Hibbett Inc (HIBB) 2008 Q3 法說會逐字稿

Good day everyone and welcome to the Hibbett Sports 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.

Good afternoon everyone. This is Mickey Newsome. I have with me also Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our VP of Merchandise. They will be certainly available for questions. We appreciate all of you being with us today and 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 the 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 projection 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.

As you know from our press release this afternoon, our earnings per diluted share were $0.25. On a calendar basis overall sales increased 7.8% and same-store sales increased 1.2%, and that was going against a 7.1% comp store sales increase of one year ago. On a calendar basis, August was positive mid single digits, September was flat, and October was negative low single digits. We think October was negative primarily due to the warm weather because apparel was the softest piece of the business.

On a calendar basis August enclosed malls outperformed strip service store for the first time in more than three years. But in the September/October timeframe strip center stores again outperformed enclosed malls. For the quarter enclosed malls were flat and strip center stores were up 2%. The first 15 days as expected and planned of November by the calendar comps are down the single digits. Now why did we plan it that way? These are the reasons.

Aged inventory is very much in line with our plan. We chose to take markdowns this year, this week, the week of Thanksgiving, primarily Friday, Saturday, Sunday, and last year we took markdowns in the very first week of November. It made a big difference in sales. Last year also we had the Alabama Auburn game one week early, whereas the Alabama Auburn game this year this Saturday. A year ago it was last Saturday. This had a big impact on our college license. The reason we took markdowns later this year also we wanted to have as big an impact as possible the three days after Thanksgiving. We think we can do very well.

Each of the last three years the consumer has waited longer and longer to buy for Christmas. We expect the same thing to happen again this year. We expect the weekend after Thanksgiving to be very strong, the ten days before Christmas to be very strong, and the week after. That has been a continuing trend.

New stores, we opened 18 new stores in the third quarter and closed two. We plan to open 42 to 46 new stores in quarter four and close two. For the year we plan to open 86 to 90 new stores and close 9. Twelve of our fourth quarter stores are planned for the state of Texas in small markets, as usual. We plan to open 100 new stores next year and close 7 to 10. 95% of our new stores this year and next year will be in strip centers.

Our real estate staff has done a great job. Our merchants are doing a great job of putting the right merchandise in the right store based on customer needs and wants. And our store operations team has done a great job of hiring, trading and developing new managers for all these new stores. We are excited about our future.

Now to tell you more about trends in the third quarter, Jeff Rosenthal will speak with you.

We have three major areas of business, apparel, footwear and equipment. On a calendar basis athletic apparel continues to perform very well from Nike and Under Armour. All genders, men's, women's and kids are up in athletic apparel. We see this trend improving as we approach the holiday business in December and January.

Urban apparel has improved from the first and second quarters. We're optimistic that this will turn positive in the fourth quarter. License apparel was down single digits. College is slightly down; however, we see this business being positive for the fourth quarter. Pro license apparel down single digits, and will continue to be challenging for the fourth quarter.

Footwear performed better than expected for the third quarter, up single digits. Key items for back to school had been Nike Shox, Air Force Ones, Jordans, Asics technical running shoes, New Balance Zips, adidas Bounce product, DC and Etnie.

Classic footwear has remained tough. Equipment was down single digits, but accessories were up high single digits with Shox, bags and backpacks leading the way from Nike Under Armour and adidas. Inventory is in good shape and we are well-positioned for the fourth quarter business.

Gary Smith will now speak with you.

Due to the shift into the retail calendar total sales were $129.6 million, which was a slight decrease from last year. We had improvement in product margin rate, but this was offset by the deleveraging of store occupancy and warehouse costs.

Selling and administrative cost increased 8.6% over the prior year, but deleveraged as a rate to sale. EPS came in at $0.25 versus last year's $0.31. For the year total sales increased 4.7% to $378 million, while fiscal comp store sales declined 2.5%. Again improvement in product margin rate was offset by the deleveraging of both store and warehouse.

Selling and admin costs increased 120 basis points from the prior year, mainly due to the deleveraging of payroll cost, increased stock option expense, and increased spends in both advertising and data processing. EPS for the 39 week period came in at $0.71 versus last year's $0.78.

From a balance sheet perspective the Company ended the quarter with $11 million in cash versus $13 million last year. We spent approximately $5.7 million on the stock buyback for the quarter, $26.4 million this year and $123.8 million since inception.

Inventory increased 13.4% over the previous year, in part due to an additional 20 stores that are planned to to open throughout the quarter versus last year's openings, and the shift in the retail calendar as it relates to Thanksgiving. We spent $4 million in CapEx for the quarter and a little over $10 million for the year.

Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS). John Shanley, Susquehanna Financial Group.

Gary, opening the number of stores that the Company is planning in the fourth quarter, it is substantially larger quantity than what the Company had opened in previous fourth quarter. I wonder if you can give us an insight in terms of what happened in the third quarter. I think there were less stores open than what you had previously guided us. And is there going to be any difficulty in terms of opening -- I think you said 43 stores in the fourth quarter comic, if that's correct? That is a large number in your largest quarter. I just wonder if you can comment on that.

I will be happy to comment on it. We had some fall out of the third quarter into the fourth quarter. And we're going to have heavy openings the middle of January. We are reasonably confident that we will get what we're saying in the fourth quarter. There is no reason why we shouldn't. The leases are complete. It may be one or two days in doubt, that is why we had a range, but we should get our stores in the fourth quarter.

Why weren't they opened in the third quarter, as you originally had indicated to us?

For reasons -- landlords -- in some cases landlords did not complete the building on time or the parking lot on time, or the lease to get finished on time.

Fair enough. Mickey, either you or Jeff can -- I wonder if you could give us an indication of how your urban focus stores did in the third quarter compared to the rest of the chain? Are we back to normal sales trend level in those stores, or is there still some issues that you still have to overcome?

Especially going through back to school we saw that the trend gets a lot better than it was. We are seeing at both from a footwear and apparel side, even though it, from an apparel side, it was slightly negative, but we see it dramatically different than it was say second quarter.

What is driving it? Is it some of the apparel categories that you indicated that were strong, the Nike product, for example, or was some of the other items that seemed to be resonating well with the -- with this particular consumer segment?

We see a lot of it from just a change in direction on some of the apparel that we carry. Most of them are not athletic brands from an urban apparel side. But the footwear is definitely being driven by Nike on the urban side.

Can you give us an indication in terms of the marquee end of your footwear business, is that as strong as you would like it? And also can you comment on how the midpriced basketball productline is doing? I think you had indicated the last call that was a little bit weaker than you had expected.

From a premier standpoint, Nike Shox continues to perform well, adidas Bounce product continues to perform well. And some of the marquee think brands like New Balance Zip. Basketball from a performance side is doing much better, more from a price point and end-user. Some of the player shoes, besides Jordans, are not performing as well, but Jordan continues to perform at a pretty high rate.

In general the apparel piece of the business was a little less than expected, and footwear was a little more than expected. The urban stores performed very well in August. Not as good in September and October, but they performed well in August.

Was it due, Mickey, to the late start of the back to school season in Texas and Florida or were there other factors that caused that?

I think that was definitely part of it was the shift in the tax freeze. But we saw it across the board in a lot of states. I think people just waited with a lot of schools starting later. And people are buying on need. And I really feel that we will see the same thing at holiday, that people, the first two or three weeks of December I think will be a little tough but at the end people will come.

Let's hope so. That sounds encouraging. The last question I had is -- and your equipment business was a little bit soft in the third quarter. That is an important product category in the fourth quarter for you. Are there any TV products or anything else that you think is going to help stimulate the equipment category for you this fourth quarter period?

There is a couple of small TV items. And John I don't have them in front of me. I don't remember what they are. But that part of our business, even though it gets to be a more important part in the fourth quarter, is such a small part of our business.

Dan Wewer, Raymond James.

Mickey, opening half of your stores for the year during the holiday season, must create some type of distraction for management. Perhaps you could talk about that. And also on the total (inaudible) total financed 180 new stores, will those also be back loaded into the fourth quarter?

I didn't understand that last question. What was that?

In next year, in the 100 new stores you're opening next year, will they also be skewed towards the fourth quarter?

They will be skewed toward the back and of the year, probably not as much as this year. We don't like opening as many stores as we're doing in the fourth quarter, but when you're dealing with small markets you are usually dealing with smalltime landlords and things happen. We had 130 deals approved this year, and lined up with 90 something -- around 90 new stores. We had that many fall outs. You're just going to have some unexpected things happen to you when you're dealing with small landlords in small markets, or financing falls through or you don't complete something.

But we're confident we're going to get our stores in the fourth quarter. And we think we are going to have a pretty good opening in the first quarter. Probably more than we have ever had before. But I still think we will have more in the third and fourth quarter next year than we will in the first and the second quarter.

Then operationally could you talk about what unusual challenges opening 46 stores during the next quarter will represent?

It is a challenge, but we think we are ready. We think we have the managers ready. And we're very strong operationally. We think we can get it done.

This morning Dick's was indicating a large number of new stores opening in the Southeast, many in secondary markets that are more like Hibbett type markets. Could you comment on how your stores are holding up against the new Dick's competition?

Typically for Dick's -- a big-box won't come to a small market, but they will come to the midsize markets, and we're in some of those. And if we are in an enclosed mall and they come, we certainly take a hit year one, and then start coming back typically in year two. Now if you are in a strip center you will take a little bit bigger hit in year one before you start coming back in year two.

And we think today probably around 20% of our stores are within a 15 minute driving distance of a big-box store. We think that will stay consistent as we expand going forward into small markets where they will never go. They will open some more in midsize markets, but not percent won't go up. So we think we will be fine.

The last question I have is shifting the timing of promotions in November to Black Friday and in the following weekend. Is there a chance that your stores could get cherry picked during this high sales volume period and that could adversely impact margins for the quarter?

Jeff, you want --.

A lot of it is just more driven off of some of the clearance type products. We are really like most -- a lot of our key drivers like full-priced Nike shoes and Under Armour apparel, all that is still at full price. It is more of from a clearance and standpoint and just cleaning up. We feel like we could still hit margin.

Do you have more clearance inventory than last year?

No.

One reason we're doing this, when people come into your store on the Friday after Thanksgiving, and Saturday after Thanksgiving, and they want to know what you got -- what kind of deal you got, because it is the Friday and Saturday after Thanksgiving. And you need to have a good answer. So we just chose to take some markdowns this week rather than the first week in November, so we would have a good answer for them.

Jeff Sonnek, FBR.

Can you guys discuss the systems initiatives? Kind of where are we at now that we're down the road a bit further? And as you look into the fourth quarter, I think some of these things start to roll through in terms of the spring purchasing that will be sold through in the fourth quarter. Are we going to see a little bit of leverage there?

We have seen some product or product margin rate improvement this year. With that being said, I think the merchants are getting more accustomed to the systems. We're getting more familiar on how they work. And as you recall, we have also made the conversion to cost accounting, which the Company has handled very efficiently, I might add.

I would expect to see rate improvement and turn improvement and all those sort of things moving into next year. We're starting -- we will be moving up on the planning piece from a product standpoint, which will go in in February. We will be putting in the replenishment piece. We may even start the spade work next next year on the price optimization piece. So full steam ahead for us.

It sounds like everything is on plan.

Oh, yes.

No complications I guess with getting your merchants up to speed here and adopting the (multiple speakers).

They are very adaptable, and they have done a good job with the system. Anytime you give them the tools, they always do good job at digging deep and coming away with pearls of wisdom.

Is there any pearls of wisdom you would care to share, early learnings that type of thing that might give us a better indication of what to expect next year?

Jeff?

What we have been able to do is really break down our businesses in a lot smaller base. So that we can see -- break out businesses where we can get to a smaller level of detail. We have seen really across apparel, footwear and equipment where we have seen like what store sell a size 3 soccer ball, or what store sells a size five soccer ball. So we are able to put inventory in better places to make it work more efficiently.

Anthony Lebiedzinski, Sidoti & Co.

Can you give us a breakdown for comp sales for average ticket versus number of transactions, both fiscal and also on a calendar basis?

We can certainly give it to you on a calendar basis, which is the one that matches up with the best of last year. The number of items was essentially flat. We got our increase in higher price points.

Would you -- what you would you attribute that increase to as far as the increase in average ticket?

Probably cleaner inventory. We sold more product at regular price. And purposely we want to sell higher end product, and we're just moving more and more in that direction.

As far as your CapEx plans for the year, I think you said year-to-date that you are about $10 million, right?

That's correct.

And as for fourth quarter what are your plans?

The number of stores, I think in the last Q we said we would be at the $18 million range. We will be $16 million to $18 million.

Store growth is a little bit less. Okay. All right, well thanks.

Sean McGowan, Needham & Company.

I wanted to know if you could talk a little bit more about directions of store openings in 2008 -- calendar 2008? What more do you know now than maybe the last time you commented on that?

I know in the first quarter we have 15 plus already lined up. We will probably have a couple of fall out. We gave a range for the fourth quarter that will probably fall into the first quarter. I think thus far if we can get 15 to 20 in the first quarter, that is going to be a lot more than we have ever opened before. And the other quarters we certainly hope to get more in the second quarter this next year than we did this previous year.

I was looking for more of a little bit geographic direction, you know, relative to the DC decision.

We will continue to be in the same 23 state area that we currently operate in. We are going to do a lot of them in Texas, some in Oklahoma, some in Louisiana, but we will do some in Alabama. We will do some in all the existing states, but Texas will be the biggest push. If we add a state at all, it is going to be probably Southern Maryland, which matches up with Virginia, or maybe Southern Delaware, which is on the same parallel. But primarily it is going to be the same 23 states. There is plenty of opportunity. We have identified well over 400 additional markets that we could put stores in. We just got to get the real estate at the right price, at the right position.

Robert Samuels, JP Morgan.

When you look out to next year, can you please talk a little bit about what you see as the key product drivers in both footwear and apparel?

We still see significant growth with Under Armour and Nike apparel. We see our urban apparel becoming back to a normalized where we will start seeing comp store gains. And from a footwear standpoint, we see our technical running such as Asics growing, and Nike and adidas both gaining market share.

Any new brands?

Also in the second quarter Under Armour is coming out with cross training shoes, and Nike's coming out with new cross training shoes. We believe that there is a lot of good things looking forward to in the second -- next year.

We also think that -- next year is an Olympic year, of course, China, should be a big, big deal. There is going to be some hot trends that might really move the needle in the third and fourth quarter coming out of those Olympics. But generally, it generally happens.

David Magee, SunTrust Robinson Humphrey.

This is [Chris Rample] joining the call for David this evening. I just had a question about your guidance. Congratulations on coming in at the high end for third quarter. Just looking at the guidance for the year, I was wondering a little bit what was -- it looks like you went from $1.07 to $1.20 down to $1.07 and $1.15. And I was wondering what was driving -- if that was a function of some of the store openings going into fourth quarter, or if there was any other comment on that?

Some of it had to do with the store moving from the third to the fourth quarter. Also it is just that the environment out there is a little difficult or chancy at this point in time, and we are just narrowing the range of it.

Sam Poser, Sterne, Agee.

Can you talk a little bit more about the traffic patterns down in your market? Because a lot of the other retailers have commented that your neighborhood in the south has been quite difficult, and you just sort of hinted at that a little bit, Gary. How are you keeping the traffic and getting those conversions, especially in the Wal-Mart centers where they have commented that their traffic was down and business is pretty tough?

Traffic is flat. Our transactions in units are flat for the third quarter, and our price point was up slightly, and that is where we got our comp store gain. So our traffic is flat. There's no question. Now strip centers, again, for the quarter outperformed enclosed malls. But for August only malls outperformed strip centers. That is that urban customer. He did well in August. But traffic was flat, there's no question.

I just want to follow up. I got the impression from listening to other retailers that traffic was down. So flat is better than what was out there. What did you do to I guess take more share than Wal-Mart I guess just being in the parking lot?

I don't know that we did anything different from a promotion standpoint.

That may have been a little bit more flow of a product, but from a promotional or anything like that, we were pretty much the same.

Following up on your inventory, it looks a little higher than you would like, just eyeballing it. And you have been a little bit off -- your stock sales ratio has been a little off from the last few quarters. Is this sale that is going to occur this weekend, this promotional event, is that going to take care of that, or was some of it there for new stores and so on and so forth?

The fact that we're opening 20 to 25 new stores could be anywhere from $3 million plus worth of inventory. Then also with Thanksgiving being a little early and with the retail shift in the calendar, we wanted to make sure that we got something to the stores prior to Thanksgiving.

That would make up the entire -- would make up that difference basically?

Oh, yes.

That 10 points?

Yes, we always try to be below store growth or sales growth and improve our turns. If you take those factors that are a little different been last year, I think you come back and see that our inventory is in pretty decent shape.

Another way of saying that, typically the first week of a month you bring in a lot of inventory. Well we had that first week in November in the quarter, and last year it was not in the quarter.

Right. On a calendar basis it is the same week. It is just falling into a different month.

Correct.

That is a big reason too.

Mitch Kaiser, Piper Jaffray.

I was hoping, could you comment on your store within a store initiative with Under Armour and Nike, where you're at with that, maybe in terms of number of stores, and what that might be for '08?

We have looked -- with Under Armour we continue to open more. We redid our Under Armour concepts in our stores, and we're continuing to expand it, which we will more than double. We have -- we do have signage and other fixtures and stuff in a lot of stores, but our new stores with Under Armour, there's about 50, and we're going to do at least another 50 next year.

And Nike, we're just doing some rebranding with some of our fixturing that we currently do. So both Nike and Under Armour, we continue to expand the shop in shop, if you want to call it that. But with 5,000 square feet it is hard to say that it is a shop in shop. It is not a lot of square footage devoted just to that.

That's fair enough. Gary, maybe could you help us just directionally on gross margin and SG&A, both on a fiscal and calendar basis for fourth quarter?

On a fiscal basis, we get a benefit in the calendar, but of course we lose a week. We have seen -- I would expect product margin rates to continue to improve year-over-year. However, with losing that week, I would think we would see some slight deleveraging, both on an occupancy and a SG&A rate.

The SG&A rate was a little over 8% for the quarter. I really don't see that changing that much in the fourth quarter. We're going to have some more store openings. It may be up a kick, but I think at the end of the day it should be below the runrate of this store -- incremental stores that we put on.

If I look, it looks like it was up about 160 basis points on a fiscal basis. It would be below that for the fourth quarter then do you think?

We added more stores in the fourth quarter. It is not a real good comparison because last year we have that 14th week. So it is sort of tough. But I would think it would be in the same range.

Ralph Jean, Wachovia.

Mitch just asked one of my questions. But the second question I had was do you have a hot item for Christmas, a must-have item, and anything to replace Heeley's which I think was pretty good last year?

We feel with some of the assortments that we have done, and most of that came in kids footwear, that we still feel very strong about kids footwear. We think we have some good product offerings. We feel like we will comp that. We still feel very good about some of the cold gear from Under Armour and some of the fleece from Nike and Under Armour. We feel like some of those items will be extremely good.

(OPERATOR INSTRUCTIONS). Jonathan Cramer, Cowen.

Just a quick question on the competition or the competitive environment in the malls.

We still see from a competition with the Foot Lockers and the Finish Lines, I would say pricing is about the same as it was last year. And from a strip center standpoint, most of these markets where in smaller markets that we don't have a lot of competition. So I wouldn't say that it is any more promotional than it was a year ago.

Are they beginning to retrench from some of your markets, and so are you taking share in those markets?

Do you mean close?

Both, yes.

We you had some closes -- only a handful. But we have had some. And of course when that happens we certainly get a pop in sales. We don't know about -- we don't have knowledge of those closings in the future, but there will probably be some more.

John Lawrence, Morgan Keegan.

Mickey, would you just touch a little bit on some of the real small markets you have entered like the West Point, Mississippi? And with the soft economic situation, how did those stores perform?

They are fine. We don't have any bad store in Mississippi. West Point, Mississippi is fine. The one in Forrest, Mississippi, it is good. Of course we are in almost every little town in Mississippi. Greenville and -- our Mississippi stores are good. Waynesboro is good. And certainly Tupelo and Macomb are good. Columbia is good. We hadn't had any problems in Mississippi.

Certainly that urban customer coming back a little bit certainly helps that.

Yes, absolutely.

Sam Poser, Sterne, Agee.

Just a quick follow-up. In your guidance, how promotional are you assuming that the mall-based businesses might get from your competition?

We plan on being on par with last year. And we expect with a change in assortment that we're not going to have to be any more promotional for the whole fourth quarter. Even though we have put some markdowns into Thanksgiving week, we think overall fourth quarter that we're going to be par with last year.

Even if Foot Locker or Finish Line do get very aggressive?

Yes.

There appear to be no further questions at this time. I would like to turn the conference back to Mr. Newsome for any additional or closing comments.

Thank you. In summary, everybody knows we are in small markets. We are going to continue to be in small markets. We could double our store base in the next five to six years. We feel that we have a great future at Hibbett Sporting Goods. Thanks for being on the call today. We look forward to speaking with you on March 14 at 9 AM central standard time with our fourth quarter results. Thank you.

Once again, that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.