Hibbett Inc (HIBB) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Hibbett Sports second-quarter fiscal 2017 conference call. (Operator Instructions). As a reminder, this conference is being recorded Friday, August 19, 2016. I would now like to turn the conference over to Pat Watson, Corporate Communications. Please go ahead.

Thank you for joining Hibbett Sports to review the Company's financial and operating results for the second quarter of fiscal 2017, which ended on July 30, 2016.

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

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

Lastly, I would like to point out that management's remarks during this conference call are based on information and understandings believed accurate as of today's date, August 19, 2016. Because of the time-sensitive nature of this information, it is the policy of Hibbett Sports to limit the archived replay of this conference call webcast to a period of 30 days. 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 second-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.

Net sales for the 13 weeks ending July 30, 2016 increased 3.9% to $206.9 million compared to $199.3 million for the same 13-week period last year ending August 1, 2015. Comparable store sales increased 0.8%.

We were pleased with our overall results and encouraged by our progress of our major initiatives. Footwear continues to show significant strength driven by our differentiated assortment and continued improvement in allocations and our in-stock positions. We are also continuing to see improvement in our merchandise margin rate driven by improved systems and promotional management.

During the second quarter, Hibbett opened 14 new stores, expanded one high-performing store and closed eight underperforming stores bringing the store based to 1,059 in 33 states as of July 30, 2016. We continue to believe in our small market strategy and going where we are needed by our consumers, our landlords and our vendors. This strategy continues to put us in a unique position to grow for years to come.

We continue to make significant progress in our digital strategy. We have picked DemandWare as our strategic partner in this opportunity. We have hired our internal digital team, which is working to get this project over the top. This omnichannel approach we believe will become over 10% of our revenue over time.

Our employees have worked diligently on making sure that we are successful as we move through all these initiatives. I would like to thank all of them for their hard work and success that we have started to see and will continue to see in the future.

I will now turn the call over to Jared Briskin, Senior VP, Chief Merchant, to talk about our merchandise trends.

Thank you, Jeff. Good morning. We are pleased with our second-quarter performance as we are able to achieve a comp store gain in a historically challenging quarter while improving product margin. Our merchants did a good job of capitalizing on current footwear trends and maximizing key drivers in other areas.

Our apparel business was down low single digits for the quarter. Challenges surrounding performance product continued throughout the quarter and offset the improvements we've made to our lifestyle offering. The men's business was up mid-singles as investments in denim, twill and polos offset declines in performance, notably compression.

Kids business was down low-single digits with boys performing much better than girls. Our women's business continues to be our biggest challenge, down high single digits. Sales of lifestyle tops and bottoms were very strong, but our performance product, especially compression, showed significant weakness. Accessories were up low singles driven by hot items in hydration offsetting declines in socks and sunglasses.

The license business was down low single digits. NBA business was very strong across all categories from the Cavs championship, as well as the Warriors run to the championship game. These gains were offset by difficult comparisons in college and Major League Baseball where our largest volume team has the worst record in the Majors.

Team sports business was down low single digits. Cleated business was positive, up low single digits with baseball, softball, soccer, track and football all positive. Equipment was soft across all categories, down high single digits. Tackle football and fitness had the most significant declines.

Footwear was up low single digits. All genders were positive led by our kids business, up mid-single digits. From a category perspective, our basketball business was up double digits let by strong performances of retro Jordan, Steph Curry from Under Armour and Nike Signature, including the Lebron Low and KD 9.

Our lifestyle footwear business continued its strong run with a mid-single digit comp. Nike business was very solid in this category with Huaraches, Air Force 1s and Juvenate all performing very well. Adidas also showed significant strength in this category as multiple originals platforms sold exceptionally well, including the new NMD and Superstar. Puma and New Balance also showed significant gains in our lifestyle area.

Performance running was soft, down high single digits. The early part of the quarter was very challenged, but improved significantly as our back-to-school investments arrived. Adidas showed very strong results with its Boost platform and the early response to AlphaBOUNCE has been exceptional. New products from Under Armour also delivered in the latter part of the quarter and early response to the [Sling Ride] and Bandit are extremely solid.

From an inventory perspective, we wanted to ensure that our back-to-school deliveries arrived on time and were in stores to ensure adequate stock levels for the peak of our back-to-school business. We executed well to this plan and are very confident that our inventory growth will be aligned with sales growth in future quarters. I will now turn the call over to Scott Bowman to discuss our financial results.

Thanks, Jared and good morning. For the second quarter, total sales increased $7.7 million to $206.9 million, an increase of 3.9% over the prior year. Comp sales increased 0.8%. By month, comp sales were negative 2.7% in May, positive 4.9% in June and negative 0.5% in July.

Gross profit rate increased 27 basis points in the quarter. Product margin increased 23 basis points due to continued systems improvements and promotional management. Warehouse and store occupancy expenses decreased 4 basis points as a percent of sales. SG&A expenses increased 6.6% in the quarter and increased 67 basis points as a percent of sales. This was partially due to deleverage associated with lower comp sales, as well as expenses associated with our omnichannel initiative.

Depreciation and amortization increased 10 basis points as a percent of sales in the quarter mainly due to the capitalization of IT projects and the addition of new stores. The income tax rate for the quarter was 35.3%, which compares to last year's rate of 34%. Operating income of $10.1 million decreased 5.6% from last year and was 4.89% of sales versus 5.38% last year, a decrease of 49 basis points. Diluted earnings per share came in at $0.29 per share versus $0.28 last year, an increase of 3.6%.

From a balance sheet perspective, the Company ended the quarter with $45.9 million in cash versus $85.3 million last year with no borrowings outstanding on our revolving credit facilities. Inventories increased 16.5% over last year and were 11.6% higher on a per-store basis. We spent $5.9 million in CapEx for the quarter. Also, for the quarter, the Company bought back 620,000 shares for a total of $21.4 million. At quarter-end, we have approximately $271 million remaining under the existing purchase authorization.

Based on these results for the second quarter, we are updating our full-year guidance as follows. For the year, we expect earnings per share to be in the range of $2.93 to $3.02 from a previously reported range of $2.90 to $3.04. Additionally, merchandise margin is expected to be flat to slightly positive compared to our previously reported expectation of relatively flat versus the prior year. With that update, operator, we are now ready for questions.

Thank you. (Operator Instructions). Stephen Tanal, Goldman Sachs.

I guess just for starters if you could give us some color on traffic and ticket in the quarter, how that looked, that would be helpful?

Yes, average ticket was up mid-single digits and transactions were down mid-single, so fairly similar to prior quarters.

Got it. Appreciate that. Looking at the SG&A line, and I guess D&A as well, two-part question, I guess I'd ask is the investment spending to be back-half-weighted? It sounds like DemandWare has probably just recently signed up, so maybe that would make some sense, but D&A also -- I think we had talked about maybe 30, 35 bps of deleverage. Looking a lot better than that. Can you just parse that out and give us some color on how that happened?

Sure, Steve. I think it will definitely be more back-half-weighted and I think what we will see -- my original guidance was an impact of $0.14 to $0.16 per share and so I think what we will see is it will probably be weighted a little more towards SG&A versus D&A. And the reason for that is more SG&A because DemandWare is more of a SaaS model and we will expense more of that development and integration cost with that model. And on the D&A side, it will be slightly less. The rollout of our POS, the timing really will dictate that. So I see a little less impact there, little more in SG&A, but the overall guidance should be good.

Got it. That's helpful. And I guess last one from me just on inventory, it sounds like you guys are well-prepared for back-to-school. If you could maybe help us understand how big of the overage that was, obviously a big number, but how we should maybe think about that?

Yes, I think one of our goals for this year was certainly to reset some of the peaks of our inventory. We did that at the end of our fiscal year preparing for the February [tax-less] peak. We've also done that preparing for the back-to-school peak in August. We are very comfortable with where the inventory is today and feel very good about the management of that inventory more closely to sales in future quarters. It really came down to two significant peaks in our business that we wanted to ensure we were prepared for and reset the inventory.

Got it. Thanks a lot.

Rafe Jadrosich, Bank of America Merrill Lynch.

I just wanted to ask first on the trend in basketball. I think from last quarter, you saw a nice sequential acceleration in 2Q. Can you talk about what the key driver is there?

I think the big key driver was the retro Jordan business for the quarter was very strong, some very iconic strong models, as well as the Steph Curry business from Under Armour. We have certainly enhanced some stores with that offering, so feel very good about that. And we did have somewhat of a resurgence from the Signature side from Nike, a little stronger cost value proposition with regard to KD and the Lebron Low as well. So had some fairly significant products that performed better than they did in the prior period.

Okay. Thank you. That's helpful. Can you just update us on the timing of the POS system? Are you still planning a 3Q launch and what benefits we can expect from that?

Sure. The POS rollout where we currently stand, we are still in pilot mode for that project and by the end of Q3, we expect to be well into the rollout. Right now, we are kind of in the iteration phase. It is active in several stores right now and we are looking at the system, taking feedback from the stores, working with Oracle to make updates, but once we make an update and it takes some time to test that and make sure it's good. So it's in the iteration process, but we are definitely making good progress and so we think we will be well into the rollout at the end of the quarter. So that's phase one.

And then phase two is the store to home capability, which we think will be the bigger inflection point. We are still trying to get into pilot by the end of the year for that functionality, but I think on our next call as we get into early fourth quarter we will have better visibility to where we stand there.

Great. Thank you.

Camilo Lyon, Canaccord Genuity.

I wanted to get your thoughts on the women's business a little bit. Jared, you talked about a little bit of the weakness there. I know you've been working on transitioning some of the product to have it be more fashionable in performance. If you could just shed a little light there on what's driving the weakness and where you see the opportunity from a (technical difficulty)?

Absolutely, thank you. I think we are certainly making progress on the shift from performance to more lifestyle. Unfortunately, the gains that we are getting on the lifestyle side are not offsetting the continued declines on the performance side.

When you look at the women's business as a whole and we look at our footwear business, which is performing very well, we are certainly a little further ahead with that shift, so that gives us some confidence that, as we continue to shift the apparel business, we can get better. But at the same time, apparel business in general is somewhat challenged, particularly on the performance side and certainly distribution of athletic-based women's product are everywhere.

So I think there are some challenges in the general apparel market. Some of the signs that we are seeing for some of the shifts we've made are starting to pan out for us. We have to ensure that those are a more significant piece of our business as we go forward.

Would you say that that ubiquity of product is more category-specific or is there actually a brand-specific issue that you see in the marketplace?

Today's business for us, it's really more category-driven. We don't see it as a brand issue at this time; it's really a category issue particularly around performance.

Okay. And then just shifting gears, could you help us think about what the impact of Florida and the tax shifts will do to the third quarter, if that's very meaningful for your business?

Yes, Camilo, we don't really think that's going to be a big impact for us at all.

Okay. Just lastly, is there any commentary you can provide -- it looks like things slowed into July from a very strong June. Has that trend turned as we get into August and we are getting more into that -- the true heart of the back-to-school shopping season?

Yes, that's basically what we saw and it was really more into late June, in fact, the last few days of July rather. Prior to the last few days of July, we were positive comp in the month and so it's so difficult to reconcile all the school starting dates and everything, so it is quite volatile during that period. But what we saw in early August is that that leveled out, the softness we saw in those last couple days of July.

Okay. Perfect. Good luck, guys, with the rest of the season.

Seth Sigman, Credit Suisse.

Just to follow up on the comps question, did you guys update the comp guidance for the year? Is it still expected to be up low singles and would you expect a similar level in the second half of the year as we saw in the first half?

We would, yes. The guidance is still low singles, so I just updated the items that changed in the guidance in the release, so everything else is the same and so we are still shooting for low single for the year.

Okay. Any more on just the cadence in the back half? Do you see bigger opportunities in the third quarter or the fourth quarter?

I think certainly we have some soft numbers in the back half with regard to apparel, in particular in the seasonal categories, so we certainly are hoping to recapture some of that business. There are some headwinds in the fourth quarter with regard to the licensed business around the Panthers' run to the Super Bowl last year and the Alabama championship. So we do have some headwinds from that perspective in the fourth quarter, but obviously the business in seasonal categories was very light a year ago so we are hopeful that that's an opportunity to capitalize on it.

We also have some opportunity as we [mend] the store typing on really getting proper assortments in proper doors and as we see the allocations and some of the products that come in the second half of the year, we do have some opportunity there to get a little sharper on what each store gets.

Okay. That's helpful. And then my follow-up is on gross margin. So when you look at the merchandise margin up 20 basis points or so in the first half of the year, which has been a change in trend, I know for a while you guys have been focused on markdown management, but what's changed more recently that's driven that improvement? And I don't know if there is a way to quantify how much of that is an improvement in the initial or pure merchandise margin maybe due to mix versus the actual selling margin improving because of systems and the promotional strategy as you alluded to.

Yes, we think it's a combination of a lot of things. I think first and foremost some of the systems implementations that we've done with regard to markdown management are certainly helping. The way we are managing our promotions more holistically is without question helping, but I also think the improvements that we are making from an assortment and allocation perspective are also limiting some of the markdown exposure. Some of it is certainly due to mix. The improvements that we are seeing on the footwear business are helping the margins as well. It's a combination of quite a few things. It's not one thing and we will continue to try and execute across all of them to maintain the improvements that we see in the margin line.

Okay. Thank you.

Dan Wewer, Raymond James.

The weakness in performance apparel, is that due to the growing marketshare from online competition? That seems to be a product that is selling very well online. Is that the key challenge?

That is certainly a possibility. I think the general amount of product that's in the marketplace through all channels with regard to performance and certainly compression, even down at the mass level, has had an impact. It's also not new anymore. I think today's consumer is looking for new and fresh and things that are a little bit different, so I think there's a lot of reasons for it.

Is it one channel that's hurting our business? I can't specifically say that. We do know that business continues to be challenged and we are trying to reset our investments in those categories and take advantage of the other categories that are performing for us.

You talk about the growth in lifestyle in both footwear and apparel. What portion of your revenues is now comprised of lifestyle product and how would that have compared to a year ago?

It's growing. I think as far as the percentage of lifestyle, different categories tend to perform better for lifestyle. I think our real initiative is through our store typing lens and ensuring that the assortment is correct for each of our consumer types across the three store types that we are driving. So we do continue to see the opportunity for lifestyle to improve.

But at the same time, we want to ensure that we have a strong performance-based business as well so if a trend does shift back to performance, we can take advantage of that as well. So we are really looking at it more from a perspective of what's the right product; what's the right store and then building it from the bottom up as much as we can.

I think the last question I have, Jeff, you, in your prepared comments, noted that online revenues could grow to 10% of Hibbett's revenues someday. Which product categories do you envision being most important in reaching that 10% contribution?

Sure. I think there's quite a few that I think we could definitely extend assortments. We believe footwear is a huge opportunity, just the in-stock and conversion levels, which we think would be a big driver. We also think some of our equipment business really has a big opportunity as we think about team or cleats, if you want a purple color cleat, or green, or something like that. We also think size extensions, the 13s, 14s and 15s. So really think the biggest opportunity is between footwear and team sports, maybe a little bit in apparel, but I really think those are the two big drivers.

Okay. Thank you.

Peter Benedict, Robert Baird.

First question is on the product margin outlook for the back half of the year. Clearly, it's been strong first half. Do you think that the cadence of improvement should continue at that similar pace, or do you guys have any thought of maybe investing some of that product margin and trying to drive a stronger top line?

I think it's a combination of both. We see some expansion opportunities and we also understand the pressures in the marketplace around some of our softer categories, primarily apparel and the team sport category. So we do see some opportunity for expansion.

At the same time, we want to balance that expansion with driving top line as well. So there's a balance there. Some of it will be dictated on certainly how our assortments perform and the level of conversion we get from our consumer, but we still see some opportunity. We just want to make sure we are conservative based off of some market pressures around the apparel business.

Okay, thanks. Sure, that makes sense. Just moving to the warehouse and distribution component of COGS, can you let us know how that did in the quarter relative to sales, whether that was the source of margin improvement?

It was. So we did leverage on that line item and we deleveraged a bit on store occupancy because of a little bit lower comps sales. So the warehouse and logistics function continues to be very efficient and it continues to prove that the automation that we put in that facility and the leadership we have there is really paying off for us.

So, Scott, do you think that if comps are similar in the second half of the year, call it a low single-digit level, that will continue to drive some leverage? I think historically we had thought about a 2% leverage point for that item. Is that now lower?

I don't think it's much lower than that, but I think if we can get close to that number, we should see some slight leverage.

Okay, perfect. Thanks so much.

Rick Nelson, Stephens.

I'd like to ask you about store growth. We've got 15 net new stores year to date. I think at this time last year, you were 26 net stores. How do you feel about the 40 to 50 net store target?

We still feel comfortable that we are in that net range, 40 to 50. As of today, we still feel comfortable that that's correct as we move throughout the year. Sometimes it's just a shift when they open.

So curious about TSA and their liquidation sales this quarter, if you thought that had any impact at all on your business and how you see them going away, the potential positive impacts that that has with your vendors.

I think in some cases for us in general probably didn't affect us that much. There are some categories though that there is an awful lot of product that was already made that was out there, so it may have affected us a little bit from the equipment standpoint, but what it has done is definitely the level of importance that we are with the vendors, we definitely see a significant uptick there and we also have found a few locations that Sports Authority was there and now we can go into the market and feel very comfortable that we can do some volume in some of those markets. So we've actually done a few deals on Sports Authority closure areas.

So I think it's kind of a mixed bag right now on -- but really didn't have that much impact being across the street from them. We really weren't in very many locations with them.

Thanks a lot, Jeff, and good luck.

David Magee, SunTrust.

With regard to the apparel and the performance piece of it, how do you see this playing out over the next year or so? Do you see something coming down the pike that might replace performance to a degree in terms of the newness and the technology?

Yes, I think again what it comes down to is the balance between performance and lifestyle and I think the ability to find truly what I would consider to be special apparel products has become a little bit more challenged. So we are working very hard as a team to try and find some of those more specialized product that as a consumer sees them on the floor, they are really attracted to them.

I think for the performance-based business, and I think we have to keep in mind the primary colors that you sell and one, two and three are black, black and gray. And I think to some degree it becomes somewhat boring on the floor. So I think we are very focused on some of those excitable prints, more novelty type product even though they may be performance fabrications. And as we've started to shift to some of those things, we've seen some pretty significant lifts in our sellthroughs. So it's certainly balanced between performance and lifestyle, but it's not just a fabrication story. It's prints. It's the novelty aspect and it is truly just about what's excitable product for a consumer to see.

Do you think you'll have a meaningful representation of that by the holidays?

We do. I think as we look at apparel business, we have seen certainly some differences in the performance as we look at our three types of stores and we are seeing the business come back pretty strong in our fashion stores where we've really started a lot of those investments in some of the more novelty-based product.

As we continue to get that to additional locations, we do feel strongly about it. The back half of the year is certainly going to be predicated on weather, so we feel really good about our assortment. We feel very good about the investments we've made, particularly in transitional weight fabrications. We feel very strong about that, but the business in the back half is going to be predicated on the weather that we get.

So I think from an assortment perspective, we are comfortable. I think our preference would be that, from an apparel perspective, that we could take the leap to lifestyle a little bit faster, but we feel good about our assortment, but we will need the weather for it to perform.

Thank you. Just secondly with regard to the conversion in the stores and the improvement that you are seeing in footwear, how much more upside would you say you have there with regard to (multiple speakers)?

Yes, we are seeing the conversions, the out-of-stocks certainly improve. Our inventory management group is doing a fantastic job in ensuring that we are able to convert. Certainly the positioning of inventory at the proper time is helping us with that as well. So we are seeing growth in the conversion rates. We still think that the opportunities there are very, very significant from a true store model, but then certainly as we move towards the save-the-sale model and digital model, we still see even further upside.

So we have seen improvement. We are seeing improvement. The DC is operating at a fantastic level and getting product to stores faster, but there's still significant upside for us.

Great. Thank you and good luck.

Jim Duffy, Stifel.

A few questions for you guys. First, can you talk about the relative performance across your banner types, the fashion specialty, athletic specialty and sports specialty?

Yes. Without getting totally specific, our best-performing stores were the fashion stores. The athletic group was a little more moderated and then our sport stores were our lowest performing group for the quarter.

And is the composition of your inventory balanced with the relative momentum of those store types?

So I think as we head into this fall, we've continued to get more balanced. Yes, obviously, we've put the strategy in place and we've bought to the strategy. So over time, the inventory will have a proper representation across those types. So we see opportunities across all three types in all categories. What it really comes out to be is how we execute against those opportunities for each consumer.

Okay. My last question is just on the inventory. You talked about the sales growth being more in line [in the Q2] quarter. Based on the timeline of receipts and what you see right now, can we expect that at the end of the third quarter, or are we talking a more gradual progression, perhaps by year-end?

No, we don't see it as a gradual projection. Our expectation is that the inventory will be in line at the end of the third quarter and then hopefully as we go forward we will get some leverage on the inventory now that it's balanced properly and we are peaking at the right times.

Good to hear. Thank you very much.

Sam Poser, Susquehanna.

I guess number one, just to follow up on one of the last questions, the conversion rate, can you give us the specific info where it was running about 60% before. Where was it in the quarter?

It's up around 62%.

Okay, and over time, what would be a target?

I think we need to be well above 70% over time, but certainly our first hurdle is to get to the 65%.

Okay, thanks. Now that Under Armour and Nike have their offices down there and they have been down there a while and working closely with you, what kind of improvements are you seeing in the available product you are getting from them and maybe Adidas as well, though they are not there yet?

Yes, I think as we have spoken with all of our vendors with regard to our typing strategy and the way we are very focused on each consumer across the types that the vendors have been very, very supportive. So we are seeing access to products improve across all of our vendors. We are certainly seeing our opportunity to cover additional stores with product improve. The strategy is very sound. The strategy was developed in conjunction with our vendors as well. So I think as we continue to talk through the store typing, continue to assort that way and look for opportunities, we will continue to see the benefits and improvements from the vendor side.

Two more things. Number one, is performance and let's say fashion lifestyle apparel in women's, that's not mutually exclusive. You can have just really much better, more fashionable performance product, which is what the woman is looking for if I'm thinking about that correctly.

You are, absolutely. There are performance fabrications, or prints, novelty that do lend more to lifestyle even though they could be in a performance category or a performance fabrication, so you are correct.

They aren't two different things. It's just basically a variation of making the performance more fashionable, so to speak.

Absolutely correct.

Okay. And then lastly, the timing of back to school, I've heard a lot of people talking about despite the fact that there weren't a lot of big moves when people went back to school that the shopping is happening later, more so very close to and a couple weeks following. Are you seeing any major change in the way people are shopping back to school, or the kids are shopping now versus prior years? Has anything inflected differently than you might have anticipated?

The peak of the business by store is getting closer and closer to the actual start date in the market. We are absolutely seeing that, and then certainly after that, I think there is some volatility around start dates. The difference of starting on a Thursday versus the following Monday or vice versa or a week later are having significant impacts to the volatility over time and it's really on a store-by-store, market-by-market basis.

And if you compare it to last year, when do you foresee that balancing out? Does that mean that the peak of back to school may have in general moved back 10 days or something for you versus last year? If we think about it in the bigger picture?

Yes, at this point, we don't see it moving back that far. I think it will really take us until we get through Labor Day to really determine what that true peak was and where it peaked by store, but I think 10 days based off what I'm seeing today is probably a little bit high.

But the peak is still ahead of you, correct?

No, the peak is not.

It is not? Okay. All right. Thank you very much. Good luck.

Mark Smith, Feltl and Company.

First off, I have a broad question. Can you just talk about the competitive environment primarily on price and then what you are seeing from customers today? Are you seeing customers cutting spending a bit going into back to school, or are they still at healthy levels?

I believe they are still at healthy levels. Probably the biggest difference that we see a little bit more pronounced this year is that they know exactly what they want. So key styles are really what's driving the business. Maybe it's not as broad of assortments as before, but if you have the right item, the price really doesn't matter. Especially the more special the product is, that makes a huge difference.

Where we have seen a little bit of price issues are on some more of the team equipment areas where Sports Authority did have quite a few categories that we're in such as team sports where it has been a little bit more promotional in some of those categories.

That fits with my next question, which is any insight into early signs and football participation rates this season and are you seeing that still tick lower and any negative impact from that?

Yes, we are seeing -- and it really depends on the category within football. We are seeing our cleated business be fairly consistent and certainly from a cleated perspective, I think you need cleats for both tackle football and for flag football, and we do believe that flag football participation is growing.

In some of the categories that are specific to tackle football, some of the pads, pants, shoulder pads, helmets things like that, we are differently seeing some compression. So I think that when you look at the football business as a whole, there are some offsets from tackle football to flag football, but looking at the tackle category specifically, it does feel like there's some compression with regard to the number of players.

Great. Thank you.

(Operator Instructions). Camilo Lyon, Canaccord Genuity.

Just a quick follow-up on Nike Signature. Seems like there's been a little bit of a rebound there. Jared, if you had to say one versus the other, what do you think has been the cause for that uptick in that category? Is it the price reductions or is it the product actually looking better? And on the price reduction, is that something that you are sharing in margin with Nike or is Nike taking that margin hit?

Yes, the margin complications of the lower price, that's a Nike issue. Our margins are not changing with regard to the lower price on some of the product. Yes, I think that some of the product that came out in the second quarter was a little bit more relevant to the market, what was going on first of all with regard to color and style and then secondly particularly in both the Lebron shoe and the KD shoe -- the KD shoe, the price value relationship was much better than what had been there in the prior period.

Along with that, we are still seeing very significant sellthroughs on Kyrie's product, which were at a little lower retail price that already had the price value relationship intact. So we feel like they are moving in the right direction. I still think that the price value piece of it is one part. It still comes down to the product. The product has got to be trend-relevant.

I think in particular with second quarter the low-cut version of the Lebron from a style perspective just looks significantly better than we've had in the past and was priced appropriately. So it's a combination, but we are not sharing in the margin. The margin is a complete reset back to our normal margins.

Okay, great. And then any indication on the outlook for that particular category from a product perspective that you see over the next 9 or 12 months?

Yes, I think the product pipeline is pretty full. We feel great about the offering with regard to retro without question. Certainly the Steph Curry product has performed very, very well and the Signature product -- again, KD has started out pretty strong and we do feel that the basketball category -- Nike has done a nice job from a product perspective and distribution segmentation standpoint.

So we feel like there's some opportunities in the category. It's the same as other categories. The product has got to be right, and we do feel like there's some opportunity there for the back half, especially as how it compares to last year's back-half offering.

Fantastic. Thank you for the color. Take care.

Thank you. We have no further questions at this time. I will turn the call back over to Mr. Rosenthal for any closing remarks.

Thank you very much for being on the call today. We look forward to having you to see our third-quarter results in November. I just would like to say we continue to make investments and we continue to see some of these investments starting to pay off as we continue to move down the -- throughout this year. So thank you very much.

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 all lines. Thank you and have a good day.