Hibbett Inc (HIBB) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports second-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). As a reminder, this conference is being recorded Friday, August 19, 2011.

I would now like to turn the conference over to Mickey Newsome, Executive Chairman of the Board for Hibbett Sports. You may proceed sir.

Thank you operator. With us also is our CEO and President, Jeff Rosenthal, Gary Smith, our Senior VP of Finance, Kathy Pryor, our Senior VP of Store Operations, Becky Jones, our Senior VP of Merchandising and Marketing. Everyone will be available during the questions and answers. We appreciate you being on our 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.

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

Good morning.

As you all know from our press release this morning, our second-quarter earnings per share were $0.21 versus $0.14 a year ago. Overall sales for the second quarter were up 9.52% to $153.1 million compared to $139.8 million for the 13-week period. Comparable store sales were up 5.9 on top of an 11.9% game last year.

Sales by month were May up 6.61%, June up 7.14%, July up 3.61%. We saw the back-to-school sales shift from July to August. The first 19 days of this quarter, of third quarter, are positive 7% on a comp store basis versus double-digit comps last year.

Our store operations team continues to give great customer service with the number of items per transaction up 1.96%. The average selling price per item is up 3.53%, and we are getting more traffic per door. Our merchants continue to improve our assortments by door and improve the age of inventory to the best it's ever been.

We opened eight new stores, expanded five high-performing stores, and closed five stores, bringing the store base to 802 stores in 26 states. We are on pace to open 50 to 55 new stores, close 10 to 15, and expand 15 stores. All of our new stores are performing above pro forma.

We still have identified 400 additional small markets in our 26 states. We are well prepared to grow to over 1200 stores in our existing markets. With our continued dedication from our employees and our investments in technology, we will continue to improve and reach our goals for our future growth.

Thank you. Our next speaker is our Senior VP of Merchandise and Marketing, Becky Jones.

Good morning.

As noted in our release, Hibbett's business strength continues to lie within footwear and apparel as well as our accessory area. We experienced growth across the board in footwear with the kids business leading the way. Strong penetration to our stores with the right product has build credibility with the young athletes. All genders capitalized on the lightweight running category. Premier running is driving sales and we had a good sandal season. Reebok, Nike and Adidas had strong results.

Active apparel had a terrific double-digit quarter in both men's and women's area. Tees and shorts drove results with strong presence from both Nike and Under Armour. We were pleased with the sell-through our Legend tees, tech tees and charged cotton products.

Our kids business is healthy and growing. Additional inventory send to all stores mirrored the adult size results.

The license department posted comes in high teens with pro-license products being the star. NBA had a nice performance due to the headwear trend and the Maverick championship. Our corporate exposure to the NBA risk in the latter part of the year is not impactful to our overall business.

College license business was good across all categories due to strength in tees. Top supplier performance came from [Michelin X] and New Era.

Our equipment business was flat overall. Baseball season wound down in the second quarter with moderate growth over last year. Bags and helmets were particularly good.

In the off-season, basketball performed well and soccer was down overall due to anniversary of the upswing from the World Cup last year. Adidas was a standout in the soccer area.

Football was off low single digits for the quarter.

The accessory area posted another strong sales quarter with strong socks and backpack business and sunglasses are good as well.

Looking forward, we are comfortable with our product mix for the back half of the year and expect continued success with our key suppliers.

Thank you Becky. Our next speaker will be our CFO and Senior VP, Gary Smith.

As Jeff mentioned, the Company opened eight stores, closed five and expanded six. Square footage increased 4.2% from the second quarter last year. Gross profit rate increased 105 basis points. Retail product margin was up 85 basis points due to less promotions, mix and improved inventory age.

Warehouse and occupancy costs leveraged the remaining 20 BPS. Store operating, selling, and admin costs decreased 17 basis points in the quarter as we saw favorable offsets in our business and health insurance costs.

Depreciation and amortization was under last year's dollars and leveraged favorably 26 BPS due to the declining per store capital expenditure spend as it costs us significant less to get into a store.

Operating income at $9.4 million and 6.12% versus last year's $6.5 million and 4.63%, approximately 150 basis points increase.

The tax rate was slightly less in the quarter due to favorable true-up and increased tax credits. Diluted EPS came in at $0.21 versus last year's $0.14.

From a balance sheet perspective, the Company ended the quarter with $65 million in cash. Total inventories increased 8.4% over last year with only 4.7% on a per-store basis.

We purchased over 240,000 shares of our stock for $9.4 million. Fiscal year-to-date, we purchased 973,000 shares for approximately $33 million. We spent $6.1 million in CapEx year-to-date versus an annual plan of $14 million.

Operator, we are ready for questions.

(Operator Instructions). Rick Nelson, Stephens Inc.

Good morning. Congratulations. Terrific quarter.

Mickey, there's a lot of concern about the macros and a potential double-dip here. Your guidance would imply that you're a lot better positioned this time around versus '07, '08. What do you think are the key differences today compared to that period?

I feel that we are much a better company today than we were when that happened before. Also, the product cycles, there's a lot of innovative product out there and there's a lot of good things happening from that, so we got a lot more confident even though it could hit you some, but we feel that because of the improvements we've made throughout our Company, we feel like we're better positioned than we were then.

Are you allocating more stores space to apparel and footwear?

(multiple speakers)

(multiple speakers) strength in those categories?

Really it's about the same. It hasn't really changed that much.

Where do you think we are in this footwear cycle?

I still think we have a ways to go. We've looked at spring products, and we feel very confident in what they have offered for spring. So we at least know through the first half of next year that it should be good, and we expect good things for back-to-school next year also, so I think we're still probably a little bit past the beginning stages.

I'd like to comment on that. I'm a big believer in the Elliott Wave, the 40-year theory. 40 years ago, footwear started up and it continued upper several years. It just looks good to me for the future.

Are you making any changes in the hardlines business that's --?

In what regards do you mean?

To stimulate sales. You're not pulling back on square footage. Is that true, in hardlines?

No, we really haven't, because we address the hardlines business equipment business by season. As a season comes in, we may expand one area and pull back in others, so we really follow that trend. We watched inventories very closely to make sure that we got the right products by community.

What percent of sales does footwear and apparel account for now?

We really don't disclose that. Most people are estimating 40% footwear, 40% apparel, and 20% hardgoods. But it varies from season to season, but we really don't disclose that.

August is the big month in the third quarter. Is that correct?

Correct.

Yes.

What percent of the full quarter sales would you estimate August to be?

40% to 45%.

Yes.

Thanks a lot and good luck Gary.

Sean Naughton, Piper Jaffray.

Thanks for taking my question. I'll add my congratulations. Great job on the quarter, guys.

Just thinking about the same-store sales trends you saw throughout the quarter, how much of this is being driven, do you look at it on how much was being driven by some of the expanded high-volume doors? What sort of lift are you seeing when you remodel those stores today?

How many -- we extended about 15 last year. As a percent of our total sales sold, store count, it's not very big

30 basis points.

Okay. So it is seeing a little bit of a lift from that, but clearly there is still a lot of strength in those other stores as well.

Correct.

Absolutely. We're seeing it across all regions.

Yes, then on the merchandising side, I believe last year you called out toning as being a little bit of a moderate contributor to the women's footwear in Q3 of last year. Is that a little bit of a drag right now, a little bit of a headwind for Q3?

The secondly, I think you commented this on the footwear side for innovation looking forward. How do you think the apparel innovation is looking for the back half of this year and into spring of next year?

The toning business going forward really isn't going to be impactful to us because we are pretty much out of that business for the most part. We are just getting through the rest of what was left in the inventory. We don't have it really as an impact going forward.

As far as apparel is concerned, we certainly have the storm fleece that is coming in that we have high hopes for. We think that, based off what charged gotten did for us, that storm fleece will also be a nice impact. But apparel innovation in general is really around ensuring that we have the right weight product in the right stores for us. I think our inventory management group is doing a really good job of diving into that.

Got it. Lastly on the margin, SG&A looks like it continues to be pretty well control. Can you talk about where we could see this number potentially trend over time? Could we get back down towards that low 20s% number is there something structurally that's changed in the business that would prevent you from driving that number lower as a rate of sales?

You're talking about SG&A?

Correct, yes.

Yes, if you look at SG&A and depreciation together, we've got over 40 BPS improvement in leverage. A lot of times, it all depends where things fall on the expense line. This year, we've had some accelerated expenses probably anywhere from 15 to 20 BPS on our IT technology investment. So next year and the years moving forward, I wouldn't see that spend being as incrementally as big. So as we grow the topline, I think there's advantage to get back to some more advantageous leverage points there.

Great. Best of luck in the rest of the quarter.

Thank you Sean.

Sam Poser, Sterne Agee.

Good morning. Location availability for new stores you've talked. Have you seen any easing of developments or second sites going forward and looking into next year?

No, it seems like it's getting a little bit better, but we should be able to hit our targets that we have out there. We feel pretty confident we will hit those numbers -- maybe a little bit. We haven't seen a ton of new store construction, but we're finding sites for -- to grow.

Thank you. Then last year in the third quarter, can you give us the comp by month, what the same store sales were by month last year?

In the third quarter, it looks like it was plus 13, plus 13 for September, and October was nine and looks like we were at 12 and change for the quarter.

Right. From what you're seeing -- Jeff or Becky, from what you're seeing now as far as the product and the product cycle that you talked about, how much of this -- you're seeing traffic improvements (inaudible) but how much of what you're seeing is just the real strong new product over a year ago? How much of that, even up against these tougher compares, do you think you'll be able to drive sales with? I know your fourth quarter is not quite as difficult, but do you think you can run a mid single-digit comp in the third quarter up against those numbers, driven by this new product and so on?

We do think that the product looked even that much better this year than it did a year ago. There's a lot more color. The lightweight running trend is not seeing any slowing at this point in time. If anything, we expect it to get better for us as we are able to go to more doors in the future. If I was looking back at last year's assortments where we started seeing it improve, we were really just on the very, very beginning of it. Now everyone seems to be strong. It's not any one supplier; we see nice strength across the board of what they're offerings are. So I would say the product perspective, at least in the footwear specifically, it's a good going into the next few months.

So you think you could probably comp a mid-single in Q3?

We are hoping to.

Yes, we are hoping.

We're up against our hardest compare now.

I understand. Mr. Newsome, what are you -- when you're looking at the economy right now and everything, how much better do you think we are than we were a couple of years ago? Where do you think we are? Your customers down there, how are they looking at life sort of? Because you have better traffic. Your ASPs are up. You're seeing a lot of issues that seem to conflict with a lot of the news reports that are out there. Could you talk about what you're seeing there? You probably have the best perspective of anybody in your full year.

The economy is tough, we all know that. But I think it gets down. If you've got the product they want and you offer good full customer service, you're going to get the sales. We've got increased traffic. We're selling a little bit more to each customer. I think it all gets back to (inaudible). If you got they want, they're going to buy it.

Sorry, one more. Malls versus off-mall for the quarter and current?

For the first time in probably two or three years, our malls performed as good as our strip centers. That's a change. That may -- and most of our malls are probably urban oriented, and it probably gets back to the strength in footwear nationally and apparel.

Okay, thank you. Continued success guys.

Dan Wewer, Raymond James.

Thanks. A question for Jeff or Becky. Can you talk about the magnitude of the cost increases that have been pushed through from Nike and Under Armour thus far and how you think that may change over the next two quarters?

Yes. We've seen some price increases already, mostly in apparel. It's affected some items. The price increases, as we move into first quarter, will be a little bit greater. We feel pretty good about as long as it's innovative and the customer can see the value. The concern from my perspective and Becky's perspective is the lower price points may get a little bit of a -- we may pullback a little bit on some of the units. In footwear, we feel pretty confident that we can pass that on to the customer. There are a few items in apparel that we think it may drop unit sales a little bit.

Say that again? Which one would you say the drop in unit sales?

Would be in the lower priced in the apparels. I'm talking more items that are $20 to $30 that go up to $35 than a shoe going up from $100 to $110.

Right. And so you think that the magnitude -- the number of items with price increases will probably increase going into the, you know, the spring 2012 season?

A little bit more, yes.

At the same time, we tell you that it's our job as the merchants to really take a look at what that product mix is going to be, and consider what the consumer wants and ensure that we adjust those assortments appropriately so that we still speak on a consistent basis from a value perspective to the consumer what they are willing to pay. So we may see some drop in unit sales because of some price increases that we are not just sitting back and saying "Wow, that's happening to us." We're being aggressive and ensuring that we're delivering product to make that and speak to the price point that the consumer wants.

Becky, in your comments, you had called out Under Armour as one of your successful apparel brands. During their conference call, they discussed difficulties in shipping complete orders to their key wholesale customers, which I know Hibbett is one of those. Dick's indicated they weren't seeing this as a problem. I was curious if, from your perspective, if you're finding Under Armour is having difficulty keeping up with your demand.

For the most part, no. We're not seeing any real issues in that respect.

Okay. Then just two other real quick questions. E-commerce strategy, you know, some of your vendors such as Under Armour are getting rapid growth in their e-commerce site. Dick's is talking about the same. Obviously it's not having any impact on Hibbett's sales growth, but do you see a day where it will be important for Hibbett to develop an e-commerce strategy?

Yes. It's in our five-year strategic plan. We've had some things that we're working on that we feel are more important at this time. But as we grow, we definitely see it as part of our mix.

Okay. Then finally, just on your comments about sales shifting from July to August, the back-to-school shift, I was unaware of any significant calendar changes taking place. If you could just elaborate. Were you seeing a shift in tax-exempt shopping holidays or --?

It really wasn't the tax exempt. We added a stay in Arkansas which was very good but we on, for the most part, from what we hear, most of our stores where school started three to nine days later, and it's just -- we've seen this pattern go on for quite a while, sales shifting from July into August and people are waiting until the last minute to do their back-to-school shopping.

I guess in some of your large states like Georgia, that certainly has been the case where school is starting later this year.

Yes.

Thank you.

Thanks Dan.

Mark Mandel, ThinkEquity.

Good morning everyone. Could you just give us an update on where you stand with your key systems initiatives, like E3 price optimization, etc.?

Well, E3 we're still amazed. We're still getting significant sales lifts by just staying in stock. So that's been an important part of what we do. We kicked off the business analysis part of price optimization last month. We would expect to probably have a number of departments up by back-to-school next year. So yes, as we move forward, we see that as another product margin enhancement. So assortment planning, E3, all that stuff has helped us drive sales and get better assortments in our stores.

My next question -- in terms of the sales lift, how do things look for the outerwear exposure or roll-out this year versus last year as we move into the colder weather months?

Well, we have a big emphasis on fleece and outerwear, especially in the fourth quarter. We continue to grow our North Face stores, so we expect that to be a pretty big part of the second half of the year, mostly fourth quarter.

Do you have any numbers in terms of the number of doors you expect to be in this year versus a year ago?

We don't give that out.

Okay. As far as your real estate strategy goes, can you just give us some idea on how the cadence of openings will play out in Q3 and Q4?

Yes, we are so back-end loaded, I believe third quarter, it should be close to around 18 to 20 stores and then fourth quarter will be in the 20-something range.

Got it. Okay, I think that was all I had left. Thanks a lot. Congratulations on a good quarter.

Anthony Lebiedzinski, Sidoti & Co.

Good morning. A couple of questions on the store growth. How many of the stores are you opening this year will be in a former Movie Gallery or Blockbuster locations?

I don't have the exact number, but approximately 10 to 15.

Longer-term, what do you think is the opportunity from those former movie rental locations?

A lot of them, the Movie Galleries or Blockbusters, they were paying a lot of rent. So it's just a matter of the landlords getting reasonable. We'll continue to look at those opportunities, but a lot of them -- it's been a couple of years now, so we'll see what else is available.

We're seeing small signs of a little bit of new construction, but not much. But it we could get that rolling again, we could really get our store count up on new stores.

I think Gary, you mentioned you've seen a decline in the per-store CapEx. What do you attribute that to? Can you give us some numbers to be able to see actually how much you're spending now versus a year or two ago?

Yes, a couple of things are going on. We've got a guy back in the back that heads up our construction business that is just phenomenal. Probably our leasehold improvements in furniture and fixtures are probably down 10% from what it was last year. Plus, we're seeing probably more buildouts so we are not putting as much in, so things tend to shift around on the P&L statement. So I would think the trend going forward is -- if you look back a few years ago, in mall stores we were probably putting in almost twice as much as we are now in some of these strip and Movie Gallery locations. So I just see our -- it's amazing to me our D&A line be less dollars quarter-over-quarter that it was the year before.

One positive thing this has done for us is when we close the store, there's almost no write off. It's not a big deal.

Okay. Thank you guys.

Mark Smith, Feltl and Company.

Good morning guys. First off, can you talk about maybe an opportunity to ramp growth further? You guys have talked a little bit about (inaudible) if you start to see some or construction, but is there an opportunity to maybe do even more in 2013?

We expect to grow even more next year, absolutely. We think things will lighten up a little bit on the construction side, but we expect to grow faster than we will this year.

One thing that we really don't talk about that much but we expand square footage. Our square footage is up more than our store growth is up in second quarter. Then on a square footage basis, our expansions are almost equal to 10 new stores. So those come on at a pretty high sales per square foot rate also. So I would think we'll probably end the year north of 5%, and I would think going forward that we'll keep increasing the total square footage by at least 1% percent or so in the short-term.

Okay. Then looking at your guidance on closures, it looks like you're most of the way done with any closures this year. Did you have some that you just need to shake out earlier this year, or is there potential that maybe that number could move higher?

There's always that potential. We look at all the profitabilities of our store, and having so many stores' leases come up all different times, and could go up a little bit, or it would stay about what we said it will be. But we still hope to hit the net new stores.

This might be just an obscure question, but would an expansion in the SEC, especially into Texas, make any real impact on sales?

That's so hard to say. It could, maybe.

If it's Texas, I think it would.

Okay, great. Thank you.

Jonathan Grassi, Longbow Research.

Good morning guys. Thanks for taking my question. You guys mentioned that the kids was in particularly strong. Was there any brands within there that really seem to be resonating with that demographic? Have you changed up the sales mix -- or the merchandising mix of any of the brands that you're carrying?

Reebok was particularly strong in the kids department. In particular, the (inaudible) product was good, [Real Sweats] came on at a nice clip as well. Certainly the Nike product is good too. One of the things I think we did a better job of was really identifying where opportunities were by door and ensuring that we had good strong core product all the way down to all doors. That really helped drive their business forward. So they're very focused on their assortment and ensuring that we're giving all of our consumers an opportunity to buy the right product.

Okay. Then you had mentioned that licensed basketball apparel wasn't meaningful to sales. I guess is there any way you can ballpark us I guess what percentage basketball footwear plays into your overall footwear sales or at least give us an idea of basketball footwear relative to running, training and cleats?

We wouldn't give out the exact percents just because of competitive reasons, but even if the NBA is not -- if the NBA doesn't play, basketball shoes will sell anyway because the consumer that wants a basketball shoe once basketball shoe. as dedicated to the players that they follow, regardless of whether they play or they don't play. If you look at Jordan, Jordan hasn't played in years, and it is a hot property. So I don't see the NBA being impactful to the shoe business in that respect whatsoever.

Okay. Is there any way you can tell us where it lies in the spectrum of sales relative to running, training and cleats? Is it in the middle there. At the bottom?

It's at the bottom.

Then lastly on the E3 replenishment system, do you guys still have any more SKUs you're going to be putting on that and I guess which product category might still be left?

Products come and go on E3 based off of the seasonality, and if there's changes in core products that we need to address. Certainly all product has lifecycle, and you have to update on occasion, but I would say that our overall percentage is going to stay about where it is right now.

Okay. Thank you very much.

David Magee, SunTrust Robinson Humphrey.

Hi everybody. Good morning. Good quarter. I guess first a question for Becky. You called out earlier charged cotton as being an area of strength. I'm curious how much more potential you see with that product. It seems to me that the consumer awareness still isn't up that high for that.

Then sort of secondly as a part of that, what do you see with storm cotton later this year?

We have -- we were actually pretty pleased with the sellthrough on charged cotton. We didn't have it in all doors. That's where we see the potential going forward is for probably an expansion of doors for next spring in the charged product. But as an overall sellthrough on a week-to-week basis it was pretty decent. So it was nice to see because it was a $25 ring as opposed to a $20 ring of a regular cotton T-shirt, and we like obviously seeing that.

That being said, storm cotton is going to out to the [bench] basically the same number of doors that we had charged cotton in, and we'll see what happens because it is as well a higher retail. But I think that, with Under Armour's dedication to marketing that product, that we can expect to see it do as well as anticipated and what we planned for. So we've got some opportunity for growth for both of those areas in the future, particularly in the spring with charged cotton and depending on how storm does this fall, we will look at it again for next year to see where it goes and how many doors.

The overall level of sellthrough is enough to move the needle for the overall chain?

I wouldn't say it would move the needle for the chain, but it certainly would in the activewear area (inaudible) positive.

Then secondly, as I recall, it seems like about 25% of your stores right now compete with the big-box player. I'm curious at this point. Are you seeing much in terms of differential and performance between that 25 and the balance of the chain?

Yes we do. We continue to get some big-boxes but we continue to open stores in isolated markets also. As much as we get a little bit more big-box competition, there's also smaller players that close. So I think it will always be about what 25% of our stores will always compete against the big-box. So in general we're opening more stores in more isolated markets, and we'd still like to be 20 to 25 minute drive time from a big-box. I think it will always be part of what we are up against.

But the part that does compete against the big-box, once they absorb the competition for a year, how's the performance beyond that?

Usually we start coming back. Usually they'll hit us the first year, maybe the first two years, but usually by year three, we come back pretty strong.

Thanks a lot.

(Operator Instructions). Chris Svezia, Susquehanna Financial Group.

Congratulations. I guess Gary, for you, when you look at the back half of the year and you think about the opportunity for product margin versus occupancy cost leverage, could you just talk about what you foresee? Is it you're looking at gross margins up in that 50 basis point, 40, 50 BPS in the back half of the year, and what the components are?

Yes, I would -- we certainly have an opportunity fourth quarter, Chris, but the occupancy, we pretty much stay on almost a flat dollar amount on a per store basis, so the leverage will increase as that topline grows. But I would see maybe in the back half to the year at least equal contribution for both. There may be a little bit more from the occupancy side.

It's pretty -- for both quarters, it's pretty even keel? (inaudible)

I would think we probably have more opportunity in the fourth quarter.

Okay. Is that mix by any chance helping that, just I guess (multiple speakers)

Last year, our January was --

Oh, that's right.

(multiple speakers) perfect storm. So we didn't have a real good December either. Mr. Newsome, he is going to tell us that Alabama (inaudible) or fight song, and he's got Pennsylvania/Alabama for its next national championship.

I won't do that until November when they are undefeated.

All right. Then I'm curious, Becky, for you, when you look at the outdoor space for this fourth quarter versus fourth quarter last year, some things worked, some things didn't. I know North Face incrementally I assume becomes a bigger piece. You had Columbia in there last year. Maybe talk about some of the opportunities in the outdoor space more explicitly versus year over year, and maybe how you see that growing.

We do see a little bit of growth in our store count to what we're doing in outdoors for this next year. It's not substantial but we do have some additional product coming in. We'll keep our Columbia business. We learned a lot last year and we're going to continue to work on that this year to see where we can learn more in the stores that we have it in, but we won't expand it because we really want to dive in to make sure that we're making the right decision on that product mix. So the outdoor piece of it for the back half, we would expect it to sell through at the same rate that it has in the last few years that we've actually entered that arena. You know, it all depends on whether or not you put it in the right doors and we think the inventory management group has done a really good job of analyzing that and working with our suppliers to make sure that we're in the right markets.

Okay. Then on the footwear side, we've heard a lot of things about Reflex and Zig and what's going on in lightweight running and Lunar and Free from Nike, etc. As you look further down the pipeline, anything more specific that you can call out? It's just Reflex and lightweight just become a bigger percentage of the business? Does -- from a basketball perspective the launches that you see look compelling, obviously regardless of what the NBA does? Maybe just a little more color about what's further down the pipeline, not so much what's already in existing stores, I guess.

We do see the opportunity for the lightweight running to be in more doors going forward because we're working closely with our suppliers to ensure that we get enough product to do that with. Because of that, we see that really helping us going forward.

As far as product mix and launches, we think it looks pretty good in the back half. Some of the products that we know that's going to launch this year is already getting some buzz on e-commerce, and so we think it's going to be a positive impact for us.

Anything on the casual front by any chance? Just out of curiosity?

Nothing in particular.

Anything on classics by any chance?

We have a little bit of classics out there that's in the right doors. It's doing well. We're testing out specifically in Adidas, and that seems to be working relatively well. We'll look to see how that plays out for next year.

Okay. All right, sounds great. Congratulations.

Sean McGowan, Needham & Co.

Good morning everybody. Thank you. Two questions. First, you've touched on this a little bit, Gary, but maybe you can dive in a little deeper. Gross margins continue to benefit from a number of factors. Are there any of these factors that you see that are accelerating or decelerating as we go through the rest of the year, or should we expect kind of more of the same?

Our inbound freight and warehouse costs are in there too, and we've taken a bit of a hit on fuel charges. Now, as that tends to come down, we could see some improvement in dollars and rate from that area too.

Okay, thanks. If you could just remind us from last year, were there any kind of funky weather issues last year that we should be concerned (multiple speakers)?

Yes, January was down 11%. It was due to weather, both with store closings and getting product in and out of Birmingham, and then also a lot of the rapid refund income checks -- income tax checks rolled into February as opposed to January. The plan now is that they would be in January.

So that's really right for the very tail end of the year. Anything in the third quarter year-over-year?

Third quarter, no. We set a great third quarter last year.

Great, thank you.

Sam Poser, Sterne Agee.

My questions have been answered. Thank you.

This does conclude the Q&A session at this time. Mr. Newsome back to you sir for closing remarks.

Thank you. In summary, I want to remind everyone that last year in the first and second quarters combined we increased earnings per share by 75% with a 13.4% comp store sales increase. On top of that this year in the first and second quarter combined, we increased earnings per share another 34.6% with a 6.4% comp store increase. The first 19 days of August are very important to the third quarter, and our comp store sales are up 7%.

We're also greatly encouraged by our new store performance. The 45 new stores we opened in fiscal 2011 and the nine new stores we've opened this year are performing significantly above our store model.

In our first-quarter press release in May, we increased our annual guidance. We again increased it today. Our goal is to increase annual guidance in our November press release.

We continue to improve as a company in terms of pleasing a greater percent of our customers by having the product they want, when they want it, with full customer service.

Thanks for being on the call today. We look forward to speaking with you on November 18 at nine o'clock central standard time with our third-quarter results. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great weekend everyone.