Hibbett Inc (HIBB) 2016 Q4 法說會逐字稿

Welcome to the Hibbett Sports fourth-quarter and year-end 2016 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded, Friday, March 11, 2016.

I would now like to turn the conference over to Pat Watson with Corporate Communications. Please go ahead, sir.

Thank you, everyone, for joining Hibbett Sports to review the Company's financial and operating results for the fourth quarter and FY16 which ended on January 30, 2016.

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 the 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 these sources for more information.

I'd 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 fourth-quarter earnings call. I have with me this morning, Scott Bowman, Senior VP and CFO; Jared Briskin, Senior VP and Chief Merchant; and Cathy Pryor, Senior VP of Store Operations.

Fourth-quarter comparable-store sales decreased 0.6%. We were very pleased with our holiday sales, driven by improved assortments, new items, and our improved replenishment capabilities.

Our sales softened in January as we experienced significant difficulties with weather, which caused store closures, and also impacted by the delays in tax refund activity. Looking forward, we are confident that our merchandise initiatives will continue to provide benefits, as we enter into the important spring season.

For the year, Hibbett opened 71 new stores, expanded 16 high-performing stores, and closed 15 underperforming stores, bringing the store base to 1,044 in 33 states as of January 30, 2016. Our real estate strategy, which is to go to small markets and to go where we are needed, continues to prove that we have a unique niche in the marketplace.

There are many markets throughout the US that we can open stores, and keep to our model of small market. We have the opportunity to grow to 1,500 stores in the 33 states that we currently operate in, and much more than 1,500 as we expand to other states.

Sales thus far in the first quarter are up mid-single digits. This is very encouraging as we start the new year. Our footwear business continues to be very good, and look forward to growing that throughout this year.

We will no longer give guidance on where we are quarter to date after this conference call. We feel that there are so many volatilities between launched products, holiday shifts, and things that are out of our control to give us a good read, to make judgment on the quarter.

We are very excited about hiring Bill Quinn as our VP of Digital Commerce. He will provide leadership and guidance necessary to drive our ongoing omni-channel initiative. Bill has approximately 20 years of diverse work experience, including digital marketing, merchandising, sales, customer service, and process improvement. He brings more than 11 years of experience in growing eCommerce business across a wide variety of industries and platforms. We have been laying the foundation for this, and we are excited to be able to move forward faster on this major initiative.

I would like to thank all of our associates for their hard work and dedication to Hibbetts. And now I will turn the call over to Jared Briskin, Senior VP of Merchandise, to talk about our merchandise trends.

Good morning Thank you, Jeff.

During the fourth quarter, demand for seasonally relevant product was significantly impacted by the warm weather. These impacts were felt in our equipment and accessory business, but had the largest impact in apparel, affecting both branded and licensed apparel.

Significant investments and assortment changes were made in seasonal categories. Early reads on this assortment were encouraging, and we felt that when we did see the cold weather, we were in a great position.

Unfortunately, the weather seemed to never cooperate, and the Business was impacted. Declines in seasonal product impacted our comp performance by 230 basis points.

Apparel was down high-single digits due to the seasonal impacts. While still not performing to acceptable levels, the changes in assortment focusing on more premium fashion styles absolutely performed better than the balance of our assortment. They continue to give us confidence in our future direction for the apparel category.

Bottoms were the bright spot for the category, as NIKE, Adidas and Levi's performed well. Accessories were challenged by the weather, as gloves, scarves and winter hats struggled. The sock category also has seen continued challenges, stemming from a fashion change. The team did a great job of finding some hot items such as YETI cups and coolers to offset some of the losses.

The license business was down mid-single digits. Our team did an excellent job of executing some significant events during the quarter, including the Royals' World Series win, the Panthers' NFC championship and Super Bowl appearance, and the Alabama National Chairmanship. While these events were significant, they were not enough to offset less demand for the category as a whole, and the seasonal issues.

Our team sports business was down low-single digits. Cleated business was positive, but equipment lagged due to selling less seasonal items like receivers' gloves, hand warmers, and skullcaps.

We continue to see significant upside and potential in our footwear business. Footwear had a very strong quarter, up mid-single digits. All genders were positive, led by our women's business up high-single digits. At the end of the quarter, we did see a significant impact to our Business due to delays in tax refunds, which drive a large part of our sneaker business in the latter part of January and in February.

From a category perspective, our lifestyle and casual businesses were the healthiest, posting double-digit growth. Basketball was up mid-single digits, and performance running was down low-single digits. The consumer is clearly choosing running products that are more lifestyle influenced, over traditional performance running shoes. Strong performances from Brand Jordan, NIKE, Timberland, Under Armour, and a resurgence from Adidas drove our footwear growth.

From an inventory perspective, we are more elevated than we would like, and we are working very hard to bring the sales and inventory relationship closer. The majority of the overage is due to investments in our sneaker business, and to ensure we were prepared with inventory for the important tax refund season. The balance of the overage is the result of the difficult January sales, as well as poor performing categories and seasonal apparel.

Our partners have been fantastic in helping us manage the inventory levels in season through cancellations and returns. During the first quarter, we have additional work to accomplish regarding returns, and we are confident the seasonal inventory will not have a meaningful impact on our results.

Due to the investments in our sneaker business, we will continue to have an elevated inventory level. First-quarter inventory levels will be elevated as compared to last year, but more closely aligned with sales growth than at the end of our last fiscal year.

Q2 inventory levels will be significantly higher, as we not only invest in the sneaker business, but also ensure the timing of delivery to capitalize on the back-to-school business. We expect the back half of the year to be more normalized, as we take advantage of our Save the Sale opportunities, and rebalance some of the category investment.

Our results thus far in the first quarter give us continued confidence in our strategy. Challenges do persist around some of our businesses, and we're taking a more strategic approach to management and investment levels in these businesses. Our primary growth driver remains footwear, and we have made significant investments to try and leverage this opportunity.

I will now turn the call over to Scott Bowman to discuss our financial results.

Thanks, Jared, and good morning.

For the fourth quarter, total sales increased $6.4 million to $245.7 million, an increase of 2.7% over the prior year. Comp sales were down 0.6%. By month, comps were down 9.7% in November, positive 7.8% in December, and negative 9.9% in January.

Gross profit rate decreased 74 basis points in the quarter. Product margin decreased 41 basis points, mainly due to markdowns associated with liquidating seasonal and aged inventory. Warehouse and store occupancy increased 33 basis points as a percent of sales, which was due to deleverage of these expenses associated with lower comp sales.

SG&A expenses increased 9.4% in the quarter, and increased 134 basis points as a percent of sales. This was partially due to deleverage associated with lower comp sales, as well as overlapping a very favorable fourth quarter from last year. Depreciation and amortization increased 2 basis points as a percent of sales in the quarter, mainly due to capitalization of IT projects, and the addition of new stores.

The income tax rate for the quarter was 36.8%, which compared to last year's rate of 37.5%. Operating income of $27.6 million decreased 13.5% from last year, and was 11.2% of sales versus 13.4% last year, a decrease of 211 basis points. Diluted earnings per share came in at $0.76 per share versus $0.79 per share last year, a decrease of 3.8%.

For the full year, I would also like to mention a few highlights. Total sales were up 3.2%, while comp-store sales decreased 0.4%. Gross profit rate was down 50 basis points, while SG&A expenses increased 51 basis points as a percent of sales. Operating income decreased 106 basis points to 11.9%, and earnings per diluted share of $2.92 increased 1.7%.

From a balance sheet perspective, the Company ended the quarter with $32.3 million in cash versus $88.4 million last year, with no borrowings outstanding on our revolving credit facilities. Inventories increased 17.8% over last year, and were 11.4% higher on a per-store basis. We spent $8.3 million in CapEx for the quarter.

Also for the quarter, the Company bought back 99,000 shares for a total of $3.4 million. The Company's Board of Directors approved a new authorization of $300 million in November 2015, and the total authorization was available for future repurchases as of January 30, 2016.

As we turn our focus to FY17, I would like to provide some highlights related to our guidance. I would like to start with some assumptions in our guidance related to our omni-channel initiative, and we'll then provide details on our consolidated financials.

For FY17, we expect to roll out our new POS system, which will enable Phase 1 of our omni-channel initiative. This phase will provide inventory visibility across the chain, and will facilitate store-to-store transfers to complete a customer sale. This functionality is expected to be operational in the third quarter. This phase will also include a new CRM capability, which will allow us to more effectively communicate and market to our database of over 5 million loyalty members.

Phase 2 will include a store-to-home capability, and is expected to be in pilot by the end of FY17. This phase will allow us to use our chain-wide inventory to satisfy a customer sale by shipping directly to the customer's home.

Phase 3 will enable digital commerce, and is expected to launch in the back half of FY18. Once implemented, digital will be fully integrated with our brick-and-mortar stores, and will provide a seamless omni-channel experience for our customers.

Based on this timeline, I will now provide some financial estimates for this initiative. For FY17, we expect to spend $16 million to $18 million in capital for this initiative. This will include the rollout of our new POS system across all of our stores, preparation for our store-to-home capability, and early design and development work for digital commerce.

We expect to incur an incremental impact of approximately $0.14 to $0.16 per share for this initiative in FY17. Depreciation will comprise approximately $0.08 of this impact, which will be concentrated in the back half of the year.

Now that I have provided context on our omni-channel initiative, I would now like to provide details on our consolidated guidance for FY17. For the year, we expect comparable-store sales to increase in the low single-digit range. We plan to add 40 to 50 net new stores, and expand 10 to 15 existing stores.

We expect earnings per diluted share to be in the range of $2.90 to $3.04. Keep in mind that the overlap of last year's favorable legal settlement will reduce EPS by $0.05 compared to last year. For gross margin, we expect product margin to be approximately flat, and logistics and store occupancy expenses to increase by approximately 10 basis points.

With respect to SG&A, we expect that our omni-channel initiative will negatively impact SG&A by approximately 45 basis points. Additionally, increased healthcare costs and other IT initiatives will increase SG&A by an additional 5 to 10 basis points, and the overlap of last year's legal settlement will result in a 20-basis-point increase.

Depreciation is expected to increase 30 to 35 basis points, mainly due to the capitalization of our new POS system, which is expected in the second quarter. We expect our tax rate to be in the range of 37% to 37.2% for the year.

Our earnings-per-share guidance reflects the continuation of our share buyback program, and we expect a weighted average share count of 22.5 million to 22.7 million at the end of the year. For capital expenditures, we expect to spend $35 million to $40 million, as we invest in our omni-channel initiative, grow our store base, and execute on our strategic initiatives to improve the Business.

With that preview of FY17, operator, we are now ready for questions.

Thank you.

(Operator Instructions)

Steve Tanal, Goldman Sachs.

Can you guys hear me?

Yes.

All right. Thanks a lot. So I guess, the first thing I'd ask is, can you just give us a sense of the traffic and ticket during the quarter?

It was really a similar trend, as what we've seen over the last few quarters. Ticket was up in mid single-digits and traffic was down mid single. And traffic, we just use transactions as a proxy for that.

Sure. Got it. Okay.

And then, one thing we noticed, I guess, the new store productivity, at least by our math seemed to come in a little bit light. Is there anything weird in the timing of the openings here? Is there something to call out in the new stores?

No, I think what we are seeing, Steven, is just a little bit of drop off in productivity, mainly due to lower comps that we've seen, and that's typically what we see over time. With the mid single comp that we are running so far quarter to date, we've seen those new stores pick up. So it has gotten better, just within the last few weeks.

Okay, makes sense. And then, just lastly here, if you could comment maybe on what your initial thinking for investments will look like in 2017, and maybe 2018 too? Obviously, more of the omni-channel kind of push happens later. Any sense for how you are thinking about that?

I have some limited sense, yes, but not a lot of details at this point. Yes, I think the way to think about it for calendar 2017 and beyond is, this year I laid it out in good detail.

For the next year, what I would anticipate is that, the overall impact to the P&L would be about the same, or maybe slightly less. But what we'll see over time is, the depreciation will continue to be an impact. SG&A will still be there, but we'll start to get some revenue to offset some of those increases. But net-net, I would expect it to be flat to slightly down for total P&L impact.

In terms of like the year-on-year step-up, as in like what we got this year, $0.14 to $0.16 stays in the base, and then maybe it's something less than $0.14 to $0.16 step up? Did I understand that right?

Exactly right.

Got it. Okay. I guess, just lastly -- sorry, before we move on, just the 40 to 50 net new stores, a little bit lower than I had modeled. Is that right pace to think about going forward?

Right now, we're just looking at making sure that we have good quality doors, and that's just a range on, that we're looking at. It could be higher.

But we're just looking to make sure that we're opening good quality stores. But that's a pretty good range to base it off of.

We want to be a little bit on the conservative side there. But if we do find more stores that are attractive, certainly we'll open them.

All right. Thanks a lot, guys.

Thank you.

Rafe Jadrosich, Bank of America Merrill Lynch

Hi, good morning. Thanks for taking my question. I just wanted to [hit] again on the same-store sales guidance for the year.

I think, in the past, you've usually guided to low to mid single-digits to start the year. You're sort of running at a mid single-digit rate quarter-to-date, and it sounds like some of the new merchandising is working. Just wanted to get some color on your assumptions, that get you to low single-digit comps for the year?

Yes, we're just being conservative. With some of the tax refunds shifting into February, and some of the difference in weather and stuff, we're just being conservative. Hopefully, we can run higher, but we're making sure that we can hit the numbers, and being a little bit more conservative.

Thank you. That's helpful. And then, just in terms of the gross margin outlook, just can you talk about sort of the impact of the inventory clearance, how you expect that to play out?

Yes. I think from an inventory clearance and age perspective, we feel very good about our inventory. We're certainly concerned about the elevation, and we have plans to address that through a lot of initiatives, particularly returns. So we don't see a significant markdown pressure coming from the elevation of the inventory. Some of it is timing, and some of it is the investments that we're doing purposely within our sneaker business, and making sure that we time those investments properly.

From a markdown perspective, we feel very good about some of the results that we saw from our markdown optimization system last year, and we feel like those will continue as we go forward into this year. So we, again, we feel comfortable with where we guided on the rates, but don't expect the elevation of inventory to have a meaningful impact to the margin.

And then, last question. Can you just talk about the potential benefits of the Sports Authority store closures?

Yes, I can start off. I don't think as you look at where their stores are located, I don't think we'll see a meaningful benefit there. So we're really not modeling anything for that.

If we get a little bit, fine. But it's really just a handful of our stores that will be close enough to have a meaningful impact.

Yes, from a real estate perspective, it may open some opportunities in some markets that there may be a need for us somewhere. But overall, I agree with Scott. It's not very impactful.

Great, thank you.

Seth Sigman, Credit Suisse.

Thanks a lot, and good morning. I just wanted to follow-up on the store growth question. So the 40 to 50 stores, I think you said you are being conservative, but the messaging does seem to be a little bit different than in the past. So can you just help us understand that a little bit more?

Is the implication that you're just not seeing as many opportunities for stores, or should we interpret it as maybe a shift in the capital allocation strategy, just given that you have been buying back a lot more stock also, and clearly have a big investment in e-commerce currently?

Yes, I'll provide a little color on that. I think, if you look at this year, we are raising the bar a little bit, as far as the hurdle rate, just to make sure that we do get quality stores. I think what you'll see too is, as we look at California more intently, we may see some opportunity there.

We've done some work there already, and see some pretty good opportunity. And so, really it's more of that, just being a little bit more conservative, and trying to raise the bar a little bit on the volume of those new stores, especially with the work we're doing on omni-channel. So it's a combination of those two things.

Okay, got it. And then, just back on the question, regarding investments for 2017. Thanks for the color there.

I guess, one follow-up would be, this year you're expecting net income to be down. Would you be thinking that net income would be down again in 2018 or FY18, 2017?

Yes, it's a little too early to tell. I think it will be much, much closer. I think it will be better in the following year.

And as we go throughout the year, we'll have a better vision of that. But what, the way that I look at it is that, this year should be the peak as far as the P&L impact, and then it should moderate some next year, and even more so the following year.

Okay. And just to follow-up on that point. Even though investments should peak, I guess, as you prepare for e-commerce, how do you think about the actual implications from operating an e-commerce business, I guess, the actual dilution that you could potentially see from running that business, versus what's been pretty high store operating margins?

I think what you'll see, is you'll see acceleration in sales. And I think as you look at the percentage gross margin and percentage operating income, that will grow more slowly, because the additional sales that we'll get from an e-commerce business will be very beneficial to the top line, but the margin will be somewhat less really due to the freight costs. Over time, I think we will be able to mitigate those freight costs somewhat, but it will be a lower percentage than our brick-and-mortar stores.

Okay. Thanks, Scott

Sure.

Dan Wewer, Raymond James.

Jared, I wanted to follow up with you on the inventory commentary. So we're -- we finished the year up 11% per store. Can you quantify how much that 11 percentage points was just getting caught with too much inventory, because of the sales results in the fourth quarter?

Yes, it would be in the 3% to 3.5% range from an inventory perspective from the sales. And then again, we did make some pretty significant planned investments that would be the balance of it.

So if sales had met plan, you still would have planned for inventory, to be entering the new year up 8% year-over-year, even though same-store sales are projected to be up low single-digit?

Yes, that's correct. And I think a lot of it, is the timing to ensure that the right level of inventory was there for the tax refund season in February, and then trying to balance there -- with the rest of the inventory throughout the balance of the quarter. Last year, as an example, the balance of the inventory didn't peaked, when the inventory needed to peak based off the selling season. So we're trying to ensure that our inventory is peaking at the right time, from when we expect to realize the sales opportunity.

Did I hear correctly that you'd planned for a further acceleration in the second quarter?

We do. And again, that really revolves around those peaks as well, in particular with our footwear business.

Outside of the December month of holiday, which I think everyone is familiar with, our two peaks, are the first month of our first-quarter, and the first month of our third quarter, and they're early in those months. So it does put some pressure on the end of quarter inventory number, just to ensure that we've got the right level of inventory to maximize those peaks, along with the investments that we are making.

But given that, we talk about this year-over-year, is there a change in strategy with the allocation of inventory?

Yes, there is. And I'm -- first and foremost, the change in strategy is number one, to ensure that we have the right level of inventory based off of the forward sales that we are looking at, and time it properly. So that would be one thing.

We do have some offsets plan to the investment that we are making in the footwear business, in some of the other poor performing categories, some being retraction of some categories, and some being operating some of those categories in a lower store base, based off of the consumer that is shopping in those stores. So a lot of work being done on the inventory line, but first and foremost, to ensure that we've got the most impactful product, at the right time of when the consumer is coming in to shop.

And then, a question for either Scott or Jeff as it relates to the POS rollout. When it does that begin to pilot, and is the rollout later than what you were scheduling last year?

Yes, it's a little bit later than what we had originally anticipated. Right now, we think that it will be piloted in the second quarter.

And so, it's slightly later for a variety of reasons, but I think the important thing is that, as we look at it now, we're on track. And as time goes by, there's few -- fewer and fewer hurdles to get over, and so we feel pretty comfortable that we'll be able to pilot in second quarter.

And you're thinking the ship-to-home capability will be in place by the holiday season of this year, or does that fall into calendar 2017?

That would be great, if we can get it in place for holiday, so we will definitely push for that. Originally, we had targeted more towards the end of the year, but some of the work we've done to this point has given us a little bit of a head start there. So we would really like to get it in for holiday if possible.

Okay, great. Thank you.

Thank you.

David Magee, SunTrust.

Hello, good morning.

Good morning, David.

The business being better so far in the first quarter, mid single-digits, which of the metrics drives that? Is it traffic that's the primary variable that gets better or ticket, or both?

It's a little bit of both. I mean, the traffic gets better. There is certainly more cash in the marketplace due to tax refunds which is a big driver. And the composition of the sales during the early part of first quarter is leaning significantly toward footwear, which is our strength, and it's certainly driven by that tax refund consumer.

Okay. Thanks Jared.

And then, you mentioned merchandise opportunities on the apparel side, by having more premium product. Do you see as much opportunity on the equipment side or footwear?

We do. I think the strategy overall for all categories is to focus on premium. That's been our strategy, and we will continue to try to leverage that throughout this year.

We feel like that's where we can do the best job of bringing that most important premium product into underserved, isolated markets. So we want to ensure that the merchandise strategy aligns with the real estate strategy. That's where we're at the most successful.

So we have those opportunities everywhere. We are a little bit further developed, with regard to premium positioning in equipment, and in our cleated area, than we are in apparel today.

So I think that's where the most upside in executing that strategy, based off of where we are remains in apparel. But we're further along with that strategy on the equipment side.

Got it. Thank you. And then just lastly, the Phase 1 -- I guess, it's the store-to-store shipping, or in phase 2. How impactful could that be to sales, do you think?

For the store-to-store, we're not counting on a big impact in there. I think there will be some benefit, as the stores are able to see that inventory across the chain, and so we may pick up some sales resulting from that. We think that the -- their inflection point will be, when we are able to ship to a customer's home.

We also feel the CRM capabilities which we'll have, will also help us drive footsteps to our stores, so hopefully from that we'll be more targeted marketing.

And that's one of the areas, where the IT team has done a very good job, and actually accelerated that piece of it, because it is, can be very impactful for us. And the old system that we had was very antiquated, and so there was a lot of work that has been done to get that CRM capability moved up a bit. And we feel like there's definitely some opportunity there.

Great. Thanks guys.

Thank you.

Anthony Lebiedzinski, Sidoti & Company.

Good morning, and I thank you for taking the questions. So first, could you perhaps quantify, what you thought is the estimated impact of the later tax refunds in the fourth quarter?

What I would say, Anthony, is as you look at the tax refunds and some of the store closures rolled into that, we're up mid single-digits, and I think that's the main driver, the shift of those tax refunds. If you just look at the negative10% or so that we did in January, a main driver of that, and as that flowed into February, it gave us the benefit. So had we not had that shift, that mid single, I think we would be closer to a lower single-digit kind of run rate.

Okay. That's helpful. Okay.

And then, can you tell us how many members do you have in your MVP rewards program? And do you expect to make any changes as to the rewards that those customers get? If any kind of update on that, that would be great.

Yes, I think our marketing team has done an exceptional job of driving, along with our operations team, of driving growth, and not only our loyalty program, but also our mobile program, as well as all of our social programs. We've seen the significant year-over-year growth in all of those. I think the biggest opportunity that we have is how we utilize that information with the new CRM tool.

There are significant advancements that we can make, with regard to how we communicate and how we personalize, as well as how we reward our consumers. So the build up in the base of all those initiatives has been very substantial, but we haven't fully been able to leverage the opportunity with the information. So that's an exciting thing we can do with the new CRM tool, is really communicate better, personalize, and hopefully drive business utilizing the rewards.

Got it. And what's the number of reward members do you have currently?

It's over 5 million

Over 5 million. Got it, okay. And lastly, on the store expansion, so I think you are planning 10 to 15 this year, after 16 in this last fiscal year. So like can you just tell us about the results that you are seeing from those, and what's opportunity going forward for additional store expansions in the long run?

Yes, we continue to look at that. Those stores have been performing at a much higher rate, and we have to make sure that we get the right real estate, and its availability. So it's really a moving target as we go.

There is over 100 stores that we would love to expand on, if the right real estate became available, or the store next door closed. So it's still a huge opportunity for us, and we think that we'll continue to do that.

Okay. Thank you.

Thank you.

Peter Benedict, Robert W. Baird.

Hey, guys, thanks. First, Jeff, you had mentioned, when you were discussing Bill coming on board that, being able to move forward faster on some things. So I know you guys laid out some of the timing of phase 2, phase 3.

With respect to phase 2, do you think you'll have that up and running by holiday 2016? And with respect to the e-commerce or phase 3, do you think that will be functional by holiday 2017?

Well, phase 1, we hope to have in for back-to-school. The ship-to-home to a customer, we hope to have in by holiday. And then hopefully, we have planned second half, hopefully it can be sooner or calendar 2017.

We are starting to really pick up the pace as we speak. And so, we do think it will be in, hopefully back-to-school of 2017.

Okay. That certainly would be good.

What's your latest thoughts on owning the e-commerce business outright, versus maybe partnering with a third-party? And how would that decision influence maybe the timing of function -- of being up and running?

That's one of the reasons why we think we can accelerate it a bit, because as we've done more research, and as Bill has come on board, we're pretty well aligned with the fact that it would be best for us to outsource it, as more of a software-as-a-service type of model. And I think where we are, that would be the best way to do it, from a complexity standpoint, and from a speed standpoint.

And so, that's the path that we're going down, and we feel very comfortable with that. And so, we'll see how it goes.

The website is one piece of it. There's DC modifications that we need to make, and some other things that we have to also bring up to speed to go live. And so, we're going as fast as we can, and Bill is certainly going to be a big part of that.

All right. That's good, Scott. Have you guys chosen a partner yet, or are you still evaluating?

We're still evaluating, but we're getting close.

Okay. And just back onto D&A. I think, just the numbers you laid out, Scott, it kind of implies a $20 million to $21 million D&A number for 2016? Is our math right there?

It is.

Okay. And then lastly, just for Jared, can you talk a little bit about the footwear, ASP trends, what have you been seeing, particularly at the higher ends? What's been happening in terms of footwear ASPs?

Yes, their overall ASPs continue to rise. There's still some things performing very well at the high, that are certainly exceeding expectations, and other things that have gotten a little bit softer. Category by category, overall, we are seeing ASP's grow in virtually all of our footwear categories.

And we're certainly working very closely with our vendors, to ensure that the product that is coming to market does have a good price to value component to it, particularly at that high end. But there's a significant number of products that I would consider to be at the high end of the spectrum, that are performing exceptionally well at this moment, so we still see room as we continue to develop our premium positioning, we still see some room to increase our average price points.

Okay. Great. Thank you, guys.

Thank you.

Camilo Lyon, Canaccord Genuity.

Thanks. Good morning, guys.

Good morning.

Scott, just going back on your comments around outsourcing e-com. So it sounds like, not only are you going to have natural gross margin compression, just by the mere fact of what e-commerce and the investments that it undertakes. But now with the likely fees that you will have to pay a third-party to run that business, where -- how much lower do you expect e-commerce EBIT margins to be, versus your store base EBIT margins?

I think, right now, it could be 8 to 10 points, but it's really too early to tell exactly. I think there definitely will be some headwinds with freight costs and things like that. But we also see some good leverage on our fixed costs, with store occupancy and things like that, as well as some potential benefit on gross margin in the stores, as we're able to get that inventory visibility across the chain, and clear some of that aged inventory much more efficiently than we have in the past.

Also with our markdown optimization system, that continues to show promise. If you look sequentially throughout last year, quarter by quarter, our product margin improved versus the prior year. The Q4 was the exception to that, but that was mainly because we cleared some aged inventories. So that will also help us mitigate that as we go forward.

Okay. Great. Thanks for the color. And then Jared, just going back to the product discussion.

Could you dig in a little bit into what has been working, and what's not been working well in basketball, and similarly on the performance running piece? What has been working, and what hasn't been working? Is there a shift within the product category that's more dictated by consumers just going away from a particular brand, or a particular product, or is this just a much more casually-driven shift that's going away from the performance piece?

Yes, I think first, to answer your question with regards to performance product, we absolutely see a shift from a consumer standpoint to a more casual base product versus the performance product, particularly in the running category. A lot of the retro product, or product that has retro DNA to it, or is more based from a comfort perspective, seems to be really resonating with the consumer, versus the performance running category.

So we try and look at all of the categories, in particular running, and all the different pieces of running. And just ensure that, as we look at those lines, and we put that assortment together, that we are trying to cater to all of our consumers, which is very important. But in particularly, the teenage consumer that drives a lot of the sneaker business is very interested in more of that casual running, versus the running performance.

From a basketball perspective, I mentioned earlier that the Jordan business continues to be excellent. We continue to see significant upside there, and certainly a lot of that product is on -- at very high price points, when you look at the whole market, and it's performing exceptionally well.

Some of the other basketball products, some athletes are performing very well, such as Kyrie Irving, such as Steph Curry, with some of the athletes, maybe a KD or a LeBron aren't performing as well right now. Some of that we do believe is a product issue. It's not necessarily as much of a consumer issue, but the value component isn't there in some of those products.

So we expect to get that better over time. Basketball, holistically was a mid single-digit gainer for us, and it was actually trending above that until we got to the last couple of weeks of the quarter.

So we still feel very confident in the basketball category. It's changing some, but we certainly feel very confident in it.

So just to be clear, it sounds like it's much more of a product issue within basketball, versus a category issue?

That's correct.

That describes the deceleration.

Absolutely.

And as far as you can tell, is there any sort of visibility that you have, into the product that you've seen, that would point to a resumption of those athletes' shoes that could rebound in the back half? Or is it too soon to call for a product improvement in 2016?

I think it's a little too soon at this point, but certainly the price value relationship of some of the products is a very large conversation right now, and ensuring that, that value prop is there, even at some of the high. So I think it's little bit early to tell, but again, we still feel very confident in the overall basketball business.

Okay. And then, with respect to some other brands in the casual category, like Adidas has been doing phenomenally well, with some of its more classic casual styles. Is that's an example of brand that you are expecting to have increased shelf space allocation to as the year progresses, as that's clearly where as you said, a lot of consumers are taking the business?

Yes, the Adidas originals business that you mentioned, we manage that through our lifestyle category. So we certainly see that as a driver for us, as we go throughout the year. Without getting into significant detail, we did have a resurgence in a lot of that product for our fourth quarter, so feel very good about where it's going, and for the balance of this year.

But a lot of our brand partners have some very, very strong product that caters directly to that customer looking for more of that casual running or retro casual business. So we feel very good about the entire offering that's out there from a lot of our partners currently.

Great. And then, I had one final one for Scott or Jeff. Just in -- if you step back, and you think about over the next few year period, when the e-com really comes on, and becomes a top-line contributor, is there any thought as to how that might impact your store opening plans? Jeff, at the outset, you said that you had 1,500 store opportunities in the existing states. Is there any thought to what e-com could account for that opportunity from a store base volume perspective, that might change the actual physical rollout of the stores?

Yes, we look at that pretty good, especially we still go where we're needed, and there is still an opportunity to do your physical stores, and we still think that there is a lot of opportunity. And especially based off of our opening costs and what it takes to open a store is still very, very profitable.

We think we're going to have a huge advantage once we get there. And that's what we're so excited about is just the whole omni-channel, and be able to pick up in-store, returns in-store, ship from stores. So that we'll have stores very close, so we should be able to get products to customers in a much shorter period of time, which we think will play into our favor, and make us much quicker to market with some of the customers.

So we really feel that the store base is really going to add to our value, and it doesn't cost us a ton of money to open a store. We still get a high return, so we really feel the reason to do this is for customer service. We do a good job in the stores with it, but if we don't have their size, how do we take care of them?

And also be able to expand our assortments, with a 5,000 square foot store, sometimes you can't put the full assortments in, where now we'll have that availability, to be able to do that also. So we think it's really enhances our customer service overall, and that's what our customers are expecting from us.

Do you have any sense as to who they're going online to shop for product that they can't get in the store right now, like who is your online competition that you think -- (multiple speakers)

I would think, with all the search engines, if they want a particular thing, there's probably various people that they want to. But with our loyalty membership and others, we have a very loyal customer, and I think they prefer to shop with us, if they have that opportunity.

We did a lot of research, and we had a research company come in, and help us look at that. And they -- the majority of those people really want to shop with us, even online too. So we feel that even though we're a little bit late to the game on this, we feel like we'll catch up, especially that we already have a very, very loyal customer base.

Great. Thanks very much for the information, and the color. Good luck, guys.

Thank you.

Rick Nelson, Stephens.

Thanks, and good morning. I would like to follow up on this ship-to-home. That is initiated at the store level, right? It's aimed at converting existing store traffic to sales, where you're out of stock et cetera?

Absolutely.

That's correct.

And are you going to be able to provide those broader merchandise assortment potentially for holiday, if you get those ship-to-home capabilities up and running?

They will have the ability to look up inventory, and see what inventory is at other stores, absolutely.

But not a broader inventory beyond what's currently in the store base or --?

No, not at the moment, once we get in the digital space.

And have you factored this into the comp guide, or is it assumed that you're not up and running with ship-to-home?

We're not building really anything in the model to speak of for this year. We may see just some marginal improvement on the store-to-store capability with the inventory visibility, but really no impact from store-to-home this year built in.

And if you do, get it up and running for a holiday, how do you size up the potential opportunity that, that would bring?

It's difficult to say at this point in time, so stay tuned. But just based on the research we've done, we think it could be meaningful. But it's really too early to tell right now.

Thanks a lot, and good luck.

Thank you.

Sam Poser, Stern Agee.

Good morning, everybody. Thanks for taking my call. Just the breakout of the inventory, Jared, I assume last year, you were negatively impacted by the port delays, which may have done some weird things with your inventory last year. Is that a fair statement, number one?

It is. You would be correct

And then, the inventory -- just the elevated inventory, could you break it out by percentage for us? And I just want to understand when -- I mean, because it looks to me like it's about 20 weeks forward supply right now. So could you just walk through where -- when this is going to be more in line with let's say,13 weeks forward supply which is probably more normalized?

Yes, I really strongly feel that at the end of the first quarter it will be much closer, than it was at the end of the year. I mean, some of the port delays from a year ago did impact that, along with our investment in footwear. But again, a significant amount of the inventory was bought for footwear to try and ensure that we were able to capitalize on tax refund season.

So a number of our deliveries from last year that were planned for December and January, some hit in February, some hit in March, some hit all the way out until April. So I feel like we're flowing the inventory better, than we have in the past to try and achieve those peaks. And on the footwear side, we're getting the returns for the elevation of inventory that we've been looking for.

Our challenge is on the other side of the business, where we have some difficult categories during the fourth quarter. We have some tough weather comparisons, and we got to get the rest of that inventory rebalanced, and making sure that it's appropriate for the forward-looking sales.

So when you're looking at those forward-looking -- those other categories, I assume it is apparel and outerwear, or most of it's apparel and outerwear -- how much of that -- I mean, are you returning goods to vendors, because you're not going to -- sitting on coats or base layer or whatever right now, probably doesn't do you a whole lot of good?

No, we're on -- we got some significant return plans to make sure that, that inventory level gets achieved, as far as what we're looking for. And the balance of inventory, again what we really look at, is how do we end a particular month, with the proper amount of inventory to drive the sales in the following month, while we achieve the rate of sale that we're looking for.

But we're doing a better job of achieving that currently in footwear, and we are getting the impact and the return from the investment. We have some work to do in the other categories to get that more in balance. But again, do feel very confident in those other categories that we'll have the vast majority of that rectified in the first quarter of this year.

Okay. Thank you. And then, the -- just because it was going real quick. The footwear, apparel and equipment business in the quarter, what were the increases, decreases?

Footwear was up mid single-digits, apparel was down high single-digits, and the equipment side was down mid single-digits.

Okay. And then lastly, because people keep jumping around, the store-to-store shipments should start around back-to-school this year, with the CRM capability coming in on top of that. The ship-to-home should be sometime, hopefully by the end of the year, but probably, the beginning of next year. And then by the middle of next year, you hope to have an e-commerce capability up? Is that -- did I get that correct?

Yes. The e-commerce capability in the middle of the year will be, that's definitely on the aggressive side. We were hoping to get it in by holiday, is probably a little bit more realistic time line. But at the same time, we'll look to accelerate where we can.

And this third-party, somebody mentioned using a third-party. I just want clarification on what you mean. You're going to own your e-commerce business, correct?

Correct. Yes, the difference, Sam, is that we won't invest in a ton of capital to bring that e-commerce to life. It will be, that will be outsourced, and it'll be more on a subscription basis, we think versus buying a bunch of capital.

So I think what you'll find is that initially, when we do that, we will see some expense drag on that. But as we continue to build that business, you'll see more and more leverage, against your store occupancy as well as your depreciation cost, because we won't be investing as much capital as we grow.

Okay, very good. Thanks for the clarification. Good luck.

Thank you, Sam.

Mark Smith, Feltl and Company.

Good morning, guys.

Good morning.

First off, can you just walk through new shoe launches of quarter to date so far, and how much, if any impact that's had on the comps?

Yes, the launches thus far in the quarter have been fairly consistent with the year ago period. So it's certainly, the investment in some of that product is definitely having a positive impact, but the impact is not due to shifts, from a launch standpoint thus far in the quarter.

We're certainly working very diligently to try and invest in more of that, and ensure that we can get some of that key premium product out to additional stores. We feel like that's a significant opportunity for us. So that's having the bigger impact on the comps so far, is not relative to a shift in launches.

Okay, perfect. And then, can you guys just give an update on stores in new states, and the new geographies, how those stores are performing compared to the rest of the base?

Yes, I think some states are doing very well. We started to get into New York and New Jersey, and those stores are doing fairly well. Other states, up in the northern part of our geography typically start out a little bit slower.

So it's kind of a mixed bag, some are doing very well, and some not so well, but not really any different than what we've seen in the past. In some cases, we go into these markets and it does take a little bit of a time to get the awareness level up, of who we are.

So we continue to work through that, and look at the assortments. But I wouldn't say there's been any major changes than we've seen in the recent past.

Okay. And the big picture, can you guys just talk about how you really compete, as we see more direct sales to customers from manufacturers, how you compete against that?

I think for most of what we sell, is premium product. A lot of, especially footwear is limited supply, so there isn't a lot that is out there.

We really look at having our assortments be premium, which leads to -- hopefully things sell through in from that standpoint. Limited supply is really a big thing in distribution. Strategies from our vendors is very key, and we make sure that we buy around that.

Also, I think we've got a pretty significant opportunity with regard to the basket, a lot of the full needs for a consumer, the products that they could be looking for, we -- we're the one-stop-shop. Where some of the direct-to-consumer businesses, they couldn't entail to have multiple transactions, if you looking to buy multiple shoes, or multiple pieces of our apparel and equipment.

We could be the one-stop-shop, and I think that's where we have a little bit of an advantage. It's a little bit more convenience to make the one purchase, than making four or five.

Okay. And then last question for me, just as we look at some Wal-Mart closures. Can you talk about any markets where maybe you've seen any Wal-Marts close, as you kind of follow them into some smaller markets, and any potential impact?

Yes, we really haven't seen -- from Wal-Mart, it's has been their, really, really small stores, that we really don't even have stores in. So supercenters and those type things, we really haven't seen any impact at all.

Perfect. Thank you.

Thank you.

Chris Svezia, Susquehanna Financial Group.

Good morning, everyone. Thanks for taking my questions. I guess, first, just on a comp -- you're up mid single-digits so far in the first quarter. You're assuming low single-digits for the year.

I guess, are you just thinking, as the refund checks kind of roll off, some moderation into the first quarter, or just any thoughts about that?

Yes. I mean, that's kind of how we are looking at it. Hopefully, it will be better than that, but we're just making sure that we take a conservative approach to it.

Yes, most of the outperformance we're seeing right now is the tax refund shift, and the offset to that is in January, so we think that will normalize.

And then, when you think about low single-digits for the balance of the year any color -- I don't know Jared if you want to answer this -- just between categories, seems like making a bigger push on footwear, apparel, maybe a little bit more challenged, just how we think about each one of those buckets, as it pertains to that low single-digit comp?

Yes, I think you are very accurate, and we certainly see the driver of the growth being footwear. We certainly have opportunities in the other categories, and we're certainly going to pursue all of those opportunities.

But those categories are not performing at the same level currently, so we're going to be very aggressive with where we are performing right now, which is footwear. And do everything we can do in the other categories to try and improve our profitability, and find those -- when the opportunities are there, we will certainly go and get them.

And where does something like Roshe and Free and Boost fall in between technical run, and I guess lifestyle running, if you want to call that, where does that fall in those buckets?

Yes, it's a little bit of a mixed bag. I mean, Roshe, for us falls in our lifestyle category. Some of the Boost propositions fall into running, performance running, some of the Boost propositions fall into lifestyle.

It really just depends on where we think -- who the consumer is, and that's where we're looking to place the product from a category perspective, because that's the distribution path we use from a store standpoint. So very important to ensure that every product we look at, who is the end user in mind, so we get that product in the store.

So something like a Mizuno and Asics or really are more the technical pieces that are more challenged (multiple speakers) are correct?

Yes, those would be in our performance running category, the performance running. And some of it is a shift of 17-year-old, and we've sold a lot of performance running shoes over the years that weren't to run in, they were just worn for fashion.

And that consumer today is looking for more lightweight, comfort-based casual options within the running category. So we're just ensuring that every line we look at, every time period that we have to ensure that we're servicing the customer properly.

And just, Scott for you, just on the product margin, just after markdown optimization has been in place for a little bit. You're obviously ramping up and learning a lot from that. Why still sort of flat? Does that have anything to do with just the fact, that running -- or excuse me, footwear growing faster than maybe apparel puts some mix pressure on it, or just any color on how you think about that?

Yes, there may be a little bit of a mix pressure, as footwear ticks up a little bit on penetration, so part of it is that. And with our inventory, if we have to use some markdowns to clear some of the inventory, left a little bit of room there. We don't think that will be a real meaningful impact, but just left a little bit of room for that activity if needed.

Okay. Final question, just real quick here, the -- I think one of the first questions or earlier questions, Scott, you had just mentioned, potentially that sort of $0.14 to $0.16 hit that you are seeing in the current fiscal year, could be potentially a little bit less as you go into calendar 2017. But I guess, the question is, as you start to transact online, and the incremental dilution that, that brings on, is that taken into account when you think about that? Or are you just saying, just the fact that you get some leverage on fixed costs offset that, so that the fact that you're transacting online and the dilution there doesn't add any incremental impact, negative impact to the P&L?

Yes, I think that really the way to think about it is, for the next year, expenses will increase a little bit, and depreciation will increase a little bit, but we'll start to get some revenue to offset that. So the net effect on the P&L for the following year should be a little bit less, all combined. But you will see the expenses increase, but the revenue will be more than enough to offset that.

Okay. All right. Got it. Thank you very much, and all everybody.

Thank you.

(Operator Instructions)

Mike Baker, Deutsche Bank.

Hi. So, forgive my denseness, I suppose, but I guess I don't understand exactly, if could you explain again, what in the e-commerce business is being outsourced? When you say capital, do you mean systems?

But it seems to me if you are investing in a lot of systems now or a distribution capabilities, but I thought you were making those investments as well. So I guess, I'm just not exactly sure what you are doing in-house, and what is being outsourced?

Sure, I can clarify. So there's definitely a lot of pieces that you have to put together, to bring the omni-channel capability live. So the actual website that we will launch will be outsourced. Okay?

And so, we are not going to buy IT hardware and operate our website internally. We will outsource that, and it will be more of a subscription model.

There are other things however, like build out of the warehouse to enable picking [eaches], picking orders out of our warehouse distribution center that we'll need some capital to enable that capability. So that is probably be two biggest pieces over the next several quarters that we'll be working on. So part of it will be capital with the internal build out, but the actual operation of the website will be outsourced.

But so the warehouse, that build out, that's what you guys are going to own, and you own the distribution, you own the product, et cetera?

That's correct.

Okay, great. Thanks for that clarification. One other clarification, just to be clear, and make sure we're all thinking about it the right way the -- so $0.14 to $0.16 this coming year, call it $5 million. And I know you said that it'll repeat the next year maybe a little bit less, so let's call it $4 million or so, that's an incremental $4 million above and beyond the $5 million invested this year.

In other words, if it were just the same $5 million and $4 million each year, you would leverage it in calendar 2017. But that's not what we're saying. We're saying it's going to be an incremental step-up in the investment in 2017. I think that's what you said, I just want to be clear.

No, from total P&L standpoint, the incremental impact should be flat to slightly positive. The actual expenses will increase somewhat, but the revenue that we will generate will more than offset that increase. Okay? So year-over-year in calendar 2017, the net impact on the P&L could be flat to slightly positive.

So okay, so it won't actually -- so it won't be a drag that year?

That's correct.

Okay. Okay. I think that clears it up. Thanks.

Sure.

Mitch Kummetz, B Riley.

Yes, thanks for taking my questions. I still have a few. So one, just from a product standpoint, you talked about a shift in demand coming performance to fashion in running.

I knew -- I think on the last conference call, you talked about you were still in the process of kind of working through that balance. Could you remind us of where you are? Is that sort of at an optimal point right now, or is there still opportunity to get that in a better balance going forward?

I guess, I'm not understanding the balance question.

Well, I think that you are shifting your assortments more towards fashion from performance and running. I think you made the comment on the last earnings call, that you're still kind of working through that shift, and it wasn't at an optimal level yet, and I'm curious if it now is?

Yes, we're still, we're much more optimal than we were, but we still have significant opportunity to shift in that direction. And again, it's really just ensuring that we've got what the kids are looking for today.

And I think as -- we'll continue to move in that direction, but certainly ensure that we still have performance-based product for the consumer that's looking for that. We're more in balance than we were, but we still have significant opportunity, primarily with regard to store growth in that category.

Okay. And then, I think, Chris asked a question about your expectations around categories is to kind of built into your comp guide. It's like you expect most of the comp growth to come from footwear.

But correct me, if I'm wrong, just from a comparison standpoint, it sounds like your apparel and equipment businesses are probably the ones that were hurt most in FY16 due to the weather? So I'm curious, if you think there's an opportunity for better comp performance there, given those easier comparisons?

Yes, we absolutely do. I think, what we are trying to look at -- the long-range performance of those categories over the last few seasons, has not been in line with what's happened with our footwear business. So we're trying to be conservative there, with how we're planning those businesses.

But at the same time, know that if we see opportunities, we'll certainly try and capitalize on them. We do feel like we're making significant improvement in those categories, but those categories overall are a little bit pressured, and we didn't realize the gains based off the weather.

Got it. And then lastly, just in terms of the gross margin guide, any color you could provide, either kind of in terms of the cadence by quarter, maybe first half versus back half -- again you obviously have the easier gross margin compares in the back half. So in terms of how we should be thinking about gross margin going through the year, is the opportunity for -- maybe some pressure in the first half, followed by expansion in the back half, is that how we should be thinking about it?

There's probably -- on the merch margin or product margin side, there's probably a little more opportunity in the back half, just based on last year compares. But when you talk about total gross margin, there will be some effect on the warehouse and occupancy expenses, as we build out the DC for that fulfillment capability. So there will be some additional expense flowing into that line, probably in the back half, it may offset some of that product margin favorability.

Got it. Okay. Thanks, and good luck

Thanks.

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

Thank you for being on the call today. We're extremely excited about the future at Hibbett Sports. As we get some of these capabilities from omni-channel, and continue to have great customer service, we feel like we're positioned very well in the marketplace for many years to come. 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.