Given the category challenges facing Dick’s Sporting Goods and the weather hurdles facing many retailers in the first quarter, Hibbett Sports, Inc. was content to muster a modest profit gain in the first-quarter, boosted by a healthy 4.1 percent comp increase. The company also backed its guidance for the full year.
Profits in the quarter rose 8.3 percent to $28.4 million, or $1.09 a share, matching Wall Street’s consensus estimate. Sales jumped 9.1 percent to $261.9 million.
The comp gain came against a 0.8 percent increase a year ago and was driven by branded apparel and footwear. Average ticket was up mid-single while transactions were down low single digit. By month, comps jumped 7.2 percent in February, 2.9 percent in March and 0.9 percent in April.
One concern was the decelerating rate of comps during the quarter as well as the indication that comps were declining in the low-single digits so far in its second quarter. On a conference call with analysts, officials said February benefited from tax refunds and some bounce back after storms. Comps did moderate in in March and April but officials indicated it was normal seasonality as well as some weather issues later in the quarter. Two-year stacked comps in April were ahead 4.4 percent.
Officials also indicated that basketball footwear and branded apparel remained robust and the dip in May so far was due to a shift in launch shoes. Noting that 80 percent of its business remained in the period as summer kicks in, Jeff Rosenthal, president and CEO, stated, “We are very positive that we will have a good second quarter.”
In the first quarter, all categories of branded apparel comped positive across both genders, said Becky Jones, Hibbett’s SVP merchandising, on the call. In its more fashion-heavy stores, Jordan and KD Apparel led the way while Levi's “also had a nice positive comp.” Men's performance tees and shorts were cited as “high performers,” although compression were softer compared to last year's Under Armour Compression program launch.
Women's performance pants, bras and shorts sales were also “quite strong,” Jones added. Particular strength was seen in kids, especially branded boys' products. Girls branded saw “substantial” comp growth. Socks, headbands and branded caps continued to drive volume in accessories.
The licensed apparel and headwear business was soft overall although women’s did well. Branded headwear is “trending upward,” with customers shifting to brands such as Costa, Nike and Under Armour.
In equipment, baseball and softball, including the cleat category, performed well. Protective equipment and sports medicine also sold well. Said Jones, “Soccer had a nice quarter with World Cup inflatables leading the way, and Nike is dominating the soccer cleats business.”
In footwear, basketball had a “tremendous quarter,” fueled by Jordan, as well as Nike Signature, Lebron, Kobe and KD. Although Jordan Retros performed “extremely well, we are just as pleased with the performance of off-court Jordan silo,” added Jones. Total running was “stable” with Nike Free Run “still the dominant unit driver.” Good results were also seen from Roshe Run and Nike Free trainer 5.0. Kids footwear is being dominated by Under Armour running silos.
Gross margins decreased 38 basis points in the quarter. Product margins decreased 44 basis points, mainly due to markdowns associated with managing inventory. Warehouse and store occupancy decreased 6 basis points due to leverage gains from comp sales partially offset by additional costs related to its new wholesale and logistics facility.
SG&A expenses increased 8.5 percent in the quarter but decreased 11 basis points as a percent of sales. That was mainly due to the leverage gained from comp sales and favorable benefit costs.
Inventories increased 0.4 percent over last year and were 6 percent lower on a per-store basis. Said Jones, “We are in a healthy place going into summer. Back-to-school assortments are robust, with receipts planned to arrive late June/early July. And our marketing initiatives are in place to connect with our customer, and we anticipate a good back-to-school season.”
Regarding the second quarter, she said branded apparel is “still comping in a strong place” while basketball remained “still very, very strong” and has a stream of launches planned. Added Jones, “Knowing what is impactful in the back part of the quarter with the back-to-school timing coming, as well as the launches that we know are out there, we are pretty comfortable with where we are headed for second quarter.”
Operationally, Rosenthal noted that over the last 30 days, Hibbett has fully transitioned to its new wholesale and logistics facility with few complications. Rosenthal said the company is “excited in the potential that this facility will deliver in terms of getting the right product to the right place more efficiently than ever before.”
By back-to-school, about 70 percent of its categories will be under its markdown optimization program.
Hibbett has also begun executing on the first phase of its omni-channel push. One initial focus includes “firming up our IT infrastructure by investing in technology, people and processes,” said Rosenthal. The second is upgrading its store technology and hardware, including point-of-sale.
Hibbett opened 16 stores – a record number for a quarter. It also expanded 4 stores and closed 4. It ended with 939 stores at the end of the quarter, and remains on track to a net of 65 stores this year. New store productivity remains strong in the high-70s.
Hibbett Sports maintained its guidance for the full year, calling for EPS in the range of $2.78 to $2.98, up from $2.70 in 2013. Comps are expected to climb in the low-to-mid single digits.
