Hibbett Inc (HIBB) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports first-quarter 2013 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 today, Friday, May 18, 2012.

I would now like to turn the conference over to Mr. Mickey Newsome, Executive Chairman. Please go ahead, sir.

Thank you, operator. With us also is Jeff Rosenthal, our CEO; our Senior VP of Finance, Gary Smith; our Senior VP of Merchandise and Marketing, Becky Jones; and our Senior VP of Store Operations, Cathy Pryor. We will all be available for questions later.

We appreciate you being on our call today, and we appreciate your interest in Hibbett Sporting Goods. Before we start, Gary Smith will cover the Safe Harbor language.

Thank you and good morning. 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 first-quarter earnings per share were up $0.98 versus $0.76 a year ago. Overall sales for the first quarter increased 14.4% to $232.9 million. Comparable sales increased 11.1%.

Comps by month are as follows -- February up 10.82%; March up 9.77%; and April up 13.41%. 60% of the sales gain is coming from increased traffic, and 40% of the sales gain is coming from price.

From a real estate perspective, we have opened 7 new stores, expanded 2 high-performing stores, and closed 4 underperforming stores, bringing the store base to 835 stores in 26 states. We still have identified 400 additional markets in our existing 26-state area and could easily grow to over 1,300 stores. We are on pace to open 55 to 60 new stores and expand approximately 15 high-performing stores.

We have started very strong in comparable sales through yesterday, with sales up in the high single digits. Our Company is confident moving forward into the rest of the year by moving its fiscal 2013 guidance to a range of $2.50 to $2.65 diluted per share.

The Hibbett strategy has continued its success, as evident by achieving 10 consecutive quarters of comparable-store increases. With numerous opportunities ahead, our future is bright for the rest of this year and for years to come.

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

Good morning. Our first-quarter performance was healthy in all categories. Double-digit comps were achieved in apparel, footwear, accessories, while our equipment division grew in the mid single-digit comps. The branded activewear continues to have exceptional results in all genders and sizes; shorts and tees drove the results.

Our continued focus on brands such as Nike, Under Armour, and adidas is resonating very well with the consumer. Jordan and adidas Originals are also doing well.

The licensed apparel area had high-teen comps, with the Kentucky National Championship contributing to the total. Our overall collegiate business was quite good, as well as the headwear category.

The footwear business had an excellent quarter. We had good results in mens, womens, and kids running shoes and sandals. Nike, Under Armour, and Brooks were top-performing suppliers in the running category. Jordan was particularly good, bringing our traffic into our stores and contributing to top-line sales. adidas Originals had a positive impact as well.

Accessories drove mid-teen comps, with socks, sunglasses, and headwear driving results. Top suppliers were Nike, Oakley, Costa and Under Armour.

The equipment division posted a mid single-digit comp in the first quarter. An increase in bat sales contributed about half of the baseball comp for the quarter. Football business was healthy, posting a high single-digit comp; basketball mid-teen comp; and soccer high single-digit comp.

The inventory in our stores is clean and we're in good shape prior to the back-to-school season. We are pleased with the product offering from our supplier partners, and we feel that we are really well positioned for the upcoming back-to-school season.

Next, our Senior VP of Finance will speak with you, Gary Smith.

First-quarter sales increased $29 million to $232.8 million, a 14.4% increase from the previous year. Fiscal comps were up 11.1%.

Gross profit rate increased 75 basis points. Product margin rate increased 22 basis points, and occupancy and warehouse leveraged the remainder. We also gained favorable leverage on SG&A as we saw a rate improvement in salaries and credit card fees.

Depreciation and amortization was under last year's dollars due to declining leasehold improvement. The unfavorable tax rate was due to the lack of income tax credits due to the expiration of job tax credits.

Operating income as a rate to sales increased 144 basis points to 18.2% and increased in dollars from $34.1 million to $42.4 million. Diluted EPS came in at $0.98 versus last year's $0.76, a 29% improvement.

From a balance sheet perspective, the Company ended the quarter with $95.8 million in cash, the highest quarterly amount ever, versus $85.3 million last year, with no bank debt. Inventories increased 3.5% over the previous year, but down slightly on a per-store basis.

We spent $2.5 million in CapEx for the year versus a $15.9 million budget. And for the quarter, the Company purchased a little over 300,000 shares at $16.8 million. At quarter end we have approximately $131 million left under the remaining purchase authorization.

Operator, we are now ready for questions.

(Operator Instructions) Seth Sigman, Credit Suisse.

Good morning. Congratulations on a great quarter. Some retailers have talked about some pull-forward in Q1. You mentioned sales up high single digits quarter-to-date now. Obviously a very strong trend. But do you think there was some pull-forward in April that maybe you could speak to?

We don't really think that we got a pull-forward. We think we are on really just a decent trend as far as sales goes.

From our perspective, when you look at the weather being warmer, it really -- that is not the impact for us. It is not about whether it is hot or cold necessarily; it is more about is it wet or dry. What we saw happen throughout the quarter was really pretty consistent sales, and we are seeing that trend continue into this month.

Okay, that's great. Then I have a question about your eCommerce business. Last quarter you announced a partnership with a third party to run that licensed part of the business. Can you talk a little bit about the thought process behind that decision and maybe how it has done so far? Thanks.

Yes, it is just really an affiliate program. It is a click-through, and we are getting a small royalty off of it. We just felt it was good for our customers, and that is what we are doing right now. In a future date we will have an eCommerce strategy.

Have you seen any cannibalization as you launched that, or --?

None.

None at all. It is so insignificant.

Okay, great. Thanks.

Rick Nelson, Stephens.

Thank you. Good morning. My congratulations as well. Mickey or Jeff, can you update us on the real estate market, what you are seeing in terms of existing buildings as well as new shopping center development?

Yes, Rick. You know, we feel very confident in hitting our goal for this year. So far this year we are ahead of the pace that we set out at the beginning of the year or last year to hit for this year.

We are seeing again a little bit better. New store construction still isn't where it needs to be, but we are seeing a slight improvement and we feel really good about the opportunities that are out there.

And the Blockbuster, Movie Gallery opportunities are --?

You know, we still have got a few of those still coming. I know as the leases become available and they can work our kind of deal, we will do those kind of deals.

A lot of time we have to wait out the landlord, because Blockbuster and Movie Gallery were paying too high a rent than we are used to paying. But we have gotten a few more this year.

Rick, another thing that has happened is some of the old Wal-Marts where they moved to a Supercenter, they are chopping up those old Wal-Marts. We are seeing some of that. So that is helping.

By our calculations, 31% return on equity on a trailing basis. You are doing it without any debt on the books and a pile of cash, $96 million in cash. How do you think about that going forward, without a major step up in store growth? Where do you see that cash position going, I guess, and the alternatives for the cash?

Yes, we think that there is still opportunity to buy our undervalued stock back and reduce the shares. But the next couple years we have a distribution center coming up, and we will be moving our corporate offices; so that will probably take approximately $30 million worth of cash. So yes, it is a good thing to have, Rick.

Mickey or Jeff, if I could ask you where you stand with the CFO search at this time, what sort of timeline?

Sure. We have a very -- we have an excellent staff here internally, and Gary is still available if we need him. But we will be making an announcement pretty soon.

Okay. Thanks a lot and good luck.

Sean Naughton, Piper Jaffray.

Hi, thanks for taking my question. There has been a lot of discussion about inflation in the channel and the need for pricing action in the first half of 2012. It appears like you're managing through that very, very well with some of the good product you have in the store.

Just wondering just your initial thoughts and take on the back half of the year of 2012, what you are seeing from an inflationary impact across the store, and then the potential for product margin expansion in the back half of the year.

We don't see that there is going to be any significant real increase going into the back half of the year from what we have already experienced. As new product comes out, new technology is part of that. We have seen that the consumer is really prepared to pay for new technology, newness in the retailers at this point in time. So we are not anticipating that that is going to be an impact in the back half.

As far as margin expansion, I think that we can look to doing about what we have in the past. It is not going to be -- Gary is signing over at me right now that it is going to get much larger; but I would say that it is going to be about consistent as to where we are at, at this point.

Okay, well, that's good. Then I guess just secondly on the overall real estate portfolio, the overall potential for the store base for Hibbett. I think you mentioned that north of 1,300. But have you looked at -- a little bit closer about how big you think that the ultimate size of the chain could actually be, just given the fact that you're underpenetrated in many states it appears across the country?

Right. You know, there is no reason that our model can't work in all 50 states. So we are just staying tight geographically and trying to understand the customer as we expand states. So easily we think we can double the chain that we have today.

An example, Alabama is our most stored state relative to the population. And we know today another 10 to 15 stores we can add in Alabama, so we've got a lot of growth in existing states.

Okay, that's great. Best of luck in the second quarter. Thank you.

Dan Wewer, Raymond James.

Thanks. Mickey, can you update us as to the game plan for the existing distribution center? Whether you think you are going to be staying in the state or looking at Mississippi, and also what is the timing of the transition?

Well, I can give you the timing. We certainly expect to move the distribution center about two years from this spring. But we have not 100% committed to exactly where it is going to be. We are very close, but we are not ready to announce that yet.

Okay. Next question I have, is tax-exempt shopping holidays for the back-to-school season, do you have a sense as to how that is going to shake out between the second quarter and the third quarter for this year?

Yes, we don't have the exact; we think it's going to be very similar. We do have some areas that back-to-school may get pushed back later in August. But from a tax-free, we think we are pretty comparable to what it's been in the years past.

They don't really announce those -- they don't announce those dates until June July. I wish they would do it more in advance, but they don't announce them way in advance.

Well, they must all be investor in footwear stocks, hmm? The third question I had, Gary, if you could talk about the IT investments that have been made in the last year that you think you are beginning to get a payback. And then also talk what is on the agenda going forward and what the timing of a payback from those future investments would look like.

Well, certainly we get incremental benefit year-over-year with the systems as they become -- as the information becomes more historical relevant. Shortly, we will be putting some departments on markdown optimizations on a testing basis. You're probably not going to see anything this year; probably start seeing it next year.

We are seeing some of the burden of the cost reflected in SG&A, and I would expect that to lessen on a year-over-year basis as we move through the year. But certainly we have a lot of initiatives going forward.

I think MDO is probably one of the biggest gross margin contributors in the next couple of years as we learn to manage those prices from a promotional standpoint. And then operations is looking forward to labor scheduling, which will put our people in the stores when the shoppers are there and make us more efficient.

So yes, there's a lot of things going to increase top line, gross margin rate, and the SG&A line.

Okay, great. And, Gary, enjoy your few weeks off coming up.

Thanks, Dan.

He is a big fisherman.

Sam Poser, Sterne, Agee.

Good morning. Thank you for taking my call. Can you talk a little bit about the malls versus the strip center business, and the differential there?

Yes. Sam, you know, the malls have been performing just as high as the strip centers, so we have seen definitely the last couple quarters that the malls business has been very good.

What do you think the change was there? What do you think the change was there (multiple speakers) that ?

You know, I think a lot of the mall customers are a lot more footwear driven. And as footwear has gotten stronger I think the mall has gotten better.

Got you. Then a couple other things. April accelerated beyond the other. With the Easter shift and everything, can you -- that is sort of different than a lot of other people. Can you give us some -- why that might have happened to you and not others?

Usually we decelerate a little bit at the end of the quarter, and we just continued to accelerate. We were having great comps really across all divisions, between footwear, apparel and equipment. And it just got stronger as we went on. It is just one of those anomalies that were for the best.

One of the things we have heard from other people is that Nike was having trouble shipping a year ago, and they were a little late on some deliveries. Think some of that might have helped you?

I am sure that could have been part of it.

Then lastly, can you break out by month footwear and apparel?

No.

You have done that in the past.

No, we're not going to be doing that, Sam.

No, we don't have that.

Oh, all right. Anyway, continued success. Gary, we miss you.

Thanks, Sam.

Thanks, Sam.

David Magee, SunTrust Robinson Humphrey.

Yes, hi. Good morning and congratulations. And congratulations, Gary, for your great time there.

Thank you.

Just a couple of questions I had. One is the SG&A ratio was levered nicely in the quarter. I'm just curious; underneath that, what were some of the puts and takes on the expense line?

Well, all classes of salary levered from stores did a great job. Distribution and the corporate office, so that was great. We have been able to take advantage, like a lot of retailers, with the credit card reduction in rates.

When you get 11% comps, it makes leveraging that expense line a lot more easier. But I think we started investments, we're cycling some of the investments we had in IT, especially broadband. So I would think the growth on a per-store basis would tend to come down year-over-year as we move into the year.

So I would think it with strong top sales we should be able to leverage that line probably a little better.

Thanks, Gary. Are you all still feeling good about the change with NFL jerseys this fall?

We do. We think that there will be some excitement around that when the football season starts.

Would there be any advertising by Nike to promote that?

Yes, Nike will be out there with a nice overall package around supporting that.

David, the Olympics could be a small positive for July, August.

Which category do you think would benefit from the Olympics?

Mostly it is about running. I think that in a Summer Olympic year you always see running take a pop-up.

Thanks, Becky. Then lastly, on the plans for the Fall, can you remind us of what you will be doing with outerwear this year in terms of expansion to -- the category in the stores?

Well, outerwear for us is a little bit relative in comparison to other retailers, because we are more about lightweight jackets. Certainly we have North Face that is impactful to us in specific stores; it is not an all-chain by any means. But we have got a little bit of expansion there for this coming Fall. It is not significant to last year, but we do have some upside in store count.

Great. Thank you and good luck.

Mark Smith, Feltl & Company.

Hi, guys, can you talk about any significant weather impact in the quarter?

We really feel -- you know, I don't think it was really a big change at all. The only thing that we had last year is we had some tornadoes which affected us for a couple days. But other than that, no real impact.

It probably wasn't as big a difference as you might think. The average for all Hibbett markets as it relates to low this year was 47 degrees; last year it was 44. The average high this year was 68; last year it was 66.

We did have less rain this year. We had 3 inches versus 4.5 a year ago. So that probably helped some.

Okay. Then can you guys remind us, the bump that you are seeing on your store expansions and any change that you may be seeing in that over the last 6, 12 months?

It is not -- it's less than a half a percent from a total of the expansion. So it does help, but all our expanded stores we are hitting our performance goals and we feel really good about them. We still have identified at least another 100 stores that we would like to expand.

Okay, great. Thanks, guys.

Jonathon Grassi, Longbow Research.

Good morning. You guys have noted that of the comp increase, 60% was from increased transactions, 40% from higher prices. Did that ratio differ significantly between product categories?

Between what categories?

Between product categories.

Product categories.

Not really, Jonathon, no.

Okay. Then I believe you guys said Nike, Under Armour, and Brooks were your top running shoes. Has that been pretty consistent as far as brands that have been driving that business?

It has been. Nike obviously drives the total because they are so important to us, as an overall to the business. But their Free product has been really outstanding this year, and we feel really good about not only what we sold through in the first quarter but what we have going into Summer with them as well.

Brooks was good for us in general, and we don't have then in all doors. We do have them in really what we call our technical running doors. And the customers that shopped us in those doors really responded well to them.

Yes, and you know, I think you just said, Reebok also is good and adidas. So there is quite a few, and Asics is still a player, so there is quite a few in our running category.

Yes, it is the lightweight running category as a total that is driving this top line.

Okay. Then did you guys have the new Nike Frees in all of the doors this spring?

Yes.

Okay. Then you noted that the price optimization system right now is adding a little bit to SG&A before it really starts to impact the gross margin line next year. Is there anything else to look forward to that could be providing an incremental bump in the SG&A over the next few quarters?

I don't think so, Jonathon. Nothing of any significance.

Okay, great. Thank you.

Camilo Lyon, Canaccord Genuity.

Thanks and let me add my congrats on a great quarter to you all.

Thank you.

Becky, I was hoping to just get a little bit more color on what product categories within footwear you're excited about for the future, for the forward coming quarters. Is there anything that should stand out, that should be a nice boost to comps coming forward?

Well, we don't see the running category really changing at this point in time. It is on a good trend. We expect that to continue forward.

We do believe that the back-to-school programs that are coming out from Under Armour are going to be impactful for the back-to-school season. When that product hits, we are really looking forward to that. We believe in that product strongly.

And outside of that, our Jordan business continues to be very healthy. We also think that that fashion consumer is ready for the new products as they come out. So the back half of the year we are looking forward to that continued success.

On that Under Armour product, is that the SPINE that you are referring to?

It is.

Is that a product that you are planning on taking to all doors, or is that going to be a selected allocation program?

It will be pretty close to all stores.

Great. Is that a change from what Under Armour footwear typically has been for you? Or is that pretty consistent in terms of penetration by door?

Well, I would tell you it is probably a little bit more then we had in the past because we just feel that good about the technology that they are bringing out. Our consumer has always been hungry for an Under Armour footwear piece, and we have carried it. But we really think that they have hit the mark well this time.

Great, great. Then I know -- I think this question has been asked in some format, but I am hoping to get maybe a little bit more clarity with respect to the gross margin, the merchandise margin drivers over the next 12 to 18 months.

Maybe if you could help prioritize or speak about which ones we should think about as being the biggest contributors to merchandise margins, that would be helpful.

I would tell you that when I look at -- by division, where we are getting our gains and our gross margin expansion it has been pretty consistent across all areas. I really believe that there's a couple of reasons for that.

One, we are in a better shape from a clearance perspective. We are in a better shape as far as cleanliness in our inventory. And that had a positive impact across-the-board for us.

When I look at what we are looking at going forward and how -- what we have in our plans, again across-the-board our merchants are doing a really good job of managing their business. So we are seeing it as a positive in just about every category, just because we are a little bit more disciplined at the way that we are going at our markdowns and ensuring that the inventory stays fresh.

Yes, let me add something to that. We have improved so much in systems, and sometime merchandise margin gets back to having the right product in the right store at the right time and selling it through at full price. And we have greatly improved in that area in all departments.

Have you been working with the vendors to improve the timing of those deliveries throughout the quarter? Has that been a big contributor?

Well, we -- you always want to work on flow. But when you look at the way the quarters fall, specifically in footwear it pretty much starts -- every quarter starts about the time when the foot traffic is going to come into the stores anyway. So you do want to make sure that you've got fresh goods flowing in at the first of the quarter.

Yes, we do like to make sure that we have freshness coming every month. But the majority of the receipts from the footwear perspective will always be frontloaded.

Also, to look forward to once we get MDO up, that will be also a big help on the margin. And as we move into next year, we expect to get some benefit from that.

We also -- which we really didn't talk about was assortment planning, and we really put that in about a year ago and we are starting to see some of the benefits from planning our inventory better and right, getting the right assortments in the right stores. So there's quite a few things that we are working and there's a lot of levers we can pull.

Got it. That's very helpful. Thanks so much and good luck with the rest of the year.

Sam Poser, Sterne, Agee.

Just real quick, you talked earlier or a few quarters ago about you're excited about the increased allocations you were seeing from some of your -- from the major players. Is that continuing to improve going forward? How much of that has improved this spring?

Then also, with your new allocation -- with your allocation systems and so on, I understand that you still fill in your footwear on a prepack basis. Are you going to be able to go to single-size fill-ins? And if so, how will that help drive sales and margins?

Yes, you know, Sam, from an allocations standpoint, we always negotiate with all our vendors. And as we continue to grow and as we become more important, we have seen that improve.

Filling in from a single or from prepacks to a single, part of our new distribution center, we are definitely going to be able to fill in more on a weekly basis than we have ever been able to do since we have been 93% cross-stock. We're trying to figure out right now -- is it 75/25 or 80/20? So we will be changing our distribution model as we grow, and as we get into our new distribution center in the next 18 to 24 months.

Well, thanks; and again, continued success.

I am showing no further questions. Mr. Newsome, I will turn the call back to you.

In summary, Hibbett Sporting Goods is on a very positive trend. First quarter two years ago, earnings per share were up 56.8% over the previous year. First quarter last year, earnings per share were up another 29.2%. This year, earnings per share are up another 29%.

Comp store sales first quarter two years ago were 14.5%; last year, 6.8%; and on top of both of those, another 11.1% this year.

First quarter two years ago operating margins -- operating income, I should say, was up 15% -- was 15%. Last year it was 16.8%; this year 18.2%, a great trend.

Fiscal 2010, fiscal 2011, fiscal 2012, new stores are performing significantly above our new store model. We feel positive about our ability to continue to increase our new store growth this year and in future years. We will continue to expand at least 15 stores per year, and we feel like this year -- net of any closings and net of all closings -- we should have 40-plus new stores, and next year it will be more.

We're a greatly improved Company year-over-year, and we have a great future in Hibbett Sporting Goods. Thanks for being on the call and we look forward to speaking with you on August 17 at nine o'clock Central Standard Time with our second-quarter results. Thank you.

Ladies and gentlemen, that does conclude the conference call. We thank you for your participation and ask that you please disconnect your line.