Hibbett, Inc. reported second-quarter earnings that fell short of analyst targets. However, the sporting goods chain raised its second-half comparable sales guidance due to improved inventories and favorable sales trends for the back-to-school shopping season to maintain its earnings guidance for the year.

Shares of Hibbett rose $3.38, or 5.9 percent, to $60.74 on Thursday.

“Our success in rebasing our sales and profits at higher levels versus pre-pandemic levels is to be noted. While the last two fiscal years were positively impacted by stimulus and changes in the competitive landscape, we’ve also improved the underlying business model, which positions us for growth over the long term,” said Mike Longo, president and CEO, on a call with analysts. “Looking at the back half of the year, we believe we’re well-positioned to meet our full-year goals.”

Longo noted that, as cited in its first-quarter call, Hibbett benefits from an improved inventory position versus 2021 levels that supported the company’s second-quarter sales. He said, “I’m pleased to report sell-through of this inventory was strong. We had a compelling selection of in-demand product supported by excellent execution in the stores and on our omnichannel platform. Overall, our team did an outstanding job executing this quarter.”

Going forward, Hibbett expects to benefit from “favorable sales trends for the back-to-school shopping season” and a timing shift that favors the third quarter.

“We saw customers wait until closer to the start of school to begin their back-to-school shopping. Historically, customers have started their back-to-school shopping two to three weeks before the start of school. This year, we saw these purchases shift somewhat, and as a result, some sales shifted from Q2 into Q3, and we’re seeing those trends take place now,” said Longo. “As a result, we are increasing our second-half comparable sales guidance to the positive low-double digits from the positive high-single-digits and the full-year comparable sales guidance to the positive low-single-digits from the negative low-single-digits.”

In addition, Hibbett expects improvement from a supply chain perspective and easier comps in the second half to support a return to positive comp growth in the second half.

The second quarter, which ended July 30, decreased 6.3 percent to $392.8 million, ahead of Wall Street’s consensus estimate of $387 million.

Hibbett again provided comparisons to pre-pandemic 2019 quarters that management sees as the most relevant comparison to gauge performance. Compared to the second quarter of 2019, sales were up 55.6 percent.

Comparable sales fell 9.2 percent versus the prior year but jumped 54.4 percent compared to the pre-pandemic Q219.

Brick-and-mortar comparable sales declined 11.9 percent, while e-commerce sales increased 8.3 percent on a year-over-year basis. Compared to Q219, brick-and-mortar comps climbed 42.0 percent and e-commerce sales surged 174.4 percent

E-commerce represented 15.2 percent of total sales in the latest quarter against 13.1 percent a year ago and 8.6 percent in Q219.

Discussing product, Jared Briskin, EVP, merchandising, said the overall sales performance aligned with expectations across categories.

Compared to the second quarter of 2019, comp sales were up 54 percent. From a year-over-year perspective, all categories declined, as expected, going up against the stimulus-impacted year-ago period. Footwear and team sports declined in the low single digits, while apparel declined in the high teens.

Compared to the second quarter of 2019, footwear was up in the high 60s; followed by apparel, up in the low 40s; and team sports, up in the low single-digit range. Specific to footwear and apparel, men’s, women’s and kids’ all showed significant growth compared to the second quarter of 2019. Women’s was up in the upper 70s, kids’ were in the low 60s and men’s in the high 50s.

“We’re confident with our inventory position,” said Briskin. “The increased inventory levels are largely attributed to a better in-stock position of key franchises in footwear and are appropriate for the results we were seeing during back-to-school.”

Inventory as of July 30 was ahead 68.9 percent compared to the prior year’s second quarter and up 65.5 percent from the beginning of the year. Compared to the second quarter of 2019, inventory levels were up 35 percent at the end of the quarter, more balanced with Hibbett’s 54 percent sales gain over those three years.

Briskin said the increase is primarily due to the positive impacts of its mix of footwear inventory as well as price inflation. Compared to the second quarter of 2019, unit inventory levels were up about 10 percent. Said Briskin, “Our results in the second quarter combined with our strong quarter-end inventory position continue to give us confidence that our toe-to-head merchandising strategy is working and elevated in how we serve our consumers.”

Gross margins in the latest quarter eroded 460 basis points to 34.4 percent. The decline was driven by a lower average product margin of approximately 225 basis points, increased freight and transportation cost of roughly 125 basis points and deleverage of store occupancy of approximately 110 basis points.

Store operating, selling and administrative (SG&A) expenses increased 100 basis points to 23.3 percent, reflecting deleverage from the year-over-year sales decline in categories including wages, employee benefits, repairs and maintenance, and supplies necessary to support a broader store base and increased e-commerce volume.

Net income fell 47.1 percent to $24.7 million, or $1.86, below Wall Street’s consensus estimate of $2.14.

The upbeat second-half outlook is supported by Hibbett research that shows that most customers plan to spend more this year on back-to-school, particularly on footwear, Bill Quinn, SVP of Marketing and digital, said in the call.

Quinn also said Hibbett finds “longer-term customer trends have not changed” to keep Hibbett’s business re-baselined well above pre-pandemic levels. Two “fundamental differences” versus pre-pandemic levels include a jump in the number of shoppers in Hibbett’s customer base and a significant increase in average ticket due to gains in the average unit at retail.

Online, Quinn said the growth reflects continued improvements that are leading to gains online in total customers and increases in traffic to its website and app by over 20 percent year-over-year. Quinn added, “For back-to-school, digital sales have accelerated versus our Q1 and Q2 run rate. Key drivers include strong traffic, robust footwear sales, and gains in average unit retail. These factors continued investments in digital will produce low double-digit growth for the remainder of this year.”

Asked in the Q&A session about potential promotional activity, Briskin said Hibbett has had “essentially zero promotional activity” over the last two years. While promotional activity is seen in apparel, promotional activity continues to be “significantly less” versus pre-pandemic levels.

On inventory, Briskin said Hibbett has been “fighting the inventory battle for a couple of years of really just not having enough inventory, particularly in footwear,” and is in better shape with all its vendors, including Nike.

Briskin said, “Our team is working closely with our vendors and has done an excellent job of getting our pipeline full. And not just getting it full, but getting it full of the right things, the things driving traffic, the things that are high heat and that sell through quickly. We’re confident with where we stand now and our plans for the back half.”

Updated Outlook For The Year Calls For:

  • Total sales to increase in the low-single-digit range in dollars year-over-year, implying comparable sales to be in the range of flat to positive low-single-digits. Previously, total sales were expected to be relatively flat in dollars, implying comparable sales to be in the negative low-single-digits.
  • Brick-and-mortar comps are in the flat to the positive low-single-digit range, with e-commerce revenue growth in the positive high-single-digit range. Previously, brick-and-mortar comps were expected to be in the negative low-single-digit range. while e-commerce growth was expected to be in the positive mid-single digit range.
  • Comparable sales to be positive low double-digits in the second half of the year. Previously, the forecast called for positive high-single-digit comp sales in the second half of the year. The updated guidance assumes supply chain disruptions moderate, the timing of inventory receipts is consistent and predictable, and Hibbett’s overall inventory position remains strong.
  • Gross margins to decline by 290 to 310 basis points year-over-year. Previously, gross margins were projected to decline 130 to 160 basis points. This reflects product margin headwinds, higher freight and transportation costs, store occupancy deleverage. and a higher mix of e-commerce sales. The expected full-year gross margin range of 35.1 percent to 35.3 percent remains above pre-pandemic levels. Gross margin comparisons are expected to become more favorable in the back half of the year.
  • SG&A as a percent of sales is expected to increase by 10-to-20 basis points versus an increase of 70-to-100 basis points under its previous guidance, reflecting better sales leverage. The net increase reflects wage inflation, costs associated with growth in e-commerce, a larger store count and annualization of back-office infrastructure investments. The expected full-year SG&A expense range of 22.7 percent to 22.8 percent as a percent of net sales is below pre-pandemic levels. Year-over-year quarterly SG&A comparisons is expected to become less challenging in the back half of the year due to a more favorable sales trend, supported by a stronger inventory position.
  • Operating income to continue to be in the low double-digit range as a percent of sales, also remaining above pre-pandemic levels.
  • EPS to remain in the range of $9.75 and $10.50.
  • Capital expenditures to continue to be in the range of $60-to-$70 million with a focus on new store growth, remodels and additional technology and infrastructure investments.
  • Net new store growth to continue to be in the range of 30-to-40, with units spread relatively evenly throughout the year.

Photo courtesy Hibbett