Hibbett Sports, Inc. reported net income increased 33.5 percent in the second quarter and came in slightly ahead of Wall Street’s consensus target. But citing the “ongoing uncertainties in the economic environment,” the company revised its guidance for current year to a range of $2.65 to $2.77, down from a range of $2.85 to $3.05 previously.
Comps are now expected to increase in the low single-digit range for the year versus previous guidance calling for a low to mid single-digit gain.
Shares of Hibbett slid sharply Friday after the results were released.
Hibbett’s earnings in the second quarter reached $10.5 million, or 40 cents per share, ahead of Wall Street’s consensus estimate of 38 cents a share. However, comps rose just 0.3 percent, missing internal expectations.
On a conference call with analysts, Scott Bowman, Hibbett’s SVP of finance and CFO, said the earnings gain benefited from “some nice leverage on expenses,” largely tied to a week shift in the fiscal calendar due to the 53rd week last year that resulted in approximately $12 million of additional sales in the latest quarter. Overall, he said about 80 percent of the downward revision is topline-related and while about 20 percent is margin-related.
Hibbett said the current month is up in the high-single digits through the first 18 days, but management saw the strength largely tied to BTS spending “as more of a temporary surge and we think that will settle down after that time period is over,” Bowman said.
Elaborating on the revised outlook, Jeff Rosenthal, Hibbett’s president and CEO, said that Hibbett “had a tough first half” with only a 0.6 percent gain in the first half. As in past times when the climate is “a little tough,” Rosenthal suspects consumers will spend for a time to fill back-to-school needs but then return to more sluggish spending afterwards.
Said Rosenthal, “Hopefully we are wrong and we are being too conservative, but we know that they have to shop for back-to-school. They end up shopping for holiday but we are just being a little bit cautious because of the last six month's trend.”
By month in the second quarter, May was down 0.4, June was up 1.7, and July was down 0.4.
Becky Jones, Hibbett’s SVP of merchandise and marketing, said men’s “performed well,” with solid gains in men's branded active wear, men's fashion apparel, and men's footwear. The basketball footwear business also continued to drive positive growth. Said Jones, “The Jordan business remained strong and the launches were good in the second quarter. We also saw our men's running footwear trend improve in the second quarter.”
Women’s was down while boys was “exceptional, with branded active wear posting double-digit comp growth,” said Jones. Boys footwear also continued to “perform well.”
Girls footwear saw “outstanding results,” and Hibbett is continuing to invest in the gender. Accessories also checked out well, led by socks, and headwear.
Collegiate apparel in both men's and women's produced low single-digit comp gain. Its professional licensed areas were hampered by the NFL launch last year and a significant slowdown in the licensed headwear area. Hard goods were negative on a comp basis for the quarter.
Looking to coming launches, Jones said the retailer feels “really good about the assortments” for the back half of the year, and overall basketball “continues to be good.”
Men’s running has also turned positive after being “a little bit slower early in the year,” with “really nice sell throughs” on the Adidas Boost and Springblade.
Gross margins increased 16 basis points in the quarter. Product margin decreased 53 basis points, mainly due to markdowns associated with clearance merchandise and incremental promotional activity compared to last year. Warehouse and store occupancy leverage by 69 basis points.
SG&A decreased 133 basis points as a percent of sales in the quarter, mainly due to leverage in salaries and benefits. Inventories increased 11.2 percent over last year and were 4.3 percent higher on a per store basis.
During the quarter, the company successfully moved its corporate headquarters. It also continued to prepare for its new wholesale and logistics facility, which is scheduled to open in spring of next year.
For the quarter, Hibbett opened 17 new stores, expanded 3 high performing stores and closed 4 underperforming stores, bringing the store base to 892 as of Aug. 3. It expects to open 70-75 new stores this year. Rosenthal said the new stores “continued to perform above pro forma, which gives us even more confidence that we can grow even faster in the future. We will become a national sporting goods retailer with over 1500 stores over time.”
Asked further about revised outlook, Rosenthal stressed that it’s not consumers looking for bargains but just weak traffic. Average selling prices were up in the quarter and the company is “not seeing that people are looking at price points more and really we are seeing our premium products sell even better. We have launch shoes that we sell 80 percent, 90 percent in a launch day, so it's really about having the newest and the greatest than necessarily price points.”
“We feel good about products coming in,” Rosenthal added. “We have a lot of new launch products. We have a lot of new initiatives in apparel, so we feel good about that. If we have consumers, we will do fine.
