Hibbett Sports Inc. reported earnings increased more than four-fold in the third quarter as same-store sales climbed 21.2 percent. The retailer blew past estimates and raised its guidance for the year.

Mike Longo, president and chief executive officer, stated, “Our business continues to operate from a position of strength despite ongoing challenges in the current business environment. Superior customer service delivered by our dedicated team members and a best-in-class omnichannel platform contributed to significant revenue and earnings growth in the quarter. Our third-quarter comparable sales growth of 21.2 percent was driven by several factors, including new customer retention, the timing of back-to-school spending, and the availability of in-demand footwear, apparel and accessories. We believe that these factors helped drive additional transactions and a higher average ticket across our store footprint as well as online.

“In addition to experiencing continued sales growth in the third quarter, our laser focus on execution and an improving partnership with our vendor base led to an improved inventory position compared to last quarter. We believe our efforts to provide the underserved consumer with a compelling assortment of attractive products is not only valued by our loyal customers and strategic vendor partners, but it also continues to attract new customers to our stores and website.”

Finally, Longo added, “Our recent performance exemplifies the effort of our team members and the resiliency of our business model. With ongoing expected market disruption and improvements to our operations, we remain optimistic the positive momentum we have enjoyed for most of this year will continue through the remainder of Fiscal 2021. The direction of the pandemic is uncertain, but we will continue to adapt and safeguard our customers and team members, while also striving to generate positive returns.”

Third Quarter Results
Net sales for the 13-week period ended October 31, 2020, increased 20.3 percent to $331.4 million compared with $275.5 million for the 13-week period ended November 2, 2019. Wall Street’s consensus estimate had been $286 million.

Comparable sales increased 21.2 percent. Brick and mortar comparable sales increased 17.5 percent. E-commerce sales grew by 50.7 percent and represented 13.2 percent of total net sales for the third quarter compared to 10.5 percent in the prior-year third quarter. Hibbett said the increase in overall sales was positively impacted by continued strength in omnichannel adoption, improved new customer retention, market disruption, and availability of in-demand products, which collectively helped increase the revenue per transaction in the quarter.

Gross margin was 38.3 percent of net sales for the 13-week period ended October 31, 2020, compared with 32.7 percent of net sales for the 13-week period ended November 2, 2019. The approximate 560 basis point increase was driven by higher sell-through, a low promotional environment, a reduction in inventory valuation reserves and leverage of store occupancy expenses. These impacts were slightly offset by a higher mix of e-commerce sales, which carries a lower margin due to incremental shipping costs. Excluding adjustments to its inventory valuation reserves in the current quarter, the non-GAAP gross margin was 38.1 percent compared to the non-GAAP gross margin of 32.4 percent in the prior year.

Store operating, selling and administrative (SG&A) expenses were 26.1 percent of net sales for the 13-week period ended October 31, 2020, compared with 29.1 percent of net sales for the 13-week period ended November 2, 2019. This decrease was the result of leverage gained from the strong sales performance as well as lower costs of acquisition and integration activities associated with City Gear. Excluding certain City Gear acquisition and integration expenses, comparable SG&A expenses on a non-GAAP basis decreased approximately 120 basis points to 26.0 percent of net sales for the 13-week period ended October 31, 2020, from 27.2 percent of net sales for the 13-week period ended November 2, 2019. This decrease was also primarily due to leverage from the significant sales increase.

Net income for the 13-week period ended October 31, 2020, was $25.3 million, or $1.47 per diluted share, compared with net income of $2.3 million, or $0.13 per diluted share for the 13-week period ended November 2, 2019. On an adjusted basis, net income for the 13-week period ended October 31, 2020, was $24.9 million, or $1.45 per diluted share, compared with adjusted net income for the 13-week period ended November 2, 2019, of $5.8 million, or $0.32 per diluted share. Results on an adjusted basis tripled against Wall Street’s consensus estimate of 45 cents.

For the quarter, it did not open any new stores, rebranded two Hibbett stores to City Gear stores and closed five stores, bringing the store base to 1,074 in 35 states as of October 31, 2020. Store closures were composed of underperforming stores and rebrands.

Hibbett said it ended the third quarter of Fiscal 2021 with $177.7 million of available cash and cash equivalents on its unaudited condensed consolidated balance sheet. As of October 31, 2020, Hibbett had no debt outstanding and full availability under its $75.0 million secured credit facility.

Inventory at the end of the third quarter of Fiscal 2021 was $210.9 million, a 27.0 percent decrease compared to the prior year’s third quarter. Strong brick & mortar and e-commerce demand during the quarter was the main driver of the inventory reduction.

Fiscal Year-to-Date Results
Net sales for the 39-week period ended October 31, 2020, increased 19.7 percent to $1,042.8 million compared with $871.2 million for the 39-week period ended November 2, 2019. Comparable sales increased 22.0 percent. Brick and mortar comparable sales were up 11.6 percent, and e-commerce sales increased 118.2 percent, representing 16.6 percent of total sales on a year-to-date basis compared to 9.1 percent of total sales in the comparable period last year.

Gross margin was 35.0 percent of net sales for the 39-week period ended October 31, 2020, compared with 32.7 percent for the 39-week period ended November 2, 2019. Excluding year-to-date inventory reserve adjustments in the current year and City Gear acquisition and strategic alignment costs incurred in the prior year, gross margin was 35.3 percent of net sales for the 39-week period ended October 31, 2020, compared with 32.7 percent of net sales for the 39-week period ended November 2, 2019.

SG&A expenses were 26.4 percent of net sales for the 39-week period ended October 31, 2020, compared with 26.9 percent of net sales for the 39-week period ended November 2, 2019. Increased sales revenue was the primary driver of the modest decline. On a non-GAAP basis, comparable SG&A expenses were 22.6 percent of net sales for the 39-week period ended October 31, 2020, compared with 25.2 percent of net sales for the 39-week period ended November 2, 2019.

Net income for the 39-week period ended October 31, 2020, was $50.3 million, or $2.98 per diluted share, compared to $21.3 million, or $1.18 per diluted share, for the 39-week period ended November 2, 2019. On an adjusted basis, net income for the 39-week period ended October 31, 2020, was $80.2 million, or $4.74 per diluted share, compared to $32.9 million, or $1.82 per diluted share, for the 39-week period ended November 2, 2019.

Fiscal 2021 Outlook
Given the strong performance in the third quarter, Hibbett updating its financial guidance for the fourth quarter. However, due to the ongoing uncertainty from the recent surge in COVID-19 case counts, Hibbett said it is continuing to provide limited financial guidance.

Hibbett said its anticipated financial results for the fourth quarter of Fiscal 2021 are influenced by several factors:

  • The company believes it has attracted new customers to its store locations and to its online platform throughout Fiscal 2021 due to pent-up demand, market disruption and government stimulus payments;
  • Through its customer service and targeted marketing programs, many of its new customers have made repeat purchases. Hibbett expects to continue to attract and retain new customers leading to future sales growth;
  • Accelerating consumer adoption of e-commerce, which Hibbett said it believes is likely a permanent change, will continue to benefit it’s omnichannel business;
  • Hibbett said its strong vendor relationships allow it to meet customer demand for fashion inspired athletic footwear, apparel and accessories both in-store and online; and
  • Other initiatives, including increased speed to market and an enhanced sales culture, it expects will lead to sales growth during the fourth quarter.

Based on the considerations above, Hibbett said it forecast the following GAAP results for the fourth quarter of Fiscal 2021 in comparison to the fourth quarter of Fiscal 2020:

  • Comparable sales increases in the high-single-digits to low-double digits;
  • Gross margin improvement of approximately 380-to-400 basis points;
  • SG&A leverage of approximately 40-to-60 basis points; and
  • Diluted earnings per share in the range of $1.00 to $1.10, assuming an effective tax rate of approximately 25.0 percent and a diluted share count of approximately 17.2 million.

Previously, Hibbett’s outlook called for:

  • Comparable sales increases in the mid-single-digits;
  • Gross margin improvement of approximately 50-to-70 basis points;
  • SG&A leverage of approximately 70-to-90 basis points; and
  • Diluted earnings per share in the range of 85 cents to $1.00, assuming an effective tax rate of approximately 26.0 percent and a diluted share count of approximately 16.9 million.

Photo courtesy Hibbett Sports