick, really. We have to be there anyway and we need new stores and Arizona, we want to stay in the Sunbelt.

So [does this apply] that the second distribution center that you've hinted about might open sooner than later?

Probably not. We're probably going to open a new -- second distribution center year after next, which would be probably a full year before we actually need it.

Great, thanks, good luck.

Nancy Hoch, JP Morgan.

Great. Thanks. Just a follow-up on some of the new brands you brought into the stores with DC Shoe and Etnies. How broad is the penetration now? How many stores [is] those products in, and do you see rolling them up in the entire chain in the near term?

We will continue to expand it. It's approximately 150 to 200 stores. And as we go throughout the year, we will be expanding it. We have very few items that we put in all stores and we try to read the customer and what markets to put it. But as we speak, on Heelies, for example, that will go dramatically more doors as we get into the fall season.

Great. Have you been testing those lines across a variety of your store base? Is it mostly urban fringe, or are they performing well in small markets as well?

They're doing well in both.

Across the board?

Yes.

Okay, great. And can you give us an update around the timing are the JDA system rollout?

It will be the latter end of the third quarter, Nancy.

Okay. And again, as you've mentioned before really, any disruption expected around that, or just everything is in place now and just waiting to flip a switch?

We're planning for a smooth transition.

One last question. It looks like you've made some pretty dramatic changes to your web site with (indiscernible) more of an image focus than in the past. Can you talk about that a little bit?

We continue to get our web site up to date and more user-friendly, and we plan to use it more as a marketing tool and just for information going forward. We've seen just in the short time without putting a lot of things out there, the number of hits have gone up dramatically in just the first week or so of our new web site.

We appreciate you noticing, Nancy.

Thanks a lot.

David Magee, Suntrust Robinson Humphrey.

Good morning. Just a couple of questions. One, I'm a little intrigued by the equipment strength you're seeing now. Can you give a little more color on that and how much legs might that have?

The team equipment, David, has been very strong. Soccer has been good and we'll give some of the credit maybe to the World Cup, but we've been up high-double digits for probably four or five months now and we're getting right into the fall soccer season, which is a good sign. And football has started off double digits also, which is a good sign, because we sell that throughout the fall and we had a very good baseball spring, and even that has continued into fall which, it just seems like people and parents are spending money on better technical products and better goods, especially when it comes to team equipment.

Is the price point is what's driving that right now, or is the transactions actually also?

A little bit of both, David.

It's not that you're gaining share from somebody out there in those categories.

Probably a little bit.

Second question. Do you recall how much of an impact that the fourth quarter had last year from Katrina? Did that flow into the fourth order as well?

Sure, some of it did. It was not nearly as dramatic as it was in the quarter, but we did get some positive comps in the fourth quarter because of Katrina.

Lastly, you mentioned open to buy over the balance of the year, and I'm guessing Heelies would be a part of that perhaps. Anything else that you want to call out that you'd be focused on with open to buy?

Heelies, skateboard shoes, Under Armor fleece -- those would be probably some of the key items.

High-end bats?

That would be more -- later.

Thanks a lot.

Chris Svezia, Susquehanna Financial.

Good morning, gentlemen, and congratulations on a good quarter. Just a handful of questions here, I guess Jeff for you first. Just on the -- obviously, the licensed apparel kind of stands out a little bit. Is that just cycling through kind of almost two years worth of just negative comps in that business, or are you actually starting to see some type of trend materialize in some of those areas in which your stores are located?

I think a lot of it's just the numbers that have come down so much, I think we have recycled through and I think there's not as many players in licensed like there was, especially in some of the mall doors. A lot of people aren't playing in it. So we are starting to see some momentum back. I think it's still more fan-based than fashion-based.

Okay, but you're not expecting any major changes in your mix as you look at the back end of this year into spring or (indiscernible) for next year in terms of that product category at this point?

No, but we expect it to be positive.

Okay, that's good to hear. Just going to footwear real quick, you guys are one of the kind of the key -- someone brought this up on the call -- but one of the key standout retailers reporting pretty solid numbers in the high-end athletic footwear market. And I was just curious if you could just talk about maybe anything in particular that you think is driving it versus what you're hearing out of Foot Locker or what you're hearing out of Dick's or what you're hearing from most of the other retailers out there are talking about the athletic footwear business. Anything you guys may be doing differently, or is it just the customer is not much different than a mall-based retailer like a Foot Locker is at this point?

I think the people are still, they still want the key shoes and I think it really depends on the marketplace. But from a Shox to Air Force 1 or Jordans, we're still seeing people that that's a desirable product.

The performance -- the shoes that are sold for performance, the high-end is still good.

Okay. And then are you actually seeing increased allocation of that product, particularly from Nike year-over-year, particularly for the Jordan, for the Air Force 1 product at your stores?

Yes.

Lastly, just on new store productivity in the new markets that you have gone into recently within the past call it maybe 12 months or so, whether it's West Virginia or Nebraska or New Mexico, et cetera, can you just talk about your thoughts, trends that you're seeing there relative to the base?

On average, they're performing slightly above the pro forma and we are pleased with our new stores that we have opened in the last 12 months. Hopefully we don't have any that will be closing in the future, but you never know, but they are performing well.

Mickey, as you look to next year, I know you haven't talked too much about expansion for next year, but assuming relatively comparable rate that you're doing this year, how much roughly is that going to be in existing markets versus new markets that you'll be going to, whether it's New Mexico, West Virginia or even Arizona at this point?

Well, I think it's all going to be within our 23-state area that we operate in. There's going to be a lot in Texas, there's going to be some more in Georgia, some more in Oklahoma, several in Mississippi and in Louisiana. We think Louisiana should be real good. But we're going to stay in the existing states. We know there's at least 400 more markets that we could put stores in. We have to wait for real estate in some cases, but the markets are there to be done.

And are you seeing enough deals coming in from the next year to do roughly 80 stores or so for next year?

We think we can do a lot more than 80 next year. It's almost like -- you don't ever have enough deals. We would love to have 150 deals and choose 90 to 95 of them, but we're always -- we have to hunt for these deals sometime. It's not like sitting down with a major landlord and doing 10 deals in one day. When you go to Yazoo City, Mississippi, you have to go down there and find out who bought the land across the street from the Wal-Mart and who's going to develop it. It may be a local guy, so you have to seek these people out and dig for them. They don't necessarily just come to you.

Best of luck to you. Thank you very much.

Sujata Shekar, CIBC World Markets.

Thank you. I had a question on athletic footwear. Was there a difference in sell-through in urban locations versus I guess non-urban stores?

Yes. The non-urban stores outperformed the urban stores slightly in athletic footwear.

Mr. Newsome, a question for you on your Europe trip. Did you notice any interest trends there, not just for soccer, but just athletic footwear in general?

Of course, I did go to Berlin to the finals of the World Cup. It was an exciting event, one of the greatest events I've been to. But the one thing I noticed in Berlin that -- Adidas is very dominant, I mean it's unbelievably. And you just don't see much else other than Adidas. But it's really interesting, in all of the stores over there, in the U.S. retailers, everything is in English; nothing is in German. So I guess English is the universal language. I was surprised at that, but I didn't see any particular trends. I saw a lot of low-profile, I mean a ton of low-profile. It was mostly Adidas and Puma, but Adidas is very dominant in Berlin. I can assure you of that.

Okay, thank you. That's all I had. Thank you very much.

Anthony Lebiedzinski, Sidoti & Co.

Good morning, got a couple of questions. I was wondering if you could comment as far as what your current comp sales trends are in states where there was no impact from the sales tax holiday?

We have not run that report specifically, but it's positive, it's very positive. I don't know exactly what it would be. I would guess at least mid-single digits, if not lower.

Okay, that's helpful. I think, Gary, you mentioned that the product margin was up in the quarter. I was wondering if you could just comment a little bit more as far as how much was it up?

About 40 bips.

Okay. And do you still see further expansion opportunities in the product margin?

We certainly do, however, on the gross profit line, the flattish comps have -- the occupancy and the warehouse is in there and that just deleveraged. We need probably three-plus to make that work.

Got it, okay. Also, did you comment as far as what the stock options expense was in the quarter on a per-share basis, maybe I missed that?

Pretax, it's 730,000.

Got it, okay. Last question -- as far as Arizona, how many stores do you see potentially opening there?

In the next 12 months, I would see five.

And within the next five or so years?

I think it probably could be 20, 25.

That's helpful. Thank you.

Jonathan Cramer, Cowen.

Good morning. Two quick questions. First, if you could give a little more color on the inventory buildup. And second, is there any promotions in the third quarter?

On the inventory buildup, Jonathan, most of that was due to the shift in business in August, and we think that the inventory is probably just a shade bit higher than we would have liked it, but it is cleaner than it has ever been. So we don't see any inventory problems moving forward. Do you want to talk about the promotion? Promotionally going into the third quarter, we don't see anything additional from last year.

Jim Chartier, Monness Crespi.

A few questions for you. Looking at the acceleration of comps from 11% through the first 10 days to 12% through the first 18, it looks like comps in the last eight days were up at least 12% or more. Could you quantify maybe what the impact of the New Balance launch was, and maybe also the shift in the school district, school openings?

That would be very hard quantify. One thing that did surprised us -- we expected to be up the first week of August because of the tax freeze that first weekend. We thought after that, we would start back down. But the Sunday, Monday, Tuesday on and so forth after that, we remained strong, like we felt like everybody was spending their money on those tax-free weekends, but that's not the case, they kept spending. Now I suspect two things are contributing to that and we've already talked about it. People are waiting longer and I think the shift in some of the back to school starting dates has also contributed to that.

Okay, that's helpful. And then looking at your comps sales guidance for the full year, up 2 to 3%, it looks like you'd have to do about a 6% comp in fourth quarter. I was wondering what the impact of the extra week in the fourth quarter will have on both your fourth quarter comp sales and earnings?

Comps would be 14 weeks versus 14 weeks, so it's not going to be disproportionate -- 14 versus 13. And then we see that the EPS effect for the 14th week could be $0.02 to $0.03.

Am I right then in kind of looking at fourth quarter and your expectation maybe of close to 6% comp?

That's not the way we have it calculated. We expect the comp in the fourth quarter to probably be in the 4-plus range.

Okay. And then can you tell us approximately what the hurricane-related expenses in third quarter were last year, try and quantify that for us?

With deductibles and donations made by the Company, it could be close to a couple hundred thousand dollars.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Sean McGowan, BMO Nesbitt Burns.

Most of the questions have been covered, thanks, but one that I have is kind of a general one. As you're expanding now into new parts of the country, is there any change that you're seeing in the nature of the competition as you get into states you haven't been into before or markets you haven't been into?

Typically, you will have different big boxes. So if you're in the East, you probably run into Dick's and Sports Authority more, and you get into west Texas and Arizona, you might run into Big 5 and Sports Authority and Academy more. So it will change some along those lines. Inside the enclosed mall, it's pretty consistent with other parts of the country.

So you're not seeing radical shifts or unexpected shifts in the nature of the competition or on product categories?

Not really, it's about the same.

Very good, thank you.

At this time, we have no further questions. (OPERATOR INSTRUCTIONS). It appears we have no further questions. I will turn it back over to Mr. Mickey Newsome for any additional or closing remarks.

We're not happy with our second quarter, but we're happy with the momentum that we gained throughout the second quarter and that has continued into August. We're certainly happy with our new store performance that's above plan. We have added some people to our real estate staff. We're going to add at least one more before year end, we know we have to staff up to get our new store count to where it needs to be.

We're going to continue to go to small markets. In our second approach of going within a 25 to 30 minute drive of a large market, such as Atlanta and Nashville, will continue. We have one additional approach that we're putting into our real estate box. We have gone to two markets here recently that were too small for even a Wal-Mart, but some of our other retailers are there and doing well. So we have tested one of those and we're doing well. So we think we can go to some smaller markets that we've been going to in the past. And we're going to try more of these because the first was a real success. There's no reason why we can't succeed if others are doing it. It's just another growth vehicle for us. We know there's at least 400 additional markets we can put stores in in the 23-state area. We're going to continue to stay tight geographically.

Thanks for being on the call today and we look forward to speaking with you on November 17th at 9:00 Central time about our third quarter results. Thank you.

This does include today's conference call. You may disconnect at this time. Thank you for participating.