Hibbett Inc (HIBB) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2014 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, May 24, 2013. I would now like to turn the conference over to Mickey Newsome, Executive Chairman. Please go ahead, sir.

Thank you, operator. With us also is our CEO and President, Jeff Rosenthal; our Senior VP and CFO, Scott Bowman; our Senior VP of Merchandise and marketing, Becky Jones. We appreciate you being on our call today and we appreciate your interest in Hibbett Sporting Goods. Before we start Scott Bowman 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 in the Company's press release and SEC filings.

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's earnings per share were $1 versus $0.98 a year ago, a 2% increase. Overall sales increased 3% to $240 million compared to $232.9 million a year ago. Comparable store sales on a calendar basis were up 0.08%(sic-see press release "0.8%"). Comps by month are as follows -- February up 0.7%; March minus 0.6%; and April up 3.6%.

We are disappointed in our results. The colder weather clearly affected the performance of some key assortments, especially against last year's strong sales performance. Looking forward, we are well-positioned for the summer and back-to-school. We have a much improved aged inventory position, product assortment and excellent customer service.

From a real estate perspective, we opened nine new stores, expanded five high-performing stores and closed three underperforming stores, bringing the store base to 879 stores in 29 states as of May 4. For fiscal year 2014, the Company expects to open 70 to 75 new stores, expand approximately 18 high-performing stores and close 15 to 20 underperforming stores.

We are very confident in our real estate strategy as our new stores continue to perform above pro forma. This gives us confidence that we can grow even faster this year and for years to come. We will grow to over 1,500 stores over time.

We are flattish through yesterday, but, with over 80% of the business still to be done, we feel that we will have a good second quarter. The Company is maintaining its guidance for fiscal 2014 and expects to report a range of $2.85 to $3.05 earnings per share and a comparable store sales increase in the low to mid single digit range.

Some key initiatives that we have just started on and that we are very excited about that we have -- and this is an update to that. MDO, which is markdown optimization, is up and functioning and as we continue to go through the year we will put more and more items on that. Early result is very positive. We are putting in a business intelligence tool that will help us get the right products in the right stores by customers and we are in the midst of putting that in.

We are just about ready to move to a new home office next month which we feel very good about and a new data center over there which we feel very strong about. Our new DC, which we have spoken about, we will be in next spring. It is well on its way and we feel that we will be in there next spring which will give us a lot of advantages once we get in there.

Another thing that we have done is really done a lot of visuals around our new shoe wall which really adds a lot of excitement to the customers and we are seeing early results from that.

We are persistent with our strategy go into small markets. We have nothing keeping us from attaining our growth initiatives. There have been significant investments in our business that will continue to help us achieve that desired future growth. We look forward to continuing improvements and continuing business for many years to come.

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

Good morning. First-quarter results were healthy in our core activewear, footwear and accessory businesses with those areas driving mid single digit comp increases. The spring apparel sales were a smaller percent of the total compared to last year while fall and winter product increased share of sales significantly over last year. Branded activewear was quite good in women's, youth and men's and we continue to be very pleased with the growth of our men's fashion business.

Footwear had a solid quarter and it was driven by men's basketball, youth basketball and girl's running. Casual footwear and sandals were soft. The kids business is healthy and we anticipate continued growth and success in those areas. Our Jordan business is quite good and continues to be so.

The accessory business is also good with strong gains in the sock and headwear category. [Mackey] continues to drive business in the sock category.

The challenge in the quarter really came from the license and equipment areas for us. The license area had headwinds due to the Kentucky championship last year and, while Louisville's win was within our market area, the results did not comp Kentucky's results. We did however exceed our expectations with the Louisville championship gear.

Equipment was challenging in the first quarter as well with baseball being soft overall. The wet cool spring kept many league teams off the field. Likewise the cleat business followed suit and was soft as well.

Our current inventory is in a healthy space in both aged and clearance and the merchants have managed product well along with the support of our suppliers. Our current product mix has us positioned to have a really good second quarter and we are optimistic about the upcoming back-to-school season.

Next our Senior VP of Finance and our CFO will speak with you, Scott Bowman.

For the first quarter total sales increased $7 million to $240 million, an increase of 3% over the prior year. Comp sales on a calendar or like-for-like basis were up (technical difficulty). Gross profit rates decreased 10 basis points in the quarter. Product margin increased 8 basis points but was negatively impacted by selling more discounted winter goods and less spring apparel during the quarter.

Warehouse and store occupancy deleveraged by 18 basis points which was due to lower sales and the continued ramp up of new stores that were opened at the end of last year.

SG&A expense increased 42 basis points as a percent of sales in the quarter. Store labor and benefits experienced deleverage due to lower sales as well as an increase in healthcare claims during the quarter. SG&A was also affected by expenses related to the new office and DC.

Depreciation and amortization increased 1 basis point as a percent of sales in the quarter.

The income tax rate for the quarter was 38.2% which was higher than last year due to an increase in the reserve related to a state tax settlement.

Operating income of $42.4 million increased 0.1% over last year and was 17.7% of sales versus 18.2% last year, a decrease of 52 basis points.

Diluted earnings per share came in at $1 per share versus $0.98 last year, a 2% improvement. This was very close to our internal plan.

From a balance sheet perspective, the Company ended the quarter with $103.2 million in cash versus $95.8 million last year with no bank debt.

Inventories increased 13.6% over last year and were 7.9% higher on a per store basis.

We spent $8.2 million in CapEx for the quarter including approximately $5.1 million for our new office and distribution center. Also for the quarter the Company bought back 99,000 shares for a total of $5.4 million. At quarter end we have approximately $244 million remaining under the existing (technical difficulty) authorization.

Operator, we are now ready for questions.

(Operator Instructions). Peter Benedict, Robert W. Baird.

Hey guys, thanks for taking the question. First on the unit growth outlook, it was obviously nice to see you guys tick up the store opening target there. So it looks like about 6% unit growth this year, maybe something closer to 7% on the square footage. Is that a new sustainable level that we think can continue or could you even go higher as we look out the next couple years? And what is kind of changing out there to allow you to get these -- the growth rates up faster? Thank you.

Well, Peter, I think probably the biggest thing is we have got a lot more confidence in that our stores are performing above pro forma. But we see store construction picking up a little bit which gives us a little bit of opportunity to grow faster too. So we just think that there is plenty of small markets to go to and feeling with new stores construction picking up a little bit and the way we are performing that we should be able to at least sustain that.

We will look and see -- we definitely are very disciplined on the way we approach real estate. So we still want to do our deals and do it the way we want to do it, but we feel very confident in the pace that we are at right now.

Okay, that's great. And then maybe, Scott, on the product margin side, as we look forward next few quarters, markdown optimization obviously started to layer in here. What is your latest take on that?

And then secondly, just on the comps, obviously you guys have some pretty volatile comparisons here with the calendar shift and whatnot. Just you are flattish year to date here or quarter to date in May. Just your outlook for kind of the balance of the second quarter, what should we be anticipating and what are you guys seeing that suggests that business trends will start to improve as we move forward? Thank you.

So on the product margin side we were up 8 basis points. We were constrained a little bit, as I said, because in activewear we sold more of the winter goods, fleece and so forth, versus the spring apparel, so that was a little bit of a drag in activewear. So without that kind of anomaly it would have been a little bit higher.

But with that, if you look through the remainder of the year I would expect it to be definitely flatter than last year. We will have some nominal increases, but they will be more incremental versus some of the big increases we saw last year.

Markdown optimization is working well. We continue to rollout categories and that's on plan, but we are still kind of tweaking and tuning, so we still will kind of be in pilot mode. So don't really expect a big improvement for the remainder of this year due to that project.

On the quarter to date comps, we are a little bit flatter. As we said, some of that is kind of the launch schedule in Jordan's that will level out over time. If you look at the strength in the categories that we do have -- apparel, footwear, accessories and so forth -- those are pretty healthy right now. And the penetration of those categories will increase in Q2. And so that is why we feel comfortable as well as kind of the new products that we see down the road towards back-to-school.

Okay, great. Thanks very much.

David Magee, SunTrust.

Yes, hi, everybody. Good morning.

Good morning.

Let's see, the inventory levels right now, you mentioned the aged amount is in good shape. Do you feel pretty good about the overall level of inventories in the spring merchandise?

You know, we do, David. When we look at where we were a year ago coming out of first quarter we had such a strong first quarter we kind of got the inventory to a lower level than we really anticipated being at at that point in time. So when you look at where we are at today in inventory, some of it is by design because we didn't want to go into second quarter in the same position that we did a year ago, and some of it is because the spring product really got a slower start.

So that being said, we feel like we are in a good position because we have worked with our suppliers to adjust where we needed to. We have got -- had some returns that have helped us from an older position. And we think that as the weather continues to improve for us that we will actually be able to accelerate a little bit.

Thank you. I guess I am also hearing that equipment from here on out starts to decline as a percent of sales, is that correct?

It does. Baseball is pretty strong for us typically in the first quarter -- it is our strongest sport overall. And even though football is impactful to us and it is a good sport, it doesn't have the same legs that baseball does from a volume perspective.

Thank you. And Scott, could you talk a little bit about the upcoming business intelligence system implementation and sort of what the timing you expect as far as benefits and how we might see that in terms of the P&L?

Yes, we are just getting started right now and we are getting ready to kind of go into the mapping phase to map all the data into the data warehouse. So it is still early days now and so it is going to take a little bit of time to go through all that, to get it up and running and to really understand how to best use the data.

We do have some kind of the preset kind of queries set up already that we have worked with the vendors, so that will shorten that time window a little bit. But really right now I am not really counting on any big benefit for the remainder of this year. It will be really more of a next year kind of benefit.

And do you think the benefit will be more of a top-line like less out of stocks and things like that?

Yes, I think it will be. It will be probably more heavily weighted towards sales opportunity. There will be a little bit of margin opportunity as well as we are able to get a little bit laser focused on the particular assortments in stores, so that will give us a little bit of lift there as well.

Great, thank you, guys. That is all for me.

Dan Wewer, Raymond James.

Thanks, good morning.

Good morning.

A little confused as to why results in May thus far are running slower than April. I was looking at your largest markets and the weather has been ideal, high temperatures in the 70s to 90s I guess in Texas, and if you have a greater level of spring merchandise than a year ago why would -- would not expect May to actually be outperforming April?

Yes, there are a couple things. We still had -- the last couple weeks we had some weather issues still even like in Oklahoma, tornadoes, and Northern Texas and stuff like that. Also during this period we have also had some shifts in our allocation -- not a shift in allocation as much as a launch has changed from one week to another.

So really the first few weeks is such a low volume so there is a little volatility up and down. I mean like for example we have a pretty good launch tomorrow which last year it was the week before. So that some of those type things, but really we still see that as the weather started to change we were starting to see T-shirts and shorts and stuff start picking up again.

So we feel really good about it and really the first two weeks is less than 20% of the business for the quarter. So really the best month -- the best weeks and the strongest is really as we get closer to back-to-school anyway. So we will feel like we will be in great shape.

You know, another comment on that, we did have some storms in a lot of our areas, like Jeff said. Now in the past like Katrina, you have a big storm and stores are closed and beat up and customers don't come in, but after the government money starts flowing those stores end up with a big comp increase over time. So we fully expect to get that back before the end of the quarter.

With the inventories, I think you had mentioned the spring inventory is a little higher than you wanted. Will it be necessary to start taking your clearance markdowns earlier than a year ago, particularly given some of your competitors -- their sales have been a little bit softer as well?

You know, it is a little bit early into this season to say whether or not that would happen. At this point in time it is not in the plan because we are seeing the weather get warmer, as you mentioned. So we are going to ride this out for a little bit and see where we end up.

We really have good relationships with our suppliers and it is better for us when we work on the back end with them. And we will do some returns so we can keep their fresh goods coming. And that is typically one of the levers that we will pull as opposed to just going with hard marks.

And then the last question I had -- actually there may be two parts to it. I am not going to ask about e-commerce for Hibbett, but Dick's did call out its e-commerce business is growing 50% year over year. And whether or not that is profitable for them is sort of irrelevant. I mean for the customer they have a choice. And if you think that could be having any impact on sales?

And then kind of related to that -- with all of the work going on with the new headquarters and the new distribution center, does that divert any of management's attention away from running the business let's say?

Dan, when it comes to e-commerce, we continue as we will have, as we have said in the past, in the next year -- the next few years our strategy around e-commerce, omni-channel and what that really means for us. You would have to say it would have some effect, it is hard to measure [saying] people that don't shop online, that would be crazy. But we really still feel that we are not losing a ton of market share; in a lot of markets we feel like we are gaining.

Sometimes with putting such a huge burden on opening a new office and DC, there are a lot of us involved. But we still feel like we have the right people with their eyes on the business and we will continue to move forward. I just think first quarter was a little bit of an anomaly in that it was tougher than what we expected. We know there's -- our strategy hasn't changed. We are still going to small markets and we feel very confident in what we do.

Okay, great, thanks and good luck.

Thank you.

Sam Poser, Sterne Agee.

Good morning. I may have missed this right at the beginning. Can you -- in May you are running up -- you are running flat. On a calendar adjusted basis, what are you up against in May? Because on the adjusted basis you are up against a 12.5% for the quarter and I think May was your best month last year. So what does May look like on that adjusted for the week shift basis?

Yes, May is pretty close and it was 9% last year and it is really close to that 9% that we posted for last year.

Although it is saying 12.5% for second quarter last year though.

Shift?

Yes, the shift -- from May the shift didn't have a real big impact for May. So it (technical difficulty) close to that 9%.

So can you give me on a shifted basis what each month looks like then?

I don't have the shifted month by month, so I can follow up with you after the call and give you that information.

Okay. And then you mentioned that you are seeing some new construction. Where are you seeing that and where is your other growth coming from?

Well, Sam when we were opening 70 to 80 stores quite a few years ago about 50% of our stores were coming from new store construction. Last year it was less than 6%. This year we are starting to see that percentage grow.

A couple things -- they are still building some new strip centers. Some of the older empty real estate they are starting to chop up and put -- chop up and put two or three retail type locations in it. So they may be chopping up an old Walmart building that has been empty for a long period of time, but --.

So we are seeing that really across a lot of states, but feel a lot better about that happening. We haven't had this many new store construction sites in probably two or three years at least.

Okay. And then how meaningful do you see that Jordan launch shift? How meaningful do you see that Jordan launch shift being?

Sam, as far as Jordan is concerned in the second quarter, the shifts are like week to week. And so one week it will be off in the next week it is going to be good. I think the thing to note for the second quarter as a total was that we are going to be in a better place than we were last year because our allocations are a little bit better than they were a year ago.

So net-net, we feel pretty good about what that overall launch looks like for the second quarter because we had a little bit more access than we have had in the past.

And more so in the May given that you are flat. But how much do you think that that shift of the Jordan launch cost you in the May comp to date? So if you -- you know what I'm saying? Because you are flat but you had the Jordan launch a week earlier last year. So when that Jordan launch hit this weekend how much does that move the needle for the month of May do you foresee I guess (multiple speakers)?

We didn't put that out exactly, I would say a percent or 2.

Okay. All right, well thanks, guys. Good luck.

Rick Nelson, Stephens.

Thanks, good morning.

Good morning.

I would like to follow up on the weather issue in the quarter. If we could look at the weather-affected markets like the Midwest and the Plains states and maybe compare it to the Southern states as to how you performed from a comp standpoint during the quarter.

We had the toughest weather really in the Midwest and up in the Mid-Atlantic area. If you look at those stores, if you look at probably more of the Hibbett heartland -- the South, Texas, Louisiana, Alabama, Mississippi, those type -- Georgia, were pretty good comps. We had a pretty strong business there.

So closer down towards all the Sun Belt sales were much better, but we got hit in the Midwest and the Mid-Atlantic. So it was -- I have a map right in front of me looking at the different weather and you definitely see the Mid-Atlantic was the toughest and the Midwest.

Okay, got you. And do you think it was more than weather that affected the comp in the quarter as well as May? Is there anything happening with your customer that might be changing?

The only thing, and it is hard to pinpoint -- obviously the payroll taxes change, it is hard to measure how much that affected it. But really the cold wet weather was the biggest thing. As Becky mentioned when she was talking, that when you see sandals and you see the winter areas, the differences in business, that is why you want to say most of it was in weather.

Okay, got you. And Becky, I'm curious about this new shoe wall, how that is different and how that might be driving footwear accounts?

We are just in the process of rolling out the new footwear wall to about half of our stores and it is really a couple of things that we took a look at. We took a look at the doors that we are going to get it was first and foremost our mall doors because we feel like there is an opportunity for us to show up better, especially now the we are focused on premier product and we are really invested in the fashion business in the mall areas. We wanted to ensure that our walls reflected that as well.

So it is a brand-new visual that goes for the entire wall, front to back, and it has really been a great hit with the consumers so far. Outside of the mall stores we also have targeted some of our larger volume doors and we also targeted some stores that just needed a facelift if you will.

So right now we are in the midst of the set. I would say we probably have 25% of it completed. We will have it completed by the end of the second quarter or as much as we are going to do this year. And then we will be able to tell you if we feel like it is really impacting us after that.

Okay, good. And finally, if I could ask you about the office move, how you see that affecting possibly expense ratios? I know this is a low volume quarter that you are in Q2.

Yes, in Q2 we'll have the actual move and so we will see a little bit of a drag. It was about 10 basis points all in for the first quarter and it will be a little bit more than that in second quarter as we actually execute the move. But it is not going to be materially different than what we saw in Q1.

If you look at some of the major work like the data center move, that is almost complete and we have had virtually little or no problems with that whole move. So it is really a testament to the IT team, they have done an excellent job of executing and planning that whole process. And so we feel really comfortable about that, it is just the physical move of the people and all the other furniture and everything that we have ahead of us.

Great. Thanks a lot and good luck.

Thanks, Rick.

Thank you.

(Operator Instructions). Anthony Lebiedzinski, Sidoti & Company.

Good morning. Another question about the weather. I was wondering if you were to strip out the Mid-Atlantic and Midwest sales, which were most impacted by the weather, what would your comp sales be for the quarter?

It would be low to mid single.

Okay, that's helpful. And also I just was wondering about a further breakdown of the comps traffic versus ticket. And also any color on the conversion and number of items per transaction?

Traffic and ticket was positive low mid single. But traffic was negative low mid single. So the net-net was the 0.8 comp. But yes, definitely more ticket than transactions. On the items per transaction, it was about flat for the quarter.

Got it. Okay. Okay, that is all I had. Thank you very much.

Mark Smith, Feltl & Company.

Hi, guys. First, I just want to clarify I missed part of your commentary on the cadence, those numbers on the months.

Yes, we were up 0.7% in February, we were down 0.6% in March and up 3.6% in April.

Perfect. And then second question, with a couple new stores coming on this year, can you just give us a rehash on cadence of openings throughout year?

Yes, this year -- as you know, last year it was heavily weighted towards the end of the year, we had half of our stores open in the fourth quarter. So we will have a better spread this year. It will still be more weighted towards the back half, but it will be much better, much more weighted -- evenly weighted this year than it was last. So I don't have specific percentages for you, but it will be more like one-third first half, two-thirds back half.

It will be better balanced this year than it has been. And looking forward to next year and the year after we think we will improve each year on getting a little more balanced by quarter.

Perfect. Thank you.

Thank you, Mark.

Sean Naughton, Piper Jaffray.

Good morning. Could you guys maybe talk a little bit about -- and I apologize if you did this already -- but the inflation outlook that you have for this year maybe in some of your key categories inside of athletic footwear and the athletic apparel side as well?

The increase that we are seeing in our product mix really isn't significant over last year, there are items here or there. I think that more than anything else what you will see is that we have really shifted our focus to premium products and I feel like that is really what our consumer is looking for from us.

So when you see an increase in the average price or an increase in the tickets, it is really by design because we have readjusted the assortment so that we are focused on going forward. And we really started implementing that last year and that is really the route that we continue to take.

Okay, that's great. I think that is all I have right now. Thank you.

There appear to be no further questions. Mr. Newsome I will turn the call back over to you.

Thank you, operator. In summary, we have a great future in Hibbett Sporting Goods. We will have some occasional bumps in the road, but we are a very healthy Company. Fundamentals are in place. We have improved as a Company in systems, distribution, getting the correct merchandise in the correct store based on demographic needs and customer service.

We are very encouraged as it relates to our sales performance in new stores. The last three years new stores that we opened our performing approximately 20% above their pro forma goal. And we have raised our new store count goal for this year to 50 to 60 new stores net of any closings. And I believe at this time we will open even more new stores next year. We are preparing to have 1,500 stores in the future.

Thanks for being on the call today. We will look forward to speaking with you on August 23 at 9.00 a.m. Central Standard Time with our second-quarter results. Thank you for being on the call.

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