Hibbett Inc (HIBB) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Hibbett Sports 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 and Chief Executive Officer, Mr. Mickey Newsome. Please go ahead, sir.

Thank you. I'm Mickey Newsome and also with me is our Chief Financial Officer, Gary Smith, as is Brian Priddy, our President , and Jeff Rosenthal, our VP of merchandise. We will all be available for questions in a few minutes. We appreciate all of you being on line today and calling us. But before get started, Gary Smith will cover the Safe Harbor

Thank you and 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 fourth quarter. Comp store sales increased 5.9%. Earnings per diluted share increased 34.5%. Fourth quarter operating margins reached an outstanding 14.3%. We opened 25 new stores and closed two in the fourth quarter. Our 74 new stores that we opened last year are performing above their store model. We're heavily into strip center versus mall. In fact, we only did ten enclosed malls last year and 64 strip centers. Our goal this year for new stores is 85 to 90 net new stores, and we're well ahead of last year's commitment for leases for this year versus last year. 90% of our stores this year will be strip centers.

Now for some comments on the fourth quarter sales, November, December, and January were all positive, with December being the strongest on a comp store basis. Strip centers outperformed enclosed malls. Non-urban stores outperformed urban stores. Fiscal 2008 first quarter to date comp sales are not as good as we had expected. February is negative low to single-digits by the calendar, negative mid-single digits by the fiscal. But March has improved over February. We're positive low single-digits by the calendar in March.

The February comps, why were they weak? The number one reason is JDA software conversion that we have been working on for two years. We went live the first week of the fiscal year. We had some surprises, but most of the negative surprises are behind us. The biggest negative surprise was the disruption of product flow from our DC to our stores for a one to two-week period in early February. We have corrected this problem and the product flow the caught up. The improvement in March sales indicates this was an issue with our February sales. We expect the balance of March and April to continue to improve. The JDA software conversion was a much larger distraction than we had thought it would be. It's great to get it behind us and we're confident we will be an improved Company because of it in the near future. Another reason February comps are soft is our urban stores. They're weaker than expected in January and February, and January and February are very important in the urban business.

Now for some specific comments about our sales, Jeff Rosenthal, our VP of merchandise, will speak to you.

Fourth quarter comments. Three major areas of business; apparel, footwear, and equipment. Apparel is in two areas of business; active wear and license. active wear, up mid single-digits, continued to be led by Nike and under performance product. Cold gear and fleece products were very good. Youth apparel was up double-digits. License broke into college and pro. College was led by Nike's authentic products, use in women's college products continue to perform well. Pro was up mid to high single-digits, led by NFL youth products and NFL jerseys. These key teams are Colt, Bears, and Saints, key jerseys were Manning, Urlacher, Roma and Bush. Footwear was up mid-single-digits, led by youth footwear, mid double-digits. Key vendors are Nike, New Balance, Asics, and Heely. Key items during this period were [Shaff], Air Force One, Jordan Products, and New Balance Zips, and also Heely's skateboard shoes. Equipment was flat for the quarter. Key categories are soccer and football, up single-digits. Key brands, Nike, Under Armour and Adidas. Inventory from an age standpoint continues to improve year over year.

Thank you, Jeff. Now Gary Smith, our VP of Finance, will give you some details on the financials for fourth quarter.

It was a tremendous second half of the year for Hibbett. As you may recall, at mid year our operating income trailed last year's rate by 90 basis points. However, we ended the year 30 basis points over last area's record annual rate. For the quarter, total sales increased to over 25% to $151.2 million. Comps improved to 5.9. Gross profit was up over 150 basis points, with a strong performance from product margin as well as the leveraging of store occupancy and warehouse costs. For the period, selling and admin costs remain relatively flat, as the Company increased bonus and certain other accruals. Also 48 basis points to the 123(R) was included this line. Operating margin increased over 14.3% for the quarter versus 12.4% last year. EPS came in at $0.39 versus last year's $0.29.

For the year, total sales increased 16.3% to over $512 million. Comp store sales improved 3.8. Gross profit improved 45 bips for the year with improvements in product margin and the leveraging of warehouse and occupancy. For the period, selling and admin costs increased 30 basis points; however, stock option expense accounted for 55. Operating margin increased to 12.1% from last year's 11.8%, another record year for Hibbett. Earnings were at $1.17 versus $0.98 the previous year. From a balance sheet perspective, the Company ended the quarter with over $30 million in cash versus $39 million last year. We spent approximately $4 million on the stock buy back for the quarter and $97.3 million since inception. We have $53 million open for remaining future purchases. Inventories increased 15%, which is below the quarter and the year-end sales growth. We spent approximately $5.4 million in CapEx for the quarter and $16.3 million year to date.

Now a word on our assumptions for fiscal 2008 guidance. Comp sales are planned to increase 2% to 4%. We are planning rate improvements on the gross profit line. However, expenses are planned to increase somewhat over last area's rate due to stock option expense moved into the current year, which was planned in last fiscal year end, new store costs related to 18 additional new stores, and also some start-up costs related to the second DC, which had been initially planned for next fiscal year, but we moved it into the latter part of this year. Also, we will see a little higher rate in our depreciation and amortization line due to the write-off of JDA. And also the share count remains relatively flat.

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

Thank you, sir. [OPERATOR INSTRUCTIONS] We'll go first to Nancy Hoch with JPMorgan.

Great, thank you. Gary, just to start off with the guidance. You mentioned you were assuming the share count to be flat. Does that imply that there is no repurchases within the range you provided for year?

That's correct. Depending on the sensitivity to the stock, we will be certainly active at lower levels than we would be at higher levels.

Okay. So that's potentially another -- I guess we need to take that into account with the guidance range. Is there anything else within the range that we need to be aware of? You mentioned some one-time -- some expenses with the DC. What magnitude of impact does that have on the year?

The DC-, looking at that in the face and it could be $0.01 to $0.02.

Okay. Great. Just a question for Jeff. I missed what you said on college license apparel, what that did in the fourth quarter?

It was up single-digits.

And can you talk a little bit about the trend you're seeing so far in Q1?

For college or --

For college.

It has been a little tough out of the gate.

Is there any reason that -- what we're seeing in some of the national numbers is some pretty substantial declines year to date, with the category down 50%.

Not really. Usually in the first quarter and the first half of the year, college just isn't as important as it is for the rest of the year.

Okay, got it. Just a question, you mentioned as far as relative performance of your mall versus non-mall stores in the quarter and urban versus non-urban, can you give us any sense of a magnitude of the difference between the performance of those two groups?

Well, the fourth quarter now they were -- both of them were positive.

Okay.

It was a big -- I think it was probably in the 3% to 4% range difference.

Okay. Is that delta holding in the first quarter as well?

Yes.

Okay. Just can you give us an update, Gary, on systems investments for '07, the other JDA components you'd mentioned previously?

We plan to embark on the enterprise planning part, probably beginning the second quarter. And we would the E3 replenishment part coming in the latter half of next year.

Okay, great. Thank you.

Thank you.

We'll take our next question from John Shanley with Susquehanna Financials.

Thank you and good morning.

Good morning.

Mickey, I wonder if you can comment on the urban business. Do you think this is a fashion-related trend that it's underperformed the rest of your stores, or is it product related? I wonder if you can give us a little bit of insight in terms of what you think may be going on there?

John, I think it's probably more fashion than anything. If you have what they want they will buy it. Jeff, do you want to comment on that?

Yes, certain items, John, still continue -- Air Force One, Jordans' still continue to sell well and certain apparel continues -- I don't think they're necessarily leaving what we have, it's just they're not buying as frequently.

Okay. Mickey, how many -- about what percentage of your stores would you classify as being an urban store?

Probably about 200.

Okay. And then, Jeff, just turning to the footwear category, a lot of your competitors have recently reported weak demand in the mid-price technical end of the business, $55 to $85 price range. Is that occurring at Hibbett's as well? And if not, what do you think the reason why you're doing better than perhaps some of your competitors are doing?

We still see some of the better price points still performing well from a technical standpoint, and some of the value-added product, the $65 to $75 products, are doing fine at Hibbett's.

That's good to hear.

The classic look is not, though. That's the softness.

The classics remains weak for you guys?

Yes.

Okay. Do you see that turning anytime soon, Jeff?

I haven't seen it start to come back yet at all, but the numbers that you were going against are much less than they were a year ago.

Sure. You did mention that a lot of the lifestyle products like Crocs and Heely's and so on, is that becoming overall a bigger piece of your footwear business?

Yes. We see as we move into second quarter and even late first quarter, sandals becoming more of an important in women's and kids', and we've already had early indications that that's the way it's going.

That's good. Are the product margins comparable to the rest of your footwear offerings in those lifestyle items?

Yes.

Okay. Then turning to apparel, obviously when it's a good elaboration on the license and active wear, do you see these trends, particularly in active wear, continuing into the spring '07 selling season in terms of interest in these particular products like the Nike or Under Armour items?

Yes, especially Nike and Under Armour. There's still such a demand, especially in the youth apparel and women's. that we see there's still some opportunity, especially with both those brands, it's definitely moving into more technical product. The word cotton is probably not very much in our stores anymore. We really don't sell cotton t-shirts like we did. It's all into performance-type fabrics.

Kind of like an advertisement for Under Armour, cotton's the enemy. At any rate, do you think the momentum that you're getting from the performance active wear is enough to offset any weakness that you have coming up in terms of license products?

I think -- the license business for the first half of the year is a lot less important than it is for the second half of the year. We had a very good year in NFL, which I expect again next year. The college part, the first half of the year is not from a percent standpoint as big.

Okay. The last question I have is on the DC center. With the -- can you give us an idea of the opening of the Dallas DC center, when that is likely to take place and what this may mean in terms of additional stores that you could support out of all of your DC centers now?

John, we would expect probably the September/October time line to start phasing into that distribution center. Certainly this center is probably 700, 800. We're looking at a couple hundred thousand square feet, we increased the scope of what we were talking about previously. So we could probably do another easy 500 to 700 out of that other distribution center also.

So that would increase the potential number of Hibbett stores pretty substantially, Gary. Are we looking at like 1,200, 1,300 stores now?

We are.

That's a bigger number than you've given us in the past. And what would would be the time line in order to being able to get up to that level of stores, that store count?

Well, certainly we're at 600 stores now. 15% compounded, you could double the base in five years.

Okay.

I would say five to seven years.

Fair enough. Thanks a lot, I appreciate it.

Thanks, John.

We'll take our next question from Sujata Shekar with CIBC.

Yes, good morning.

Morning.

I had a question for Jeff on the fitness category. Dick's Sporting Goods had talked recently about some weakness there. Do you see something similar or not?

I see something very similar. Our fitness business has been pretty tough. It's not a big as percentage for us because we have limited space, but the weight category in benches and those type products have been a lot slower.

Okay. And second, could you give us an update on your test in smaller markets without even a water mark? I know you had a couple of test stores, how are they doing and what's the status of that?

They're doing very well. One of them's Blakely, Georgia, and one is Azure City, Mississippi, and both of them are performing well, and we're going to open probably two to four more of those in the next few months. And we think there may be some opportunity there, but it's not huge, but it is additional stores.

Okay, that's good to hear. Third question I had was, the end 2Q system plan, the -- I think it was enterprise planning, is there any execution risk related to that that might come up or that we should keep in mind?

I would think -- Sujata, that's an ancillary system that wouldn't affect production.

Okay. And to do with the second DC on those same lines later this year, would that be like a parallel processing? How -- would there be any hiccups possible there?

Well, of course there's always hiccups possible when you make a major move like this, but we would basically move vendors over there, split the POs. The thought is anything west of the Mississippi would go into the second DC, anything east would stay in Birmingham.

Okay. And then I wanted to know the status of the Under Armour shop-in shops, how many locations is it in now and is that making a difference to the productivity of the that category?

Yes. When we -- we have Under Armour fixtures in over 300 doors. Really what we're looking at is really doing more signage going forward in our stores, but the more emphasis we make from a visual standpoint on Under Armour, the better it seems to be doing.

Do you see potential to grow that from 300 to more of the chain?

Yes. We're looking at it to grow more from a signage standpoint, not necessarily fixtures, because in our store it's really hard to do shop -- shop-in shop. But just bringing more attention visually to it, we feel that that will help and we were trying to get it to as more doors as we possibly can.

Yes. And Heely's is also talking about these shop-in shops, do you see -- are you participating in that as well?

Not at this time, no, but we're continuing to expand our Heely's business as we speak, but we're really not going to do a shop-in shop.

Okay. Okay, great. Thank you.

thank you.

We'll go next to David Magee with SunTrust Robinson Humphrey.

Hi, good morning.

Morning.

A couple of questions. One just on the urban business again, you mentioned that being a fashion issue, how do you see that playing out? Is that -- are you implying that you need to just be making better picks there yourself, or does there -- does a customer have to come back to that category? Or are there bankruptcies or store closures that could take place that could help you there? How do you see that playing out this year?

Jeff, do you want to take that?

Yes. David, I really feel that they're just not spending money. I don't know necessarily that we're off fashion trends. I think they may be spending more money on entertainment or cell phones or -- but the kids are still wearing Air Force Ones and Jordans', because when we have a launch they're still as good as they've been. It's still about chasing the right brands and having the right product in your store, but they still seem to spend it when there's a Jordan or Air Force One. I don't necessarily think that they have gone something other than that from a footwear or an apparel standpoint.

David, another point on that. Fashion is the big thing for the urban, but there has been a lot of additional competition opened in the last two or three years when it was a really hot item, and a lot of them -- most of them are locals, mom and pops, and you may see some shakeout there. I think that's what you were referring to.

Right. And why is January and February important months for that category?

A lot of it comes because of the tax rebate, tax refunds. They seem to have a lot of extra cash and it's always driven sales during those periods.

With regard to the store growth issue, I think it looks like you're planning 14%-type growth and I know the pipeline looks good relative to last year. Is there anything else that gives you confidence regarding your ability to be closer the 14% to 15% rather than 12% this year?

Well, we're substantially ahead on commitments for this year versus last year and we're adding to the staff. And, of course, we're doing stores in Mexico -- New Mexico, and Arizona -- not Mexico, New Mexico. And we have a lot in the pipeline. We're feeling a little better about it.

Gary, with regard to the multi-year upgrade with the software systems, I know the pricing piece of it's still down the road. Is that in your mind still where you expect to get the most bang with regard to improving margins?

Well, I really think -- and Jeff could elaborate on it -- I really think the JDA, the merchandise system, and the retail ideas, which gives us the ability to drill down and analyze product by door that we never had in the past, now we're more productive with the system and we can get better information from the system. So I really think in my view that the benefit of the IT upgrade is really coming from this main system and retail ideas part. Jeff?

Yes, I agree with that. And as we move forward into E3 and replenishment and just being able to drill down and get some of the low-hanging fruit and trying to get some of the product to the right doors on a lot better frequency than we have in the past should hopefully make us take less markdown.

good point.

Okay, so that could be a real benefit this year beyond just the start-up year?

Well, you have to realize, there's a learning curve there and purchases are bought six months out or so, but we're expecting some improvement from the system this year.

Great. Thanks a lot.

And we'll go next to Sean McGowan with Wedbush Morgan.

Thanks. Good morning, guys. A couple of questions if I can. Maybe this is for Mickey or Gary. Can you talk about how the -- how specifically the calendar shift affects sales in each quarter and how that might affect -- be affected by the product offering?

This -- Gary may have it more specifically, but the calendar shift, we got a negative 3% in the first quarter. In other words it's -- and in the second quarter, we get a huge advantage, because the first week of August falls in the second quarter this year and it was in the third quarter last year, and that's one of our biggest weeks of the year. So we got like a 9% advantage on the comp store sales basis in the second quarter. Now, we have a disadvantage in the third and an advantage back in the fourth. It all evens out in the end, but it's going to be some interesting times.

What is it about the first quarter that causes a disadvantage? Is it because you're in regions where baseball season, for example, starts a little earlier?

Yes. Baseball is very important in February. And, of course, the first week of February this year fell into the fourth quarter, and we picked up the first week of May. Now the first week of May is not that strong at Hibbett. It's just not. It's kind of in between, it's much weaker.

Okay, that's helpful. Gary, on the distribution cost, $0.01 or $0.02, is that going to be split between the third and fourth quarters, or is it concentrated in the fourth quarter?

The majority of it will be in the fourth quarter, Sean.

Okay. Thank you. On the stock compensation shift, help me out as to whether or not that shift from last fiscal year to this fiscal year, was that already baked into your fourth quarter guidance, or was that a surprise that came up during the quarter?

Well, it was not a surprise. We had planned in the fourth quarter to issue the board of directors equity awards, that's how the plan was set up, and also Mr. Newsome. With some changes in the plan, the comp committee felt that it was in the best interest of the Company to move everybody to the same grant date, so that we're all working from the same basis. And that's exactly the reason for it.

Okay. But -- so was that part known then -- let's say go back to last time you commented on fourth quarter guidance?

No.

No, okay. That's helpful. So I think, Mickey, you touched on this before then, your guidance for the first half of fiscal 2008 implies a very strong second quarter and it's really primarily because of that week in August?

Yes.

Okay. Last question, just again remembering some factors from 2006, do you have any information at this point about changes that are planned at the state level on these sales-tax holidays that could affect second or third quarter sales?

We don't really have any -- that information does not come real early. Sometimes we don't get until June or July, but it wouldn't surprise me if a couple more states didn't opt in on that.

You mean to make them later or to do it at all?

I don't think they'll be later. I think they'll be -- I haven't heard later. Any of you all?

We're planning for them to be comparable to last year.

Okay. Then if some states that didn't do it wind up doing it, it could take some sales out of the second quarter?

Out of the third quarter.

Well, it depends on when they do it, right?

Depending on the state.

Okay. All right, thank you very much.

Thank you.

We'll go next to Rick Nelson with Stephens.

Thank you and good morning.

Morning.

Mickey, do you think the pressures in the subprime market are impacting your sales at all, especially in the urban stores, and how much exposure do you think you have from a customer base standpoint to the subprime?

Rick, I don't think there's any correlation between that and our customer.

Okay. Just a clarification on the first quarter comp guidance, the release talks about up to 2%, can you clarify what that means?

Well, we see the business improving. We're not quite there, so we can go up to 2% on a calendar basis.

I see. Okay. And then, in terms of the store growth, I know you've been short of your 15% target for the last couple of years, but it sounds like leases are now ahead of schedule. How confident are you in the 15% square footage?

Well, at this point in time, we're pretty comfort -- we're somewhat comfortable with our guidance. We are substantially ahead of last year, but you never know. I think we'll get it. We've added to the real estate staff and we'll continue to add. There's a lot of markets to go to out there that we're not in, and sometimes you have to wait for the real estate, but we're okay with our guidance.

Rick, we think we'll be closer to the 15% this year than the 12%.

Okay, great. Thank you.

We'll take our next question from Dan Wewer with Raymond James.

Gary, on the disruption from JDA, were there certain categories that were impacted more adversely than others?

Not really. We spread the pain across all categories, Dan.

Well, that's politically correct of you, then, to do that. Could you help me understand what happened with the integration? Was it sales at the store were not triggering an order for the distribution center?

No, what happened was in order to get ready for JDA, both at the end of January and at the beginning of February, there was a certain time that we were not sending receipts down. But when we got ready to send receipts to the stores, the advanced ship notices from the vendors came in, and either because they did not map correctly or we had some problems with our EDI that we weren't able to flow that through to our warehouse management system. So that was really the problem and we had to manually work around that for a few days.

Are you still manually pushing the product to the stores or is it working the way that it's designed?

Systemically, it's working the way it shall be working and it really got up to the middle of February.

Okay.

We went -- Dan, we went into a second shift in the DC in December, so we were able to move product. We don't have more than maybe one day's worth of product to be unloaded at the warehouse at this point in time. So in anticipation of the warehouse getting a little smaller because of the more stores, we went to a second shift and that certainly aided us in getting through this transition and also moving product to the store.

Another question, just going back on the stock option expense, is the $0.02 to $0.03 that's shifting from the -- I guess it's the $0.02 shifting from the fourth quarter to first quarter, is that for compensation that was earned last year or for compensation that will be earned this year?

Really, it's the board of directors grant, which had always been the last day of the fiscal year, and then Mr. Newsome's had been -- his last grant was in January a year ago, so we had planned for that fall. We changed and amended the plan for the board of directors to move into this first quarter as well as Mr. Newsome's, and those are immediately expensed. So I'm not quite sure I answered the question, and I guess I'm not quite sure I understand the question.

I'm just trying to figure -- should we be thinking about that $0.02 as compensation for the fourth quarter that just ended, but for accounting reasons is getting transferred to the new year?

No, I don't think that's right, Dan.

Okay. And I was also just thinking on the calendar shift, in the fourth quarter -- so the same-store sales will get a calendar shift benefit, but on the other hand you'll have one less week; is that correct during the fourth quarter of this year than last year?

That's correct.

So that quarter will have fewer revenue dollars as well as the cost of the Dallas distribution center?

Right.

Correct.

13 weeks versus 13, you have an advantage on comps in the fourth quarter.

Okay. And then I guess the last question I had, Jeff, just going back on the urban discussion, is there a game plan for those 300 stores to improve their sales productivity, or is the focus more on getting inventory levels in those stores down and cutting expenses and waiting for a better environment?

Yes. Well, we -- as we always do, we look at each store and we look for opportunities and if there aren't any opportunities we'll cut back inventory. We're still looking and finding and testing new brands, so as things work we'll expand or retrack just according to business.

Okay. Oh, Gary, I thought of one other question for you. What was the story on the tax rate during the fourth quarter, and what should we be thinking about for the '07 year?

Going forward, 38% is probably the right range. The story was that it was just a true-up in the tax of book depreciation.

And was that for a number of years or was there one specific period in the past where that --?

No, it was just for this year.

Okay. Okay, thanks.

Thank you.

We'll go next to Michael McTighe with Mellenberger Capital.

Hi, guys. Thanks. Looking at your expense structure, as it seems to be increasing a bit this year to account for some of those infrastructure investments, what type of comp do you think you need to achieve, given the operating expenses increasing in order to even comp leverage that line or at least break even?

Some of these expenses that I've identified, we've talked usually you need a 2% to 3% for us to leverage, but it's probably between a 3% to 4% now.

Okay. Any update on your customer loyalty program now that you got a couple of quarters under your belt there?

We rolled out that program this past fall and we were just discussing this yesterday and we have collected over 400,000 names with our MVP program, so we're real pleased with the start that we've gotten from that.

Okay, great. In terms of the store opening schedule, what can we look for in terms of the quarterly rollout? Is that more back-end loaded, is it front-end loaded, or is it evenly distributed throughout in year?

It's going to be back-end loaded, as it usually is. It'll be more in the third and fourth quarters than in the first and second quarters.

Okay, great. And in terms of CapEx for 2007, what are you looking for?

We -- because of the warehouse, we've moved that up a little bit on the gross side --

If you want to give it to me offline, that's fine.

Excuse me?

$24 million.

$24 million? Okay, great. Okay, thanks, guys.

Thank you.

We'll take our next question from Anthony Lebiedzinski with Sidoti and Company.

Good morning. Was wondering about the timing of the price optimization, when do you expect to roll that out?

It'll be probably late next fiscal year.

Okay. And also, a number of retailers last week pointed out to rather unfavorable weather hurting their February sales. Did you also see the weather impacting your sales in February?

You know, February was the coldest month in the sun belt in several decades. I'm sure it affected us some, especially trying to sell baseball/softball, but the weather at the end of the day is going to even, because we're having good weather in March, but it probably affected February some.

Okay. Also regarding the stock-options expense, what was the final stock-options expense impact in '06 and also where do you see that in 2007?

Well, from a dollar standpoint, Anthony, I would expect the stock-option expense in last year was approximately $2.8 million. The plan is now is it's about $4.4 million.

Okay. All right, thank you.

Thank you.

We'll take our next question from Jonathan Cramer with Cowen & Company.

Good morning. Just a quick question on the competitive environment among the mall retailers?

What's the question?

Competitive environment in the mall.

I would say it's pretty constant, like it was a year ago.

The only thing that may have been added was some local urban stores, but I don't think much athletics. It's pretty constant.

Okay. Could you also discuss what products you expect to be key drivers in '07?

We expect for the first half, sandals, Heely, to be extremely strong, New Balance Zips. We still believe that Under Armour -- they just came out with baseball cleats and they will continue to have new product as we grow -- go through spring and fall, so we feel very good [inaudible] hardgoods and equipment, so we think that will be strong. And our technical footwear from Asics and New Balance, we believe, will get stronger.

Okay, thank you.

Thank you.

We'll take our next question from Jason West with Deutsche Bank.

Hi, guys. Can you hear me?

Yes.

Just wondering, can you quantify the impact of the extra week in the quarter on the sales line and the earnings line?

It was worth approximately $0.03 on the sales -- on the earnings line.

Okay, great. That's all I had, thanks, guys.

Next is Ralph Jean with Wachovia.

Great, thanks. Gary, on the distribution center, how many stores do you think it'll be able to serve initially, and what will that ramp-up period? And secondly, how long before you would start -- how many stores would that DC have to support before you start to leverage expenses?

Certainly, it's a balancing act between one year in Birmingham and the one in Dallas. I would certainly expect that the first half of next year, we should start seeing a turnaround in leveraging of that, basically by reducing the fuel in the [sem-mile] cost. But I would expect at this point we'll probably be 300 to 400 stores here and 200 to 300 there. It'll grow depending where the store growth is.

Sure. And then on the Under Armour baseball cleats, I'm just wondering, when they rolled out football, I don't believe you were able to make significant replenishment purchases. Do you think with baseball you're going to be able to reorder as demand accelerates?

Most of Under Armour cleats, they're all bought on a futures basis and they were allocated the first year out, so there isn't a lot of fill-in business. We kind of knew up-front what we were going to get.

Okay. Lastly, how's LaCrosse doing? Is that still rapidly growing, has it become a meaningful part of your business yet?

We're still at about 100-store mark. We're still growing it. We still haven't figured out completely yet. We're still trying to understand the whole market and there's some very good stores at it and some others that aren't so, so we're continuing to evaluate it.

Great, thank you.

Thank you.

[OPERATOR INSTRUCTIONS] We'll go next to John Lawrence with Morgan Keegan.

Good morning, guys.

Good morning.

Just quickly, obviously a lot of the strength from the out margin has been on the gross margin. Can you just go into a little detail more of why the confidence in we can continue to get product margin better going forward?

Well, I believe we still have a long way to go. We're still becoming more and more important with vendors, so we believe we can get better discounts and better rates on logistical thing, such as preshipments and containers. So as we become more important, we expect to grow it there. We also believe that the JDA system and replenishment will help us get better at putting the right products in the right store, which should hopefully let us take less markdowns at some point.

Thanks. Mickey, would you care to give us just a little bit more on the smaller markets? Is it basically three-fourths of the sales of a major market with half the cost or some kind of dynamic like that?

They're pretty close to our new store model,they're right at it. And we do get less rent, but there's not an abundance of those stores now. We think we've identified 60 to 80. You have to really watch the demographics. You've got to get the right age and the right mix of race. There are a lot of those we can do. But they're performing right at the store model, really.

Great. Thanks, guys.

And at this time we have no further questions in the queue. [OPERATOR INSTRUCTIONS] And gentleman, at this time, we have no one else in the queue. Mr. Newsome, I'd like to turn the conference back to you for concluding remarks.

Thank you. We're glad to get the JDA conversion behind us. Comp-store sales are improving and we expect them to continue to improve throughout the quarter. New store commitments are ahead of last year. Last year's new stores are performing above the model. The sun belt that we primarily operate in is growing very fast, and according to the U.S. census bureau will continue to grow very fast in the next 25 years. Population growth equals opportunity for Hibbett Sports. We're confident we will be just as successful in the future as we have been in the past. Thanks for being on the call today. We look forward to speaking with you on May 25, on Friday at 9:00 central time, with our first quarter results. Thanks for being on the call.

This concludes today's conference call. Thank you for participating and you may disconnect your phone lines at this time.