By David Clucas

While it eked out a 0.8 percent gain in same-store sales during a traditionally slow second quarter, and beat Wall Street earnings expectations by a penny, Hibbett Sports (Nasdaq:HIBB) officials aren’t sitting back.

On the company’s August 19 conference call, officials laid out a list of upcoming shifts and improvements for the sporting goods retailer, including new POS, e-commerce and omni-channel systems, and a move toward more lifestyle product — all to match quickly changing consumer shopping habits and preferences in the marketplace.

One thing not changing is Hibbett’s focus on smaller markets, where it’s stayed clear from competition and largely avoided any negative effects from the recent Sports Authority bankruptcy, officials said.

Investments for the Future
Net sales for Hibbett’s fiscal second quarter, ended July 30, 2016, rose 3.9 percent to $206.9 million, with the company opening 14 new stores, expanding one and closing eight locations, bringing its store count to 1,059 in 33 states. By month, same-store sales fell 2.7 percent in May, rose 4.9 percent in June and dipped 0.5 percent in July.

Product margins increased 23 basis points, largely thanks to the company improving the management of its markdown programs, officials said, but higher SG&A expenses — up 67 basis points as a percent of sales, due to those POS and omni-channel improvements — ultimately cut into quarterly profits, which slipped to $6.5 million versus $7 million a year ago. Diluted earnings per share still came in a penny higher at 29 cents per share, versus 28 cents per share a year ago, and what Wall Street had expected.

“We continue to make significant progress in our digital strategy,” said Hibbett Sports President and CEO Jeff Rosenthal. “We have picked DemandWare as our strategic partner in this opportunity and we have hired our internal digital team, which is working to get this project over the top. This omni-channel approach, we believe, will become over 10 percent of our revenue over time.”

Footwear, Lifestyle Drive Gains
By category, Hibbett saw its second-quarter gains come from footwear sales, which rose in the low-single digits, driven by double-digit gains in basketball, “led by strong performances of retro Jordan, Steph Curry from Under Armour and Nike Signature, including the Lebron Low and KD 9,” Hibbett Sports Senior Vice President and Chief Merchant Jared Briskin told investors.

Hibbet’s lifestyle footwear business increased by mid single digits, with “solid business from Nike with its Huaraches, Air Force 1s and Juvenate … and from Adidas with its multiple originals platforms, including the new NMD and Superstar,” Briskin said. “Puma and New Balance also showed significant gains in our lifestyle area.”

Performance running sales were one of the few downsides in footwear, falling by high single digits, challenged early on in the quarter, but “improving significantly” heading into the back-to-school period.

Other second-quarter category highlights for Hibbett included:

  • The men’s business up by mid single digits, while the kids fell in the low-single digits and women’s dropped by high single digits.
  • Sales of lifestyle tops and bottoms “were very strong, but our performance product, especially compression, showed significant weakness,” Briskin said. “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. Strong NBA sales on the heels of the league’s playoffs were offset by declines in MLB.
  • Team sports business was down low single digits, with a notable decline in football protective equipment sales as more parents shy their kids away from the tackle version of the sport, officials said. But football cleat sales are up, suggesting there’s a rise in flag football participation.

Briskin said Hibbett is working to find the right balance between lifestyle and performance product. “I think for the performance-based business, you have to keep in mind the primary colors that you sell … one, two and three are black, white 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 sell-throughs.”

Looking Ahead
Officials noted the company’s 16.5-percent increase in inventory, but said that was done intentionally to prepare for what they expect to be a strong back-to-school period. They said back-to-school sales have increasingly pulled later in the year, closer to the actual school-starting dates.

The company’s balance sheet ended the quarter with $45.9 million versus $85.3 million a year ago, with no borrowings, as the company made investments and bought back $21.4 million in company shares.

Full-year, diluted-per-share earnings guidance was tweaked at both ends, now expected between $2.93-$3.02 from a previously reported range of $2.90-$3.04. The company’s merchandise margin is expected to come in flat to slightly positive versus a pervious projection of flat, versus the prior year.

“We are very comfortable with where the inventory is today,” said CFO Scott Bowman, “and feel very good about the management of that inventory more closely to sales in future quarters.”

Photo courtesy Hibbett Sports