Hibbett Inc (HIBB) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Hibbett Sports conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Chairman and Chief Executive Officer, Mr Mickey Newsome. Please go ahead, sir.

Thank you, operator. I'm Mickey Newsome. With me also is Gary Smith, our Chief Financial Officer, Jeff Rosenthal, our President, Cathy Pryor, our VP of Stores and Becky Jones, our relatively new VP of Merchandise who is already making a a positive impact on Hibbett Sporting Goods. I appreciate you being on the call today and appreciate your interest in Hibbett Sporting Goods. Before we start, Gary Smith will cover the Safe Harbor language.

In order for us to take advantage of Safe Harbor rules, I would like to remind you that any projections or statements made today reflect our current views with respect to future events on 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.

As you know from our press release late yesterday, Hibbett Sporting Goods had a much improved third quarter over quarter number two. We were pleased with our $0.30 earnings per share versus $0.26 earnings per share last year. Our same store sales were almost flat, decreasing only 0.2%. Our product margins increased. Our inventory per store was flat. And we did a great job of controlling expenses. Plus, we had $2.8 million(Sic-see press release) in cash with no bank debt at the end of the quarter. Landlords, vendors and suppliers love that.

The first 19 days of November our comp store sales are slightly negative between minus one and minus two, but comps have been stronger in the last week than earlier in the month because of new store merchandise our store recently received. But as we all know, what's important in the fourth quarter is the comps we have on Thanksgiving weekend and the ten days before Christmas. Now for some additional comments about the quarter we'll go to Jeff Rosenthal, our President.

Our monthly sales were as follows. August was slightly down, September was up slightly, and October was relatively flat. Our strip stores outperformed our mall stores, and our nonurban stores outperformed our urban stores. Our areas of business, apparel, footwear and equipment, apparel is broken down into two areas, branded and licensed. First, our licensed business was down low single digits.

However, with the late start of the season, September and October have been positive. College was positive for the quarter. Branded apparel was up mid single digits, led by women's and girls branded apparel. With our strategy to be more performance based, it has worked. We are less reliant on urban apparel brands. Our footwear business was down mid single digits. An improvement over second quarter but continues to be soft.

However, we are seeing some signs with our direction towards performance that is getting a little bit better. Our cleated business was up double digits as customers are buying for need. Our equipment business was up high single digits with baseball, volleyball, football, basketball, fitness were all up. Our accessory business continues to be terrific, up high double digits. Our operation team continues to improve on items per transaction. Our ace inventory is much cleaner than last year and we are ready for the fourth quarter.

Thank you, Jeff. Now for our real estate and new store report. In the third quarter we opened seven new stores and closed two. For the year, we expect to open 42 new stores and close approximately 20. We will expand 18 to 20 high performing stores. Our expansions of high performing stores in the last three to four years have been very successful and we will continue to do that. A typical expansion is from 5,000 square feet to 7,500 square feet. We're certainly not happy with our new store count. This year we had 94 deals agreed on by us and the landlords. 38 of these deals were lost because of landlord issues, mostly lack of landlord's ability to get financing. 13 of these deals moved to future years. We've identified more than 350 to 400 markets in our 24 state area that we can open a store in if we could get the proper real estate.

Very little new construction is being done in small markets with small landlords. Small markets in general don't have the vacancies that you see in the larger markets. When the economy turns, this will change and Hibbett will open a lot of stores in these small markets. Now for some additional financial comments, our CFO, Gary Smith, will speak with you.

Third quarter sales were $145.9 million, a 4.1% increase from the previous year. Comp sales were down slightly. Gross profit rate increased 71 basis points, mostly in product margin as initial mark-ons increase and markdown rates decrease. SG&A was well controlled, increasing less than sales and store growth and down 1.7% on a per store basis. Depreciation and amortization was under last year's dollars, due to declining lease hold improvement dollars, as it cost us less to get into a new store. Operating income improved 98 basis points at $13.9 million, and 9.6%, versus last year's $12 million, and 8.6%. Diluted EPS came in at $0.30 versus last year's $0.26, a 15% increase.

From a balance sheet perspective, the Company ended the quarter with $24.8 million in cash, versus $6.5 million last year. We didn't have any debt at the end of the third quarter this year versus $14.9 million last year. Inventories increased 5.5% over the previous year, but remained relatively flat on a store by store basis. We spent $7.2 million in CapEx for the 39 weeks versus a $17 million budget.

Thank you, Gary. Operator, we're now ready for questions and we're -- Cathy Pryor, our VP of Operations and Becky Jones, our VP of Merchandise are certainly available for questions in addition to the others.

Thank you, sir. Ladies and gentlemen, we'll now proceed to the question-and-answer session. (Operator Instructions). Ladies and gentlemen, as always, your questions and comments are highly valued. And gentlemen, our first question comes from the line of David Magee, SunTrust Robinson Humphrey. Please proceed, sir.

Hi, good morning. Good quarter.

Thank you.

Can you tell us what products came in in the past week that helped the sales recently here in November?

Yes, we delivered quite a bit of activewear and footwear in the first couple weeks that have definitely helped, David.

Do you feel like that -- you got a good supply of that to last over the next several weeks into the holidays?

We sure hope so.

David, Alabama's still selling good too.

Hopefully also the Georgia stuff.

That's right.

Your ability to have better mark-on rates, is that something that you see persisting into next year?

Yes, David, as we continue to get bigger, definitely we'll get more leverage with the vendors so we expect our margins to go up and some of the logistical things on containers and some of just the economies of scale should continue to improve.

Thank you, Jeff. And lastly, Mickey, with regard to the new stores, if you were to approach it by going maybe more aggressively into new states, would that help alleviate the problem of finding the sites.

It would help some. We're looking at some new states, rural states like Utah, Montana, South and North Dakota, Colorado. We are looking but when you get out of those states, you're a little bit limited in those states. We could certainly do some stores in South and North Dakota, but it's not like you can do 50 in each state. It's more like 15 to 20. We're looking at some additional states. We did enter Wisconsin, southern Wisconsin this year and if those couple stores do well, we'll continue there.

Great. Thanks and good luck.

Thank you.

Thank you, Mr Magee for your question. Continuing on, our next question comes from the line of Mark Mandell from FTN Equity Capital Markets. Please go ahead sir.

Good morning everyone. Did cold weather help at all in the most recent weeks and did it hurt in the October period?

Let me answer that question. We looked hard at that and last year --

I have it reversed. I'm sorry, cold weather would have helped in October and hurt in November.

We took Atlanta, Birmingham and Nashville and averaged the temperatures in those greater metropolitan areas. Last year the average low for those three cities was 50.3 -- 50.3. This year, the average low was 51. So it's about the same. The average high last year was 72. And the average high -- that was last year. The average high this year was 69. So it's kind of a wash. We didn't see much change in our area in weather. Now, the one thing you could say was changed, last year we had 3.5 inches of rain on average in our areas. And this year, 7.8. So that could have affected sales in the third quarter some. You could make a case, people don't go to strip centers as much if it's raining, but we don't know that, but weather is probably not an issue. Wasn't really that much of an issue in the third quarter.

Okay. Fine. Can you break down the comps in terms of ticket versus traffic?

It was off about 1% to 2%, it was about one was traffic too.

Okay. And what tax rate should we use, Gary, going forward, from the fourth quarter and beyond?

Approximately 38.

Okay. So that's what I have. And how should we look at Q2 and Q3, given the swings that we had this year? What should we use as sort of a normalized base to build our models and projections?

If you take a look at our business throughout the year, we were affected in the stimulus months, April through August. The months that were not affected by stimulus, we have a good, healthy, positive business. So it was really an anomaly for this year. Baseline, I think we would probably get back to where we were two years ago, especially second quarter, as a percentage to the total.

In terms of these tax free shifts, the tax free holiday shifts and the later school openings --

As far as we know now, you can plan them comparable.

Okay. Okay. I got you. And I guess finally, in terms of the store openings, given the challenges in the real estate market, can you give us any color or guidance in terms of what might take place next year?

Well, it's so uncertain. We would rather wait until March when we really know but we expect it to be similar to this year. We don't see it changing dramatically at all. But we'll know more about that in the early spring.

For now, just use sort of the same number of net openings?

Probably what I would do.

Okay.

It's uncertain. We're making every effort but we don't want to do goofy things.

I hear you. Well, good luck with the holidays. Thanks a lot.

Thanks.

Thank you, sir. And continuing on, our next question comes from the line of Dan Wewer from Raymond James. Please proceed with your question.

Thanks. Actually had a couple of questions for Becky. Becky, first, could you tell us about your experience prior to joining Hibbett and the type of things that you've been working on the last couple of months and maybe how your approach to managing the merchandising department will compare to Jeff?

Sure. I've been in retail for quite some time, about 30 years, and I started off with Wal-Mart and spent some time with them. I went on to the west coast and worked for Fred Meyer and then back down to Wal-Mart and then up to specialty businesses with Joann Fabric and Crafts. So I've had a real opportunity to look at big box and to look at branded products as well as specialty. So I think that's one of the reasons why working for Hibbett kind of rounds it completely out. It gave me a good, rounded look at the business so that I could apply some of the things that I've learned in other places.

As far as the first almost three months now that I've been with the Company, I would tell you that mostly I've been getting on my feet and learning what the assortments are, what is the drivers for us and what we might want to change going forward. The thing that I noticed more than anything else is when I walked into the doors at Hibbett, there's nothing broken here. They're doing a really good job. They have been doing a good job. They have a solid strategy. More from my perspective it's about really digging into the details of the assortment and planning for the future and how we make new stores work really well and ensure that we're getting assortments in the right stores going forward. There will be tweaks here and there but as far as the big strategy shift I don't see a reason to do that.

And then on the comments about trying to change the mix of business a bit away from some of the urban sportswear and focusing more on performance. Can you give us a sense of the magnitude of this change. Is there a fewer number of stores being designated as urban or is it just a change of the content inside of those stores.

It's a little bit of both. The urban stores truly are urban in that respect but we're seeing the performance piece of our business is really a strength going forward so we'll continue to concentrate on that. As urban pulls back, that doesn't mean that consumers not coming in, they're looking for relevant product and we see that performance is just a trend that we need to continue to concentrate on.

Dan, I think for us, it really sets us up for the future much better. We're not as reliant on some fashion goods so it really should build a better core going forward and when we do have those up-trends in fashion we should be that much better for it.

Performance has always been one of our hot buttons but we're just increasing that, both in footwear and apparel. Dan, let me say this about Becky Jones. I never seen anybody that came in and fit in so quick. She's from a small town in Arkansas. Her daughter goes to University of Alabama. Geographically it really fits. She's made an impact. I can tell you, it's going to be more and more.

That's great and good luck.

Thank you.

And thank you. Continuing on, our next question comes from the line of Robert [Daniels] from Oppenheimer. Please proceed with your question.

Good morning. Can you talk about some of the brands especially on the apparel side that are helping to drive the business? And also, how many stores is NorthFace currently in?

Well, we continue to do well with NorthFace. We really don't give out the amount of doors that it's in. We continue to work with them. They're very good partners and we'll continue to grow it. It's performing very well. Our apparel business, both Nike and Under Armour continue to perform extremely well. We have some other smaller niche brands that I don't really want to give out for competitive reasons. But are doing very well. We really feel good about where we are in apparel and equipment going forward, both areas are performing at very high levels. We expect that to go through the fourth quarter.

Great. And then are you seeing anything different from a competitive standpoint out there?

I think people are definitely looking at value a little bit differently and their promotional strategy a little bit differently than they have in the past, as we are.

Great. Thank you.

Thank you for your question. Continuing on, our next question comes from the line of Eric Tracy from FBR Capital Markets. Please proceed.

Good morning. Maybe just a follow-on that value, Jeff or Becky, just talk about sort of the assortment particularly in footwear, I would imagine you talked about last call just moving to a greater mix of opening price product, sort of what stage you're in in that process and how it's been performing to date?

One of the biggest things that I think that we've made some improvements on between really second quarter and third quarter and continuing is the way we present it in the stores. And let the consumers see that we have value. We've always had value, but we've maybe not gotten credit for it from the consumer standpoint and we're just looking at calling it out better and we also look at definitely looking at it from a buy and just making sure that we have some value available. And value can mean a lot of different things. It's not just price, it may be just having better quality products for the price. It really -- there's a lot of different moving parts to that and that's just one aspect of what we do from an assortment.

Okay. So from a mix perspective, the ASPs haven't necessarily trended lower?

They're slightly lower. Around 2%. But we're buying a little more value product, but we're presenting our existing product a lot more in a value way with signage and by putting some shoes out on shoe tables with signage and we're calling it out better.

And are you able to see that that has translated relative to not only from a sequential basis over Q2 but just from a mix perspective? Is that driving? Are you able to see the --

We are seeing that we are getting a higher lift by putting the shoes out on the tables, absolutely.

Okay. And then maybe just turning to the real estate piece. Obviously difficult to get some of these leases signed given the landlords, but maybe just talk about the opposite side of rents and the opportunity for benefit there and then secondarily, just in terms of some of the smaller independents, are you continuing to see sort of a rationalization there and sort of the opportunities to take share?

Well, we have seen some small independents go out, not a lot, but there have been a few and when they do, it makes a big difference in our comps. In regard to rents, of course, we signed five year leases with one or two five-year options, hopefully three sometimes, but we typically have a kickout at the end of the third year where we can get out if it's not a performing store and we can renegotiate a lease and we're certainly saving a lot of money renegotiating leases on the kickout expiration or on the lease expiration. We're getting good savings there.

And what percentage of the mix now did you have those sort of available for renegotiation?

It's probably typically around 100 this year and it should be a little bit more next year.

Okay. Great. Thanks, best of luck.

Thank you, sir. Continuing on, our next question comes from the line of Chris Horvers from JPMorgan. Please proceed.

Thanks and good morning.

Good morning.

Clearly doesn't sound like you think there was a pull forward in demand during the third quarter. Do you think that the slowdown at the end of October and the building demand in November was weather related? Is it the consumer buying close to need? And as you get closer to the Christmas season, some people coming back in the stores? Could you frame that out?

I really think that it's a -- I think people are buying closer to need and one week weather may be good, one week it may be bad, so I think it's just a wash. I think it's just consumer behavior and I think people will be buying closer to need as they have been doing the last two to three years.

And on the -- could you maybe quantify directionally how much your mix shifts into the fourth quarter from the third towards the apparel and accessory side versus footwear?

Well we even saw it in the third quarter. Apparel and equipment have become a bigger percentage and that shift, 2% or 3% shift.

Right. Okay. And then on the accessory side of the business, clearly the systems investments are paying off here. Do you think -- when do the really hard comparisons start on the accessory side of the business?

Well, we really feel we're going -- it will be two years in June, but we really feel that the third year we'll get the most back because you really have to build a history and build of being in stock. So we're still -- feel like we're still catching up, even though we've done a better job in staying in that business. We still feel like we haven't come close to maximizing the business yet.

Our store operations team has really stepped up. We're selling more items to each customer versus last year. We've improved the last three years and we'll continue to improve and that helps accessory sales.

My final question is you wanted to get out of some of the fashion side in the footwear coming out of the second quarter, do you think you're done in your switch to emphasizing the performance side of the business more than the fashion side or does that change, is that an ongoing change in the fourth quarter?

We really -- we're just beginning that switch and it's going to take time. I think fourth quarter will be a little bit closer to where we need and spring will be a lot closer. I still believe it's going to take us at least to back-to-school, maybe even longer, but I think each quarter as we get through it will be a little bit closer to where we want that mix to be, but I think it's going to take some time. And we're just starting to get to that point and we're just touching it now and spring will be better but I think back-to-school will be the most that we'll be at and I think it will be evolving.

It's not like we're getting out of the fashion. We're just down-grading it and upgrading the other, the performance.

Thank you very much.

And thank you for your question, sir. Continuing on, our next question comes from the line of Ken Stumphauzer from Sterne Agee. Please proceed with your question.

Hi, everybody. It's Sam Poser. Couple questions. Number one, could you talk about the buyback authorization that you put through and as far as intent to use it, maybe to offset some of the slower store openings or something to that effect?

Well, the buyback, we had an authorization at up to $250 million which was going to expire in January. So instead of just amending and extending that, we just decided to put out a new one. Certainly our view on the buyback is a little bit different than it has been in the past. Right now, depending where the stock is, we're right around the strike price but I would think, A, we wouldn't go into debt and B, we would want to keep anywhere in the slow times $25 million to $50 million on the balance sheet. So, short-term I don't see us being too active with the buyback, but as things improve, the business improves, we could get back to prior levels.

The old $250 million, we had used quite a bit of that. The 250 that we were authorized previously so we've got a new, fresh full $250 million now.

Thank you. And Jeff, I missed it. Can you walk through the months in November, I missed it, when you went through it, the sales line months.

We were slightly down in August, up in September and flat in October.

And November to date?

Down slightly.

We're down like 1, and the last week has been much better than the beginning of November. We've gotten a lot of new, fresh merchandise in and I think it's beginning to help.

What is the differential between the malls and the strip centers right now? Is that gap getting wider than it has been in previous?

It's pretty similar, Sam. But it is -- there is a pretty good gap there.

And lastly, is there any incremental -- I know that there was one big Nike shoe that moved because of a mess-up from Q3 to Q4, which I believe is launching tomorrow. But are there any other incremental launches or big things going on in the fourth quarter this year that didn't happen last year?

Yes, the launch that moved, most likely we expected it would have made us at least flat so it did make a difference which is launching this Saturday. Most of the anniversarying of products, we feel like we're in a better position of what's coming out this holiday versus last year on what kind of launches we had a year ago. And with some of our teams that we have still, we feel pretty good but it's still up to state -- Alabama is still playing and we have Texas in the championship and we have the Saints, so from a team standpoint we're sitting good right now but anything could change that any day. But we're cautiously optimistic on where we're sitting today.

Sam, if Alabama could win, it's going to mean a few million dollars to our sales.

And a lot more trivia.

That's right.

Thank you very much. Good luck.

Thanks.

Thank you, sir. Continuing on, our next question comes from the line of Rick Nelson from Stephens, please proceed with your question.

Good morning and congratulations. Can you remind us how comps tracked during the holiday quarter last year. As I recall, November was the tough compare and then things got easy in December and January.

I believe last November was down low singles. December was down low single and January was down probably closer to 3 or 4.

Got you. And then ASPs in footwear and apparel, are you seeing any resistance to the higher price point merchandise, Jeff?

Not really. They're off a little bit, 1% to 2%, but if it's the right product, price is not the deal. You just have to have the right things. We have one shoe that's $160 that's doing fine. So it's just about having the right product. But there are -- there is definitely some people that are looking for value type shoes.

And if I could ask you about regional areas of strength and weakness and are you seeing any notable differences in sales in your cold weather markets versus the warmer weather?

Yes, we're really doing well in the farm belt, Kansas, Oklahoma, Missouri, Kentucky, we're still doing extremely well. We did well in New Mexico, Arizona, where we are struggling a little bit still, the Carolinas, Georgia a little bit is tough, Texas has gotten a little bit tougher in the last quarter.

Very good. Thank you and good luck.

Thank you.

Thank you, sir. Continuing on, our next question comes from the line of Anthony Lebiedzinski from Sidoti & Company. Please go ahead, sir.

Good morning. Couple questions on the store expansions that you're doing. Could you go over what it cost for you to expand the store? Also, when you look at the product mix is it proportionately higher as far as the products, are you putting in the same amount of footwear and apparel and other products? What kind of incremental sales lift are you getting afterwards?

It depends on the situation we're in and whether the landlord needs us or whether we've got to move to a different spot, but I would say it probably costs us $40,000 to $50,000. We reused the fixtures and the equipment. There may be some lease hold to be done. We've moved the signage. Typically, we don't add a lot of merchandise. It's amazing. If you got an over performing store at 5,000 square feet you're probably not presenting it very well, it's too crowded. When you present it better in 7,500 you get a sales bump without a lot of additional merchandise and we've experienced pretty good jumps, anywhere from 5% to 20% in expanded store, and many times it won't be the first year. For some reason, it's the second year that it's expanded is when you get the big jump.

And also, any idea as to how many of these store expansions you would do next year?

I think we'll do at least 20. We want to do more, but typically the over performing stores may not have vacancies in the center. It may be the number one center, we don't want to move. It just depends on the situation. There's probably had 40 or 50 we would like to do but it will probably be around 20.

Okay. And as far as the system upgrades you've definitely seen a nice benefit from that. You've talked in the past about price optimization, possibly. Could you just discuss that right now?

Well, we're -- Anthony, assortment planning is going in this month. And we have, looking at enhancements in allocation, enhancements in the E3 and we're sitting down and scoping out price optimization later this month. So we're moving full speed ahead on trying to maximize the inventory.

Okay. All right. Thank you.

Thank you.

Thank you. (Operator Instructions). Thank you. Our next question comes from the line of Kristine Koerber from JMP Securities. Please proceed with your question.

A couple questions. What about the labor management tool? When are you planning to implement that?

We plan to implement that the first of next year. We're almost done with the testing now and as we go through the next quarter, so we plan to implement that in February.

Okay. And then can you tell us where you stand now with percentage of goods on replenishment?

We're still a little over the 20% range and hopefully to grow that in spring.

Weren't you targeting 30% by year end?

Yes. We're not going to get there. We'll probably be in the closer to maybe the mid-20 -- mid, high 20s, around 25%, but we're still working. We need to get a lot more footwear on it to get it to the 30% range and a lot of that won't happen until spring and we're still working with our vendors to do that.

Okay. And then as far as your guidance, what are you assuming as far as the footwear business because I believe last quarter were you planning footwear to be down the mid-to high single digit range, it's now running down mid-single digit. Just trying to figure out what you're thinking as far as footwear going forward?

Yes, we would expect slight improvement for the mid single digit. Our hope is to get it close to zero.

By when?

Throughout the quarter.

Throughout the quarter. Okay. Great. Thank you.

Continuing on, our next question comes from the line of Camilo Lyon from Wedbush Security.

Going back to the real estate, looks like your store opening plan for this year was reduced by about 10 stores since last quarter. My question is what changed so dramatically in the last three months. I understand that the landlords that you're dealing with are having financing issues of their own. Has the world really changed that much since August?

It really has. Most of it moved into next year. The landlord's just not going to get it built on time because the financing was delayed. I went to the Atlanta ICSC meeting the International Council of Shopping Centers and you could tell talking with some small landlords, they're really concerned as it relates to their bank loans on properties when the loan comes due, they just have a big concern, it may not get renewed and I think it's going to be a lot of more uncertainty in the real estate world in January, February and March, than even we have now. I think there's more to come in that arena. So -- it won't last. It may last through next year but it will turn and when it does we're going to take full advantage of new store opportunities.

Does that -- so it sounds like that doesn't make you want to alter your strategy of going into the smaller markets. Is that correct?

Not really. No, we're going to go where we're needed. We don't really believe competition makes you better. We would rather go where there's not much competition and there's plenty of small markets for us to go to. We've just got to get the right real estate and the right opportunity and we're not going to change what we do.

Okay. And then finally, how quickly could that store growth reaccelerate? So if you get a call from a landlord tomorrow and they say they have availability, what is the lead time to get that store open?

We can open a store in a quarter, within 13 weeks, so we could move very quickly on it.

Easily. We don't build Castles. We'll take a vanilla box and put maybe add to the lighting and put the floor covering in and our furniture and our fixtures and we're in. We can move very quick on a new store.

Okay. Thank you. Good luck.

Thank you for your question, sir. Continuing on, our next question comes from the line of Chris Svezia from Susquehanna Financial Group. Please go ahead, sir.

Good morning, everyone. Gary, a question for you, just a follow-up. On the gross margin performance in the quarter, did you -- what happened on the occupancy side of the equation?

The occupancy in the warehouse netted off with each other and the most of the gain was in product margin.

Okay. All right. So as we look to your guidance of down 2 to up 2 for the fourth quarter, is it fair to say distribution occupancy cost could be flat -- you could start to leverage if you start turning towards the positive end of that?

We could, yes.

Okay. And then just on that comp forecast, you mentioned earlier about footwear potentially trying to get back to flat. If you think about your apparel business becoming a bigger piece incrementally in the quarter and obviously you're seeing success there and certainly on the accessories and hard lines. Just, again, having a conservative bias in that comp forecast or is there something else remaining? Just looks a little conservative.

Nothing under the covers. Just trying to be conservative in the fact that still there's a bit to go in footwear. Our other businesses are healthy and certainly in the fourth quarter there's a lot more discretionary buys than there would be in the third quarter.

Okay. And then last question I have either for Jeff or Becky, when you think about product and on the footwear side, any thoughts to the toning or fitness category as a potential opportunity for you? Are you looking at that at all?

We are. We actually had the toning product coming into some of our stores for the fourth quarter and we'll see that grow into next year as well (inaudible). We'll build upon it. As long as we see good marketing around supporting the program, then we'll be able to support it from our end as well.

Okay. All right. Thank you. Good luck.

And thank you, sir. Continuing on, our next question comes from the line of Mitch Kaiser from Piper Jaffray. Please proceed with your question.

Thanks. Good morning. Nice quarter. Gary, could you talk a little about what your expectation is for the merchandise margin in the fourth quarter. I know you're facing a very easy compare as you did a lot of markdowns in the fourth quarter last year and seems like you're getting some nice momentum on the markup side and shrink.

We would expect it to be up 25 basis points or more.

Okay. And then occupancy, it just depends on the comp I guess?

It does, yes.

Okay. And then just incentive comp and some of the expense items, how do you think those will trend?

Well, SG&A we levered that on a flattish comp so we would expect per store SG&A to be down on a per store basis year-over-year.

Okay. Sounds good. Are you selling any Favre jerseys in Mississippi?

Some. Minnesota thing, right, Mitch?

Exactly.

Yes.

Thanks, good luck.

Continuing on, our next question comes from the line of Seth Cohen from Valinor. Please proceed with your question.

Hi. Just a quick question. You're a growth Company. I'm just curious why you would buy back your stock if you -- not like your stock is cheap here. Just curious why you're not hoarding cash and waiting for the real estate market to come back to you.

We're a net excess of cash. We'll probably this year increase cash by a dollar a share, next year going forward. If we didn't buy any of the stock back over the previous three or four years we would have $200 million worth of cash on the balance sheet and that would sort of be with the returns we're getting on it, it wouldn't be very efficient for the shareholders. So I think at the right place at the right time and the right cost, that it's the right thing to do for the Company to buy the stock back.

Talk about the cost of a new store.

The cost of a new store to get into it from a lease hold standpoint's approximately $30,000 and we put approximately a couple hundred thousand dollars in it in inventories offset by payables. For us to get in a new store it's $150,000 to $180,000. Certainly to fund new stores is not a decision -- it's not an either or decision for us because we have plenty of money.

Thanks very much.

Thank you.

Thank you. And our next question comes from the line of John Lawrence from Morgan Keegan. Please proceed with your question.

Good morning.

Good morning.

Just real quick, Mickey, is there anything that you can see in some of the centers where Wal-Mart has made the big -- have made a big remodeling push, have you seen that higher end customer come to that center because of that remodel at all in some of those markets?

It's hard to tell. We think the high end customer comes to that market anyway, that store anyway in a small market. As you know, all kinds of customers shop Wal-Mart in the deep south in small towns and we really haven't looked at it that way, but I will say strip centers are outperforming enclosed malls. What you're saying could be a little bit true but we have not specifically measured it against where Wal-Mart has remodeled.

And secondly, back to the expanded moving -- expanded some of those stores. If you looked at the total fleet, how many of those do you think you could expand today if timing wasn't an issue? How many of those 5,000 would you like to have at 75?

Looking at the entire chain, we would probably like to have 80 or 90 expanded but it depends on the circumstance and is it available and just a lot goes into it. Expansions from a lease standpoint are sometimes harder to do than a new store, but there's 70 or 80 minimum that we would like to expand.

Great. Congratulations. Thanks.

Thank you.

Thank you, Mr Lawrence. Mr Newsome, there are no further questions at this time. I will turn it back to you for your closing remarks. Thank you, sir.

In summary, we are cautiously positive about the fourth quarter. We are pleased with the start we've had in the first 19 days. We're an improved Company year-over-year. Store operations have certainly improved on selling more items to each customer. Our system improvements have really caused us to have the correct merchandise in stores based on customer wants and needs. We've improved our in-stock position on basic items. We're losing less sales. We will continue to keep a close eye on expenses which has always been our Company culture. We have a sound, solid model, small markets where we're needed. Hibbett Sports has a sound, solid future and I want to also say one thing. Our press release in the spring will be the morning of the call and not in the afternoon -- not on the afternoon of the call.

In closing, I have a quote from a very famous person. Paul Bear Brown. You all know who he is. I want you to remember this. If you want to walk the heavenly streets of gold, you got to know the password. Roll tide roll. Thanks for being on the call today. We look forward to speaking with on March the 12th at 9 central standard time with our fourth quarter results. Thank you.

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a great weekend.