Hibbett Inc (HIBB) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports, Inc., fourth-quarter 2014 conference call. (Operator Instructions) As a reminder, this conference is being recorded Friday, March 14, 2014.

I would now like to turn the conference over to Mr. Tripp Sullivan with Corporate Communications. Please go ahead, sir.

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 the Company's current views with respect to future events and its financial performance. There is no assurance that such events will occur or that any projections will be achieved. The Company's 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.

At this time I will turn it over to Jeff Rosenthal.

Thank you and good morning, everyone. Welcome to the Hibbett Sports fourth-quarter and full-year earnings call. I have with me this morning Scott Bowman, Senior VP and CFO; as well as Becky Jones, Senior VP Merchandise, Marketing, and Logistics; and Cathy Pryor, Senior VP of Store Operations.

Though the quarter comp result was on the lower end of expectations, we were relatively pleased with our overall holiday sales and current quarter-to-date trend. In November we posted a 5.1% comp followed by December comp of 4.3%.

In January, we faced significant headwinds related to the University of Alabama not playing in the BCS championship, as well as significant weather-related closures. In the month of January, we lost almost two complete days of sales due to the closures, which resulted in a negative 9.8% comp in January. Current quarter-to-date we have bounced back nicely with a high mid-single comp.

During the year we closed 18 stores and opened 72 stores for a net total of 54 stores, putting us at 927 stores for the year. We are excited about our current pro forma of new stores and expect to open at least net 65 additional stores this year and net over 1,300 stores by FYE19.

Early softness in sales led to difficult margin comparisons to last year in the back half of the year, however those that are currently running on markdown optimization outperformed those that have not been rolled out. Currently we have about 57% rolled out and expect to be completely rolled out by the back half of this year. So far we are not only excited by the initial results, but the discipline it's putting in place when it comes to managing end-of-season clearance, which will help us over time.

Our new wholesale logistics facility is coming along nicely, with no known issues at this point. We expect to begin our transition to the new facility next month and completely cut over by the end of the year. The new facility should dramatically improve our supply chain efficiencies and allow us to get right products to the right stores quicker than ever before.

As these major initiatives draw to a close, we have begun to look out for the next few years. Store growth will continue to be our cornerstone of any strategy.

But with that being said, we recognize that our customer is evolving and looking to engage with us in multiple ways. We have just completed the development of an omnichannel roadmap that will allow us over the next several years to begin to engage our customer like never before and eventually in the digital commerce channel.

Lastly I would like to thank our associates for the work that they do on a daily basis and who continue to strive for excellence here at Hibbett Sports. I will now turn the call over to Becky Jones, who will provide more color around the merchandise trends.

Good morning. Business drivers for the quarter came from the branded active apparel, accessories, and footwear division. Branded activewear with strong across all genders and produced a high single-digit comp overall. We achieved double-digit growth in men's and youth categories.

Fleece tops, pants, and jackets from Nike and Under Armour were the highlights of the season. Going forward we see opportunity to continue to grow the pant business in both women and men's areas.

In our fashion business our customers continue to choose Jordan and Levi.

The licensed apparel area had a difficult quarter with two major impacts. Although Florida State performed well in the locations that we carry the product, the volume was quite low compared to past national championship special events.

The headwear trend also impacted overall licensed performance negatively. Our best-performing category in the license area was NBA product, producing a high single-digit comp. The Oklahoma Thunder continues to grow in importance in the overall NBA product offering.

Footwear was driven primarily by basketball, with Jordan being the clear standout. Signature Nike basketball products such as Lebron and KD was also very good.

Lifestyle footwear business was challenging as we saw a meaningful customer shift towards the basketball product. Kids footwear produced nice results for the quarter as well, again with basketball being the top category.

Running in all areas was challenging. Nike Free running continues to perform in adult sizes; however Under Armour running is beginning to take share. Tech running has been soft.

Our focus for the year will support the basketball trend and the growing kids business overall.

Cleat business was down slightly in total, with baseball and football being the softest areas. Volleyball, wrestling, and softball cleats were strong performers.

Equipment business was down marginally. Positive results were seen for football protective gear, sports medicine, and inflatables. In particular, Lebron and KD basketballs were strong.

Weakness came from baseball, softball, and fitness. As we move into the spring season we are seeing print and color become more important in the baseball and softball areas.

The accessory division had a mid single-digit comp, with drivers being branded headwear and fashion socks.

We were quite pleased with the performance of our marketing initiatives in the fourth quarter. Our focus on digital marketing paid off, and we will continue to grow this channel as we strive to reach our target consumers, the high school athlete and the fashion consumer. This spring we have launched A Constant State of Game campaign and have seen strong response so far.

Thank you. Scott Bowman will now go over the financials.

Thank you and good morning. For the fourth quarter, total sales increased $360,000 to $217.8 million, an increase of 0.2% over the prior year. Keep in mind that this comparison is against 14 weeks in the fourth quarter last year, due to the extra week in the fiscal calendar.

This extra week contributed approximately $12 million in additional sales to last year's fourth quarter. Comp sales on a calendar or like-for-like basis were up 1.7%.

Gross profit rate decreased 30 basis points in the quarter. Product margin decreased 9 basis points, mainly due to markdowns associated with managing our inventory. Warehouse and store occupancy increased 21 basis points as a percent of sales, which is mainly due to the extra week in the quarter last year.

SG&A increased 7% in the quarter and increased 139 basis points as a percent of sales, which was partially due to the extra week in the fiscal calendar last year. We also saw increases in benefit cost, new store costs, and costs associated with our new corporate office. Additionally, store labor and benefits deleveraged significantly in January due to the shortfall in sales.

Depreciation and amortization increased 11 basis points as a percent of sales in the quarter. The income tax rate for the quarter was 37.5%, which was slightly higher than last year's rate of 37.3% due to the reduction of federal tax credits.

Operating income of $27 million decrease 12.5% from last year and was 12.4% of sales versus 14.2% last year, a decrease of 180 basis points. Diluted earnings per share came in at $0.64 per share versus $0.73 last year, a decrease of 12.3%. Keep in mind that last year's fourth quarter benefited by approximately $0.07 per share due to the extra week.

For the full year I would also like to mention a few highlights. Total sales were up 4.1%, while comp store sales increased 1.8%. The two-year stacked comp was 8.7%.

Gross profit rate was down 21 basis points, while SG&A expenses increased 56 basis points as a percent of sales. Operating income decreased 80 basis points to 13.4% and earnings per diluted share of $2.70 decreased 1%.

From a balance sheet perspective, the Company ended the quarter with $66.2 million in cash versus $76.9 million last year, with no bank debt. Inventories increased 2.3% over last year, and were 3.6% lower on a per-store basis.

We spent $9.1 million in CapEx for the quarter, including approximately $2.6 million for our new wholesaling and logistics facility. Also for the quarter the Company bought back 22,000 shares for a total of $1.3 million. At quarter end, we have approximately $230 million remaining under the existing purchase authorization.

As we turn our focus to fiscal 2015, I would like to provide a few highlights related to our guidance. For the year, we expect comparable store sales to increase in the low to mid single-digit range. We plan to open 75 to 80 new stores, expand 10 and 15 existing stores, and close 15 to 20 underperforming stores.

We expect earnings per diluted share to be in the range of $2.78 to $2.98. This includes an impact of approximately $0.11 per diluted share for costs related to our new wholesaling and logistics facility, and approximately $0.02 for increased healthcare costs.

For gross margin we expect product margin to be flat to slightly positive. We feel confident that initiatives such as markdown optimization and the new logistics facility will ultimately provide gross margin benefits, although we are not expecting a significant impact in fiscal 2015. The transition to our new logistics facility is expected to negatively impact gross margin by 20 to 25 basis points for the year.

With respect to SG&A, we expect healthcare costs to negatively impact SG&A by approximately 10 basis points due to increased enrollment and the continued rollout of provisions of the Affordable Care Act. Additionally, increased marketing and IT costs will impact SG&A by an additional 15 to 20 basis points.

Depreciation is expected to increase 35 to 40 basis points, mainly due to the capitalization of the new wholesaling and logistics facility at the beginning of the second quarter. A smaller impact will be experienced throughout the year due to increased store openings and the capitalization of IT initiatives.

We expect our tax rate to be in the range of 37.6% to 38% for the year. The main variable is whether federal tax incentives such as the work opportunity tax credits are extended.

Our earnings-per-share guidance reflects the continuation of our share buyback program, and we expect a weighted average share count of 25.2 million to 25.5 million at the end of the year. For capital expenditures we expect to spend $25 million to $30 million as we complete our wholesaling and logistics facility, invest in store growth, and execute on our strategic initiatives to improve the business.

With that preview of 2015, operator, we are now ready for questions.

(Operator Instructions) Sean McGowan, Needham and Company.

Thank you very much. I will try to figure out how to proceed without Mickey running the call. (laughter) Got a couple of questions.

On housekeeping, could you give us some guidance on depreciation and amortization and CapEx, Scott, for 2014, calendar 2014?

Yes. As we look at calendar 2014, fiscal 2015, for capital expenditures we expect to spend about $25 million to $30 million. Depreciation will go up fairly significantly and that will be driven mainly by the capitalization of our new wholesaling and logistics facility, probably at the start of the second quarter. For the entire year, depreciation is expected to go up 35 to 40 basis points.

Okay. When you gave that guidance on the tax rate, I imagine some of that uncertainty won't be cleared up until later in the year; so how do you think we should expect the tax rate to flow throughout the year?

Until we hear any word and if those extenders are put back in place, the tax rate would be closer to 38%.

Okay. Then on that $0.11 cost that you called out, should we assume that basically all of that represents permanent costs? Or is there some portion of that that's going to be there in fiscal 2015 but not there, thereafter?

There's about $0.015 probably that will go away, and that's really related to the transition to the new facility.

Okay, thanks. Last question, Becky, can you comment a little bit on the sales in stores that didn't have weather challenges in the month of January?

When we look at the weather challenges that we had, it was such a significant part of the country, where we have the most stores. So those stores that didn't have it, they were fine. But it was -- really, it was just so impactful from the fact that we lost so many stores. Because not only was it full closures, but we had a lot of stores that had closures early in the day due to weather coming through at them.

Right. Okay, thank you very much.

David Magee, SunTrust.

Hi, everybody. Good morning. I had a couple of questions. One is you mentioned that you were happy with new store productivity. I'm curious how the class of 2013 looked compared to, say, the class of 2012, or before that even.

They are similar. The class of calendar 2013 was slightly better, if you look at the average sales per store. The productivity as we measure it, with the unit growth and the sales contributed by new stores, was close to 80%; and last year it was in the mid-70%s. So it got slightly better this past year.

Okay. Scott, what would you estimate the overlap to be right now with some of the big-box chain guys? And based on your store plans this year where would you expect the percentage to go?

I don't really think it will change that much. If you look within a 10-mile radius, we still see about 25% overlap there. As we continue to build another 75 to 80 new stores, those new stores will be predominantly in areas that have little or no competition. So we will continue to have that balancing effect.

If you looked at stores that were in a five-mile radius, would that number change much?

Yes. The number would go up if you go down to a five-mile radius. It's in the upper 30%s, 38% to 40%.

Was that what you are asking, David? I'm sorry.

Yes, I would've guessed it would have been lower overlap.

I'm sorry. Yes, it's more --- I was going the other way. Sorry. It's about 15% if you go in the five-mile radius.

Then if you look out the next couple years, what would be a rough timeline in terms of ramp-up in e-commerce capabilities?

Yes, David, we just finished -- we've had some consultants in here, and it will be a multiyear project. As we put more together, we will share more information with you. But we will be heading in that direction.

Thanks, Jeff. Good luck.

Seth Sigman, Credit Suisse.

If I could just follow up on that e-commerce question, as that plan has evolved, any additional thoughts on some of the costs that we can start to see over the next couple of years to get that ramped up?

Then I guess the second part of the question is --- and I realize it's very early -- but how do you feel about support from your vendors to sell some of their more exclusive products online? Do you feel like they will have -- be cooperative and provide some good participation there? Thanks.

From a product standpoint, I think it will not be an issue at all. Our vendors will be very open with us.

We've had many conversations on that in the past. So I think it will just continue to enhance our customer service in our stores and with our customers.

Then on the timing question, for this year it's still very early days and we are trying to figure out what the timing will look like. But in the early stages naturally it will be more capital-related.

For this year we are pretty comfortable that there won't be any big adjustments. As we get into next year and get a little bit more visibility to that, it will likely start with more capital spend and then expenses will come a little bit later. But as we get a little bit further down the road we will update that guidance for that following year.

Okay. Are you going to be running that website internally, or are you going to be working with a third party?

It's still early yet. We may look at third parties just because of the expertise that's out there. So we are considering that and kind of leaning towards that way right now.

Okay, thanks. Just shifting gears to the SG&A, you mentioned 139 basis points, some of which was due to the extra week last year. Can you quantify the impact that that had?

The extra week last year was estimated 70 to 80 basis points. And then the extra difference over and above that really due a couple things. If you just look at the month of January, we deleveraged heavily on labor and benefits in the stores. As we schedule our stores and we had that bad weather, it's very difficult to reduce the labor at that point.

And also keep in mind that January is the lowest volume month that we have. So from that standpoint you hit against store minimums and things like that. So that was a big portion of it.

The other portion that was somewhat meaningful was just the new office expenses that we have, some expenses on the wholesaling and logistics facility, and then we had some new store costs also that were slightly higher than last year.

Okay. Maybe one last one and then I will hop off. But you mentioned marketing and IT costs going up. Can you just provide little bit more color on what's going on there and how to think about marketing in particular, which I know historically has been relatively low for you guys? Is there anything changing materially on that front?

You know what? From a marketing perspective, I would tell you that we are still very low in comparison to what other people do out there. But the investments that we are making really is the support of how the stores have grown our loyalty program and our text messaging program. And just to support the numbers that we have coming in on that, we needed to make an investment around supporting and being able to speak to consumers in a consistent basis.

From a percentage perspective, the same amount that we did a year ago. We just had really good growth both in our MVP and as well as our text number program.

Then on the second part of that, as far as IT expenses, really a couple things. We hired a new CIO about six months ago, and he is getting off to a great start and really developing a great vision for us; so that's one piece of it, building up the staff related to that.

The other couple pieces is, as we roll out new IT initiatives, whether that be markdown optimization, business intelligence, new allocation system, that comes with some costs from a maintenance standpoint -- hardware, software, maintenance standpoint and then just from a support level to support those new applications. So the cost is really related to that.

All right. Thanks and good luck this year.

Peter Benedict, Robert W. Baird.

A couple questions. First, just on the CapEx for this year, $25 million, $30 million, how much is in there for finishing up the DC? I'm sure it's not a big amount.

And then, is there any initial omnichannel spend that's in that number?

The first part of that, for the new logistics facility, it's about $4 million that we expect it will cost to finish that up. Then on the omnichannel, we have a small placeholder in the plan in case we get started in the back half of this year. But it really depends on timing.

If -- things can flex a little bit up or down based on the timing of that whole initiative. But right now there's just a small piece in the CapEx for this year for that.

Okay. Thanks, Scott. Then somewhat related to that, the buyback, it looks like for 2014 you are certainly assuming some in the guidance. How should we be thinking about your buyback strategy as your free cash flow is going to start to improve here, but then you've got this omnichannel stuff I guess longer-term? So how should we be thinking about that?

I think there's room for both. As we continue to increase in volume, the cash flow does increase, and we should be able to sustain a 4% buyback even with some elevated CapEx for omnichannel.

For this year we are expecting around a 4% buyback based on the share count. And that's with $25 million to $30 million of CapEx.

Perfect. On to gross margin. You talked about a 20 to 25 basis point headwind from the DC. Do you think you could get occupancy leverage? Or what comp do you need to get occupancy leverage to offset that amount? And is that what you are anticipating in the plan?

We need -- we leveraged our leverage in about 3% in occupancy. So we would need 5-plus comp, about 200 basis point improvement in comp, to offset that, based on the flat at 3%.

Okay, very helpful. Then just last question, as we think about obviously the first quarter now off to a better start, coming back from January. It's only been a few weeks, but when you think about the spring weather that is starting to show up in some parts of the country, maybe you can just talk to us about where you are seeing some spring-related demand starting to set in, how that compares to last year.

Are there certain regions that that's showing up? Or are we not quite there yet? Thank you.

You know, it's interesting. Because as we see, when the sun shines we've definitely seen some of the apparel categories pick up, such as T-shirts and shorts. First week of the quarter it was really cold; T-shirts and shorts were very tough, but we were selling what we had left over in fleece and outerwear.

But as we have gone through and we've had a few warm days in the last couple weeks, we've seen baseball equipment get better and cleats and sandals, for example. As soon as the weather turned we saw sandals really take off. So it has been a noticeable difference.

As we look at some of the products we brought in for first quarter, it's really starting to sell when we have warmer weather.

All regions are comp positive right now.

That's helpful. Is it safe to say that this is showing up a little earlier than it did last year?

Last year was a tough March.

Yes. Yes.

Great. Thanks, guys.

Dan Wewer, Raymond James.

Thanks. Scott, could you help us a little bit more on the distribution center? I guess the first question I have is on: how long will you be running both facilities? Is that through the end of calendar-year 2014?

For the old facility?

That you'll be running both facilities.

That's correct. So we will still have a cost for the old facility until -- through December of this year.

Is that included in that $0.015 transition cost? Or is that in --? Someone earlier had asked about the $0.11 of distribution cost and how much would go away last year. Is that included in that $0.015, or is that in addition to that?

That would be in addition to that. The transition cost is really just to move to the new facility. As we look into next year, what we will see is the full-year effect of the operational costs of the new facility, which will be more or less offset with the drop-off of the lease and duplicate cost with the old facility.

So in calendar-year 2015 you will have the full-year cost of the larger facility, and then you will have the old facility; the lease on that goes away and the transition costs go away.

That's correct.

So you think those will net out? Okay.

It could be -- if you put all that together, Dan, it will probably be slightly positive.

Okay. So does the first payback take place in calendar-year 2016 off of the new facility? In terms of -- I'm assuming at some point you will get some leverage out of the larger distribution center, right? Does that take place in 2016?

We should start to see some leverage in calendar 2015, but really more of a full-year effect of that in calendar 2016.

Okay. Second question I had, on the markdown management. Jeff, you gave some numbers at the beginning of your presentation; I'm not sure I caught that correctly. Was it 50-some-odd-% of your SKUs are now in the markdown management?

About 57% of our volume as we look at it. And, Dan, what happens originally, at first, is you will take a little bit more of a hit on margin; but as you cycle through that you will get some of your margin back.

So we are still in the early stages, but on some of the categories that we've gone through a full cycle we are definitely seeing margin improvement. So we expect that it will help us some this year, but it really should help us a lot next year.

So we are very encouraged by what we are seeing and on the early learnings. We are ramping it up, and as we get more learnings we may take a little bit of hit on margin in the beginning, but as we get through some of those cycles we will start gaining some of that margin back.

The reason you take a hit on the markdowns at the beginning is because the system asks that you take your clearance markdowns sooner than you were historically?

Yes, yes.

So how do we reconcile that against the guidance of merchandise margins being flat or higher?

We do have a little bit of an IMU that we are dealing with. So that's why we guided flat to slightly up. But I really think the margin where we have the opportunity will probably be later this year and really getting into next year.

Okay. Then the last question I have, Becky, you talked about some changes in running. It sounds like lifestyle and cleats are weakening. Basketball is strengthening.

Is that transitory? Or do you think that's a permanent change in the footwear category?

Well, it's never permanent. Trends come and go. Certainly we are seeing really healthy and robust trends in the basketball.

I will tell you that from a running perspective there's specific items out there that are good. I think that what we are seeing from a running perspective is that the market had such a good trend from the Nike Free that we cycled the really up trend that that was having for a long time. Nike Free is still good, but it's not driving the comps that it was at one time.

We are encouraged about the Roshe Run. It looks good, and certainly SpeedForm out of the box is doing really relatively well for us from Under Armour. We see that there's -- from adidas, that they are doing pretty well with the Orion.

So there's bright spots out there. We just have to keep working on making sure that we've got those products in the right stores to drive that business.

Okay, great. Thanks and good luck.

Camilo Lyon, Canaccord Genuity.

Good morning, everyone. I just wanted to follow-up on the running topic, Becky, if I could. You mentioned that you felt that the Under Armour SpeedForm was starting to take some of that share from the Nike Free.

Is that a function of just Law of Large Numbers for Nike? Or do you think that there is a shifting brand preference that you are seeing in your stores, maybe because of products or technology or innovation? Any sort of insights you would offer would be appreciated.

I think part of what we are seeing from the Under Armour is that they are bringing a little bit of newness to the running category. And we needed to see some newness because we have had a great run with the Free, but innovation is always important.

The amount of numbers and dollars that the Under Armour run business is doing for us is not comparable really to Nike at this point in time. But it's interesting and it's encouraging to always see the competition come out there and really raise the bar, in some cases, to get everyone, not just a couple of people, to innovate again.

How would that compare relative to some of Nike's newest offerings on Flyknit? Are you seeing the same dynamic there, or is Flyknit holding up better to the SpeedForm?

Flyknit is doing okay for us, but it's not a huge play. The price point from our traditional stores is just a little bit higher.

We think that it's going to get better as we go into the seasons and as the consumer really understands the product a little bit better. We expect that to get better for us.

It's very similar to what happened when Free first came out. It took a while for it to catch on, and we think it's kind of the same with Flyknits.

Okay, great. Then just going back to the logistics facility and the e-commerce discussion, will the new logistics facility be able to support the forthcoming e-commerce platform? Or will there need to be incremental buildouts of another distribution center?

Right now it's still in early stages, but our new facility has some room to be able to do that and we can expand the same facility. But it's really kind of early to get into that.

Okay. And the new facility will support the 1,300 stores you are projecting?

Yes.

Oh, absolutely.

Okay. Then did you give a timing as to when you expected to launch that e-commerce platform?

We are still in the early stages. As we get more information, we will be glad to share it. But we are on the very early stages, and we will be happy to share that at a later time.

Okay. But it doesn't sound like it's a 2015 event.

No.

Okay. Then just a housekeeping item. Were there some stores that were opened in the fourth quarter that maybe were pulled in from Q1?

No, not really, Camilo. We kept on our normal cadence and so we didn't try to pull any forward from Q1.

Okay, great. Then just lastly on the real estate topic, maybe if we could just discuss what you are seeing the development side. Others have talked about a little bit of a thawing of that, which is resulting in a little bit of an increase in square footage growth opportunities. Are you seeing the same thing?

We are starting to see a few more new developments pop up, which is really good. We are still seeing them breaking up old Walmarts and old buildings; that also gives us a lot of confidence. We feel really good about where we are for this year and the growth numbers that we have out there, that we should be able to hit it.

Great. Thanks and all the best.

Sean Naughton, Piper Jaffray.

Good morning, just maybe a clarifying question and maybe I missed this. But can you give the composition of the same-store sales trends for the fourth quarter between transactions and ticket?

Yes. What I would tell you, Sean, is if you look at November and December, where we had 4% to 5% comps, we actually saw flattish or slightly positive transactions. So during that important holiday season, we did see better transactions.

As we went into January, however, transactions were down double digits.

Tough to drive those when the stores are probably closed.

That's right.

Then I guess, Jeff, you had talked a little about the markdown optimization, the 57% I think of the volume or stores are on that and 43% or not. Can you talk about any metrics on a gap difference between those two?

I know that you are planning on rolling out the rest of the chain through the balance of this year? But any color on the differential between the performance on the merch margin in those two different stores?

You know, as we do, we've had a bunch of different categories and you really do adjust the way you look at each category. Just on some categories we've seen significant margin improvement. But to say overall, I think we are still a little early on that.

But we are definitely seeing margin increase once we cycle over being up for a while. So you still have to build a history and get those trendlines right before you can get the full benefit; but we definitely think it will be a huge winner for us in the future.

It's also going to differ by category. If you take a category like fleece, there's probably some more opportunity just to differentiate a little bit more by climate zone. Other areas of the business that really aren't affected as much by that, you probably won't see as much benefit. So it does vary by category as well.

Okay. Then just last year, a lot of moving pieces on the comp quarter by quarter. When we look at Q1 this year, is there a good comparable comp number we can think about for Q1 that we should be comparing against? Or is it the better way to look at it is really on the dollars from Q1 last year versus what we expect the dollars to be in Q1 this year?

I think the stated comp for the past year of 0.8% is a really good base to look at. As we started the year last year, February and March were quite weak and then rebounded somewhat in April. But the 0.8% that we had last year is a good comparison.

Okay, that's helpful. Then just one last question on Q4, on the cost of goods sold line. Just given the fact that the weather was a little bit more challenging in many of your markets than it probably normally was, can you talk about how much of an impact increases in CAM or utility costs might have been in the quarter?

The CAM and utilities, we saw maybe 10 basis points of pressure because of that. It wasn't a big portion of it. The bigger portion was rent expense, as that really stayed constant as the sales declined.

Okay, that's helpful. Best of luck for the remainder of Q2 -- Q1, excuse me. Thank you.

Joe Edelstein, Stephens, Inc.

Good morning. Thanks for taking the questions. A number of my questions have already been asked, but I would like to perhaps just focus on capital allocation. You've already outlined your CapEx plans and the stock buyback plans.

But just from a cost of capital perspective, would you consider taking on debt to help fund any of these initiatives? Then secondly, would you ever consider paying a dividend instead of just simply returning capital to shareholders via the buybacks?

First on the first part of the question, as far as taking on debt, our cost of capital is around 10%, with no debt. Right now, it's really not in the cards to do any leveraging up.

We feel that we can do a meaningful buyback and still invest back in the business with omnichannel and new stores and everything. That will be especially true over the next couple years, while we continue to expand cash flow. We are just really hesitant on taking on any debt when we have that robust of a cash flow.

Similar to the dividend question, right now it doesn't -- it's really not in the cards for the next few years, especially because with the new store growth still fairly robust and new initiatives in front of us, it's really not in the cards right now. As we get down the road four or five years and continue to expand that cash position, we may look at it a little bit more seriously.

That's very helpful, thank you. Becky, you had already touched on some of the new product development. But I was curious if you could just also update us on what the back-to-school season could look like, if there's anything that you might call out there from a new product as well.

We do think that the Roshe is going to be impactful for the back-to-school time period. And we are certainly seeing Air Force 1s begin to trend better for us than they have in the past; they had taken a little bit of a slip in the marketplace as a whole. So we feel pretty good about that.

From a product perspective in apparel, it's kind of business as usual. We are very T-shirt and shorts driven; and certainly with new styles it's still the basic products. But new styles, new colors are always encouraging to see out there.

We do think that there is a nice pop that we are going to get by really going after our pants business both in women's and in men's for the back half. Certainly the capri trend is significant for us at this point in time, so we like that, too.

Great, thank you.

Anthony Lebiedzinski, Sidoti & Company.

Good morning, a couple questions. First, did you think that you had any impact on your sales because of the later tax refunds?

Anthony, it may have moved a week, three or four days. But it really just shifted a little bit later into February. But it did have some impact very early in the quarter.

Okay. As far as the higher IT costs, is it safe to say that you would expect a payoff from these higher IT costs by calendar 2015?

Yes, I think that's safe. Right now with markdown optimization that we spoke about, that will certainly provide some traction as we move forward. We are also working on business intelligence, new allocation systems.

Those still have several months to go, but after we get those in place we will start to offset some of those additional costs.

Okay. Then lastly just looking at your balance sheet, the accounts payable seemed unusually low. Was there anything going on there in that line item?

There was, Anthony. Last year we were over-receipted at the end of the year, and so our balance was abnormally high. This year more of our receipts fell into February. As we closed the month of February, that payables balance came back in line.

Okay, great. Thank you very much.

Mark Smith, Feltl and Company.

Yes, this is Shannon Richter on for Mark Smith. I was just wondering if you could run down the cadence for the openings and closures in 2014.

I don't have the specific breakdown right now. But what I would say is that this past year we did a little bit better job of having a more even spread, versus having more heavily weighted in the third and fourth quarter.

I would say as we look at this year it will be even a little bit more distributed. It won't be 25% all the way through; it will still be a little bit lighter in the first and second quarter versus the third and fourth. But closer than it was this year, this past year.

Perfect, thank you so much.

Ben Shamsian, Sterne Agee.

Thanks for taking my question. Most of my questions have been answered. Just wanted to dig in a little bit more on the comp guidance. What do you expect in terms of traffic and AURs?

I will cover the traffic piece. I think we will still see some average ticket increase, and some of that will be price and some of that will be items per basket, which we continue to expand slightly. I think traffic will be a little bit bigger part than it was last year, but average ticket will still be the bigger portion of our comp.

Okay, great. Thank you.

Adam Sindler, Deutsche Bank.

Yes, good morning, thank you for taking my question -- or two questions. We talked a lot about product innovation on the footwear and apparel side. I wanted to see if there was anything coming down the pipeline for spring/summer on the hard goods side that you were interested in.

Then secondly, if you could talk about any margin implications from the shift in the footwear business to more of a fashion basketball product from -- a little bit away at least from a running technical type of product, thank you.

From an equipment perspective, color and brand is becoming more important in the baseball area, and we are seeing a really nice reaction from a consumer perspective right now in regards to that. So we are encouraged by that.

Then from a protective perspective we are seeing that that trend is past football. They are wearing protective sleeves and sliders and HexPad product really for every sport. So we see that as a growth area as well and feel good about that.

As far as the running versus basketball and margin, I think that when we look at our product margin as a total it's really about an overall look from an IMU perspective, and I wouldn't really break it down by category.

Okay, thank you very much. I appreciate it.

Cris Svezia, Susquehanna Financial Group.

Good morning and thanks for taking my questions. I guess first, Scott, for you, just to clarify something here. When you talk about leveragability and comp, just to be clear about something, you mentioned occupancy costs. I think you needed a 5% comp this year to leverage.

Would that be the same kind of callout, if you think about SG&A, where you can potentially get leverage on SG&A as well this year, given the expenses?

Yes, it would be a similar kind of number for SG&A versus what we normally see.

Okay. Becky, for you on the product side, casual business. Just softness there, I mean it's something we've heard in other areas. But I'm just curious.

Is that a Chuck Taylor? Is Air Force 1 in there? I know there's some freshness on the Air Force 1 side. Just curious your thoughts on the more casual end of the business, what's going on there.

Well, actually Air Force 1 is doing relatively well for us right now, and we see it moving forward. I think that Nike did a really good job of cleaning up the marketplace and their distribution, so we are now seeing the renewed interest with the Air Force 1 product.

I don't -- yes.

So what's the weakness in the casual business, then? Just out of curiosity.

I guess, Chris, the hard part we have sometimes is: what do you define as casual? Like Roshe Run I would put probably in casual; well, some people have it in running. So that business is pretty good. We do mostly athletic.

We are not brown-shoe casual driven, so I guess that's why I'm stumbling a little bit. Because it's all in the definition of where different retailers put the product. Our casual business --

It's pretty good.

It's pretty good. It's just not significant to our bottom line.

Okay, got it. Fair enough. Then just from -- when you talk about product innovation and on the running side, adi and what they are doing with Boost, I know has done well when we go and speak to some of your store guys.

Are you getting enough product allocation on that product? And just your thoughts around that, and maybe Springblade as well.

Springblade is in about half of our doors right now, I would say. It's doing okay this spring and we're looking forward to some of their marketing coming out to help us bolster that a little bit.

Then Boost is not quite as penetrated as Springblade is at this point in time. It's faring relatively well.

Okay. Then just lastly on this, Jeff, I just want to ask you about this e-commerce initiative here. At the end of the day, is it fair to say that potentially investments behind it really could potentially start in calendar 2015, with the potential to start shipping some product maybe late that year, into 2016? Is that a fair way to characterize potentially some of the timeline behind it?

Chris, we're still putting that together. From an expense standpoint, 2015 will definitely be when it would start. And we just don't have it defined enough to say that, hey, definitely in calendar 2015.

But we will be making initiatives -- we will be making strategic decisions on making sure that we are ready for it.

Okay, fair enough. Thanks and all the best to you guys.

Sean McGowan, Needham & Company.

Thank you. First, can you comment on the per-store inventory being down, considering the sales weakness in January? What's behind that?

Second, can you help us with the timing of the wholesale cost at $0.11? Is that going to be more skewed to the second half as that work escalates, or is it more evenly spread out? Thank you.

I think that there was a couple of regions that our inventory was down overall. One, we had a little bit too much inventory from where we wanted to be a year ago. So we wanted to be a little bit lighter at the end of this year.

Then secondly the impact of the weather actually kept us from receiving a lot of product in January.

Wow. Okay.

Then I will cover the $0.11 of additional cost. If you break that number down, about $0.06 of that, $0.055 to $0.06 is actually depreciation. So that will really be quarters two, three, and four. We won't see that in the first quarter.

If you look at the other piece of it, the other $0.05, it will be more evenly distributed. You will see a little bit of a bump at the end of first quarter, early second quarter, with the transition. And then the operational costs of that facility will kick in for the remainder of the year.

Very helpful, thank you.

Mr. Rosenthal, there are no further questions at this time. I will turn the call back to you. Please continue with your presentation or closing remarks.

Thank you for being on the call today. We have many opportunities to grow and to grow profitably, and we look forward on talking with you again for our first-quarter results on May 23 at 9:00 Central Time. 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. Have a great day, everyone.