Hibbett Sports reported third-quarter earnings fell 47.9 percent but both earnings and sales easily topped Wall Street targets.
On Friday, shares of Hibbett closed at $17.10, up $2.25, or 15.2 percent.
“We were quite pleased with the results for the quarter, which were driven by significant improvement in footwear and branded apparel, along with a strong launch of our e-commerce business,” said Jeff Rosenthal, CEO, on a conference call with analysts.
In the quarter, sales increased 0.4 percent to $237.8 million. Comparable store sales decreased 1.3 percent.
“During the third quarter, we saw a significant improvement from our previous trend,” said Jared Briskin, Hibbett’s SVP and chief merchant, on the call. “We also saw acceleration throughout each month of the quarter led by strong results in our footwear business, improvement in our apparel business and our growing e-commerce business. As expected, we were more promotional and took an elevated markdown stance throughout the quarter to improve aging and productivity.”
Apparel was down low single digits for the quarter, representing significant improvement over over previous trends. Said Briskin, ”Challenges in the marketplace regarding excess inventory, increased distribution, and a lack of strong segmentation continue to pressure the apparel business. During the quarter and especially as the weather turned cooler, our customers responded positively to changes in our vendor mix and assortment.”
Apparel was led by strong performance in men’s apparel with a mid-single-digit comp gain. Women’s and kids’ apparel were down low double digits but showed improvement late in the quarter. Investments in transitional products, athletic and denim bottoms, woven jackets and elevated fleece materials offset baselayer declines. In accessories, the backpack business was “robust” during back-to-school, but it wasn’t enough to offset declines in socks and hydration.
The licensed business was down double digits. Decreases in college were broad based across teams and categories. Added Briskin, “While a significant amount of the decline was planned, the business deteriorated more than expected. Major League Baseball was positive low single digits for the quarter as the Astros’ playoff run and an improved jersey trend impacted results positively.”
The team sports equipment business was down mid single digits. Fall baseball/softball business was up low singles, but was offset by declines in football and soccer. Fitness continues to downtrend, “and we will continue to rightsize this business to appropriate levels,” said Briskin.
Footwear was up mid single digits as momentum from back-to-school and strong launches improved throughout the quarter. Men’s footwear was up high single digits followed by kids’, up mid single digits. Women’s was softer, posting declines. Said Briskin, “Improvement in product access, as well as allocations from Nike, Adidas and Jordan, led our results. We also saw significant growth from Puma, New Balance, Brooks and Vans as we increased our investments in these brands.”
Gross margin in the quarter eroded to 32 percent compared with 35.4 percent a year ago. The decrease was mainly due to promotions and markdowns taken to improve its inventory position. As a result, inventory turns improved significantly compared with the same period last year and inventory levels declined 9.2 percent.
Store operating, selling and administrative expenses increased slightly, to 24.4 percent of sales from 23.6 percent. The increase was mainly due to marketing and operational expenses associated with launching the e-commerce business.
Net income reached was $7.6 million, or 37 cents a share, down from $14.6 million, or 66 cents a year ago, but well above Wall Street’s consensus target of 22 cents.
The retailer had significantly reduced its earnings guidance when it reported second-quarter results in August.
Inventory decreased 9.2 percent from last year and was 10.5 percent lower on a per-store basis.
“Our key vendors continue to be fantastic partners, elevating the level of support in our business through enhanced access, increased allocation, exclusive product opportunities, and inventory balancing efforts,” said Briskin. He added that while Hibbett has improved the aging and productivity of its inventory, it’s still not at optimal levels. He warned, “The emphasis on this continued improvement, as well as expectations of an extremely promotional holiday season, will continue to put pressure on margins during the fourth quarter.”
Rosenthal said e-commerce sales consistently exceeded expectations in the quarter, “which we believe was driven by our comprehensive marketing plan upon launch.”
Ongoing marketing initiatives to-date gained traffic and increased loyalty members, also aided by the strength of its site navigation and product assortment. Due to these efforts, e-commerce sales were approximately 5 percent of its total sales for the quarter.
“We are speaking to our customers more frequently than ever,” added Rosenthal. “The acquisitions of new customers and the reengagement of existing customers remain critical to our success.”
Sales from Rewards Members jumped from 46 percent of sales last year to 57 percent this year. Revenue from Rewards members increased 24 percent year-over-year, and those customers had 19 percent more transactions. In the last 90 days, Hibbett had a 25 percent increase year-over-year in the number of people joining the program versus a negative 10 percent before the program was re-launched. Added Rosenthal, “We have also improved our conversion rates with our Save the Sale program by helping our customers find a size from any store at any time. Our store associates have done an outstanding job helping us execute all new systems and embrace our new omni-channel capabilities.”
Looking ahead, Hibbett raised its EPS guidance for the year to a range of $1.42 to $1.50, which compares with previous guidance of $1.25 to $1.35.
“Our merchants have done an excellent job getting our inventory in great position to move us into the fourth quarter,” said Rosenthal. “Our vendor partnerships have never been better as they have supported us tremendously to become a true omni-channel retailer.”
Comps are now expected in the negative mid-single-digit range, which compares with previous guidance in the negative mid- to high-single-digit range.
On August 18, Hibbett significantly reduced its guidance due to soft sales and high inventories in the marketplace. Prior to that date, its guidance for the year called for earnings in the range of $2.35 to $2.55 and same-store sales in the range of negative 1 percent to positive 1 percent.
Photo courtesy Hibbett Sports
