Hibbett Sports Inc. reported a loss in the second quarter although it came in slightly better than Wall Street’s targets. Comps increased 0.3 percent.

Jeff Rosenthal, president and chief executive officer, stated, “I am pleased with the second-quarter results. We believe our strategic initiatives are taking hold as we recorded our third consecutive quarter of positive comparable sales. Looking ahead, we expect a solid finish to the back-to-school season as well as momentum from strong product offerings in the back half of the year. We are encouraged by City Gear’s early performance as they enter the second half with a strong inventory position along with the planned migration to the Hibbett digital platform. Based on the strength of the first half and our confidence in the second half, we have updated our annual guidance. As we move forward, we will continue to drive the business with our strategic focus on leading with sneakers and connecting toe-to-head concepts with active apparel and accessories.”

Second Quarter Results

Net sales for the 13-week period ended August 3, 2019, increased 19.6 percent to $252.4 million, including $42.0 million for City Gear, compared with $211.1 million for the 13-week period ended August 4, 2018. Comparable store sales increased 0.3 percent and will not include sales from City Gear until the fourth quarter of Fiscal 2020. E-commerce sales represented 8.6 percent of total sales for the second quarter. The increase in net sales was primarily attributable to the addition of City Gear. Footwear sales continued to drive the business along with positive sales in activewear and accessories connecting to footwear products.

Gross margin was 30.3 percent of net sales for the 13-week period ended August 3, 2019, compared with 31.4 percent for the 13-week period ended August 4, 2018. The 110 basis point decrease was principally due to the closure of 37 stores, which included full inventory liquidation of 32 stores and limited markdown activity which helped drive our clean inventory position.

Store operating, selling and administrative expenses were 31.8 percent of net sales for the 13-week period ended August 3, 2019, compared with 29.4 percent of net sales for the 13-week period ended August 4, 2018. The increase as a percent of net sales included a one-time charge related to the previously announced transition of the company’s chief executive officer, City Gear acquisition costs of $7.6 million and $0.9 million related to the company’s accelerated store closure plan. The acquisition costs included a charge of $7.1 million for an increase in the estimated valuation of two contingent payments based on an update to City Gear’s projected achievement of defined EBITDA thresholds. Excluding these costs, comparable store operating, selling and administrative expenses improved 170 basis points to 27.7 percent of net sales for the 13‑week period ended August 3, 2019.

Net loss for the 13-week period ended August 3, 2019, was $8.8 million, or 49 cents per share, compared with net loss of $1.2 million, or 6 cents per share, for the 13-week period ended August 4, 2018. Excluding non-recurring costs, non-GAAP net loss for the 13-week period ended August 3, 2019, was $2.4 million, or 13 cents per share, including 9 cents per share for the one-time executive compensation costs related to the CEO’s transition. Wall Street’s consensus estimate had been a loss of 16 cents.

For the quarter, Hibbett opened two new stores, rebranded two Hibbett stores to City Gear stores and closed 40 underperforming stores, bringing the store base to 1,108 in 35 states as of August 3, 2019. Store closures included Hibbett stores closed for rebranding. In addition, three high-performing stores were expanded.

Strategic Realignment–Accelerated Store Closure Plan

As the retail environment continues to evolve, the company is focused on improving the productivity of the store base while continuing to grow its omnichannel business to serve customers where and when they want to shop. As previously reported, the company is proceeding with the closing of approximately 95 Hibbett stores in Fiscal 2020, which is expected to result in non-recurring impairment and store closure charges in the range of $0.10 to $0.15 per diluted share in Fiscal 2020.

Fiscal Year to Date Results

Net sales for the 26-week period ended August 3, 2019, increased 22.6 percent to $595.7 million compared with $485.8 million for the 26-week period ended August 4, 2018. Comparable store sales increased 3.06 percent.

Gross margin was 32.7 percent of net sales for the 26-week period ended August 3, 2019, compared with 33.6 percent for the 26-week period ended August 4, 2018. Excluding non-recurring expenses related to the $1.0 million amortization of an inventory step-up value, non-GAAP gross margin was 32.9 percent for the 26-week period ended August 3, 2019.

Store operating, selling and administrative expenses were 25.9 percent of net sales for the 26-week period ended August 3, 2019, compared with 25.5 percent of net sales for the 26-week period ended August 4, 2018. SG&A expenses included a one-time charge related to the previously announced transition of the company’s Chief Executive Officer, $8.3 million in City Gear acquisition costs, and $1.8 million related to the company’s accelerated store closure plan. Excluding these costs, store operating, selling and administrative expenses were 23.9 percent of net sales for the 26-week period ended August 3, 2019.

Net income for the 26-week period ended August 3, 2019, was $19.1 million, or $1.05 per diluted share, compared with $20.3 million, or $1.06 per diluted share, for the 26-week period ended August 4, 2018. Excluding non-recurring costs, non-GAAP net income for the 26-week period ended August 3, 2019, was $27.3 million, or $1.50 per diluted share, including $0.09 for the one-time executive compensation costs related to the CEO’s transition.

Balance Sheet and Stock Repurchases

Hibbett ended the second quarter of Fiscal 2020 with $97.8 million of available cash and cash equivalents on the consolidated balance sheet. As of August 3, 2019, Hibbett had $17.0 million in debt outstanding and $83.0 million available under its credit facilities.

During the second quarter, the company repurchased 429,964 shares of common stock for a total expenditure of $8.9 million. Approximately $174.2 million remained authorized for future stock repurchases through January 29, 2022.

Fiscal 2020 Outlook

The company updated its full-year guidance for Fiscal 2020:

 

Photo and chart courtesy Hibbett Sports