Despite a decline in sales and earnings for the period, Hibbett Sports and Wall Street both appear to be pleased with the fiscal third quarter and the look ahead for the full year.
HIBB shares were up nearly 10 percent for the day on Tuesday, closing at $58.85.
“We are pleased with the trends in our business and look forward to the fourth quarter and a successful holiday sales season in line with our expectations,” said company President and CEO Mike Longo. “We are excited about additional new product launches around the holidays, which will boost sales and we are confident we have sufficient inventory to support these events and our premium Footwear sales. I would like to emphasize, in short, that we are investing in our business model for the long-term and continue to take market share.”
SVP/CFO Bob Volke reported that total net sales for the fiscal third quarter decreased 0.3 percent to $431.9 million, compared to $433.2 million in the third quarter of fiscal 2023. Overall comp store sales decreased 2.7 percent versus the year-ago third quarter.
He said brick & mortar comp sales declined 5.4 percent compared to the prior-year quarter, while e-commerce sales increased 12.6 percent compared to the corresponding period of fiscal 2023. E-commerce sales accounted for 17 percent of net sales during the current quarter, compared to 15 percent in the prior year quarter.
“We have seen a propensity of customers return to online shopping, as indicated by our most recent surveys in Q3 sales data, conversion and average ticket all increased in Q3 driven primarily by Footwear, as well as a strong back-to-school sale,” added Bill Quinn, SVP, Marketing and Digital Traffic. “Entering Q4, we are continuing to keep a pulse on our customers are feeling, customers continue to have elevated concerns around the economic conditions, including inflation. On a positive note, concerns around resuming student loan payments have declined since the summer, also our customers intend to purchase more this holiday season than last year.”
Longo noted the launch of the Nike Connected Partnership which connects Hibbett and Nike’s loyalty programs.
“We are very excited about this new benefit for our customers, what it means for our joint businesses,” he said.
“This transformative partnership will further distinguish the Hibbett retail experience, customers can now sign up to be a Connected member either in-store or online, also both new and existing customers can sign up to be a Connected member,” noted Quinn. “Benefits of the program includes exclusive shopping experiences, personalized content and early access to Nike and Jordan member products, integrating the Hibbett rewards and Nike membership will improve the ways we engage and delight our members across all omnichannel touch points.”
He said they heavily marketed the launch of the program and also have a variety of ongoing digital and in-store marketing campaigns, noting customers have been very receptive to the program.
Quinn said Q3 loyalty sales grew in single digits. “This was primarily driven by more members shopping and average ticket growth,” he said. “Higher average unit retail drove the growth in average ticket and increased member shopping was driven by continued engagement from our existing members.”
The third quarter reportedly opened with a strong end to the back-to-school season, according to comments from EVP of Merchandising Jared Briskin.
“Footwear remained our strongest category during the quarter with a low-single-digit comp sales increase,” Briskin reported. “Results in Footwear were driven by strength in basketball, lifestyle and running silhouettes. A favorable launch calendar also enables these positive results.”
Briskin shared that Apparel and Team Sports were both negative for the quarter, down in the low teens. Seasonal categories were said to be strong during the back-to-school season but cooled in the latter part of the quarter due to the warm and dry weather patterns.
“Apparel also continues to be affected by promotional activity due to elevated inventory levels in the market,” Briskin explained. “While Apparel was a challenge overall, socks and backpacks were strong performers in the back-to-school period.”
Men’s and kids were reportedly both down in low-single-digits, driven by a low-teens decrease in Apparel, Footwear results in both men’s and kids were said to be up in low-single-digits. The Women’s business was up in mid-single-digits, driven by a mid-teens increase in Footwear offset by weak Apparel results, according to details from Briskin.
“While the retail environment remains challenging, as consumers are being more selective in their discretionary spending, we worked very hard to offer a compelling product mix that meets this demand,” offered Longo.
Longo also pointed out that footwear sales, continue to be the key driver of sales, especially for premium brands.
“We are fortunate to have strong vendor relationships that support our ability to deliver the latest products that appeal to our fashion-conscious consumers,” Longo suggested. “During the quarter, we benefited from a more regular schedule of new product launches, which received a very positive response from our brand loyal customers.”
Gross margin was reported at 33.9 percent of net sales for the third quarter, compared to 34.3 percent in the third quarter of last year.
“This approximate 40-basis-point decline was driven primarily by lower average product margin, which is approximately 130 basis points below the same period last year,” said CFO Volke. “This unfavorable product margin performance is attributed to higher promotional activity across both Footwear and Apparel categories.
Higher store occupancy costs, mainly due to deleverage from the slightly lower sales volume, reportedly accounted for approximately 40 basis points of the overall decline in gross margin versus the prior-year period. Partially offsetting the unfavorable product margin occupancy impacts was an improvement in freight shipping shrink and logistics costs, as a percent of sales.
SG&A expenses were 23 percent of net sales in Q3, compared to 23.9 percent of net sales in Q3 last year.
“This approximate 90-basis-point decrease is primarily the result of our continued focus on expense management, including improved efficiency of store labor and strategic reductions in discretionary expense categories, such as professional fees and advertising. These initiatives have more than offset the impacts of inflation on wages, goods and services and deleverage from slightly lower sales volume,” the CFO added.
Depreciation and amortization in the third quarter increased approximately $1.4 million in comparison to the corresponding period last year, reflecting increased capital investment in store development, technology initiatives and various infrastructure projects over the last three fiscal years.
HIBB generated $34.5 million of operating income, or 8 percent of net sales, in the third quarter, compared to $34.2 million, or 7.9 percent of net sales, in the prior-year third quarter.
Net income for the third quarter, was $25.5 million, or $2.05 per diluted share, compared with net income of $25.6 million, or $1.94 per diluted share, in the year-ago period.
Volke said the company ended the third quarter with $29.6 million of available cash and cash equivalents on the unaudited condensed consolidated balance sheet and $96.9 million of debt outstanding on their $160 million unsecured line of credit.
Net inventory at the end of the third quarter was reportedly $398.1 million, a 1.7 percent decrease from the prior-year third quarter-end, and down 5.4 percent from the beginning of the fiscal year.
“We continue to make progress on reducing our inventory, inventory levels declined slightly in the third quarter versus the second quarter, as well as year-over-year,” added Briskin. “We continue to expect the promotional environment through the fourth quarter, our targeted promotional efforts, as well as support from our key brand partners will help us achieve our goals for inventory reduction. Our expectations remain unchanged. We are on track to deliver a mid-teens year-over-year inventory decline at year-end.”
Capital expenditures during the third quarter were $11.5 million, with approximately 75 percent attributed to store development projects, including new store remodels, relocations and new signage.
Hibbett opened 10 net new stores during the 13-week period ended October 28, bringing the store base to 1,158 stores in 36 states.
Looking ahead, Volke said the business outlook for the fourth quarter of fiscal 2024 remains challenging to predict, and inflation has continued to have a broad impact not only on consumer sentiment and spending patterns.
He said it has also contributed to increases in operating costs in the form of wages and prices for various goods and services.
“Higher interest rates have driven up the cost of borrowing for us and may also be affecting discretionary purchase decisions for those consumers with variable rate loans or credit card debt,” Volke noted. He said they also expect the heavier promotional environment to continue in the near term. All these factors are said to contribute to an uncertain retail environment entering the traditional holiday shopping period.
“Despite these headwinds and uncertainties, our strong third-quarter results coupled with our fourth-quarter outlook that remains consistent with the assumptions supporting our previous guidance has resulted in an adjustment of several elements of our fiscal 2024 full-year guidance,” he shared.
The most prominent change is the increase in HIBB’s diluted EPS range.
“We are now anticipating diluted EPS for the full year to be between $8.00 to $8.30,” Volke said. “This is up from $7.00 to $7.75 range that we provided for earlier [in the year].” This range assumes an estimated full-year tax rate of approximately 23.1 percent to 23.3 percent, down slightly from prior guidance and an estimated year-end weighted average diluted share count of approximately $12.6 million also down slightly from prior guidance.
Consistent with prior guidance, net sales for the full year, including the impact of the 53rd week are anticipated to be flat to up approximately 2 percent compared to fiscal 2023 results. The 53rd week is expected to be approximately 1 percent of full-year sales and approximately 52 percent of total sales will be recognized in the second half of the fiscal year. Total comparable sales are still expected to decline in the low-single-digit range for the full year.
Full-year brick-and-mortar comparable sales are also still anticipated to be in the negative low-single-digit range for the year.
“However, we now expect full-year e-commerce revenue to be flat to up low-single digits,” Volke added. “We are anticipating a slight mix shift toward e-commerce that we saw in the third quarter will continue through the holiday season.”
The CFO said the company expects the net new store count to be approximately 40 units for the year.
“This is at the low end of the previous range as delays in external approval and longer lead times on inspections and permitting have pushed back some of our construction schedules,” he said.
The retailer anticipates the aggressive promotional environment to continue in the near term. Projected full-year gross margin remains unchanged from previous guidance at approximately 33.9 percent of net sales to 34 percent of net sales.
“We have lowered the anticipated, SG&A range as a percent of net sales to 23.1 percent to 23.3 percent, down from 23.3 percent to 23.5 percent, which was provided in our previous guidance,” Volke said. “We are actively managing discretionary expenses and continue to focus on identifying efficiencies throughout the organization, which are currently helping us offset inflationary pressures, most notably in labor and benefits.”
Operating margin for the year is now expected to be in the range of 7.6 percent to 8.0 percent of net sales, up from previous guidance of 7.4 percent to 7.8 percent of net sales. Operating profit as a percent of net sales in the fourth quarter benefits from higher sales volume. The 53rd week is not considered a significant driver of incremental operating profit due to the low sales volume projected for that week at the end of January.
“We still expect to carry debt throughout the remainder of the year, although we have lowered the interest expense range as a percent of sales,” Volke noted. “Consistent with previous commentary, we anticipate the borrowings will moderate as inventory levels decline throughout and after the holiday season.”
Hibbett continues to project capital expenditures in the range of $60 million to $70 million for the year, with the largest allocation focused on new store growth, remodels, relocations, new store signage and improving the consumer experience.
Photo courtesy of Hibbett Sports