Hibbett Inc (HIBB) 2008 Q1 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.

Thank you. Also with us today is Gary Smith, our Chief Financial Officer; Brian Priddy, our President; and Jeff Rosenthal our VP of Merchandise. We will all be available for questions later. We appreciate your interest in Hibbett Sporting Goods and being on the call today. 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. Now for some comments on first quarter results. Comp store sales on a fiscal calendar basis decreased 2.6%. But remember, the first week of February fell until last year's fourth quarter and was replaced by the first week of May this year in the first quarter. The first week of February is much stronger than the first week of May at Hibbett Sporting Goods. First quarter comps on a calendar basis were positive 0.7%. We feel the calendar comps are a more accurate view of how strong or weak our sales results really are at Hibbett Sporting Goods.

Although we had a first quarter disadvantage on the fiscal calendar basis, we have an advantage in the second quarter because the first week of August falls into the second quarter this year and was in the third quarter last year. The first week of August is a very strong week. On a calendar basis, our comp sales are positive less than 1% month to date in May. But May is by far the smallest of the three months in the second quarter. We expect second quarter comps to be up high single digits because of the calendar shift.

Now comments on first quarter calendar comp store sales. February was negative 4%. It was impacted by several things. One was the JDA merchandise software conversion interrupted product flow the first two weeks of the month. And the softness in our urban consumer, especially in the urban enclosed models, which we'll speak to in just a minute. March comps were up 8% because of the early Easter and us getting back to normal on our information systems related to the huge JDA software conversion. April comps were minus 4% on a calendar basis. They were impacted by the early Easter shift in sales from April into March and again the softness in urban related apparel and footwear.

Strip center stores were up 2.7% on a comp store basis, enclosed malls were negative 2.1%. Now inside the -- inside that mall number, we have some urban enclosed malls and they were negative 5%. New stores, we opened 9 new stores and closed 2 in quarter number one. We expect to open 15 to 18 in Q2 and close approximately 2 to 3. We expect to open 90 to 95 stores for the year and close 5 to 10. More than 90% of our new stores will be in strip centers this year. We have added to our real estate staff and we're substantially ahead of last year of new store commitments for this year. Now for some specific comments about the merchandise in the first quarter, Jeff Rosenthal will speak.

On a calendar basis, we have three major areas of business. Apparel, food wear, and commitment. Apparel's broken into two areas of business. Active wear and license. Active wear was up mid single digits. Key drivers were Under Armor, Nike, and Adidas. Kids active wear as up double digits. Both men's and women's athletic active wear up high single digits. We anticipate this trend to continue throughout the rest of the year. Urban apparel remains tough, but should stabilize during back to school against softer comparisons.

License was down single digits. However, college business was up low single digits, and we're planning for this business to get stronger at back to school. (Inaudible) apparel was down double digits with NBA being the worse performing category. Footwear was up slightly, key drivers in the business have been kids and cleats. Key vendors are Nike, New Balance, ASICS, and Heelys. The classic business and urban has continued to be soft with the exceptions of Jordans and Air Force Ones. We expect kids and cleats to be a major driver for the back to school season.

Equipment was down low single digits. Key categories for the quarter have been baseball up low single digits and soccer up high single digits. Basketball and fitness are down double digits. E-vendors Mizuno, Nike, and Under Armour for the quarter. We expect football will be a key driver in the second quarter with new products from Nike, Under Armor, and Shock Doctor.. Inventory was higher than expected due to the softer sales in April, and we expect to get it back in line in the second quarter.

Thank you, Jeff. Now for some specific comments on our financials, Gary Smith will speak to.

For the first quarter, total sales increased 5.5% to 133.8 million or approximately 10% on a calendar adjusted basis. While comp store sales improved to plus 0.7 versus last year's negative 0.7, again adjusting for the shift in retail calendars. Gross profit decreased mainly due to the deleveraging of store occupancy and warehouse costs and selling and administration costs increased from the prior year due to increased stock option expense and costs associated with the implementation of JDA, which will moderate going forward. EPS came in at 32 versus last year's 35.

From a balance sheet perspective, the Company ended the quarter with over 19 million in cash versus 27 million last year. We spent approximately 9.9 million on the stock buyback for the quarter and 107 million since inception. We have approximately 43 million open for future repurchases. Inventories as Jeff mentioned increase 14.8% over the previous year and we spent approximately 2.5 million in CapEx for the quarter.

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

Thank you, sir. (OPERATOR INSTRUCTIONS) And we'll take our first question from John Shanley of Susquehanna Financial.

Thank you and good morning, guys.

Morning.

Mickey, or Jeff, can you clarify the comments in the press release concerning the weakness of the urban stores a little bit more? Specifically what percentage of the Hibbett stores are considered urban? And could you also maybe clarify just how much those stores underperformed the rest of the chain during the first quarter?

John, the urban -- we have approximately 100 malls we consider urban and they were down about 5%. Now we do have some urban strip centers. And urban stores in general versus the nonurban, the urban was probably down overall about 3 if you threw the strip centers in. But the suburban stores were certainly positive. And that's where our major growth is going to be in the future. Jeff, you want to speak to any merchandise issues?

No, I think we're seeing, John, some of the same trends we saw in Air Force Ones and Jordans. Some of the apparel has been tough, but we're seeing a little bit of the apparel getting a little bit better.

Were the urban consumers still interested in the marquee products, Jeff?

Yes. Jordan launches were extremely good. Key Air Force One launches were still very good.

John, you probably heard it at the management conference we just attended together this past weekend, that urban consumer is all over electronics. iPods and cell phones. And we think that's probably part of it.

I agree with you, Mickey, I think that definitely is part of the whole issue. That brings up my second question. I'm not sure if you listened in or heard some comments about Foot Locker's announcement yesterday during its conference call that the chain is going to become even more promotional than it has in recent periods to blow out a lot of excess inventory they got stuck with as a result of poor performance in the first quarter. Secondly, they also announced that Nike is going to double the availability of products in Foot Locker stores, specifically for the Foot Locker US and FootAction chains. Can you give us an indication of how much of the Hibbett stores are in the approximate same trading area as one of the Foot Locker chains?

John, we're a little over 30% in closed malls. And most of them have a Foot Locker in them.

And what can you do in terms of if they are more promotional, do you anticipate matching that promotional activity or do you just kind of go as you have in the past your own way as far as satisfying your customers' needs and not get into a battle with Foot Locker on price?

We won't get in a battle with anybody on price. We'll try to differentiate our product and stay with our philosophy that's worked for us. We won't get into a big price battle.

Good, I'm glad to hear that. And last question I have is going forward based on the results that were just posted in the first quarter and maybe even some things that happened in fiscal -- the last fiscal year, does this change your real estate strategy in terms of perhaps pulling back in terms of urban store locations and focusing in on markets that are perhaps not as volatile as the urban markets have proven to be recently.

It has changed us some. We're avoiding urban enclosed models. If we can go to a small market and a strip center and it's urban, we're doing fine there. It's the enclosed malls is where we have had our weaknesses. And we've turned some of those down in the last few months and we'll probably continue to.

Okay. Fair enough. Thank you very much, appreciate it.

Thank you, John.

And we'll go next to Dan Wewer of Raymond James.

Good morning. The second quarter guidance of a high single digit same store sales gain, how would that translate to a calendar same store forecast?

If we're flat on a calendar basis, we still should be up certainly mid, but probably high single digits because of the calendar shift.

So we -- so on a apples-to-apples, we should interpret the guidance to be up 1 to up 2% for the second quarter?

On a calendar basis, yes, Dan.

Okay. And we're running at the low end of that during the first 3 or 4 weeks of May, is that accurate?

That's correct.

Okay. Jeff, on the -- on the urban softness, could you just remind us when you began to see that business weaken? and what changes you're implementing to rejuvenate that business or perhaps just reduce your exposure?

As we go out through the year, especially in footwear, we'll reduce our exposure to some of that product from an inventory standpoint from footwear. On an apparel side, we see that they really got some softer comparisons once we get into back to school this year. We expect that to stabilize. From a footwear standpoint, it seems like it may take a little bit longer than that, Dan.

So that back to school comparison getting easier, we'll see that in that first week of August that will flip into your second quarter of this year?

Correct.

And then, I guess final question I had, Dicks, on their conference call yesterday discussed opening stores in markets like Columbus, Georgia, and Alabama, and these are, I guess more typical Hibbett type markets maybe on the high end for you in terms of population. But do you see the competitive overlap with Dicks intensifying given their push into the Southeast?

It'll probably intensify a little. But we compete with big boxes in a handful of stores now. But it's going to be more in the future. But all of our new stores are going to be in smaller markets and I don't think we'll ever see them there. We'll get some occasional big boxes coming in in our mid-size market.

When you look at Dicks entry into some of the suburban Atlanta markets, how are your stores holding up after Dicks moves?

We typically get hit 15% year one and then start coming back has been our experience in big boxes in years past.

Okay. Great. Thanks.

Thank you.

And we'll go next to Nancy Hoch of JPMorgan.

Great, thanks. Good morning. Can you guys give us an update on the DC plans?

Yes, Nancy, we're moving forward in the second half of the year and we bake that into our guidance for the second half of the year. It looks like it may slide a little bit and we're looking at alternatives just to relieve the space pressure here. So we just may move it back a little bit.

Move it back into 2008? Or just later in the -- later in Q4?

Probably a little later in Q4.

Okay. And then when -- looking at the expenses in the first quarter. If we normalize for the option shift, it looks like expense dollars per store were down fairly meaningfully. Can you just talk a little bit about where the savings came from?

Well, we were a little disappointed that we deleveraged on the expense line. But certainly Hibbett -- we keep our payroll under control both at the Corporate and the store areas. So we had some savings there. And we had planned to open a few more stores in the first quarter than we did. And there's some savings from that standpoint there. But certainly Hibbett will keep those expense lines under control going forward.

Okay. Great. And then just a question on the seasonality of earnings. I know it's probably premature to talk about quarterly guidance for the back half, but given the calendar shift, the impact of that loss the first week of August, is it fair to assume that Q3 could be either a flat or even a down quarter?

Yes.

Great. Thanks.

And we'll go next to Jonathan with Cramer of Cowen and Company.

Morning. First, I wanted to congratulate you on your induction into the hall of fame.

Thank you.

Just a quick question. Store openings in the first quarter were a little light. Wanted to see what your strategy was or what your thoughts were on making the numbers for the rest of the year?

Well, we've added to our real estate staff in the last 6 months. And based on the deals we got today, we feel pretty good about getting our 90 to 95 new stores. They're going to be back end loaded same as they were last year, but we feel pretty good about it at this stage.

Okay. Any reason for the slippage in the first quarter?

We deal with small time landlords, a lot of mom and pop landlords. And you have fallouts like we have every year and it seems like they start construction in early spring and then they have weather issues and they turn it over into fall and we get opened in late fall or in November-December and it seems like that's the cycle we're on. It's not like we're doing very large centers who project 2 and 3 years out that they're going to open March the 1st and you can count on them doing it. When you're doing small towns and working with small town landlords, you got a lot of surprises. We've got a lot in the pipeline this year compared to last year, and that's one reason we feel pretty good about it that we think we'll get our new store count.

Thank you.

Thank you.

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

Thank you. Two questions. One if we can circle back on that urban issue. Mickey, could you talk a little bit more specifically about what things can be done to maybe reverse some of the trends that you're seeing? What things you are doing, what things you might look to do in the future?

Jeff, you comment on that.

We just look at -- that's one segment of our business as we grow. Sometimes we just have to shift into other categories. We see like performance apparel becoming stronger and really can't force something that isn't there from the urban consumer, especially in footwear right now. We feel a lot better about the urban apparel. But we feel like we can make it up in some other categories.

If we make some up, urban kids footwear is very good. And we probably have left something on the table there that we'll capitalize on going forward. And of course going forward, we're avoiding urban malls, enclosed malls, and that's where the biggest weakness is.

Okay. And then second question back on real estate staff, would you say -- or are you willing to say at this point that the increase that you put into place for your staff would allow you in '08 to maintain a new store opening that would be close to 15%? Still sticking to that target?

Yes, 14 to 15 is what we're projecting. I think that's what that 90 to 95 would come out. Closing 5 to 10 and 14 range.

Well, that would -- is that a net number then 14, 15% would be net?

Yes.

Okay. Thank you.

Thank you.

And we'll go next to Rick Nelson of Stephens.

Thank you. I just want to follow-up on the inventory growth coming in to Q2 what you're thinking about in terms of markdowns?

It was higher than we expected. And we will take some markdowns, but it's already in the guidance for Q2.

Inventory is pretty much in line. It's about like it was -- it's about like it was last year. It's not up.

What category are you heavy in?

We took a sales hit in April. It's really across the board. There's no one area that's really that much over inventoried, it's across the board.

Thank you for that. How do you see JDA affecting the business? Are you starting to see the benefits? What sort of is the time line as the year unfolds?

JDA is helping us from a reporting and allocation standpoint. And as we continue to learn about it and work with it, we will -- we should have some return on investment very shortly.

We hadn't put much improvement in JDA in any of the guidance. But as Hibbett normally does, I would expect the merchants to get some margin improvement later in the year from the system.

Okay. And then the cash flow question, you've got no debt and a building cash position. How do you evaluate a use of that cash flow, stock buy back, store openings?

We could from a cash and an infrastructure standpoint, we feel that we could probably open more stores if they were available. But certainly at the stock price today, it's certainly advantageous to buy that stock back. Opening more stores doesn't use much money.

All right. Thanks a lot.

Thank you. We'll go next to Sam Poser of Independent Analysis.

Congratulations on a good quarter. Could I just follow-up on the urban business one more time? In the urban footwear, Jeff, with what you're doing with Nike or with what they're giving you. Is that enough to drive the whole thing? And what do you see beyond the Air Force Ones and the Jordans that are out there that have some action going on?

Well, Sam, the -- from Nike, we're getting adequate amount of inventory for what we -- where the sales are. We're not seeing a lot of movement from a lot of other brands. We are doing well with some Adidas and some other types of footwear. But it's not enough to move the needle right now. Really the biggest movement is still on Air Force Ones and Jordans.

Okay. Thanks. And then one more question on the stores. Did I understand correctly that sort of what you have in the hopper for this year being comfortable with that 90 to 95 stores that there could be opportunity for more, if sort of the stars align?

f everything fell into place it could be, but we don't expect more. We would probably flip them into the next year.

And going -- looking ahead, we're looking at the equivalent percentage looking ahead to 2009, as well? As far as growth?

Yes.

Okay. Great. Thank you very much.

Thank you.

And we'll go next to Anthony Lebiedzinski of Sidoti and Company.

Good morning. I was wondering if you could comment on your product margin. I know the gross margin was down quite a bit mostly on deleveraging of store occupancy costs. Can you comment on how the merchandise margin shaped up?

There was just a slight erosion in product margin rate, Anthony.

And what do you attribute that to?

Well, I think some of the toughness in April, for sure. And I think learning the new system.

And also, you mentioned JDA. What are some of the other IT system upgrades in plan? I think you have talked about price optimization also at some point, as well?

Well, sure, our merchandise planning staff right now is working on enterprise planning part, which is going to be big in planning assortment key items down to the store level. And they're doing that right now and they're doing a great job with it. Then after that, we would expect replenishment part, which would probably be sometime next year and then price optimization would be after that. That's how we -- that's really how we expect to grow product margin going forward and increase those operating margins.

Okay. That's helpful. And also, are most of these store closings that you're doing this year, are they going to be in the urban enclosed malls? Also, can you perhaps maybe accelerate closing some of these weaker store locations?

Two or three of them are going to be urban enclosed models. But it'll be a mix of circumstances. And, but remember, when we close the store, we didn't build a castle to begin with and we'll take the fixtures and the merchandise out and put it in another store. We won't take a big hit.

Okay. And also, can you comment on -- you mentioned the second quarter comps on a calendar basis, I think are up around 1%. How are they tracking on a fiscal quarter basis?

Down slightly.

Slightly down, probably 1 or 2% down. That will turn dramatically later in the quarter. May is by far the weakest month. It's not that meaningful. It's all about July.

Okay. That's helpful, thank you.

Thank you.

And we'll go next to Steven Martin of Slater Capital.

Hi, guys. The classics category other than Nike seems to be struggling. Have you seen any -- anything in that category working other than those Nike shoes?

Not really, it's pretty tough right now.

And is that a white on white comment? Is it Reebok, K Swiss? How does it break out?

We have seen some softness in the Reebok and K Swiss business. There are some white leather shoes that are performing well, but overall it's not a good trend.

Is that a contributor to the urban weakness? Is it more pronounced than what these urban stores we're talking about?

Absolutely tied back to that urban consumer.

Thank you very much.

And we'll go next to David Magee of SunTrust Robinson Humphrey.

Yes, hi, good morning. A couple of questions. I guess we're a little surprised that the business hasn't bounced back a little stronger in May just given the better weather we've seen this month in the Southeast. Is it just the urban influence there? Or is it just maybe the fact that this is a kind of off month seasonally. Anything else we should read into this right now?

May is kind of a clearance month for us. We're not golf or tennis or water sports, May is just kind of a -- not a big month for us. And we don't put a lot of emphasis on it. We don't read anything into that. It's just not a big, it's not a huge piece of the second quarter. And--.

I remember last year, I think you were down 2, weren't you in the first part of May?

I think we were. And we ended up, we ended up with a great third quarter.

Right. Right.

But it -- we don't read a lot into the May numbers in the first few days.

And the second question, Gary. With regard to the DC being pushed maybe a little farther back into the year, do you have the flexibility, do you deem it necessary to move that into the first quarter if it starts to become to complex during that important time of the year?

Well, there's certainly a lead time that's going to be involved in getting that distribution center up and functioning. Both from an equipment and an infrastructure standpoint and from a systemic standpoint. But as long as we have some auxiliary space in Birmingham to offlay some of the pressure on the main warehouse here we could move that back a little bit.

So it could move into the first quarter possibly?

It could, yes. The additional space in Birmingham would strictly be for new store hold, it wouldn't be for processing. It wouldn't complicate our operations.

Thank you.

And we'll go next to Michael McTighe with Nollenberg Capital.

Thanks a lot, guys. Of the urban market, I think you guys said last time or in the past that you were testing out some new vendors to get that business going. Is there anything you can comment on that?

Yes, we do have some vendors that we have and are doing pretty well from an apparel standpoint like a QG and some other brands like that. We have some Hispanic brands that we're testing right now that are doing pretty well.

Do you think that could help to move the needle in terms of bringing that business back a bit?

Yes, it will take a while to grow, but we expect that business to get better a little bit in apparel.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) And we'll go next to Mitch Kaiser of Piper Jaffray.

Good morning, guys. I was wondering if you could comment on what impact the JDA had on the comps for the quarter?

It primarily impacted us in February. Because our shipments were delayed the first couple of weeks of February, but we got back to normal pretty quick. And by March, we were pretty much back to normal on merchandise flow. So it probably did impact us some, but we did get back to normal. And it's -- it was a big step for us putting JDA in. I can tell you, it was a big, big step. It took a lot of time and energy.

Sure. And it's going to be a while before you recognize some of those benefits, I understand. On the DC side you mentioned, if it did slip into Q1, do you think you'd have the still operational by this time next year?

We think so.

Okay. And if you were talking about the fall, that maybe that would just house merchandise for new stores, right?

That's correct.

Very helpful. Thank you.

Thank you.

And gentlemen, we have no further questions at this time. I'd like to turn it back over to Mr. Newsome for any additional or closing remarks.

Thank you. The first quarter was an interesting quarter for Hibbett. The JD merchandise conversion will prepare us for the future and prepare us to grow to 1200 stores. We have not gotten the benefits yet, but they will be coming. It took a lot of time, energy, expense, and distraction, but is well worth it. It's the foundation of our future. Our real estate team just came back from the ICSC, the shopping center convention in Las Vegas. It was a huge convention. Based on what I have heard from them, I think we absolutely can grow our chain to 1200 stores, staying in small markets, mostly in the Sun Belt, stay tight geographically where we can really understand our markets. We think we have a great future. Thanks for being on the call today. We look forward to speaking with you on August the 24th at 9:00 Central standard time with our second quarter results. Thanks for being on the call.

And that will conclude today's conference call. Thank you for your participation. You may disconnect at this time.