Hibbett Inc (HIBB) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports first-quarter 2012 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). I would like to remind you today's call is being recorded Friday, May 20, 2011. And now I have the pleasure to turn the call over to Mr. Mickey Newsome, Executive Chairman of the Board. Please go ahead, sir.

Thank you, operator. My name is Mickey Newsome and 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 and Marketing, Becky Jones. We will all be available for questions. We appreciate you being on the conference call today and we 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 and our financial performance. There is no assurance that such events will occur or that any projections will be achieved. Our actual results could differ materially from any projections due to various risk factors, which are described from time to time in our periodic reports with the SEC.

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

Good morning. As you all know from our press release this morning, our first quarter's earnings per share were $0.76 versus $0.59 a year ago, a 29.2% improvement. Overall sales for the first quarter were up 10.4% to $203.7 million compared to $184.5 million. Comparable store sales were up 6.8% versus a 14.5% comp a year ago. Sales by month were February was up 6.3%; March up 7.1%; and April up 6.9%.

We have continued to increase our customer service with the numbers of items per transaction up 1.9%. The average selling price per item is up 4.7% and we are getting more traffic per door. We opened 8 new stores and closed 7 stores bringing the store base to 799 in 26 states. For fiscal 2012, the Company expects to open approximately 50 to 55 new stores, close 10 to 15 stores and expand 15 high-performing doors. Our new stores are performing well above pro forma. We still have identified 400 additional small markets in our 26 states. We are well prepared to grow over 1200 stores in our existing 26-state area.

The first 19 days of the second quarter, our comps are up approximately 6%. We are very thankful that all our employees and stores are okay from the tornadoes that happened a few weeks ago. Our improvement in aged inventory and our customer service has put us in a position to have a good second quarter. With our investments in technology and people, we believe we still have many opportunities to improve and expand in the future.

Next, Becky Jones, our Senior VP of Merchandise and Marketing, will speak with you.

Good morning. Our activewear apparel had a very strong first quarter, posting mid-teen increases across all genders. The merchant team did an outstanding job identifying and distributing core programs and our investments with key suppliers, [Mackey] and Under Armour, are paying off.

Our license business was down to last year's single digits; however, exceeded our expectations with Major League Baseball and NBA leading the way. NBA has been strong with team product from the Heat, Bulls, Celtics, Knicks, and Lakers performing well.

The accessory trend continues up double digit led by footwear accessories and our replenishment process and team continues to contribute to the consistent sales gain.

We are very pleased with the strong double-digit performance in footwear. Men's and kid's specifically showed tremendous growth. The staff worked diligently to identify and execute relevant assortments and we had good growth from Nike, Reebok, Jordan and Adidas.

Our equipment business was up single digit. Baseball was flat, football high single digits, basketball high teens and soccer double digits. Our key suppliers were Adidas, Valeo, Easton and Rawlings.

Thank you, Becky. Now our Senior VP and CFO, Gary Smith, will speak with you.

Thank you. This marks the first time that the Company has surpassed $200 million in sales in a quarter. As Jeff mentioned, we opened 8 stores, closed 7 and expanded 4 high-performing stores while square footage grew at a 4.2% rate. Gross profit improved 138 basis points. Retail project margin grew over 100 basis points due to better discounts and less promotions. Warehouse and occupancy levered favorably.

SG&A expense rates decreased 9 basis points in the quarter as we continued to make strategic technology investments in both our stores and corporate. We also opened 6 more stores than last year's first quarter.

Depreciation and amortization was under last year's dollars due to declining leasehold improvement dollars as the cost is significantly less to get into a store. Operating income was a record $34.1 million and 16.8% versus last year's then record $27.7 million and 15%, a 23% increase in dollars. Diluted EPS came in at $0.76 versus last year's $0.59, a 28.8% increase.

From a balance sheet perspective, the Company ended the quarter with $85.3 million in cash versus $71 million last year. Cash increased $9.9 million from year-end, while we purchased over 730,000 shares of common stock for over $23 million. Inventories increased 5.9% over the previous year, but only 1.6% on a per-store basis. We spent $3.1 million in CapEx for the quarter versus an annual plan at $14 million.

Thank you, Gary. Operator, we are now ready for questions.

(Operator Instructions). Dan Wewer, Raymond James.

Thanks. Good morning. The first question is regarding the price increases that some of your vendors, Nike and Under Armour, have discussed pushing through. It sounds like the bulk of the increases may not materialize until Spring of next year. But can you talk about what price increases you are already seeing and what pushback, if any, you are receiving from your customers?

We have seen some price increases for the back half of the year, but really it is pretty similar to what we talked about with our conference call for the fourth quarter. The footwear increases really are not anything, at this point in time, that we are too uncomfortable with because the footwear changes from the style and we really focus on the premium product. When you are looking at a $2 to $5 increase on a price point in that price range, it is that impactful.

From an apparel perspective, we are seeing some right now. Really it is more around Springtime as you mentioned. And we are just adjusting as we go in regards to what that assortment needs to be and ensuring that we are keeping the core products as they need to be and adjusting to ensure that we are still bringing value to the consumer.

Okay. And, Becky, also just as a follow-up, I know that there have been a number of investments in information systems as it relates to merchandising. Can you talk about maybe the investments you made in the last year or so that are beginning to benefit your department? And perhaps you can also talk to us about pricing optimization and where that stands as far as implementation and when that may begin to benefit merchandising.

From a merchandising perspective, I would tell you that one of the biggest focuses for us, especially from a technology perspective, is the way that we are looking at our inventory management and it is as much about people as it is the technology at this point in time and the focus that we put on it because our focus mostly is ensuring that the assortments and assortment planning procedures are in place. And that is allowing us to really develop the core assortments that we need to in a lot more doors than we may have done in the past. So that focus is going to pay off for us and we are really in the beginnings of that, but we are already seeing where that is going to be impactful.

As far as markdown optimization, we still have that on queue to start in the back half of this year. We probably won't see impact from that until early next year. Do you agree, Gary?

I do.

Okay, great. Thank you.

Peter Benedict, Robert Baird.

Hey, guys. Thanks for taking the questions. It is actually Justin on for Pete. Gary, just on the guidance, is that including additional buybacks above and beyond what was completed in the first quarter?

It does not.

Okay. And then could you maybe just remind us -- you, obviously, have a lot of cash on the balance sheet. What level do you feel comfortable operating with?

Yes, I feel probably comfortable not going below $35 million during our most demanding time.

Okay, great. And then just lastly, looking at the 2Q and 3Q, is there anything that we need to be aware of in terms of tax holiday shifts this year relative to last year that you guys currently see?

Not really. The only thing that may shift would be a tax-free from one state, but it would only be within a week. But overall, we feel that we are really not going against anything that we are not prepared for.

But we did hear that -- is Arkansas going to have a tax-free weekend? They have not had one in the past, so that will help us in August.

All right, perfect. Thanks so much, guys.

Rick Nelson, Stephens.

Thank you, good morning and congratulations. I would like to ask you about the real estate environment, what you are seeing with Movie Gallery and Blockbuster opportunities and general development?

Rick, we are still opening some Movie Gallerys and even some Blockbusters. We still plan on opening 50 to 55 stores this year. And there are still some of those that are still becoming available and it has really opened our eyes to open other types of locations because, like the Movie Gallerys, a lot of times they were a freestanding store right on Main and Main. We are still having some difficulty though with landlords getting loans and building new centers. So it is mostly existing real estate. Really aren't seeing anything from new developments coming in our markets.

Thanks for that color, Jeff. I would also like to ask you about the comp guidance. You put up a 6.8% this quarter against the toughest quarterly compare. Looks like 2Q is starting out strong too with a 6% and your guide is low to mid single digits. Is there something you see ahead that is causing that or is it just desire to be conservative?

I think a couple things, Rick. We moved the top side of the guidance up a nickel, the bottom side a dime. We were pleasantly surprised with the comp that we got in the first quarter. But going forward, gas prices, inflation, we just want to be conservative.

Thanks. Also, I would like to ask you about the margins. I think this was a record quarter, up 140 basis points. How sustainable do you think the margin improvement year-over-year?

Well, I think we can leverage warehouse and occupancy certainly at a low single-digit number. Becky, you are going to have to talk about the retail product margin.

The biggest thing for us at this point in time is that our aged inventory is in such good shape and compared to last year, it is an improvement from where we were. That bodes well for the fact that we won't be moving product -- as much product into clearance as we have had in the past and it allows us to not be as promotional because we don't have to go after clearance sales or even put branded product on any kind of promotion. We are doing that a couple of times -- we actually did that a couple of times in the first quarter and we anticipate being able to do that going forward as long as we maintain the sell-throughs that we are getting on a weekly basis.

One positive we will get out of that is our price per item is up on a comp store basis and that will help comp some because we have got less clearance.

And I think [Q3] you've obviously extracted a lot of benefit there. Do you think that there is more opportunity there from a systems standpoint?

Absolutely, Rick.

Thanks.

Sam Poser, Sterne Agee.

Good morning. I was just -- how are you guys doing? I was just wondering -- you talk about the gas prices and so on and so forth in your conservative guidance. One of the comments you made in past years is that, given your local presence, people have to drive less to go to your stores and that gives you share gain opportunities. So how does that balance itself?

Well, anytime, I think you take money out of the consumer's pocketbook, I think there is cause for concern. One of the key points that we have in our strategy is to be convenient and within a couple hour driving distance from another Hibbett store and stay tight geographically. It is just one of the things out there that is a bogey and probably has got us a little bit on the conservative side.

Also, Sam, looking -- unemployment, we -- still kind of stagnant on where it is at. That could go either way. So just being a little bit more conservative that we always are.

Let me just follow up on that and then I've got a couple more. If you compare what you are seeing out there today, sort of all in, all those concerns versus a year ago or two years ago, aren't things a little bit better now than they were a year ago looking at things this time?

Yes, Sam, definitely the way the trends are going, we definitely feel better, but you never know what is going to hit you in the face and things can change suddenly. But right now, we feel pretty good about where we are and where the consumer is. And the consumer definitely is spending money, especially in footwear, right now and we are going through some good times. But we just want to be a little conservative.

I think you may be referring to this. I think that the person who has a job today is a lot more comfortable than he was last year and the year before. He is not afraid to spend. Going in local restaurants in Birmingham and other areas, it just seems like there is a lot more people than there were two years ago. So I think, overall, it is a little more positive out there than it was. But we won't be aware of sudden change because things can change.

Of course. And I just have sort of a list of questions. Number one, how is traffic? Number two, how many stores did you have closed because of the weather? And what are you seeing now with the Mississippi River? And what percentage of your product is on replenishment now versus a year ago?

Yes, when it comes to store closings, we had, for the tornado, approximately 114 stores closed days mostly last quarter. All our stores are open today. The first week of the quarter, some of those stores were open partial days, but right now they are all open and all performing.

From the Mississippi, we have -- all stores are fine. We have I believe one store that you have to go over a bridge to get to our store, so we obviously -- we are not doing any business there. So we think, so far, we have been okay with all of that.

What was the last question?

Replenishment percentage. Just about the same rate, high 20%s. I don't know if it is going to get much higher than that.

Sam, the closed days, they didn't really impact our sales. It may be 10 basis points and we got it back the next week. It is no big deal on the sales.

Thank you very much. Continued success.

Thank you.

Mark Mandel, ThinkEquity.

Thanks and congratulations. I think Sam gobbled up most of my questions. Let me see what I have here. I mean just in terms of the tax rate, just a small detail here, what kind of numbers should we use going forward? You came in a little bit less than we thought.

It bubbled up a little bit from last year mainly due to some increased tax rates, especially in the state of Illinois, but 37.5% should get you pretty close to the mark.

Okay. I just want to follow up on the floods and so on. I was a little surprised both in terms of the current solid momentum you are showing in response to your previous question. So it looks like you are in states that I guess accommodate about -- 45% of your stores are in states that border the Mississippi. I guess these are locations that are just far removed from the event. I guess that is a fair way of looking at it.

They are.

Okay. That is really about all I had unfortunately, but thanks a lot and good luck with this quarter.

Thank you.

David Magee, SunTrust Robinson Humphrey.

Hey, guys, congratulations, good morning. I guess a couple questions. One is do you have an opportunity in the second half of this year with container costs being a lot lower year-to-year? Is that something that you have baked into the numbers? Container costs?

We are not experiencing lower container cost at this point. Hopefully, if they do, I mean that should add something to gross margin rates.

My impression is we won't have the surcharges that we had last year and there might be a positive swing there.

Because of capacity?

I guess so, yes.

Okay, well, great. That is something to look forward to. We will look into it.

Secondly, the new stores are doing well and that is great to hear. Is there an opportunity, do you think, for 2012 to maybe step up the pace of growth like you -- this year, it seems like you'll grow probably faster than last year in terms of the square footage. Given what you are seeing right now, some gradual improvements, is there a chance that you could bump that up a bit more for next year?

David, there is a chance things may improve on the quantity, but we are like real conservative leases and we don't want to get out of bounds there. We think long term it won't be good for us and we are on pace to hit this year's goal. And if they will ever start some new construction again in small towns, we can get that number up big. It is just a matter of time until that starts. We have got markets we have been wanting to be in for years right here in Alabama, but there is no place to go. So that is the big holdup is new construction.

Thank you. And lastly, as you think about the potential for margins over time, and I know that price optimization is a big part of the gross margin anticipated improvement, is there further opportunity as far as buying leverage just given the size of the Company, the success you are showing relative to most other players out there?

We become more and more strategic with our vendors and we see that there is opportunity definitely to grow margins. We will do more containers and get more buying power. We definitely see that as -- we still have a long way to go there. I think, for the foreseeable future, we should have margin improvement and we should be able to leverage our vendors even more than we are.

Great, thanks a lot.

Sean McGowan, Needham & Co.

Thank you. I wanted to circle back to some questions regarding gross margins. So if you look at the improvement over last year, not only impressive but I think last year was like the highest gross margin ever of any quarter. So as we look at that growth over the last couple years in gross margin, could you break down where it is coming from? Is it product mix, is it primarily less markdowns, is it higher IMU? What are the components of the striking improvement that you are seeing in the last couple years?

Yes, it is coming from all the above -- higher IMUs, definitely cleaner inventory and as Becky mentioned before, assortment planning. As we get better at planning assortments by door, we are definitely rightsizing the inventory and we are also flowing our inventory much better and we still think we have significant improvements to do in all of those. But that is really where it is coming from. It is really all of what you are saying.

So it isn't some especially high-margin category that suddenly came on?

It is not.

No, it's --.

No, it is not.

In fact, the mix is probably working a little against us.

Yes, if anything, I would tell you that it is really just about being diligent and focused on processes and procedures and ensuring that we are really digging into the details.

Okay. And a quick housekeeping question. So when you have a store close for weather or whatever reasons, that doesn't come in or out of the same-store sales base, right? It just stays in as though it was open.

Just stays in.

Stays in.

Okay, thank you very much.

Anthony Lebiedzinski, Sidoti & Co.

Good morning. Yes, thanks for providing the information about quarter-to-date comps. Could you just remind us what kind of comp did you see quarter-to-date a year ago? That 6%?

It was double digit.

It was 11% or 12%.

11.9% for the second quarter last year.

Yes, and I think May was 11% or 12%.

11%.

Oh, you mean to date? (multiple speakers)

Yes, it was double digits.

Okay, all right, thanks. Just wondering how much more efficiency can you squeeze out of the IT systems that you have now and plus future upgrades?

Well, I feel we are really in the infancy. We will be talking about this hopefully forever that we will improve our technology. I still think we have so far to go. And even though we have much better tools than we ever had, just assortment planning alone, we just had it in. Just getting it in, getting up and running, usually it takes at least three years before you get really the key return on investment. Price optimization is another thing. Eventually we will look into space planning and other things. So I think, for the foreseeable future, we will continue to invest in technology.

Anthony, like Becky likes to say, she likes to put things all the time in sports cliches. We are in the early innings.

Okay. And lastly, what do you see as the total potential opportunity from the former Blockbuster and Movie Gallery locations?

I think we could get -- over time, we may get a couple hundred stores over time, but last year, we got somewhere in the 12 range.

17.

17 and we will probably do something like that again this year, but it will be little by little. It could be well over 100 in time.

Okay, thank you.

Mark Smith, Feltl & Company.

Hi, guys. First, just looking at the expansions on some of the stores. Are you still getting pretty similar sales bumps on those?

We are.

Yes, they are performing above our model.

Okay. Good, and still plenty of opportunity there for expansions?

We have identified an additional 100 or so that we could definitely expand over time. So we will definitely continue to do that.

Okay. And then lastly, any regional kind of strengths or weaknesses as we look at the geography where you are at?

It's all good.

Yes, they really are performing. All regions are up.

Great, thank you.

Jonathan Grassi, Longbow Research.

Good morning, guys. Can you just discuss kind of what you are planning for potential a NBA and/or NFL lockout in the coming quarters? What type of effect you might expect to see on the business if this occurs?

At this point in time, we are planning the business just as (inaudible) are going to come and play. We certainly aren't going to retreat and say, oh, let's not have a solid assortment ready to go for the consumers and whether they play or not, we see this as good business for us. We certainly want them on the court. Certainly needs to be on the court. But it is a significant part of the pro business during that season and as we go forward, we will put the assortments on the floor.

Our urban fashion consumers like that product as well and sometimes it is not just about the season, but it is also about whether or not the product is right for that consumer. So we are going to go forward with it and if we need to make adjustments because of a lockout then we are prepared to do so.

So you do have some contingency plans in place to potentially offset what could be some lost revenue?

Sure.

And it is a small percentage of our business.

Okay. And then should we look for SG&A growth for the remainder of the year to be in the high single digit range I guess on an annualized basis over the year?

Yes.

Okay, thank you.

Chris Svezia, Susquehanna Financial Group.

Good morning, everyone and nice job.

Thanks, Chris.

Just curious, when you guys think about your forecast this year, low to mid single-digit comps, just any thoughts by category or is it pretty consistent -- footwear, apparel, accessories, hardlines, etc.?

It would be pretty consistent -- really the two big drivers would be footwear and apparel.

Okay. When you guys think about replenishment and what has that been able to do on the accessories side of the business? I think last year you benefited to a degree from a comp perspective from that system. To what degree this year that continues to help to drive incremental comp, any thoughts?

Our accessory business overall still is driving at double digit and certainly it is not 30% any longer, but we do still have good strong growth. I think that one of the things that we are finding is that, regardless of whether replenishment has been in for two or three years, we still find opportunity to where we can improve on getting the product flow to the stores. So I would tell you that, from an accessory perspective, I wouldn't expect it to be -- I would expect it to at least be in high singles going forward.

Okay. So I mean, Becky, is it fair to say just the system itself and being able to do that replenishment still overall could drive incremental company-owned comp I guess is what I am trying to get at?

Yes, absolutely, for the parts that we have on replenishment, you bet.

Okay, all right. And then as you -- I guess this is a Becky question as well -- when you think about pricing coming up and I guess incrementally more in the back half of the year on select items, obviously more on apparel, how do you think about when you guys order units, so units versus pricing on the inventory side and the ability to pass it through to a degree? I am just trying to understand the dynamic between the two pieces.

Well, it is one of the beauties of the assortment-planning process is that when you start that, you start from the bottom up and you say how much product do you need from a unit perspective to drive your business and what does that do for us in regards to ensuring that the consumer is going to see what they need and what they want to see when they walk into the door.

Once we roll that, then we apply the dollars to it and then we have a litmus test against are we prepared to go that deep from an inventory perspective and adjust it that way. The bottoms-up procedure with assortment planning really has opened the door for us from looking at what our potential is in driving sales. So we are not looking at price other than is the price seasonable, is it reasonable and are we driving to the consumer not only great premium product, but do we still answer that value as well to them. So it is more than units or dollars; it is really that whole process.

Okay, but as far as you can tell, as you see what is happening in the industry, you see the product relevance, more than likely you will be able to get a lot of this pricing through, again given the freshness and what is going on out there. Is that a generally fair statement?

Yes, pretty much. I mean when you look at some of the footwear innovation, it is all driven by product innovation. So when footwear comes out with great products, whether it is lightweight running or great new basketball shoes and the consumer wants it, if you have got great product, the consumer is going to pay for it. And we are seeing the same thing with some of our apparel product that has hit the floor this Spring from an innovation perspective. Everybody was concerned with can you sell a T-shirt at $25 and the answer is yes because it is innovative.

Right, okay, all right. Well, thank you very much and best of luck to you.

Thank you, Chris.

Sam Poser, Sterne Agee.

Just real quick, just to follow up on the SG&A question that was asked earlier. You modestly levered SG&A in the quarter. Do you expect to modestly lever SG&A for the rest of the year given your guidance?

It would have to be closer to mid single, Sam, 4.5 to 5.

And then you could -- so basically you're look -- I mean if I am just getting this right on the increase in SG&A for the year, you are looking for an increase of about -- annually about 7% in dollars. Would that be a fair number to use?

I think it was up a little more than that in the first quarter.

It was up more than that in the first quarter, but I mean --.

Yes.

But I mean -- but 7% on an annualized basis would probably be -- that would be the increase on that kind of a comp, I would assume?

Yes.

Okay, thank you very much. Good luck.

Thanks, Sam.

We have no more questions at this time. I will now turn the call back to Mr. Newsome for your closing remarks. Please go ahead.

In summary, when you look back last year at our first quarter, we were up 56.8% on an earnings per share basis. On top of that this year, we are up another 29.2%. Last year's first-quarter comps were 14.5% and we got 6.8% comps this year on top of the 14.5%. Last year's operating margins first quarter were 15%. This year, it is 16.8% and we are proud of that. Second-quarter comp last year was 11.9%. Month-to-date, we are up another 6% on top of that.

Fiscal 2010 and fiscal 2011 new stores are performing significantly above our new store model. We are a great company, a greatly improved company both in systems and people. We have a great future in Hibbett Sporting Goods. Thanks for being on the call today. We look forward to speaking with you on August 19 at 9 o'clock Central Standard Time. Thank you for being on the call.

Thank you. Ladies and gentlemen, that does conclude our call for today. We thank you for your participation and ask that you please disconnect your lines.