Hibbett Inc (HIBB) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for sending by. Welcome to Hibbett Sports' first-quarter 2016 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Friday, May 22, 2015. I would now like to turn the conference over to Mr. Pat Watson from Corporate Communications. Please go ahead, sir.

Thank you for joining Hibbett Sports to review the Company's financial and operating results for the first quarter of fiscal 2016, which ended on May 2, 2015. 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 risk.

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, in the Company's Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission. We refer you to these 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 first-quarter earnings call. I have with me this morning Scott Bowman, Senior VP and CFO; Jared Briskin, Senior VP of Merchandising; as well as Cathy Pryor, Senior VP of Store Operations.

We were disappointed with our comp stores sales during the first quarter and earnings results. There are many outside factors that affected our comp sales such as port delays, tax shifts and 1991 closed stores due to weather issues. Comp stores were down 8.6% in February, they were up 8.6% in March and down 3.1% in April. We were very encouraged with our March and April sales being up on a two-month basis, up 4.2%.

Quarter-to-date for the second quarter, we are up low double digits through the first 21 days of May. We are encouraged with these early results and look forward to our summer offerings and our back-to-school offerings. We are positioned to take advantage of the sales opportunity.

We are excited to announce the opening of our 1000th store in the quarter. For the quarter, Hibbett opened 15 new stores, expanded 3 high performing stores and closed 2 underperforming stores bringing the store base to 1001 across 32 states as of May 2. The Company also opened its first store in New Jersey in the quarter. There are still many opportunities to open more stores and to expand our footprint throughout the United States. We can have at least 1300 in the 32 states that we currently operate in and over 1500 stores as we expand into many more states.

The new wholesale and logistics facility has started to help us convert more customers and to stay in stock on key replenishable items. This should continue throughout this year and next and we should see the results in driving revenue in our stores.

Our point-of-sale project, which lays the foundation for omnichannel future, is well on its way and is on time. We are looking forward to what this will bring to our e-commerce strategies in the future as we continue to serve our loyal customers and create new customers. I would like to thank all of our associates for their hard work that they put in every day. I look forward to our growth in the future and now I will turn the call over to Jared Briskin to talk about merchandise trends.

Good morning. As Jeff mentioned in his opening remarks, we are very disappointed in our results for February, which had a significant impact on our full-quarter results. Weather was certainly a factor and negatively impacted many categories such as spring apparel and spring sports like baseball where fields were not playable early in the season. The labor issues on the West Coast had a significant impact to expected deliveries in January and February, which also impacted results.

We saw improvement across all categories in March and April as weather patterns and port issues normalized and are now seeing additional momentum as we've entered May. For the quarter, we saw a low single digit decline in our branded apparel business. The men's business was up low single digits as the cooler weather provided additional sales in cold weather categories and we continue to take advantage of the active [bottom] trend. Women's sales were down in the low single digits as significant gains in performance apparel capitalizing on the athleisure trend were offset by decreases in traditional spring categories. Kids apparel was also down low single digits due to the slow start of the spring season.

The license business remains challenging. It was down low double digits. All [leagues] were negative for the quarter. The license headwear business remains very challenging, but our overall headwear business was positive low single digits driven by strong results from our branded partners.

Footwear comped positive low single digits led by the basketball category, up mid-double digits. Continued strong results from retro and signature models from brand Jordan, Nike and Under Armour continue to drive growth. Performance running was down low single digits while lifestyle running was up mid-single digits. The lifestyle business overall was down high single digits for the period as many deliveries missed the critical early February tax refund selling season.

For the quarter, our men's business was flat; kids business was up mid-single digits and our women's business has improved posting a low single digit comp. Our team sports and fitness area was down low single digits as the slow start to February impacted spring sports. We are very pleased with our trend in this area as weather and product flow has normalized, especially in our cleated area. I will now turn the call over to Scott Bowman.

Thank you and good morning. For the fourth quarter, total sales increased $7.9 million to $269.8 million, an increase of 3% over the prior year. Comps sales were down 0.9%. Gross profit rate decreased 54 basis points in the quarter. Product margin decreased 35 basis points mainly due to markdowns taken to sell through inventory after a slow start in February. Warehouse and store occupancy increased 19 basis points as a percent of sales, which was due to deleverage of these expenses associated with lower comp sales.

SG&A expenses increased 5.7% in the quarter and increased 49 basis points as a percent of sales. As expected, we experienced higher costs related to healthcare and IT spending, but also experienced overall deleverage due to lower comp sales. Depreciation and amortization increased 17 basis points as a percent of sales in the quarter mainly due to our new wholesale and logistics facility and the addition of new stores. This increase should moderate for the remainder of the year as we have anniversaried the opening of our new facility.

The income tax rate for the quarter was 37.3% compared to 37.7% last year. This was mainly due to tax credits realized from our new wholesale and logistics facility. Operating income of $43.8 million decreased 4.1% from last year and was 16.2% of sales versus 17.4% last year, a decrease of 120 basis points. Diluted earnings per share came in at $1.09 per share, which was flat to last year. From a balance sheet perspective, the Company ended the quarter with $119.1 million in cash versus $110.3 million last year with no bank debt. Inventories increased 13.1% over last year and were 6.1% higher on a per-store basis. We spent $5 million in CapEx for the quarter. Also for the quarter, the Company bought back 195,000 shares for a total of $9.5 million. At quarter-end, we have approximately $166 million remaining under the existing purchase authorization.

Based on these results for the first quarter, I would now like to provide some updates to our full-year guidance. We expect comparable store sales to increase in the low single digit range, which compares to previous guidance in the low to mid-single digit range. We expect product margin to be flat to slightly negative, which compares to previous guidance of slightly positive. Finally, we expect earnings per share to be in the range of $2.95 to $3.04 versus previous guidance of $2.95 to $3.09. With that update, operator, we are now ready for questions.

(Operator Instructions). Camilo Lyon, Canaccord Genuity.

Could you -- just a couple questions on the housekeeping front. Could you just give us some of the store metrics, traffic and ticket during the quarter and how that has trended here in the current quarter-to-date period? It seems like you've had a nice rebound given some of the temporary delays that you had. Just wondering if that is more the traffic shifts from Q1 to Q2.

Sure. In the first quarter, similar to prior quarters, our transactions were down mid-single and our ticket was up mid-single. And as we have entered into Q2, we have seen transactions improve. So transactions are flat to slightly positive.

Great. And if you could just give a little bit more color on what you are seeing on the running side. It seems like there is a continued distinction between performance and the lifestyle piece. I am more curious as to what you see down the pipe coming from the performance side that could potentially reinvigorate that category, if there is something that you are privy to.

Yes, I think overall for the quarter we saw the total running business, we do manage them separately, but we saw the total business flattish. We certainly felt like we missed some business early in the quarter due to all the issues that we spoke about, but we are seeing some improvement on the performance side, in particular in women's and I think as some of the new product that is coming out, we do see some new releases that are coming both from Nike and from Under Armour that we feel will give us some momentum, as well as it feels like some of the color and patterns and prints that are being applied to some of the performance products are leading some credibility to the fashion trend from an athleisure standpoint that are going on as well. So we feel like some of the performance product is becoming a little bit more fashionable as well that will help the sales trend.

Great. And then just finally on just overall labor discussion and minimum wage rates rising. I think you discussed it briefly last quarter, but it seems like more states are coming onboard with raising the minimum wage. Is that something that you are thinking about or you are hearing from the store fleet? Could you just remind us how those employees are compensated and if there is an opportunity here or if there is a potential for that wage pressure to mount as this takes hold?

We have been keeping a close eye on it, Camilo. But up until now, we really haven't seen any wage pressure in our stores, so there is really no change that we have seen over the last quarter.

Okay. Thanks and good luck.

Rafe Jadrosich, Bank of America Merrill Lynch.

So for the full year, you guys are kind of guiding that the low single digit range would kind of be the third straight year that you are in that range. How should we think about your comps longer term? Do you expect them to stay in low single digits until you've launched e-commerce?

Well, we think we should be low to mid. Just the first quarter is such a big percent of our year, so we really -- we are hoping to be more in the mid-range this year and the rest of the year, we have to be up a little bit higher than low and I think we need to be at low to mid and I don't think that is the normal state.

I think also, Rafe, as we look forward, the POS project that we are working on right now, the big benefit that we see on that first phase or first couple phases is store conversion. We have a lot of customers come in our stores today if we don't have their size or the color that they want and so improving that conversion will help us out quite a bit until we get a website up and running. So I think that could be a big benefit for us and then I think gradually our consumer will continue to improve slightly as well. So that should help us a bit over the next year or two.

And then just on the quarter-to-date acceleration. Can you talk about sort of -- were there any launch shifts that might have impacted that?

Yes, there was an incremental launch that impacted some of it, but we were on a very strong trend prior to the launch as well and it is fairly broad across categories. So we feel very good about where we are. Some of the spring apparel categories are showing more momentum now than they had earlier in the quarter and the team sports business has accelerated tremendously since that point. So it's fairly broad-based, but there was an incremental shift that did add some gains there as well.

Got it. And just a last question here, inventory looks a little bit elevated. Can you talk about how long that might take to clear through and how that might impact gross margins?

Yes, so we are working really hard on that. Obviously, the February miss from a sales standpoint certainly elevated some of the inventory and then we certainly have reacted to some of that with trying to clear some of the inventory. We're certainly working with our partners to try and relieve as much of that inventory as we possibly can. But the elevated inventory certainly from a dollar standpoint, from a unit standpoint, we have made some significant changes to our mix and some of our focus from an assortment perspective. But from a unit perspective, our overall inventory is up mid-single digit range, but on a per-store basis, our unit inventory is actually down low single digits. So we feel like while from a dollar standpoint that does look elevated; from a unit standpoint, we feel a little bit more comfortable. We would like to be in a better place than we are today, but with the February miss, there are some things we have to work through. But from a core unit inventory standpoint, we are not as bad as it may appear then from a dollar standpoint.

Great. Thank you.

David Magee, SunTrust.

Jared, I guess your influence on the products will be felt in the second half really for the first time if I am correct. I am curious how you are approaching the business differently and maybe more specifically, how you are thinking about Christmas at this early juncture as the fourth quarter I guess is your first tough comparison from here. Thanks.

Yes, I think you are accurate. Certainly the back half would be where most of the influence would come from. Certainly I was very involved in a significant portion of our business prior to that, but the overall influence will come more in the second half and certainly when making changes from an assortment perspective, putting a lot more focus into our key item drivers, that's the biggest opportunity and then how do we use the resources that we have invested in, primarily the distribution center, to help convert and keep us in stock on those items. That's the primary driver of what we are doing for the back half. Really trying to elevate more focus within our assortment and drive the consumer towards the key revenue drivers for us.

Thank you. And a follow-up, if I could. You mentioned conversions are higher and I know the POS upgrade will be important for that, but how much benefit have you gotten so far from the DC ability to have safety stock? Do you have more benefit there to come and in which category are you seeing the better conversions in?

Yes, so there are some things that are easily measurable and then there are some that are not measurable. So the things that are not measurable are some things that you have to feel in categories that we have invested in some of that safety stock at the DC that are not measurable. Because there is not a year-over-year comparison, you can feel it in the category performance, but the measurable that we have is in our replenishment businesses and we can measure the in-stock rates that we have and we are seeing significant gains at our in-stocks and our ability again to convert off of those in-stocks, so that's where we are seeing some volume gains as well.

Would the POS benefit begin early next year?

Yes.

Yes, this year next time, David, we should be well into the rollout of the new POS, so probably be more starting into second quarter of next year.

Great. Thanks a lot.

Peter Benedict, Robert Baird.

I guess, first, can you talk a little bit more about the markdown optimization software that you've got running now, how it acted in the first quarter, what kind of your thoughts are? And somewhat related to that in terms of the gross margin, the port issues -- the impact that it had on the first-quarter gross margin and then are there any lingering on the second quarter that we should be thinking about, or is it not that big a deal?

I guess I will start with the first part with regard to the marketing optimization. We talked last quarter I believe that we are fully rolled out on all categories that we were implementing the tool with. So the categories that we have implemented the tool with the longest we are starting to see some of the benefits and where we are seeing the benefits is really twofold. Initially, we expected to see some turn improvement and then inevitably we would see some gross margin improvement and with the tool, we expect to see gains more from a return on investment standpoint. So we feel very good about some of those categories. As other categories have come online, we continue to have instances where we have to start to look at the different rule sets and tweak some of those rule sets to make sure that we are utilizing the tool appropriately.

So that is step one. That will continue as a lot of categories just came online with the tool in the third quarter of last year. So as we cycle through a full year in those categories, we will continue to see that get better as we go month-to-month and quarter-by-quarter. So we will continue to get advantages there as we go throughout the year.

Some of the other things that affect our performance of markdown optimization is obviously the sales trend and where we are from an inventory standpoint. So markdown optimization is going to help us work to clear the inventory, but obviously the sales trend that we have been on in particular from a February standpoint with it being such a large month did add some inventory and that impacted some additional markdowns during our March and April time period. So the tool is working properly, but it does also work off of our demand forecast with what happens with sales. So they have to work concurrently and it works off of our stock position as well.

So from that perspective, again, our unit inventory is in pretty good shape. Our dollar inventory is a little high, but we have work to do on our inventory line to get the inventory balanced during the summer and back to school. We've made a lot of progress so far; we will make a lot more progress during this quarter. And we still have some work to do, but we feel like we will get it in a manageable place.

Okay. That is helpful. I guess, Scott, maybe if there's anything on the port issue, maybe it's not a big deal on gross margin. And then just on cash, you ended at $119 million, talk to me about where you think you can see that by the end of the year. And as I am thinking toward buyback, is there anything that prevents you from maybe pushing the buyback a little bit harder given where the stock is, or do you think the $50 million is kind of a good pace? Thank you.

No, there is really nothing holding us back. And so if the stock does take a little bit of a dip and remains low then we will likely accelerate the buyback into second quarter. As we end the year, we'd like to have at least $50 million on the balance sheet in cash. We will likely have a little more than that, but I think you'll see some acceleration in the buyback for the remainder of the year.

All right. Terrific. Thank you.

Anthony Lebiedzinski, Sidoti & Company.

So just wondering if you could repeat the number of store closings that you had in the first quarter and how does that compare to the first quarter of last year, which I know was somewhat defected by some weather issues as well?

It was a little over 1900 store closure days in the first quarter and last year the same time period, it was very minimal, so it is almost all incremental.

Okay. Got it, got it, okay. And also just wondering if you could talk about the sales trends that you saw in the first quarter and some markets, maybe perhaps like Florida, where there was no really -- not much impact by the weather?

Yes, most of what we saw from a weather impact dealt with precipitation, not necessarily cold temperature and that is where some of the closed days came from. So the closed days were part of the equation, but some of the weather impacts with regard to the team sport business were also in the field availability just from a precipitation standpoint. So we certainly talk about the closed days and the 1900 closed days, but there were not very consistent geographical patterns that we were able to find based on different climates and different regions. It was really more dependent on the closed days and if specific areas got hit with high levels of precipitation that would not allow the fields to be playable.

Got it, okay. Thanks for the color. And also as far as the second quarter and third quarter are concerned, any changes in the sales tax holidays that we should be aware of, or is it more or less consistent with last year?

We are following that closely. And so far, we are seeing some shifts in some states. Not everyone has finalized their final dates, but we have seen about four states so far shift into Q3. We expect three to four more may follow. So as we look at it, about 25% of the states look like they will shift and it may be upwards of 35% when it is all said and done. So we could see a little bit of a shift from Q2 to Q3 in terms of sales and comp for that busy time.

Got it. Okay. Thank you very much.

Stephen Tanal, Goldman Sachs.

So first thing on the product margin guidance, or the change in thinking, is that really reflecting 1Q or is there some change in the outlook as well given the inventory position?

I think it's a little of both at this point. Certainly the first quarter is the largest part of it and then just again in sharing with the February hangover and the elevated inventory that we have right now just to ensure that we are able to get through all that inventory appropriately and make sure that we are maintaining our aging standards.

Okay, thanks. And then in terms of the investment spending for the year, I think we are thinking somewhere in the range of $8 million to $8.5 million. Can you tell us how much was spent in SG&A in the first quarter and how you are now thinking about the ramp there?

Yes, when I originally gave the guidance, I did think that first quarter was going to be a little bit lighter as we ramped up some of that spending. When you look at the IT and the healthcare costs that I mentioned on last quarter's call, that kind of came in where I thought. There's about a penny headwind in the quarter for that. If you look at the $0.05 or so for the POS upgrade, we saw maybe a penny of that in the first quarter, so it will be a little bit heavier weighted towards the end of the year.

Okay, great. And then just lastly, the new store in New Jersey, it seems like a little bit of a shift in strategy from the expansions that we've seen in the past where you have been very tied to existing stores. Could you just sort of elaborate the thinking behind this and whether there has been some change in how you're going to approach it going forward?

Yes. There has been no change in strategy. It just happens that we have always looked at a two-hour drive distance. It just happens that this store hit one of our stores within two hours and I don't remember off the top of my head what store it hit, but our strategy hasn't changed. We still have gone tight geographically. It's just now that we are in 31, 32 states, it is just a natural evolution. I think it's in the very southern part that I think it touches Pennsylvania somewhere, but our strategy has not changed at all. We are still small town, small markets and -- but it hasn't changed.

Got it. Understood. Thanks a lot, guys.

Sean McGowan, Needham & Company.

Thank you. Scott, a couple of housekeeping questions. First, can you update us on the expectation for capital expenditures for the full year?

Yes. We are still in the $30 million to $35 million range, so really no change there.

Okay. And expected tax rate for the full year still around 37.5%

It may come down a little bit. We are seeing some of the capital credits come through for our new facility, so it may be in the 37.4% to 37.5% range.

Okay. Thanks. And are there additional share repurchases assumed in your guidance?

Nothing additional than the original guidance.

Okay, so there is some --?

Yes, the timing may not be exactly quarter by quarter, but the overall buyback for the year will be consistent with the original guidance.

Okay. And then my last question is on the volatility in the monthly same-store sales. Can you remind us what the pattern was last year and is that what drove April to be negative?

Last year, February, March and April, February was 7.2, March was 2.9 and April 0.9. So we did have a relatively easy compare in April, but just keep in mind that there were some shifts in April with Easter and with a Jordan launch that we had in the prior year.

Okay. Is there anything particular that you would attribute the strength in May to?

Again, I think earlier we said the category growth is fairly broad-based early in May. There was an incremental launch, would certainly help. Prior to the launch, we were trending at a significantly higher rate than we had been trending, so I think it's pretty broad-based. Certainly the weather improvement has definitely helped; the product flow has certainly helped. April deliveries have been the least impacted from a port issue as we certainly had expected. March, we saw significant improvement. In April, we had very little impact, so that certainly helps. So the product flow is flowing when we expected it to flow, so I think as all of those things have happened, we have seen the trend improve.

Okay. Thank you very much.

Seth Sigman, Credit Suisse.

Just a question on your e-commerce evolution here. I realize the focus initially has been on implementing some systems within the store, but just wondering what you are hearing from consumers. Are you seeing more traffic to the website and consumers more interested in trying to transact through your website because it does seem like you've made some enhancements to the site early on?

Yes, we have recently made some enhancements and some of it is a little bit of a stopgap until we get to where we actually have an e-commerce site. The enhancements that we made were to focus on driving traffic to the stores and driving some of the commerce initiatives that we do have. We are seeing a significant increase in engagement that we have with the customer, whether it be through our rewards program, through all of our social channels, as well as on our website and our mobile site. So we feel very good about the opportunities that we have in engaging with the customers and are seeing significant growth for our loyalty program. So we feel good about how we are engaging and talking with our customers. Certainly we can continue to make improvements there, but again until we get to a point where we are actually selling, we feel like we want to continue to communicate with our customers as much as we can and drive them into our stores as much as possible.

Do you guys have the systems in place today to do some sort of buy online pickup in-store, or at least in-store inventory availability, or is that part of the POS upgrade that you are working through?

That's all part of the POS upgrade, so that will come into effect over time.

Got it. Okay. And then as you look at store growth, Jeff, you mentioned natural evolution in the strategy as you expand out. Has the competitive set changed at all as you have done that whether it is seeing more big-box or smaller box competitors in these markets?

It really hasn't. We still find plenty of towns, county populations of 25,000 to 75,000 that we can put stores on. So from a real estate standpoint, there is still lots of opportunities to go to that. We have gotten big boxes, but it has been going on for the last four or five years. We still have about 25% of our stores that we compete within a 10-minute drive. But, for the most part, we don't see that percentage changing because our strategy is really to go where we are needed and go away from competition. We still like to say that we don't like competition, so we try to stay away and at least be a 20, 25 minute drive time and be there for convenience and brands and definitely service is a big deal for us on making sure that we take care of our customers. So that strategy really hasn't changed. We will see a few more big boxes this year, but most of the major markets that we will see big boxes, they have already hit us, so we think over time that 25% should stay.

Got it. And one final question. As you look at the team sports business beyond some of the weather volatility, are you seeing any changes or shifts in participation trends and as a result of that, any changes within your store to respond to that? Thanks.

Yes, I think some of the participation challenges that have occurred throughout the years, we haven't seen a lot of changes from that standpoint. I think over the last two years, I think we did see some changes just with regard to tackle football that we changed even last year and the year prior as we focused a little bit more on the flag football business, but outside of that we really haven't seen much. We feel pretty good about where our team sports business is currently.

Thank you.

Dan Wewer, Raymond James.

Jared, it sounds like there is a significant variance between apparel and footwear during the first quarter. Are you seeing any maybe lack of innovation in apparel that could be accounting for that difference?

Yes, I think there is some. I think the footwear business definitely has a little bit more innovation currently in it and some item drivers and categories that are driving the business a little bit more than the apparel business. I certainly think that there are some things that internally we can be doing better to try and affect that until we get some drivers that we can wrap our arms around. But I do think that there is an opportunity within the apparel space to have some drivers.

I also think that from a distribution standpoint that the active apparel business is certainly a key driving category from an athleisure standpoint, so there are so many more competitors that are in that business participating in the business that haven't historically, so I think that puts some pressure on me and my team to ensure that we are performing at a high level first and foremost and have products that excite the customers and that are a little bit different than what else is out there in the marketplace.

So we are very focused on that, also ensuring that some of these everyday products that customers need and are looking for, that we are making sure that we are converting them on an everyday basis. So I think it is really twofold. I think there are some -- yes, we need some newness and we need some things that are exciting. I think we need to do some things to become a little bit more exciting based on what is available, but then also there's some blocking and tackling that we probably need to improve upon to ensure that we are converting on some of the day in/day out businesses as well.

Okay. And also just a follow-up on David's question earlier about in-stock levels. Jeff, are you still estimating your conversion rate is about 60%, or is that trending higher now?

Yes, I think we are still right around that amount. We are starting to see some pickup as we fill in more shoes and there is still a lot of opportunity there to get that up. Not even just with a true store to store, store to home, just -- and using our new facility that much better.

One of the questions -- I'm sorry, go ahead.

We are seeing some pickup on some of those styles that we've started to fill in from our distribution center.

One of the questions we have been getting, Jeff, is, Hibbett's investment in systems such as allocation over the last couple of years. Why did that not improve the in-stock rate in footwear? It sounds like now it really is more dependent on the new POS equipment being rolled out before it resolves that problem?

Well, I think some of it was us internally not being as focused on key items and I think as we continue to put more depth behind items, I think we will continue to see that. So I don't think you necessarily have to have that e-commerce. I think some of the strategies that Jared is putting in, I think we will see marked improvement, especially second half of the year. But the distribution center and being able to be more key item driven.

Yes, I think Jeff just hit on a key point. I really think it is the combination of the allocation tool along with some of the opportunities with the logistics and wholesale facility and our ability to fill in by size. I think the conversion standpoint in footwear, first and foremost, obviously, it is about from a unit perspective and having the inventory, but on the footwear standpoint, it is really most importantly about the size and until we really have the new facility up, we didn't have the opportunity to really fill in on a per size basis and really take advantage of the allocation tool appropriately. Now that we have that ability and really first quarter is really the first time where we had a fairly significant amount of product bought with the intention to fill in by size, we are starting to use that tool more appropriate and that is really where we are going to enhance the conversion. So I think as every month goes by and every quarter goes by, there will be more and more opportunities from a product standpoint to fill the stores in on a per size level and really convert those size opportunities. I think the allocation tool has to work hand-in-hand with the opportunities from a DC perspective.

And then just a last question I have for Scott. If 35% of your stores see a shift in the tax holiday from second quarter to third quarter, that could have a meaningful impact, couldn't it, on second-quarter sales and earnings?

It could, Dan. And yes, just rough math, it could be 1 to 2 points of comp.

Yes. I know that you get it back -- makes no difference for the year, but it could have a meaningful impact for those two quarters, couldn't it?

You are right. You are correct.

Okay, great. Thank you.

Rick Nelson, Stephens.

I'd like to ask about the POS. When you think we're going to start to see those benefits to conversion of -- if you're at 60% today, what is the opportunity and POS seems like it could have a meaningful impact?

This year, we are working on the first phase, which will give us inventory visibility across the chain and when we roll out the first phase, it will allow stores to ship products between stores. The next phase of that I think is when we will see more of an inflection point and that will give us the ability to ship from a store to a customer's home. And that will be more next year at the end of next year when we might see that come live for us.

Okay. And what sort of conversion opportunity do you see with that POS benefit?

When it is fully up and running, we've talked about the fact that 60% conversion rate in footwear is a good estimate right now. Going from 60% to 65% I think would be reasonable once we are fully up and running.

And Jeff, if you could comment on the real estate market and the opportunities there maybe to accelerate store growth. You are sitting on a big pile of cash. Could that potentially be deployed toward more stores?

We will open 80 to 85 this year and feel very comfortable in that. We are very strict on how we go about leases and what type of terms. So as long as we continue to get good quality deals, we will continue to do it. If we can do more, we will. But we feel comfortable on the 80 to 85 that we put out there for this year and that's -- but the real estate market itself seems like it is pretty good right now and we have plenty to choose from. If there are more available and more that we feel that we can do, we will definitely increase that.

Great. Thanks a lot and good luck.

Sam Poser, Sterne, Agee.

A couple things. Number one, you had the Jordan 7 Air launch last week. That is being lapped with the big launch this week. How do you see the month sort of ending up because those are the biggest -- those are the second biggest launch shoes of the year from what I understand? Last year and this year.

Yes, they are pretty big. And we expect the last week to be incremental.

So you are going to give back some of that double-digit comp when you get through this weekend just because you will come up against the launch that didn't happen on the 24th or the 23rd last year, correct?

No, we expected last week's launch to be incremental.

Incremental to the month, completely?

Correct.

Or incremental to the month -- or to the to-date number?

To the month.

Wow, all right. And number two, how much -- assuming -- Shoe Carnival commented yesterday that about 3% of their revenue is moving from Q2 to Q3 because of the shift of the tax-free holidays. How do you --? Do you have a dollar amount you foresee shifting right now because of the shift to the tax-free holidays?

In terms of comp sales, Sam, we estimate 1 to 2 points of comp, but it is still kind of in flux. There are still several states that haven't given the final (inaudible) yet.

Okay. And then lastly, where are we now? Have you hired a head of e-commerce yet and where are we on the go date for e-commerce now? What are we looking at?

Well, we are right in the middle of the search. It should be pretty shortly on the VP of Digital. And we are getting very close to putting out what date we will be ready to be up and running.

And I think once we get that person hired, that person will help us pull all the pieces together and get probably a better refined view on that timeline.

And then lastly, two other major retailers came out and talked about the increases they were having in their e-commerce business. One had $133 million in e-commerce sales in the quarter; the other one, it is hard to tell because there is some international, but probably had in the range of let's say $175 million to $200 million in e-commerce sales, not all of it laps over with what you carry, but they are certainly competitors. Is there anything you can do -- is there any way we could see end of calendar 2016 you would be up and going, I guess?

No, not with our current roadmap because we feel that the POS upgrade is very important to ship store to store and then store to home. And along with that infrastructure, that will give us the inventory visibility that we can then link in a website after that. So we feel like the path that we are taking is very important to get that infrastructure in place so that there is a good customer experience where they can return products to our stores that they may buy online, they can look online and get some indication of inventory availability and so we feel that is very important and so that's why we are putting the infrastructure in first to accommodate that.

And just to clarify, you have yet to establish an e-commerce platform that you're going to work on? That is going to happen once this new gentleman or lady gets hired and that is coming next, that's the next step?

We are working simultaneously, so we are putting in some of the initial work and talking through all of it and making sure that we are lined up. So it is not like we are just waiting for POS to be done; we are going forward and moving.

All right. Well, thanks. Good luck, guys.

John O'Neil, Imperial Capital.

Scott, you mentioned having investment spending increase a bit here going forward. What is the rate of SG&A growth that we should think of for the next few quarters?

I think if you look at the guidance with a low to mid-single comp, our SG&A, it is about flat with about 3% comp. That is kind of the leverage point with a steady-state business. And then if you layer on the additional expenses I laid out in the initial guidance last quarter, that will give you an idea of the overall increase in SG&A and as I said a little while ago, it will be a little bit more back-half-weighted because the investment in the POS will ramp up a little bit more in the back half.

Okay and we can back into it from that. And then a couple of questions on the top line. In the first quarter in stores in markets where there's an oil-based economy, do you see any change in sales trends with the volatility in oil prices? And then a second question with respect to the second quarter, how should we be thinking about the impact of the World Cup last year?

I will take the one on the oil patch stores. We have been watching that fairly closely and we really haven't seen any significant declines. Those stores that are close to those oil fields continue to do very well. So quite surprisingly I thought we would see a little bit more of an impact, but we really haven't so far and I think right now those markets are starting to stabilize a bit, so we haven't seen a big impact.

With regard to the World Cup, we did have some gains from a World Cup standpoint last year. We will have the women's World Cup this year to take advantage of, but I wouldn't expect anything from a World Cup perspective to be meaningful to our overall results.

Great. Thank you.

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

Just looking at your expansion into new markets, plus as you backfill, has there been any changes in strategy within the box of your layout or size?

Really basically we would like to get sometimes a little bit larger store, but a lot of times there isn't that space available, so we look at the market and the shopping center. But, in general, we would like to be a little bit larger and really -- usually we don't go into brand-new construction. We do some, but if there is a little bit more space, we do like to be a little bit larger. Our average between expansions and stuff we are about 5700 square feet now on average, so we would like to have a store probably close to 5500 to 6000 instead of 5000, if possible.

Okay. And then an update on how your noncomp stores are doing, your new stores?

New stores are doing okay. They have certainly felt the effect of slower overall sales. But they are still in the range and I think as comps start to improve, those stores will follow.

And then can you just give us a quick update on expansions? How many do you think you've got in the pipeline and then any change that you've seen in lift or sales out of these expansions?

Yes, we have identified still there's over 100 stores that we would love to expand if the real estate was right. We will expand this year 10 to 15 and we are always looking for opportunity to expand some of the stores that are performing well. And a lot of times, it's available real estate and we have pretty high hurdles to hit. We expect the same bottom line, or increase the bottom line obviously with volume, but we do look at those opportunities all the time.

Okay. Then last question from me. As we look at your markdowns as your inventory was up from February, can you just walk us through the impact on the top line? Did you drive some incremental traffic as you had more discounting, or was it overall just a negative impact on sales?

I don't think we drove additional traffic. I think it was just a negative impact from the markdowns.

Okay. Excellent. Thank you.

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

Yes, I just want to thank everyone for being on the call today. We still have lots of opportunity to grow, we still have lots of opportunity to expand our profit base and we still have plenty of customers to go after. So we are very excited about what the future brings to Hibbett. We look forward to having all of you back on for our August earnings call. 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.