Hibbett Inc (HIBB) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports Incorporated third-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, November 22, 2013.

I would now like to turn the conference over to Mickey Newsome, Chairman of the Board. Please go ahead, Sir.

Thank you. Good morning, everyone. I am Mickey Newsome and also with us is our CEO and President, Jeff Rosenthal, and our Senior VP of Finance and CFO, Scott Bowman, our Senior VP of Marketing and Merchandise, Becky Jones, and our Senior VP of Store Operations, Cathy Pryor. We will all be available for questions.

We appreciate you being on the 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 in 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.

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

Good morning. As you know from our press release this morning our third-quarter earnings per share was $0.66 a share. The weak shift associated with the fiscal calendar resulted in approximately a $0.11 reduction in earnings per diluted share for the period ending November 2.

Overall sales increased 2.5% to $208 million compared to $202.9 million a year ago. Comparable store sales increased 4.8% on a calendar basis. The weak shift associated with the fiscal calendar resulted in decreased revenue of approximately $14 million or 7.1% in the third quarter.

The Company narrowed its guidance for the 52 weeks ending February 1, 2014, and expects to report a range of $2.68 to $2.77 earnings per share with an increase in comparable store sales on a calendar basis in the low single digit range.

Comps by month were as follows: August, we were up 8.7%; September, we were down 2.3%; and October, we were up 7.3%. The first two weeks of November, we are up low single digits; with the shift of Thanksgiving and our launch calendar we are where we expected to be for November.

From a real estate perspective we opened 16 new stores, expanded four high-performing stores and closed four underperforming stores bringing the store base to 904 stores in 31 states.

For the fiscal year 2014, the Company expects to open at least 72 to 75 new stores, expand approximately 15 high-performing stores and close 17 to 20 stores. The new stores continue to perform above pro forma and gives us even more confidence that we can grow even faster. We already have more stores in the pipeline for next year at this time. There is no reason that we should not be a national sporting goods chain with over 1,500 stores.

We are very pleased with our progress at our new wholesale logistics facility. We are tracking our progress to be on time for the springtime period. We delivered solid comparable-store sales in the quarter by having a strong Back to School, driven by improved performance in footwear, apparel and accessories. Demand for our fall assortments have been positive and our inventory is well-positioned to take advantage of the fourth quarter.

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

Good morning. We were pleased with the 4.8% comp performance for the third quarter. Footwear, equipment, activewear, and accessories drove overall results. Kids' apparel had a strong quarter and specifically girls' activewear benefited from a better in stock position than a year ago. The kids' footwear area also posted strong double-digit comps.

Women's branded activewear grew low single digit comps while women's footwear performance has been challenging. Men's branded activewear was slightly off for the quarter.

Consumers are buying at the time of need, as evidenced in fleece sales when there is a cold snap in our market area.

Licensed apparel has been more -- had a more challenging quarter specifically tied to the downturn of [Snapback Cat]. Men's collegiate licensed apparel was soft, however the women's collegiate apparel had a very nice quarter. Pro MLB, NBA and NFL apparel performed well and MLB apparel had a strong quarter in part due to the St. Louis Cardinals being in the World Series. Men's footwear had a positive comp growth in running. Strong products were Nike Free and Under Armour Pulse.

Although limited pair in the marketplace we are encouraged by Adidas Spring Blade and Boost running shoes. Men's lifestyle footwear produced a low single digit comp as well.

Basketball footwear performed exceptionally well across all genders and size ranges. Jordan products have been strong all year. Likewise, the men's fashion apparel has consistent strong growth. Top-performing suppliers were Levi and Brand Jordan.

Football equipment and cleats had a very good quarter and the season for this consumer has extended. The baseball, softball business was basically flat and soccer was down slightly.

Backpacks and socks performed well during the Back to School season. Overall sellthrough for backpacks exceeded our expectations and consumer demand for socks is robust.

The merchandise, planning, inventory, management and marketing teams have worked collectively to deliver market [right] assortments. We are comfortable with our inventory position and are poised to have a good holiday season in fourth quarter.

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

For the third quarter, total sales increased $5 million, $208 million -- an increase of 2.5% over the prior year. Comp sales on the calendar like for like basis were up 4.8%. The weak shift in the fiscal calendar due to the 53rd week last year resulted in lower sales of approximately $14 million in the quarter.

Gross profit rate decreased 39 basis points in the quarter. Product margin decreased 7 basis points, mainly due to markdowns associated with managing our inventory.

Warehouse in-store occupancy deleveraged by 32 basis points. This deleverage was mainly due to the decrease in sales resulting from the weak shift in the fiscal calendar. SG&A increased 122 basis points as a percent of sales in the quarter, mainly due to deleverage in salaries and benefits. Again this is mostly due to the weak shift in the fiscal calendar.

Depreciation and amortization increased 13 basis points as a percent of sales in the quarter.

The income tax rate for the quarter was 37.0% which was slightly lower than last year's rate of 37.3%. Operating income of $27.4 million decreased 9% from last year and was 13.2% of sales versus 14.9% last year, a decrease of 173 basis points.

Diluted earnings per share came in at $0.66 per share versus $0.71 last year, a decrease of 7.9%. The weak shift in the fiscal calendar resulted in approximate $0.11 reduction in diluted earnings per share which is similar to the positive effect we experienced in the second quarter.

From a balance sheet perspective, the Company ended the quarter with $69.9 million in cash versus $75.3 million last year with no bank debt. Inventories increased 11% over last year and were 4.2% higher on a per store basis.

We spent $22.3 million in CapEx for the quarter, including approximately $18.6 million for our new wholesaling and logistics facility.

Also for the quarter, the Company bought back 134,000 shares for a total of $7.1 million. At quarter end we have approximately $231 million remaining under the existing purchase authorization.

Although we will provide full guidance at our year-end conference call consistent with past practices, I would like to highlight a couple of factors to consider for fiscal 2015.

We will be transitioning next year to our new wholesaling and logistics facility. This will involve some additional costs during this transition as well as some duplicate costs throughout the year.

Our lease for the current facility terminates in December of next year. Additionally, the depreciation on the new facility will start in the middle part of next year.

As the Affordable Care Act rolls out we forecast that medical expenses will increase as a result of increased enrollment along with the various charges that are embedded in the Act. We initially estimate that these factors could have a negative effect of approximately $0.11 to $0.12 per diluted share in fiscal 2015.

Of course, we will include these items when we provide our fiscal 2015 guidance on our fourth-quarter call.

Thank you. Operator, we are ready for questions.

(Operator Instructions). Sean Naughton, Piper Jaffray.

Congratulations on a nice Q3 result.

Thank you.

A couple of questions. I think the innovation pipeline, Becky, we have obviously seen a really strong and very robust innovation pipeline. Are you -- do you continue to see that pipeline being filled by the brands at the rates to support the comp expectation you are looking for moving forward and other specific releases in the fourth quarter that could really move the needle here this holiday season?

I think that, for the fourth quarter, the pipeline from an innovation perspective is really the product that is in the store today because we are prepared for our holiday sales at this moment. And it really is a continuation of what was brought out from Back to School.

We do feel really good about what is out there. And we also feel good about the product that we saw through the first half of next year. Being pleased with where Spring Blade performed in limited doors, we feel like that is an opportunity going forward. And we see some really nice product coming out of both Nike and Under Armour from a footwear perspective.

So it is -- I am pretty comfortable, really, with what we have got coming towards us at this moment.

Okay, and obviously there is some chatter about the gaming console launch that is kind of upon us here with the two different consoles. Is there anything during the holiday season when you look back over your business over time that these have had an impact on your business historically or -- any commentary there would be helpful just given the large [magnus] of dollars and probably overlap with some of the consumer spending?

We are not really concerned with that. Looking back on past as long as there's good innovative product we feel really good about some of the things that Becky mentioned and basketball continues to be extremely strong. So we are not concerned about that.

Okay, that's helpful. Thank you.

Then, lastly, a clarification. Could you break down the composition of the comp that you posted in the third quarter between the traffic and some of the ticket items as well?

Yes, the average ticket was up mid-single and we did have slightly positive traffic which was a good sign. If you remember on last call, we were up mid-single in ticket and down mid-single in transactions. So for this quarter it has moderated and transactions were actually slightly positive.

Okay, good to hear. Thanks, Scott. Take care.

Rick Nelson, Stephens.

Good morning. Ask you in general how you would see the consumer as we head toward the holiday, some of the other retailers have expressed a more tepid outlook, I guess, for holiday.

Well, as we have got into third-quarter Back to School, we felt good about the people having to come out and buy shoes and apparel for Back to School and then as we got into September and October, if you put the two months together, it slowed a little bit. You put the two -- it was about a 1.8 comp for September and October. I think that is going to happen a little bit again and then we'll see a -- really the five days before Christmas, I think, will really peak and we'll see it similar to Back to School. And, but it's still a little tough out there as you see a lot more people working part-time jobs and some of that. But we feel good about where our assortments are and the new products that are coming out that we should be okay.

Thanks for the color, Jeff. Also interested in the competitive environment. I know one of your -- another sporting goods retailer has talked about stepped-up promotions. Have you seen that? I guess what sort of promos do you have in your toolbox should you need them?

Yes, from a competitive standpoint, really we base most of our markdowns and promotions off of what we planned. We do it based off of sellthroughs. So, really, we don't react really to what our competition does. We really do what we think is right for our business in keeping our inventory in line.

We do have some planned promotions for holiday that we always have. And if business gets a little tough we can do some things such as mobile or texting and some of those type things. But we react more from what our business is dictating, not necessarily what our competitors do, especially that were in smaller markets and we don't have to overreact.

And then finally if I could ask you about the fleece category, North Face, in particular. Are you stepping up the number of doors or your commitment there year over year? How might that compare to prior year?

We do have a few more doors with North Face this year. It is not a significant increase from the prior years. I would not be looking at that as a huge advantage in regards to last year, but we are really pleased with the way that it is selling at this point in time. The consumer is still buying it.

Great. Thanks very much and good luck.

Sam Poser, Sterne Agee.

Thanks for taking my question. Can you talk a bit about how -- about the mix -- are you getting improved allocations of key products from the big brands, marquee products and how much is that helping? And can you also talk about the launches that are coming up over the next few weeks? I believe at least for the month of November you have got a good amount, like about I would say over 60% of the business is probably still ahead of you.

And then secondly, in your guidance, can you talk about if you included the effects of the tax refunds and how you are looking at the BCS championships in your guidance as well?

Well, Sam, you're right. There's a couple good launches that are coming up in the next couple of weeks that we feel good about. We do continue to work with our partners and we do get more allocation and we don't really give that out.

But we feel very good about where that is going from that. Also on the guidance piece, we don't have any of the tax money included in our guidance. So it is what that is. Alabama was a part of us next year so it could affect us a little bit.

Hopefully, the other school which I went to will be in the championship against Alabama so it will help a little bit. But we are hoping that is what it is -- Florida State, Alabama National Championship.

But similar to tax refunds we didn't build that in to the guidance.

So if it is the Alabama -- basically, you are assuming Alabama is a negative impact on the comp right now assuming that your --?

We did. We did. We never build a championship number into the next year because you just don't know if it is going to happen. So we do what that -- over and above its impact that comes to us.

So it may not be over and above last year if they are in again, but --

No, you are right.

(multiple speakers) your guidance if it was in again?

Correct. Correct.

Thank you very much. Good luck.

Camilo Lyon, Canaccord Genuity.

Good morning, everyone. Becky, I wanted to ask you with the higher price running product it seems like you are getting some pretty decent reads on Spring Blade. I was curious to see how you are thinking about the Flyknit (technical difficulty) and overall just the elevated price points in that category with respect to your consumer.

The one thing that we have really learned with our consumer is that they expect premier product from that. When we stay at 100 and above and really look for innovation we find that the consumer is really coming to us to find the product.

Because of the markets that we are in, most of our competition truly ends up being family footwear. And so if you go into the lower price point you actually are competing more than you need to. And by differentiating our assortments we are seeing really good luck in that respect.

So, yes, Spring Blade, small number of doors, but really nice performance. Same thing with Boost. We certainly see that -- Flyknit, I think, is more about to come and we have had it on the floor. It has been okay, but it has not been flying off the shelves as some innovations do.

But I do think that it's for the future that once the consumer really understands it, they will appreciate that. And we picked some good product coming out of Under Armour in springtime, from an innovation perspective it is more premier. We are pretty pleased with what that may bring to us.

I guess on my last point, both -- Under Armour talked about having a more stratified pricing strategy, so going from $80 to $120 and having something for every consumer price point. Nike has talked about having a reduction in their Flyknit platform on pricing. Are you going to partake in that or is that something that is going to go more towards maybe the family channel or the mid tiered channel?

I think that whenever you are over $100 that the family channel doesn't really choose to play there. Certainly we will support any innovation that comes at us from the larger brands because we know that that will build business for the future.

And I am certainly -- as it moves forward some of it is great and some of it is just something that you put out there so that there is some consumer awareness, and you start building towards it for the future. But we always welcome the innovation and premier products.

Okay. Finally, Scott, to ask or to think about 2014 and the impact of markdown optimization, how do we think about the benefits that you should start to extract from that initiative gaining a little bit more presence in the business?

For next year, we could see some benefit at the end of this year. We are still rolling it out and it is still working well -- very well for us as we see the early read on the results.

Next year it will be more rolled out in more categories and so what I would expect to see is, initially on those items under markdown optimization, you'll see an acceleration of sales and you'll see an acceleration of gross margins dollars. The actual rate impact is really later. Because in these categories really have to get to the end of the cycle before you see that rate benefit. Because markdown optimization typically will take the markdowns earlier and then on the back end where you are not marking down the product as much is where you'll see the rate benefit.

So hard to quantify at this point, but I think next year what we will see is definitely a little bit of acceleration in those gross margin dollars on those products.

Got it. Thanks a lot and good luck with the holiday.

Thank you.

Dan Wewer, Raymond James & Associates.

Scott, on the 2015 commentary about the new wholesale logistics facility in ACA costing $0.11 to $0.12 a share. Correct me if I am wrong, but when we were talking about this in previous calls, we were not including ACA? So are we (multiple speakers) -- so that is $0.02 or $0.03 a share? Are we still thinking the logistics facility is $0.09 for next year?

The logistics facility will be closer to $0.10 to $0.11 a share. For this year, initially I said $0.04 to $0.05. It is on the lower end of that and so that makes next year in the $0.10 to $0.11 range for the wholesale logistics facility by itself.

So the ACA exposure is only about $0.01 a share, then?

Correct.

That's good. Then on the $0.04 to $0.05 exposure in 2014, perhaps I missed this in your third-quarter commentary, but was there any impact in the third quarter?

Yes, there was some impact in the third quarter and it was kind of as expected with that guidance.

And then how much is left and in the fourth quarter? That $0.04 to $0.05? Are we --? You think like a $0.02 hit in the fourth quarter or --?

Little bit less than that.

Okay. That's helpful. Second question I had is with respect to the new wholesale and logistics facility, is it your thought that once that is completed that you will begin to explore an e-commerce strategy or is the Company still thinking the lack of profit visibility from e-commerce suggest that maybe you don't go down that path?

Right now we are putting together a roadmap of what that could potentially look like for Hibbett. So we are kind of in the early stages of taking a hard look at that, really understanding what that could mean for our business and I think the important thing to note for us is that we are going take really a holistic approach as we look at that. We know there's some topline potential there but we want to look at the profitability side, ROIC side. But I think the point is we are starting down that road to put that roadmap together so we can have a more defined point of view on that topic.

So initially there are not any CapEx investments to support e-commerce fulfillment (multiple speakers)?

No, there's really not at this point. We continue to look for things that could give us some infrastructure should we go that direction, but for next year you really should not expect any CapEx being spent on that initiative.

Great. Thank you.

Peter Benedict, Robert W. Baird.

Two questions. First, Scott, on the 32 basis points of deleverage this quarter from the warehouse and occupancy I understand the calendar was there. Is that split evenly between the two or was one noticeably more impactful than the other?

The store occupancy was a little more impactful. The warehouse cost piece of it was less impactful and part of that is just due to some efficiencies we have gained in the warehouse. Becky is doing a terrific job on managing the flow of product through that facility and that has a positive effect on labor. And so, we are seeing some nice efficiency gains in that. It has blunted some of that impact.

Then, on the square footage it looks like it is going to be up a little over 6% this year. It was up 5% last year. Is there potential for further acceleration as we look out in the 2014 and 2015? I mean is this something that can get to 7%, 8% or how are you guys thinking about that going forward?

Yes, we are looking to grow again next year. Probably around that 7% range or better. So we feel good about where we are. We already have a lot more deals in the hopper for next year already. And when we get to our March call, we will give a little bit more specifics, but you are on the right track. We will accelerate that a little bit.

Okay, thanks, Jeff. Thank you very much.

David Magee, SunTrust.

Good morning. Couple of questions. One is with regard to the comp in the third quarter, I guess for Scott. What is the best comparison number to put that against the last year to get a two-year stack number?

Yes, for last year, the best comparison, the reported comp was 6.4% and so that the weeks were a week earlier last year. So if you go to last year and you move that year and the prior year forward one week it is more like a 6.1% comp. If you --. And that is like for like through those years.

Okay and would you happen to have the second-quarter comparison in front of you by chance?

Yes, for the second quarter it was more like 4.3% and that is a little bit different than what is in the release because it is talking about two different things. 4.3% in Q2 is really the like for like comparison. If you pull fiscal 2013 and fiscal 2012 up together, that is what the comp would have been if you line up the calendar that way.

With regard to next year, do you -- are you seeing much difference in terms of the real estate pricing for new locations for 2014?

Our real estate cost and our rent stayed about the same. We really haven't seen an increase really at all. Our rent -- the last couple of years have really been pretty consistent. Really haven't seen that.

And regarding the facilities and healthcare costs, next year being $0.12 combined. This year you sort of have a $0.05 impact. So we are really thinking about a $0.07 incremental impact for next year. Is that the right way to look at it?

It could be slightly more than that because originally I said $0.04 to $0.05 this year. It is going to be on the lower end of that just based on how the spending timing comes in. So it is going be on the lower end of that, but next year we feel that it is going to be more in the $0.11 to $0.12 combined incremental to this year.

Then in 2015 you would have a nice step down from that level, right?

That's right. Yes, you will have the full year effect of the operational cost as well as the depreciation. But then you will have the cost of the old facility dropping off.

All right. Okay. Good. Thank you. Good luck here.

(Operator Instructions). Mark Smith, Feltl and Company.

Good morning. First off, as we look at new store expansions, are you seeing any changes there as far as returns that you are seeing and then, how many of those do you still have an opportunity to expand?

We still expect by year two to -- year two to year three to get the same percent that we are getting currently. We still see that as opportunity. We have identified over 100 stores that we can still expand if the right real estate, the right deal becomes available. So we will consistently look at that list and, as we continue to grow, I am sure that list will continue to grow over time.

And then, Scott, can you give us any insight into your outlook for tax rates going into next year?

Yes, the tax rate should be about 37.5% and, really, the one thing that we need to look at is work opportunity tax credits, these so-called extenders that are out there today. Those extenders have been extended, I guess, over the last couple of years and right now they are set to expire at the end of the year, which is a similar situation that we have seen in the last couple of years.

We feel that though they will probably be renewed again when the end of the year draws near. But the 37.5% rate assumes that those work opportunity tax credits will get extended and it is probably the most likely case right now.

Perfect. Thank you.

Anthony Lebiedzinski, Sidoti & Company.

Good morning. Just a couple of questions. I was wondering if you could comment on your same-store sales performance in your strip centers versus your mall locations?

They are about the same. There really wasn't that big of a difference.

Okay. And can you give us an update on your shoe walls? You have been doing some of that and where are you with that? If you could just comment on that, that would be helpful.

We aren't complete yet for the rollout. We should be complete as we get closer to the end of the year. However the performance for the shoe walls during the third quarter were pretty close to the corporate number that [alternate wear] did.

Got it. And also can you give us an update on your -- some of the other IT upgrades like the business intelligence tools? What is the status of that?

Yes, the business intelligence tool is proceeding as planned. We are close to getting the foundation layer in place and what that means is getting all the data in the data warehouse and sorting the ability to query up with that data and some standard reporting. And so that should happen early next year and then as we continue to build on that, we will build some more customized queries that will give us deeper insight into the business. So it is proceeding as planned and we are excited about what that will give us from a visibility standpoint.

Got it. Thanks very much.

Sean McGowan, Needham & Company.

Two questions. First, have you guys given any thought to if and when there might be a need for an additional distribution center?

We are looking, once we get further West and we have a concentration of stores we probably need 200 to 300 stores more westerly before we would think about putting another one. So I would think that it wouldn't be in the next three years. It would probably be four to five years that we would consider.

That's helpful. Thank you. Generally as you forecast the holiday season and into the first quarter of next year, is it your assumption that the weather in your markets will be what the 10-year average has been or do you just base it on last year? What are your thoughts on that?

I would think it was about average, but don't know.

That is typically what we assume in our guidance is average because we don't really have much else to go on than the averages and that is usually what is built into our guidance.

Thank you.

Chris Svezia, Susquehanna Financial Group.

Good morning, everyone. I guess first, Becky, just for you on the product side. Just curious, number one, women's. The industry continues to try and figure out the women's business here, but you mentioned footwear, I believe, was down. Any thoughts why, what the issues are, products? Just your thoughts in and around that?

We really think that part of our women's business is being taken by the girls' side. Because if you look at the sizes on the offering of girls, you can easily as an adult fit into those. And we think that as we grow our girls' business, which is growing substantially that that may be impacting the women's business a little bit.

In general, the offerings that we see in women's is not lacking in any way that -- it's just the same offerings that we get in men's. The styles are the styles. It just seems as though that the consumer is choosing to spend her money either on her kids or maybe on the husband, but -- and then on top of that with the girls' footwear business maybe just a little bit of an impact in that respect.

Okay and then just on -- thank you. Then just on -- you made a comment about snapback hats which I know has been historically has done well. Just curious what is happening. Are they moving to something else? Or is, dare I say, the sock business taking from snapbacks? Just curious.

You know that is actually a good thought because snapbacks were just incredibly hot a year to 18 months ago and you just couldn't get enough on the floor to fulfill the need. We haven't seen a lot of newness in the caps perspective. So yes.

On the flipside, socks have been phenomenal. And from an innovation perspective if you can call it innovation, there is so much coming in regards to newness in socks from a fashion perspective even though it is athletic. The consumers really are going there and you can get a sock for $15. And so buy two pairs of socks instead of one hat maybe.

Who would've known. Thank you. And lastly, Scott, for you, of the $0.11 to $0.12 next year how much of that is cash versus non-cash? Could you maybe -- in other words what is D&A amortization, what is just actual operating expense-related?

About half of that is D&A. And keep in mind that the other half mainly hit warehouse cost which hits gross margin.

Right. Got it. That's all I have. All the best around the holiday.

Thanks, Chris.

Mr. Newsome, there are no further questions. I will turn the call back over to you.

Thank you. In summary, we are excited about our future in Hibbett Sporting Goods. We have the office foundation now and we will have the distribution center foundation next year to support 2,000 stores in the future. We opened 41 new stores last year net of closings and expanded 15 outperforming stores. This year we will open between 52 and 58 new stores that of closings and expand another 15 high-performing stores. Next year we expect to open even more stores than this year. Last year and this year's new stores are performing more than 20% above pro forma. One big reason is we have improved greatly in the IT area and we are getting the correct merchandise in the new stores, based on geographic and demographic needs when the new store opens. In 1 1/2 years we will have 1,000 stores. We have identified more than 500 additional new store opportunities in just 31 state areas that we are currently in and our model will succeed in all states.

Thank you for being on the call today and we look forward to speaking with you on March 14, 2014 at 9 o'clock Central Standard Time with our fourth-quarter results. Thank you.

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.