Hibbett Inc (HIBB) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Hibbett second quarter 2011 conference call. During this presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded on Friday, August 20, 2010.

At this time for opening remarks and introductions, I would like to introduce Mr. Mickey Newsome, Executive Chairman. Please go ahead, sir.

Thank you, Operator. With us also is our CEO and President, Jeff Rosenthal, our Senior VP of Finance, Gary Smith, our Senior VP of Store Operations, Cathy Pryor, and our Senior VP of Merchandising Marketing, Becky Jones. We will all be available for the questions. We appreciate you being on the conference call today. We appreciate your interest in Hibbett Sporting Goods. But 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.

Now our President and CEO, Jeff Rosenthal, will speak with you.

Good morning. As you know from our press release this morning, our second quarter's earnings per share was $0.14 versus $0.04 a year ago, a 257% improvement. Overall sales for the quarter increased 15.5%, and same-store sales were up 11.9%. For the quarter, by month, May was up 12.8%, June was up 13.3% and July was up 9.5%. The momentum in July shifted into our third quarter because of Georgia did not have a tax-free this year versus last year.

The first 19 days of August we are positive low double digits. We are encouraged by those results and the trend. The majority of our back-to-school is already over and August is the biggest month of the third quarter. Number of items per transactions are up and our average dollar per transactions are up, but our average price per item is slightly down. We are definitely getting more traffic in our stores.

From a real estate perspective, we opened ten new stores and closed three, bringing the store base to 774 stores in 25 states. We plan to open at least 30 new stores and expand approximately 20 high-performing stores. We intend to close approximately ten to 15 underperforming stores, which is permitted by the terms of our leases for those stores which will make us even more profitable. We still have identified 350 to 400 additional small markets in our 25 state area that we can open stores in. And we can grow to over 1200 stores minimally in the same 25 state area.

Areas of business, apparel, footwear and equipment, activewear was up double digits led by womens' and girls' activewear. Key brands are Nike and Under Armour and all genders of activewear were up. Licensed was up double digits with both college and pro performing well, which is a good start and a good trend going into the important college football season and the NFL. Footwear was up high single-digits, led by womens. Key drivers were Nike, Lunar Air and [Free], Reebok Zig, Reebok Tony. Sandals for all brands performed very well. Equipment was up single-digits, led by football, soccer and basketball. Key vendors were Nike, Under Armour, Easton, Wilson, McDavid and Shock Doctor. Our accessories continued to outperform the entire Company with shoe care, socks, sunglasses and miscellaneous items.

Our investments in systems has helped us to satisfy more customers and our operations team continue to drive more items per transaction. With our merchandise initiatives, we are set to have a good third quarter.

Thank you, Jeff. Now our Senior VP of Finance, Gary Smith, will speak with you.

Good morning. Second quarter sales were $139.8 million, a 13.6% increase from the previous year. Fiscal comps were up 11.9%, the third consecutive quarter of double-digit gains. Georgia was the only state in the second quarter to have a negative comp month, which was in July, due to the elimination of tax-frees. Over time due to the shifting retail calendar, higher store count outside the Southeast and schools opening later, the second quarter has loss sales momentum while the third quarter has gained.

Gross profit rate increased 215 basis points. Occupancy cost levered 122 basis points versus last year, due to a mix of co-tenancies and rent reductions. Occupancy costs on a per store basis declined slightly in the second quarter versus the previous year. Retail product margin was up 60 basis points, due to better discounts, less promotions, mixed, and improve shrinkage rates. Warehouse costs were $113,000 under last year's dollars, and reduced the expense rate by 33 basis points.

Store operating, selling and admin cost decreased 46 basis points in the quarter, as we continued to make strategic investments in the business. We have increased staffing in our stores to maximize the customer service experience, and we've made investments in Corporate to manage inventory and systems.

The bonus and incentive accruals posted an unfavorable comparison in this year's expense rate of up to 30 to 35 basis points in the quarter. We expect to have a more favorable comparison in the fourth quarter.

Depreciation and amortization was under last year's dollars, due to a declining capital expenditure spend as it cost us significantly less to get into a store. Operating income was at $6.5 million and 4.6% versus last year's $1.9 million and 1.6%, a 360 basis point gain. The tax rate was slightly less in the quarter due to a favorable true-up. Diluted EPS came in at $0.14 versus last year's $0.04. On a year-to-date basis, the Company had surpassed its EBIT dollars and EPS in 26 weeks versus 39 weeks last year.

From a balance sheet perspective, the Company ended the quarter with $66 million in cash. This represents a $50 million increase from the second quarter last year, and a plus $16 million increase from year end. Total inventories increased 1.9% over last year, but was slightly down on a per store basis. We purchased 200,000 shares of our stock for a little less than $5 million, and we spent $4 million in CapEx for the quarter versus an annual plan of $10.3 million.

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

Thank you, sir. Ladies and gentlemen, we'll now proceed to the question-and-answer session. (Operator Instructions) Our first question comes from the line of Peter Benedict from Robert Baird. Please proceed with your question, sir.

Hi, guys. Good morning. A couple of questions. First, Mickey, maybe you can help us, I'm trying to frame the new store opportunity for next year and I know the plan for this year but with the increased availability of some second use units, can you talk about the new store opportunity as you see it right now for 2011?

We don't have an exact count yet but it'll-- we certainly expect to open more next year than we did this year.

Okay. And then Gary, as you look to the product margin up 60 basis points in the second quarter, how was that versus your initial plan as were you kind of coming into the quarter? And what should we be thinking about for the back half of the year as comparisons get a little bit tougher, do you still expect product margins to be up and do you expect gross margins in aggregate to be up?

It was up versus our plan in the second quarter and we expect to see some gross margin expansion in the third and fourth quarters.

Okay, terrific. And last question just on the SG&A front, on a per store basis I guess up about 10% in the first half, I know you talked to the incentive comp, how should we think about that in the back half of the year? Are you still expecting a double-digit increase or should that moderate some?

Well we expect it to grow about half the rate of total sales growth because we have some new stores in there. We expect to get some of this bonus accrual offset back in the fourth quarter especially. So the second quarter's a tough quarter for us because it is the least saled quarter, so any sort of a fluctuation is just tough to cover.

Okay. Good. Thanks a lot.

Thank you.

Thank you, Mr. Benedict, for your question. Continuing on, our next question comes from the line of Rick Nelson from Stephens, Incorporated. Please proceed with your question.

Thank you and good morning.

Good morning.

Good morning.

See about the competitive landscape, I know one of your competitors said yesterday that 25% to 30% of their new stores are targeted at smaller markets, in fact, rural markets and you said something you're seeing more head-to-head competition with some of the big boxes.

Rick, we really aren't. And I'm not sure what their definition of rural is. We're looking at county populations of 25 to 100 or 75,000. I think they're talking about towns. We've seen a few big boxes but not very many. So I really think they're talking about bigger cities. We're-- in like a Hazard, Kentucky or a Gun Barrel, Texas or-- sometimes there's not even a Wal-Mart in some of those type towns so I don't think they'll be putting a big box there.

And can you update us on the real estate market and what you're seeing with developers and their access to capital? You've got a few more stores remodeled this quarter, is there some opportunities here and Movie Gallery store fronts?

Yes, Rick. We've already have signed about 17 Movie Gallery doors to open. So we're definitely seeing between Movie Gallery's and even a few Blockbusters that there is some opportunity out there to grow. We expect to update our store growth at the end of this -- of the third quarter, and we expect to beat what we have out there. We just want to be more definitive and we can give a better color on that at the end of the third quarter. But we expect to beat what we have out there.

And Rick, we're not seeing any new construction yet but maybe some will start happening, maybe we've seen one or two spots that's going to be new construction but that's what we've got to get back is new construction.

Is there a number of vacant store fronts in these shopping centers? I would think it would be a buyer's market to go into existing.

Yes, there are some, Rick. But a lot of times it's small markets, there's not a lot of extra space, not like you'd see in some bigger cities. But there is some and we'll take full advantage of the ones that we see that we can get our type of deals in.

Got you. Okay, thank you for that color. Also, final question, like to ask you, you've got some really tough on a compares coming in the fourth quarter. I know things are fairly easy up until then. What is the game plan I guess to overcome that, other than Alabama, recycling again?

Yes. We feel very confident in our plans for the fourth quarter, going in some tougher comparisons. We have a lot of initiatives. We have an expanded outdoor presence. We have done many things inside other businesses that we think are strategically right for us. So we really think that we have enough ammo in our -- for the fourth quarter to overcome it. We have a lot more marketing plans and other type of things that we think that we could be pretty successful overcoming those big numbers that we're going against in the fourth quarter. We really think that we're ready for it.

Great. Thanks a lot and good luck.

Thanks, Rick.

Thank you, Mr. Nelson. Continuing on, our next question comes from the line of Mark Mandel from ThinkEquity. Please proceed with your question.

Thank you and good morning. Gary, I was wondering if you could just give us a little more clarity on the outlook for the second half with respect to same-store sales, the press release said mid-to-high single-digit same-store sales for the back half. I think consensus is looking at 5% in Q3 and around flat in Q4. Could you give us a little more color on those periods?

Well, like Jeff said, we're up low double digit right now. August is more than 40% of the quarter. We don't see us losing that much momentum going forward. And in those numbers, we see a high-single to double-digit third quarter and a flattish fourth quarter.

Got it. Thanks. But looking at the expenses, were any of the other buckets, did they contribute to I guess what would be considered a greater than expected expense growth? And by that I'm meaning remodeling activity, pre-openings, did you open more stores than you had anticipated, investments in E3 and other initiatives, marketing spend, any of those expense categories contribute to a faster than expected overall growth?

Not really. We saw a little bit of an uptick in our medical cost. We've seen since then that it's come back to a more normalized rate. So we expect to get back on trend third and fourth quarter.

So you mentioned the incentive comp will compare more favorably in the fourth quarter. What about in the third quarter?

It's probably you're not going to see it swing too much one way or the other because last year we really made all of our year in the fourth quarter. So that's where we picked up the bonus accrual.

Okay. Got you. And E3, can you just give us an update on where that initiative is?

Well, it's still high 20% of the SKUs which is bringing in an above average gross margin rate and we're trying to roll it out to more SKUs, especially in the footwear category.

And the year end target in terms of percent of SKUs?

We'd like to be over 30%. We may or may not be but that's where we'd like to get to.

Okay. Thanks. Good luck.

Thank you.

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

Thanks. I just wanted to follow up on the topic about Dick's and their going into the secondary markets. So Jeff, I understand they're unlikely to go into Gun Barrel City or Hazard, Kentucky, but on the other hand they are making a push into some of these markets such as Macon, Georgia or Tupelo, Mississippi that are not rural, but I would consider these probably to be in a really good markets for Hibbett. Have you had a chance to look at your stores and some of those mid-sized markets where you might see more head-to-head competition with Dick's and to see how your stores have compared in the past?

Dan, this is not new. We've had some big boxes open on us in mid-sized markets in the last five or six years. We get a handful of those each year. But if we're inside an enclosed mall like Longview, Texas and a big box opened outside, we were doing $800,000 in sales when they opened and it drove us down to $700 ,000, but that was six years ago. Today, we're doing $1.2 million in Longview, Texas. So we come back if it's an enclosed mall. It's not that big a deal. Now if we're in a mid-sized market, we're in a strip center, it can have more of an impact but there's not that many left that they're not already in. There's very few in our area of mid-sized markets where there's not already a big box. And of course we're primarily the small market guys and that's where we're going to concentrate on.

Okay. Second question, Jeff, can you remind us of the impact that weather had on your business last year? As I recall, the cooler weather benefited your third quarter, and I can't recall what the impact might have been on the fourth quarter, but how that impacts your planning for the second half of this year?

Yes. I think Gary said earlier we still expect our third quarter to hit those numbers. We did have a cool spell a little bit in, I believe it was October last year. It may shift a few sales into fourth quarter but we don't think it's going to make that big a difference to our quarter. And we really think we get a little bit of cold weather in the fourth quarter may help because like Under Armour last year, after the first run, they ran out of a lot of goods and couldn't fill in so we think we're better positioned, especially for the fourth quarter. So I really don't think it's going to have that big of an impact on us on the third quarter, it may affect us a little bit but I still think we're in pretty good shape.

And I recognize-- this is my last question, I recognize the 4Q comparison is very difficult. On the other hand, you'll have, what, twice the number of stores with the North Face, was it 300 this year, compared to 150 last year?

Yes, it'll be over half our chain this year will have an outdoor presence of some sort. And between North Face, Colombia, we're also doing some footwear around some stores which we didn't have a year ago, so we feel that we're pretty well positioned to take advantage of that.

So in thinking about comp sales at flat in the fourth quarter this year, again, recognize you have a difficult year-over-year compare, you'll have the benefit of this category. What could be the offset?

I think it'll more than offset--

(Inaudible) it's Alabama and the Saints, is that the issue during the fourth quarter?

That's really the only thing that we feel that are significant numbers. So we think that the outdoor load can-- to combat against Alabama and Saints and we think we have other things that were worked on that could hopefully get us better than flat.

Yes, great. Well, thanks and good luck.

Thanks, Dan.

Thank you for your question. Our next question comes from the line of Anthony Lebiedzinski from Sidoti Capital. Please proceed with your question.

Good morning. Wanted to follow up about the store expansion. As you look towards next year, are you mostly looking to backfill existing markets or perhaps go into new markets? I didn't see your comment about Colorado, so can you talk a little bit about that?

We feel that we're going to mostly backfill. We may look at a few other states that are within a two hour driving distance of a particular store, a particular state, but mostly it's backfill within the same 25-state area. We are looking at possibly opening another store in a state close by this year. But it's within a two hour driving distance to another state so it's really same concentration of stores.

And then previous conference calls you had talked about going into the Movie Gallery locations, I think you gave a number of possibly 50 to 100. Is that still accurate as far as the opportunity for former Movie Gallery locations?

Yes, we've already looked at -- we've already either in letters of intent or in [overs] or we've signed leases in 17, and we have identified probably at least that many. We look at every portfolio. I believe they had almost 2,000 stores, and I don't even remember how many were in our areas but there is going to be a lot more opportunity with that. I don't have the exact number but there still is a lot of opportunity there.

Anthony, keep in mind, there's over 2500 Wal-Marts in the 25-state area that we work in and we only have 700 and something stores. You can make an assumption, half of those Wal-Marts are in large markets. That still leaves 1200 to 1300. We've got a lot of opportunity in existing states to add stores in.

Okay. And as far as the operating expenses, was there -- within the operating expenses, was there a significant increase in perhaps advertising expenses?

Not really, Anthony.

Okay. Thanks.

And thank you for your question. Our next question comes from the line of Kristine Koerber from JMP Securities. Please go ahead, ma'am.

Yes, hi. A couple questions. First, in looking at your inventory, I believe you said it was down slightly on a per store basis. How are you feeling about inventory, given the sales trends that you're running?

Hi, this is Becky. Actually, we feel pretty decent about where we're headed for the back half in our inventory overall by store. We-- you won't see it grow significantly door by door. However, we think that our mix is really the place where we've made the adjustments to ensure that we're in the right spot.

Have you had any out-of-stock issues on particular products?

No, no, we're not seeing any kind of issues in that regard yet.

Okay. And then you mentioned store opening costs down significantly. Can you-- Gary, maybe you could quantify?

Well, the store opening cost, it wasn't on the expense line, it was on a capital line that it's really costing us very little to get into stores. On a pre-expense, pre-opening, it's only $15,000 to $20,000 for us to open a store and the capital investment, excluding inventory, is probably $25,000 to $50,000 tops, so that's where that comment was directed.

Okay. Got it. And then just a question on current trends. I know you said trends were strong in August of low double digits. Is that even after we've had some of these tax-free holiday weekends?

Yes, it is. The only one we have left is this weekend in Texas. All the other ones we've already anniversaried. Majority of our stores just where we are geographically are already in back-to-school, so being that it's the biggest part -- the biggest month of the quarter, we feel really good where we are. And really only Texas and-- really, Texas the first 19 days, they were already comping big without tax-free so this should only help them this weekend.

Okay. And can you just remind me how many stores of your store base benefit from the tax-free holidays?

It's 11 states and I would think it's probably more than half of our base.

Okay. Great. Thank you.

And thank you for your question. Our next question comes from the line of Chris Svezia from Susquehanna Financial Group. Please proceed with your question.

Good morning, everyone. Just a couple questions here, just on your comp guidance up mid-to-high single-digits, how should we think about that by category? Is it just going to be a continuation of what you saw during the second quarter, apparel being strong, followed by footwear and then hard lines?

Yes. Apparel has led the way. We expect it to continue to be good and footwear's hung in there pretty well and really we could say the equipment piece has also been good. This is probably the longest that I've seen since last fourth quarter that all three divisions have been up since last fourth quarter and we expect that to continue through third and fourth quarter.

Jeff, any color you can give on how you're thinking about the basketball business versus running and any color you can give on just what's happening on the toning end of the business, either by brand or just what you're seeing there?

Yes, basketball was pretty good first quarter, very tough second quarter.

Right.

Picked up a little bit back-to-school. Some of the retro Jordan's like Retro 7 and some of those have been better at back-to-school. Really, the second quarter when it comes to launches of basketball has been very, very tough and we'll adjust accordingly next year. As we go through the year, we expect to have some good launches in the fourth quarter and in back-to-school, last couple ones we've had last couple weeks have been decent. We expect basketball to be okay. I wouldn't say that it's expanding. Yes, but we expect it to be okay.

We are excited, Reebok is coming out with Zig product for basketball and a very limited way, Under Armour is coming out with basketball for holiday too, not enough to move the dial but they are coming out with it. But running continues to be extremely strong. And toning, even in our women's product, we were up in women's footwear double digits without toning. So we expect toning to be a good category going forward. We're very limited amount of doors last year so we expect it to be a good business.

Okay. And then just on -- when you guys think about the outdoor component to your business as it evolves, and you made the comment that it'll be I think in more than half your doors. Just any color about what percentage of your mix-- or I guess trying to put it in the context of how much it is in your stores, or how much of the mix it is year-over-year, how much it's increased. Just trying to get an idea about how meaningful that could be to the fourth quarter from a mix perspective.

Yes, I really don't have the percentage, Chris, but it is a significant dollar amount that we think it could move the needle.

Okay. And then the last question I have, just on the gross margin, just so I'm clear, Gary can probably answer this, just between third and fourth quarter I guess the biggest increase will be in third quarter, to a much lesser degree fourth quarter or just any color directionally, one way or the other.

Yes, I would think you could see between both quarters relative gain, be about the same.

Really? Okay. Okay, thank you very much. Best of luck, guys.

Thank you for your question. (Operator Instructions) And our next question comes from the line of Sam Poser from Sterne, Agee. Please proceed with your question.

Good morning.

Good morning.

Good morning, Sam.

How do we -- can you give us a little more details on the gross margin looking forward to the rest of the year? You've had some decent growth over the last two quarters, it continues to expand? How should we think of that on a quarter-over-quarter basis going into the back half of the year, or year-over-year basis going into the back half?

I mean we accept-- expect to see it expanding third and fourth quarter, maybe a little bit more in the fourth than the third.

Okay. And I mean, you grew like 200 -- over 200 BPs in the quarter. I mean is that the kind of numbers we're looking for or is that going to moderate from the first half of the year?

Well, three quarters of that was leverage and warehouse and occupancy and certainly that's determined by the top line. So where we are right now in third quarter, you might be able to see that from the occupancy and warehouse line but fourth quarter we're not expecting a double-digit comp even though maybe Becky is. So we're not -- I wouldn't see that much leverage in the fourth quarter, Sam. But I you would expect to see retail product margin expansion.

Okay. And then about -- you've been working on markdown op or price optimization for some time. Where do you stand with that right now?

Well, we've been looking at it from an infrastructure standpoint. We're narrowing down the vendors that we're dealing with, but it probably won't affect us until sometime mid-year next year.

Thank you. And then lastly, the conversations have always happened within in and around you guys regarding your website and eCommerce. I know it's been sort of a hot topic around there at times. Any thoughts there on getting into that business in one way or the other?

Sam, we've looked at it from a strategic plan. We're looking at when we will get into that business. We have so many initiatives right now that we think that we have plenty of opportunity to grow and to get better. We feel that there's some things that hold precedence on that before we get there. But it will -- we will have some form of it, we definitely know that, but it will probably be a lot longer than what I think you would expect.

Okay. And then one more thing. On the toning business, I mean, do you believe that the toning business has legs? How many players are you currently using? And how many stores do you have it in, how many stores do you plan to have it in?

I think it has legs. They-- I think there are certain times of the year that it's going to be obviously better than others. Reebok is our main player. We do do some Skechers business also. We think it'll be very good in the fourth quarter, just with the amount of advertising and all that it brings. I think it also helps the rest of the women's business because it gets people into our stores and excited about women's product. And so I think it has a halo effect. We will have it in almost all doors or we are currently very close to almost all doors. I wouldn't say any one product in all doors, but it's pretty close. Mostly with Reebok and a little bit of Skechers.

Thank you very much. Good luck.

Thank you.

Thanks, Sam.

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

Good morning, guys.

Good morning.

Hi, John.

Gary, first of all, just housekeeping. Would you comment on if you took Georgia, normalized Georgia and put the 40 basis points back from the bonus, I mean, that's -- I would assume that's $0.02 to $0.03. Is that about right?

That's about right, John.

And secondly, you commented -- I mean, I guess the main thing with three quarters in a row of double-digit comps, you talked about traffic, what -- as you guys look at the business, why do you think your traffic is better at this point? What are you doing differently and what do you think is bringing that customer in more frequently?

John, there's several things. Jeff, you want to comment on this too. But I think we've improved as a Company year-over-year, but I think consumer confidence is much better. Maybe some kind of stats don't show that, but in my mind, there's as much unemployment now as there was a year ago but people who have jobs this year are not afraid to spend money and they were afraid to spend money one year ago, so I think for that reason consumer confidence is much better. But we've improved as a Company. And Jeff, you want to speak to this.

And I really feel that we've done a much better job from a marketing consistency. We have a very big loyalty program that we speak to our customers on a regular basis. We're a lot-- we are out there more consistently than we ever have been and I think we've done a much better job on talking to our consumers. So I think it's a variation of both things but I really think from a consistency and marketing, there's no doubt in my mind that we're doing that much better than we ever have.

In addition to that, John, I feel that we're selling a much higher percent of consumers that walk in our door this year versus last year. We're more in stock. Our operations team has done a better job of sales training. They're very aggressive, they're trying to sell. We've just improved year-over-year.

And that would be good products going longer on some of that product, would that come into play?

Absolutely.

And E3 fits into that mix too because we're in stock.

And Gary, just one last question. If you looked at basically getting back to second quarter of 2009, two years ago, op margin 6% compared to this 4.6%. Obviously the size of the quarter is part of that but the main difference would be obviously we've got the 40, 50 basis points in SG&A but what would be the major differences in -- from that time frame for gross margin?

Well two years ago it was stimulus and I think maybe the customers back then were more discretionary than they are value-oriented at this point in time. So really, that quarter two years ago was -- probably should have been a $0.12 quarter instead of $0.17 quarter, John.

Got it.

And then you see some of the ways back-to-schools fall between tax-frees from July to August, is such a big part of our business being in the south that sometimes it slides from between being the first week of the third quarter or the last week of the second quarter, so that also affects it so much.

And the last question, how much of the comp was affected by Georgia?

Anywhere from 80 basis points to 100, 0.8 to one.

Great, congratulations, guys. Thanks.

Thanks, John.

Thanks you.

Thank you, sir. Continuing on, our next question comes from the line of David Magee from SunTrust Robinson Humphrey. Please proceed with your question, sir.

Yes hi, guys, good morning.

Good morning.

Just a question, another question on the outdoor strategy this fall with the increased assortment in half the store base. Is it in the stores yet and at what point this fall do you have confidence that it's having the sort of impact that you thought and do you need the cold weather to get here to show that?

We-- we'll see most of our outdoor product go out to the stores in the month of September, so we'll be really ready to roll with that type of product closer to October on the floor. We feel real confident in the fact that the mix of goods really not only speaks to outdoor but it isn't so heavy, heavy winter product that it doesn't translate well to the southern store base.

Okay. So you-- do you think it would sell well without cold weather, or do we need that to feel good about it in October?

I absolutely feel confident in the product mix, that it'll sell well in our store base across the board. I think that it's a nice bridge, not only from a casual perspective but also that it will ward up a little bit of cold. We don't get as cold as a lot of places in the United States. So the merchants did a really good job of making sure that assortment appeals across the board for our store base.

Okay, thank you. And then as you look to next year, what do you see now as far as product inflation in sporting goods going into 2011? Any change in trend there?

Not yet, not yet. We anticipate that there may be a little bit of an issue, but just based off of what's going on from Asia, but we're really -- it's really holding pretty steady and we're not seeing much pressure as of yet.

If it does rise in 2011, would it be in footwear or would it be in apparel?

You know what, we'll know when they tell us. I don't know.

Okay, great. Thanks a lot.

Thanks, David.

Thank you for your question, sir. Continuing on, our next question comes from the line of Sean McGowan from Needham & Company. Please proceed with your question.

Thank you. I also have a couple. Gary, is the rate that-- the tax rate that you're showing through the first half a good rate to use for the balance of the year?

It is.

Okay. And maybe either Mickey or Jeff, looking at the new stores that you have planned or those that you maybe haven't signed leases on but you're thinking of for the foreseeable future, what would be the average size of those stores? I know you're expanding some of the existing stores, but what's the profile of the new store layouts?

We still are opening around 5,000 square feet on average. We will look at hopefully a few, a little bit larger, but right now it's still averaging around 5,000.

Okay. Thank you. I know a couple years ago you were contemplating a second distribution center to handle some further expansion. Any thoughts of dusting that off and putting that back in play?

Sean, we're taking a look at our distribution network right now. I don't think a second distribution center is in our future.

Okay. Do you think you got any impact in the quarter from World Cup activity?

Yes, I think it definitely -- we definitely saw it in the equipment in our cleat sales, a little bit in apparel from soccer. We definitely saw improvement. We continue to comp pretty heavily in soccer as we speak, so we definitely saw it pick up.

And do you think some of that might sustain?

I think it does for a while. But it's small numbers. It's hard to move the needle. It doesn't cost a lot to play soccer. It's not like some of the other sports from an equipment standpoint.

It's not- but it's not such an impact that you'd be concerned about anniversarying that in the future?

No.

Not at all.

Okay. And then last question is on the -- I think on the last conference call you got some questions about your confidence in your guidance. It was pretty clear that you thought that was conservative and you expect it to be going up. Could you characterize your confidence at this stage, the new higher guidance?

Well, we think that this could equal or better our best year on an EBIT percent basis. So which would put us north of our current guidance. And a lot of it depends on the fourth quarter, Sean.

Of course.

Sean, let me speak to that too. We feel that our guidance of $1.45 to $1.55 is very attainable. And our goal is to raise it again at the end of the current third quarter. So we've raised it the last four quarters in a row, so that is our internal goal, to keep raising guidance.

Okay. Thank you very much. Good luck.

Thank you, Mr. McGowan. And continuing on, our next question comes from the line of Jonathan Grassi from Longbow Research. Please proceed with your question.

Good morning. Just a couple quick questions. I guess just going back to the tax-free holidays. And you said you've worked through most of these and even before you actually kind of reached the tax-free holiday, the stores were actually performing very well. How have they performed, or how have these stores performed post the holidays?

Really good. Our stores are in really good shape from the tax-free after the-- what we see happening with tax-free this year is that even when the weekend comes, it's a very big weekend for us. But prior to that, and specifically after that, it continues to have nice strength for those stores. We haven't seen it tail off specifically.

Would you say I guess post the tax-free holidays it was similar to what it was pre tax-free holidays?

Yes, pretty much, I would say.

Okay. And then just you said August is 40% of the business. How does the revenue distribution work out for September and October?

It's 60%.

Are they about even? John, September is bigger than October because it's a five week month but the sales on a per week basis tend to go down. So October is probably 25% to 30% of the quarter and then September would be -- October's 25%, August could be up to 45%, and the rest would be September.

Okay. Great. Thank you.

Thank you, sir. And now our final question is a follow up from Sam Poser from Sterne, Agee. Please proceed with your question.

Thanks. A lot of talk about E3. What percentage of your sales and inventory and SKUs are on -- did you attain from the E3 styles and what percent of your inventory or styles are on E3 replenishment?

Sam, there's probably more SKUs on than there are sales because it's probably a little bit of a smaller ticket item. But certainly those ticket items have higher initial markups and higher maintained gross margin rates.

And what is the percent of -- you've given like a goal to hit I think it was at 30% to have on E3, you were slightly below that before. What percent of your SKUs are there now?

28%, 29%.

[And less] those sales would be what about 22%, 23% or something like that?

Probably 24%, somewhere in that, yes 23% to 25%.

Thanks, guys. Good luck.

Thanks.

Thanks, Sam.

Thank you, Mr. Poser. And now Mr. Newsome, I'll turn the conference back to you for your concluding remarks.

In summary, we're proud of and excited about the results we have produced the last three quarters. Three consecutive quarters of double-digit comp store sales, year-to-date comp sales of 13.4%, year-to-date earnings per share plus 75% over last year. We achieved higher EPS and EBIT dollars in 26 weeks this year than we did in 39 weeks last year. We feel good about the third quarter. We're comp store positive sales through yesterday low double digit and as we said August is the most important month in the third quarter.

We feel good about our fourth quarter for many reasons. Two major reasons are we've greatly improved in footwear year-over-year. We expect to be up good in the fourth quarter in footwear. And in the last two years we've been very successful in the outdoor category in a limited number of stores. This was a new area for us and we think we've got it. This year we will have outdoor in approximately 400 stores.

Consumer confidence in my mind is better than it was one year ago. We ended the quarter with 774 stores in 25 states. We can grow our store count to a minimum of 1,200 stores in the future in just these 25 states and we will continue to expand approximately 20 high-volume stores each year. We have a great future in Hibbett Sporting Goods.

Thanks for being on the call today. We look forward to speaking with you on November 19 at 9.00 Central Standard Time about our third quarter results. Thanks for being on the call.

Thank you, Mr. Newsome. 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 fantastic weekend.