Hibbett Inc (HIBB) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports, Inc. second-quarter 2015 conference call.

(Operator Instructions).

As a reminder this conference is being recorded Friday, August 23, 2014. I would now like to turn the conference over to Pat Watson of Corporate Communications. Please go ahead.

Thank you and today is August 22. Thank you for joining Hibbett Sports to review the Company's financial and operating results for the second fiscal quarter ended August 2, 2014.

Before we begin I would like to remind everyone that management's comments in this conference call that are not based on historical facts are forward-looking statements. Management may make additional forward-looking statements in response to your questions. These statements which reflect the Company's current views with respect to future events and financial performance are made in reliance on the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks.

It should be noted that the Company's future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued earlier this morning and the Company's annual report on Form 10-K and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information.

I would now like to turn the call over to Jeff Rosenthal, Chief Executive Officer. Please go ahead, Jeff.

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

As we stated in our pre-release on August 8, our comp results were disappointing and below our expectations for the quarter. During the back of July we saw our trend turn more positive and that has continued into the back-to-school season where we are currently running a low single-digit comp.

During the quarter we expanded 1 high-performing store, closed 5 stores and opened 16 for a net total of 11, putting us at 150 stores at the end of second quarter. Our new store pro forma continues to be strong and healthy and we are on pace to net around 65 new stores by the end of the year.

We have already begun to see some of the benefits from our new warehouse, our wholesale and logistics facility. It is still in the early process and the wins have been small but we are still very excited at the potential this facility will have in assisting us in getting the right product to the right stores at the right time.

Though we had a difficult margin compared to the second quarter we are still optimistic with our markdown optimization program. We are currently a little over 75% rolled out.

Long term we still have a lot to learn on how to properly use this tool. However, our Company's aged inventory is much improved from where we were this time last year, a benefit that can be attributed to the disciplined markdown optimization that is putting in place.

Related to our omnichannel roadmap, the first phase is well underway and expected to be completed over the next year. The phase is centered on two important areas that will be needed as we lay down the foundation for a true 360 degree customer experience and our future Company growth.

Number one, firming up our IT infrastructure by investing in our technology, people and process. And number two, upgrading our store technology and hardware.

Over the coming months I will continue to share the progress with you on this very important and highly focused endeavor for our Company including more details around the second phase, which is currently in the planning phase. This major initiative and others that we are working on gives us confidence that we are investing wisely in the long-term success of our Company.

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

Good morning. Branded apparel was the shining star of the quarter with strong results across all divisions. The women's business achieved high single-digit comps while both Nike and Under Armour were performing very well.

(technical difficulty) strong with high single-digit comps. Men's branded apparel achieved low single-digit comps while boy's branded grew high single-digit comps. Our business is traditionally driven by shorts and tees in the summer months and this year is no exception.

The licensed apparel division had a disappointing result. Major League Baseball and NBA and collegiate men's had a difficult quarter; college women's apparel had substantial double-digit growth as the customers focused on new fashion offerings. We continue to have headwinds in our licensed headwear business as the consumer is shifting to branded headwear, in particular, Under Armour headwear which performed very well.

Footwear strength came from the basketball division with high double-digit growth. Nike's Signature products such as Lebron, Kobe, KD have been very good and Jordan footwear continues to be excellent.

Traditional running categories were soft. The consumer is showing interest in lifestyle running silos instead.

The sandal business was disappointing.

In equipment the World Cup product not only sold well but gave the soccer category a very nice boost. Across the board World Cup product did well and we've seen continued momentum in the soccer category. The performance in men's World Cup product bodes well for next year women's opportunity.

Nike product was a clear choice in this category in apparel and cleats while Adidas World Cup ball had a very strong sell through. Baseball and softball did not comp positive and the football business tapered off slightly. Although our overall comp performance was disappointing we are managing inventory well and aged product is less than last year.

We will continue to assess assortments in inventory as needed to ensure we drive sales in the right categories. I'll turn it over to Scott Bowman now.

Thanks, Becky, and good morning. For the first quarter total sales increased $7.7 million to $193.9 million, an increase of 4.1% over the prior year. Comp sales increased 0.1%.

By month comps were 0.3% in May, negative 1.2% in June and 0.9% in July. Gross profit rate decreased 111 basis points in the quarter. Product margin decreased 47 basis points mainly due to markdowns associated with managing our inventory.

Store occupancy and logistics costs increased 64 basis points as a percent of sales which was due to additional cost related to our new wholesale and logistics facility and due to deleverage of these expenses associated with lower comp sales. SG&A expenses increased 6.8% in the quarter and increased 61 basis points as a percent of sales. The increase as a percent of sales was mainly due to deleverage associated with lower comp sales.

Depreciation and amortization increased 31 basis points as a percent of sales in the quarter. This mainly reflects the capitalization of our new wholesale and logistics facility but also includes an increased number of new stores.

The income tax rate for the quarter was 38.6% which was higher than last year's rate of 37.7% due to a quarterly true-up entry. Operating income of $13.7 million decreased 19.1% from last year and was 7.1% of sales versus 9.1% last year, a decrease of 203 basis points. Diluted earnings per share came in at $0.32 per share versus $0.40 last year, a decrease of 20%.

From a balance sheet perspective the Company ended the quarter with $81.4 million in cash versus $80.9 million last year with no bank debt. Inventories increased 3% over last year and were 3.3% lower on a per-store basis. We spent $7.7 million in CapEx for the quarter.

Also for the quarter the Company bought back 423,000 shares for a total of $22.5 million. At quarter end we have approximately $196 million remaining under the existing purchase authorization. With that review, operator, we are now ready for questions.

(Operator Instructions). David Magee, SunTrust.

Hi, guys, this is Lynda Guthmann in for David. We just have a few quick questions. The first was, were you guys able to tell a difference in the store performance in lower versus higher income areas?

Not really, we did see the strip stores outperform the mall stores slightly. But other than that we didn't really see the differences, or big patterns.

Okay, and then if we are, for next year, if we are able to get around a 3%, at what point would you be able to leverage the expenses?

Yes, for next year it should be a 3% to 4% kind of comp range. In normal circumstances it is around 3%.

It may be just slightly higher than that because we will anniversary the full-year effect of our new wholesale logistics facility. But it will be closer definitely to our normal run rate versus this year.

Okay, great. And then just one last question. Is there anything that you guys are working on that could be done to help smooth out the peaks and valleys in the business right now?

We continue to adjust assortments accordingly. Really if you look at sales and the past history you know second quarter is always our toughest quarter because there's not a lot of sports going on and it's not quite back to school.

But definitely during the fall season as some of the licensed, especially around football, we definitely play our assortment there. And then definitely there is a huge opportunity at the holiday time with fleece and some of those type items.

Okay, great. Thank you.

Dan Wewer, Raymond James.

Thanks. So when looking at same-store sales from other sporting goods retailers, Foot Locker was up 7%, I believe Dick's is indicating if you pull out golf and hunting they were up about 7.8% comp and then comparing Hibbett's performance, where do you think that the shortfall is taking place?

It looks like there's definitely some market share loss that is occurring. But again just trying to triangulate how Hibbett is performing against competitors. Where do you think the difference is occurring?

I think at the Foot Locker their percent to total in basketball is much higher than ours even though our basketball business has been excellent and had lots of gains. Our branded business, which was very good in apparel, if you compare it to Dick's was very comparable. Where we had a little bit of a shortfall compared to them is really a little bit in our licensed area and in some of our equipment areas.

But proportionately at Foot Locker basketball is much higher and then just the concentration of branded in our stores is not quite as concentrated as maybe a Dick's store. So those two things would probably be the biggest difference.

Do you see any levers you can pull to improve your sales performance? I guess business had been soft since March?

Yes, we think women's apparel is a huge opportunity both from Under Armour and Nike. We see that becoming a more important business as we get into fall. We still see basketball being a big driver as we go and then just some of the more penetration of men's branded apparel product we think there's an opportunity there.

Jeff, some of your competitors are talking about significant e-commerce growth. I know that you have a strategy that you are working on but from your perspective is that already having an impact on the industry and resulting in some market share challenges?

I would be crazy to say that it doesn't have some impact. Dan, I think the thing that I could tell you is we are moving as fast as we can to make sure that we can do that. And we are putting in a lot of foundations now when we are moving and as soon as we can get that up we will be happy to get that up.

But I still believe that we are a little bit more insulated just because of where our stores are and people do like to get out in the communities. But it is a factor that we need to address.

And then the last question I have regards freight expenses. Other retailers are talking about a significant increase in the last six or eight weeks due to what's happening with the driver shortage. Can you remind me, does Hibbett have a dedicated fleet, or do you pay spot prices for freight and how is that impacting margin going forward?

We have a private fleet. We also utilize 3PL in a small amount of our doors. But for the most part it is controlled under us.

So are you seeing the same pressure on driver wages?

We have not.

No, we haven't. No.

Okay. Okay, great. Thank you.

Sam Poser, Sterne Agee.

Good morning, thank you for taking my question. Just real quick, how are you pushing up the urgency on getting on developing more e-commerce, or starting some blogs or other things to drive more customers into your building?

What are you going to do because I think to some degree you may have underestimated your consumer's need using these handheld devices and so on and so forth. Are you pushing up the timetable on any of the things you are doing to drive more traffic and to develop e-commerce?

Yes, absolutely Sam. When you look at what our capabilities are, we are driving that up. We have become a lot more important especially on blogging and social media and it has become a bigger part of what we do.

And to be able to do the omnichannel we are definitely moving. There's a lot of things that we have got in motion right now and the sense of urgency is definitely there.

We participate today in digital, social media as it is. We do have Twitter, and Instagram, Facebook accounts. We have a text message program as well.

So we are not dark in this space. We are actually growing that pretty substantially each month.

One of the things, too, we just came up with a new DC, which is helping and being able to fill in stores much faster than we have before. And we are just starting to ramp that up, which we think will get a lot of benefit as we get into the fourth quarter being able to fill in a lot quicker to stores.

So, and the markdown optimization being up to almost 75%. So there are some tools that we have that help get that GAAP and then we are also putting urgency around some of these other initiatives.

Thanks. To the comment on the Instagram and so on, are you going into your market and looking for I would call them fashion sports influencers to specifically help you blog and drive traffic? Without the e-commerce platform -- but without the e-commerce platform that's what you've got right now, there's not much else there I would think?

That's an opportunity for us.

Okay. Thanks, guys and best of luck. All the best.

Rick Nelson, Stephens.

Thanks and good morning. Can you talk about competitive environment particularly the big-box stores, Dick's and Academy if you are seeing more intrusion from those stores?

We are seeing about the same as we saw last year. Last year we had a little bit more than 40 big-box come on us. We will see probably another 40 or so this year. So it's about the same influence that we have had.

We are looking at sales in the second quarter, actually our big-box stores outperformed the rest of the chain. So they do give us a hit in the beginning but usually we come back pretty strong.

And of the 85 stores that we will open this year, 80 to 85 stores, that we will open, most of them are in pretty isolated markets. So it kind of counterbalances that a little bit, Rick.

Okay. And then the omnichannel, if you could talk about the vision you have there. I know here in the first phase at this point but also the timeline related to Phase I and the costs and when does Phase II kick in and is there going to be a meaningful step up in expenses related to Phase II?

Yes, I will address Phase I first, Rick. That phase is really the implementation of a new POS system which will help accommodate a ship-from-store type of model. And we feel that there is really good value there just because of the conversion rate improvement opportunity there.

And so that activity will start next year and so much of the work will be done next year on that installation. And from a cost standpoint a lot of that cost for that installation will be on the capital side. There may be a slight incremental expense next year but keep in mind we have spent some expense dollars this year on that and several other initiatives.

So the incremental expense shouldn't be that much for that phase. Phase II, that's the details are still being worked out on Phase II and we continue to look at options there some of which may pull that forward a bit but still early stages on that. And so I would rather put the more detailed cost estimates off for a while until we get some more details in the next several months.

Okay, got you. And then kind of the new POS to be able to fulfill out of stocks when somebody comes into the stores you don't have it on hand you can then ship it do somebody's home?

Yes, absolutely. That's one of the main pieces of it would be definitely to customer satisfaction and stockouts to be able to help our customers and satisfy them quicker.

We feel good about that, Rick, just because with the size of our store and feedback from the field, we know that we are losing some sales there just having the all the size combinations that are needed. And so we know that's a real opportunity and we are pretty excited about it.

I think too, Rick --

And then Phase II would be order from home? Or is that also part of Phase I?

We are still working out those details as we go. But a lot of this work we'll be doing simultaneously, so as we get closer we will be able to give you exact dates. But a lot of these things, the fill-in piece and doing the other piece will be done at the same time.

But a lot of them are the same work to get that able to be done. So really it's going to be a simultaneous project and we just have to determine on when we are going to pull that final trigger.

Got you. Thanks a lot and good luck.

Peter Benedict, Robert Baird.

Yes, hi guys. A couple of questions.

First, Scott can you talk to me a little bit about traffic versus average ticket during the second quarter? I assume traffic flat to slightly down the first quarter, how did that trend in 2Q?

So if you look at the entire quarter average ticket was up mid single and transactions were down mid single. However, in July we did see a pretty marked improvement in transactions. So as we got closer to back-to-school we definitely saw the transaction side pick up for us and that has continued into early August.

That's good. And when you say improvement were they up year-over-year in terms of traffic, or just less negative?

Less negative.

Okay, thanks. And then just on the new DC, maybe talk a little bit about what you are seeing there. It sounds like you are encouraged by the performance.

What portion of the 64 basis points of warehouse occupancy headwind was from the DC? And when you think into next year, is that when we start to see some leverage on that facility?

I think we should, Peter. And to answer your first question, the deleverage on the warehouse cost was about 15 basis points, so in my mind with a flattish comp that's very good performance.

And we have been very pleased with the productivity that we've seen now in that facility so far. And so it not only makes us pleased now but it gives us greater comfort as we add volume to that facility there will be more leverage there.

Okay, perfect. And last question just on the real estate pipeline, 75, 80 this year, 10 to 15 expansions, I know it's a gross number on the new stores, is that something we should be thinking about next year, similar numbers? If it's not similar can it be higher, or do you think it would be lower?

We would hope for it to be a little bit higher but we are working on that right now. At least what we are doing this year, hopefully we expect to do more.

Okay, perfect. Thanks, Jeff.

Camilo Lyon, Canaccord Genuity.

Thanks, good morning guys. With respect to the traffic, as you think about your in-store initiatives is there anything that you are contemplating to try and spur some of that traffic to improve whether it's increased promotions or increased advertising?

It seems that you have the right assortment for the most part, it's just that it's getting that customer through the door. So I'm wondering if you are thinking about what can do to get that traffic metric up?

Yes, we look at that, we drive a lot of customer footsteps through texting and our MVP program, which continues to grow. Really from a promotional standpoint we still feel like we are in pretty good shape and we have done a lot of work on our inventory where we are.

So we don't see us being more promotional the rest of this year than we were last year. So from time to time we may speak a little bit more on texting on launches, or emailing or those type things but I would say from a promotional activity our plan is to be pretty consistent with last year.

We feel like with the assortments we've bought for the rest of this year especially in the fourth quarter that we will be fine. We really think -- if you remember last year we had a huge hit in January on comps, we were down negative 10. So we do have an opportunity to pick up some business especially in the fourth quarter.

Got it. And then just with respect to how the average ticket has really trended up over the past couple of years. I think a portion of it has been the removal of some of the value product in the assortment. Is there a thought that maybe there is some -- there's a customer that is being driven away because the price has been escalating over the past couple of years?

And if that's the case, is there an intent to maybe incorporate maybe an opening price point assortment product into the lines so that you capture more of that consumer in those smaller markets?

I would tell you that from a price point perspective when you look at what is driving the consumer into our stores today it is premium product.

We have a very big following from a premium basketball perspective and the Jordan launches are absolutely premium price points and that is what they expect from it. When we have gone to the value play we have actually probably more competition around us than we really want to try to compete against. And we have found a sweet spot in really staying premium in our assortments.

Okay, great. And then just finally -- and that makes a lot of sense, thanks for that -- just on the running category side, so you continue to see some of the softness. What are you seeing from a trend perspective there?

Is the consumer really shifting what would've been a running purchase towards a basketball purchase, or is it shifting from different categories within higher price running to the Roshe, for instance? Any sort of detail that you are seeing on the relative changes in consumer habits would be interesting and helpful.

You know what, it's a little bit of both. We have certainly saw an uptick in the basketball business in the amount of share that they took have in percent to total business from last year. And that's a trend in the marketplace so we certainly see some of the consumers going over to the basketball silos.

At the same Roshe is good, and Roshe selling out very quickly, and you are correct it is a lower price point than what the $100 Frees are out there. And so I would say it's probably a mix, a little bit of both.

Yes, and I would think too you should look at, especially as we get into next year or even later this year, the technical running pieces, the Brooks, the Asics and all that, we have a huge opportunity. Before we would be able to just put those shoes out in our stores and we sold out of a size it would take us almost four weeks to fill back in.

We have a big opportunity here now with our new facility to be able to fill in sizes. So as we get later in the year and really into next year we expect that to really help our technical running piece, which I think we have been at a big disadvantage on not being able to fill in sizes quicker to our stores. So we really think that's a huge help for us overall as we start moving in to fourth and first and second quarter next year.

Great. Thank you Becky and Jeff.

Sam Poser, Sterne Agee.

I guess not that many people are asking questions today. When you look at your overall business what percent of your customers do you think actually run in any of those technical running shoes versus they are buying them because they think they are cool?

Well, Sam, definitely like the Roshe and those are not being run in.

No, I'm talking about more the performance stuff, more of the performance stuff.

Same thing.

It's really the same thing. Basketball, I would bet you probably 85% to 90% of it's fashion, so we've talked about this in the past. I think a lot of it is just foot coverings.

But we do have a technical piece that is performance-based that we could do a lot better business in if we were able to fill in quicker in sizing. And we know we leave a lot of business on the table because of it and now that we have our new facility that should be getting a lot better especially as we get into fourth and first and second quarter. But a lot of that is, you are right, it's fashion.

And so, Becky, are you seeing a shift -- we have seen it, I think Foot Locker commented on it a little bit, are you seeing a shift into more of the retro stuff, New Balance 574s, Jazz Originals, Asics GEL-Lytes, and so on? We're starting to see quite a bit of that. I wonder if you are seeing the same thing?

Our penetration in the technical is really not an enormous percent of the overall business. But is a great area for us and we try to make sure that we are putting that product in stores that there are technical runners and people to do that.

But from a retro perspective we are seeing the signature business is very good for us. Outside of the signature Nike business it is pretty limited.

Yes, we are starting to see some retro running. We do see that as a trend that, especially from a retro standpoint.

Lifestyle.

Okay. Thanks again.

Sean McGowan, Needham & Co.

Thanks. A couple of housekeeping questions. First, what would you say is the tax rate expectation for the whole year, Scott?

It will be close to 38%, Sean. The original range that I gave, 37.6% to 38%, the main difference there was whether some of these extenders were reapproved like work opportunity tax credits.

It doesn't look like there's going to be any action on that until at the very earliest after the November midterm election. So I would guess it would be closer to 38%.

Okay, thanks. And your CapEx plans for the full year?

Yes, still within the original guidance of $25 million to $30 million.

And is the depreciation amortization, can we expect to see that step up?

Yes, yes the original guidance that I gave on depreciation should hold true for the year.

Okay. As you look at the timing of the back-to-school, were there any shifts relative to last year in terms of state tax holidays?

Georgia was in the second instead of third.

Okay. And finally, as we look at the balance of the third quarter was there anything last year, just if you could remind us whether there was anything last year in terms of weird weather that unusually affected your business that if things were normal would cause things to be different this year?

No, really the biggest thing is really there's probably a lot more opportunity in the fourth quarter and third we've done a great job of cleaning up our aged inventory. We are still doing that a little bit in the third so really should see some margin hopefully more normalized really as we get into the fourth quarter.

Okay. Thanks for that. The bigger picture question I am left with it is consistent with some of the line of questioning earlier in the call.

You are speeding up your efforts on e-comm and the omnichannel but what was it that looking back two years ago or so, what was it that made you not be as urgent two years ago? What was the expectation then? Was it that your customer was not going to value that very much, or was it an investment issue?

No, I think we just -- I believe we are a little late. We should've probably been doing that two years ago and now we see where that millennial customer is going and not that they weren't doing that two years ago but it is becoming more and more predominant. And we probably should have been on it a little bit sooner.

Okay, so there wasn't anything that really changed -- I think you answered it. Okay, thank you.

Mark Smith, Feltl and Company.

Hi guys. Can you just walk us through the cadence of openings here in the second half?

Yes, I think what you'll see is that for the back half, Q3 and Q4 should be relatively close. Typically over the last couple of years Q4 has been overweighted a bit but you should see a better distribution, closer to half-and-half in Q3 and Q4.

Okay. And then can you just -- I apologize, I missed this Scott -- the monthly comps during the quarter, can you just repeat that for us? And then if you can walk through what Q3 was last year on monthly?

Sure. So for this past quarter in may we did 0.3%, June negative 1.2% and July 0.9%. And then in Q3 of last year August we did 8.7%, September negative 2.3% and October 7.3%.

Okay. Excellent. Thank you.

Bill Priebe, Geneva Capital Management.

Hi, this is Ashley in for Bill. Just a quick question on your vendor relationships. Can you talk about the trends you have seen over time and any changes in terms of pricing negotiations, markdown allowances or so forth?

I would tell you that our relationships with our major suppliers are pretty consistent as where they have been in the past. We get support in various different ways and sometimes it's in markdown support, sometimes it's in returns and/or cancellations if we need to make it.

It really depends on what the supplier is comfortable doing and how the business is rowing through in our needs. So each and every conversation is just a discussion about making sure that the business is healthy.

Really just to add to what Becky is saying, really we are the secondary tertiary main player. And so we do get a lot of benefits because we are the only game in town. That's what they want us to do and that's what we do.

Great. Thank you.

Rafe Jadrosich, Bank of America Merrill Lynch.

Hi, thanks for taking the question. I might've missed this, what was the overall footwear comp for 2Q? I know you guys gave basketball but --

We don't give out specific numbers on the comps but it was pretty flattish.

It was flattish? And so can you just talk about the weakness in the team sports business? What is driving that and is there sort of an opportunity to shrink that space and maybe reallocate some of it to the better performing categories, or is there something that could drive positive comps to that in the back half?

I would say really you see a lot of participation on some of the team sports being off a little bit this year. This second quarter and really still continuing in the third quarter the World Cup had a major impact on soccer. Football there's a lot of good business but it is mostly accessories and cleats and those type items but there are less people playing so we see it around the accessory piece.

Some of the equipment, a lot more kids are playing flag football where you don't need shoulder pads and helmets. And baseball is a declining sport.

So we have been making adjustments in our assortments on how much we carry in each store and making quarterly, making adjustments. We need to give more space to like women's apparel and some of those things and we are making some of those adjustments.

So are you -- do you continue to expect team sports or the equipment side of the business to be down?

Sometimes, but there are some markets that it's very important, it really depends on where our store and what the location in that local community. So we don't expect it to continue to decline but some stores, though, become more important and then some of our stores we just don't need the amount of inventory we have and we will adjust accordingly.

Got it. And just quarter to date you have seen a little bit of a pickup. Can you talk about what's sort of driven that. And then your guidance obviously implies that the back half is a little bit of an acceleration from 2Q.

What sort of gives you the confidence that comps will approve? Is it specific product launches, are you getting better allocation, or is it just a mix shift away from equipment into more footwear and apparel?

Well, I think there's a few things. First of all second quarter being our lowest volume quarter and obviously lack of traffic hurt us.

But as we get into third quarter back-to-school is so important and it does drive footsteps. We feel good about our assortments especially as we get into fourth quarter with our fleece and you've got North Face and Under Armour and Nike really being a big predominant quarter.

In the fourth we are going against negative 10% in January. Third quarter we expect some improvement over what we were doing but we really think the best, most of it will shift into fourth quarter. But we do think some improvement.

The other thing to keep in mind is as you go into the back half of the year the mix of goods changes a little bit as to what the consumer is buying. And we see a better uptick in more business around the apparel side of the business. And our apparel business in branded is very healthy.

One last question. How do you feel about your allocations in the back half versus the first half? What do you need more of from the vendors? Is it more Roshe, more basketball and do you like you are getting better allocations? Thank you.

Yes, that's a good thing. We always look at that and Nike does an unbelievable job on trying to balance the marketplace. We feel like we do get more and our allocations are going up.

Are we getting enough? No. As soon as we get enough I probably won't be as happy because we won't sell as much either.

So there's a fine balance. Could we use more? Absolutely, but --

Do we have more, yes.

We do have more, so Nike does a good job on balancing the marketplace.

Great, thank you.

Wayne Hood, BMO Capital Markets.

Yes, a few questions here. I guess I was curious as July and August showed some improving trend, what has been the trend with your regular price business versus clearance just to get a gauge of whether clearance is still skewing the numbers? And then is your merchandise margin in August kind of landing close to your plan?

It's a lot better than it was in second quarter but still we are still having a little bit of pressure on margin. Because we are still cleaning up some of our aged inventory.

We are still probably having some work to do in the third quarter. But we have seen margins flatten out a little bit to last year during the August timeframe and back-to-school timeframe in particular. But there's still some work to be done for the third quarter.

Yes, my next question was related to, I guess the third quarter, where do you think Scott or anyone of you, your inventory levels, specifically your aged inventory will be down in the third quarter and where do you think you land for the year?

On aged?

We should be much better than last year.

Yes, so we finished the second quarter a little bit better than last year. We think that will continue to improve as we get closer to the end of the year. So as Becky said, still a little bit more work to do but more of that work on reduction of age will be in Q3 and as we get into later in the year in Q4 it should level out.

And if you could comment I guess on the decline in gross margin in the second quarter. How much of that do you think you can recoup next year as we think about modeling and getting some of that back?

I think there is some opportunity to do that and we should be able to get a little bit of that back. But we will continue to stay diligent and making sure that we keep in that good age position. So there may be a little opportunity there.

Okay. And my last question I guess maybe to you, Jeff and Scott is, as you think about e-commerce and the decision of hosting the website internally, doing internal call centers or maybe set up sites or facilities outside Atlanta, what is the delta in cost when you think about doing those internally versus outsourcing and applying that against the context as you scale it? Is it better to operate it internally those functional areas, or to outsource it without giving up scale?

Yes, like we said it is still very early yet but just initial thoughts are that it would probably be better to outsource that initially, to hand it off to the experts, make sure that we get started off on the right foot even though that expense profile is a little bit more. As we continue to learn and grow with that part of the business then we can make the decision if we need to bring that in-house but in all likelihood that would be outsourced at the start of it.

All right. Thank you very much.

Anthony Lebiedzinski, Sidoti & Company.

Good morning. In looking at Q3 and Q4 are there any significant product timing launches that we should be aware of?

Should be very similar to last year, Anthony.

Okay. And I may have missed this but did you say how much of your -- in the second quarter -- how much of that was attributable to one-time costs associated with the distribution center move?

Yes, there was really a smaller piece of the transition went quite smoothly for us. So we didn't see a big uptick in expenses and it was a little bit less than what we expected. So it's not going to be a big effect next year.

Okay, got you. And also just wondering have you done any additional share repurchases in Q3 so far?

Kind of how we have communicated before, when the stock is at lower levels we will continue to look to be opportunistic in those time periods.

Okay. Thank you very much. Good luck.

Seth Sigman, Credit Suisse.

Okay, thanks for taking my question. Just to circle back on the low single-digit comps that you have talked about for the third quarter so far. Are there specific categories that you can point to that you have seen a little bit of an improvement versus the second quarter?

Yes, I would say really branded apparel continues to perform at a pretty high level and our footwear business continues to get a little bit better as people need shoes for back-to-school.

Okay. And back to the discussion on the competitive landscape, a lot of the public peers have talked about more promotional activity, which seems like a little bit of a change from the recent past. Just to clarify, you said that you are not really seeing any of that incremental promotional pressure?

Not really. We are not a big promotional anyways. We really run a few promotions a year at some key periods. But most of the time we run promotions, or really we run it off of age of inventory, not necessarily that we are running any type of promotion.

And most of our markets the things that are selling the best are selling at full price. So that's what we do.

Okay. And just one final question for me on e-commerce. Historically the Hibbett's concept, very differentiated, very value added in brick-and-mortar.

You have that convenience factor. You have the brands. Just trying to understand as you think about e-commerce, what is your place in e-commerce?

What is your value add? How do you compete? Is there a way to leverage your store base?

Obviously your brand is also well known in a lot of these markets. How do you think about that decision and kind of where your place is? And maybe related, are you starting to see a pickup in the traffic to your own website and interest from your customers for that offering?

Yes, that's really good. For us it's about customer service and how do we enhance our customers' experience. We do a great job in store operations on service to our customers.

But there are aspects of service that we are not able to do such as we don't have your shoe and how can we get it to you faster. So that's part of that e-commerce omnichannel.

And then there are some commerce things that would make a lot of sense. We have a lot of people to come in for team colors on socks or shoes or that where we can't afford to have that inventory in all 1,000 stores, or 1,200 stores.

So we can enhance and help our customers a lot better when we can get them the purple sock or the purple cleat or those type things. So we really have to do it around the building of our customer base.

And just what are the customers wanting from us and we don't want to disappoint them. And also the convenience factor, it is such a big thing even in these isolated markets.

If we don't have that purple cleat and it doesn't fit or if you buy it from us we can take it back to our stores, and then hopefully our store associates would sell them something else. So that's a big part of how we pull all of this together.

And you think five years from now and our kids and kids today, that's the way they do it between their phone and online and even if you're in a small community. We are little bit more insulated because we are isolated but those are other services that we have to do for customer service.

So, sure e-commerce aside I guess, you kind of pointed to some omnichannel fulfillment opportunities and maybe some missed sales that you are seeing. Is there a way to quantify what that opportunity is from --?

We have been putting some internal models together. We think it's a big big opportunity. You can have all these people that supposedly are experts that tell you all these things.

But the one thing that we do know is when we come in and we don't have your shoe size, just in shoes, if we could -- if we are hitting 6 out of 10 if we can just get it to 7 out of 10 customers it would be a lot of volume that we would add to us. Just a little bit of help.

So we think the opportunity is very big and hopefully we can get there sooner than later. And that's what we want to do.

All right. Thanks for the color and good luck.

Mark Close, Oppenheimer & Close.

Thank you. Becky, I just wanted to clarify something. Do you see on the apparel side the branded continuing to outperform licensed in the back half of the year?

We do. The strength in branded apparel it's on a roll and we have invested in it so we do think that that will continue.

Okay, thanks.

Peter Benedict, Robert Baird.

Hey, Scott. A quick follow-up on the DC. So I think at one point at the end of last year you might have thought that the DC headwind on gross margin might be 20, 25 basis points this year. Is that still your thinking, or are you thinking it can come in less than that?

Yes, I think there is an opportunity for it to come in less than that. The transition costs were a little bit lower than expected and now that we are in full operation mode the expense levels are a little bit less. So that could be a little bit less than originally anticipated.

Okay. All right, perfect. Thank you.

Mr. Rosenthal, there are no further questions at this time. I will turn the call back to you.

Thank you for being on the call today. We have a lot of exciting things still to come.

Even though we were disappointed in our second-quarter results, the future ahead of us is very bright and we look forward to having you on our next call for our third quarter. 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.