Sparked by a healthy BTS selling period for footwear and apparel, Hibbett Sports, Inc.’s earnings climbed 18.8 percent in the third quarter on a 6.4 percent same-store gain. The chain raised its guidance for the year and indicated it was looking to accelerate store openings in the years ahead.
Earnings in the quarter reached $19.0 million, or 71 cents a share, exceeding Wall Street’s consensus target of 68 cents a share.
Overall sales increased 9.6 percent to $202.9 million. The comp gain was driven by higher ticket prices with transactions flattish, and marked its 12th consecutive quarter of same-store increases. Comps were particularly strong in August, up 8.5 percent, with September increasing 4.3 percent, and October up 5.3 percent.
The company raised its full-year outlook, now expecting earnings of $2.66 to $2.71 a share, up from its August view of $2.57 to $2.67, though maintained its guidance for same-store sales growing in the low- to mid-single-digit range.
On a conference call, Jeff Rosenthal, president and CEO, said that besides the positive trends in apparel and footwear, the chain continues to be helped by its continued focus on local assortments and stringent inventory control.
Comps so far in the fourth quarter through Nov. 15 had moderated back to the low-single digit range. But Rosenthal said the softening was partly due to the timing of a promotion as well as the boost last year from the St. Louis Cardinal’s World Series win versus the San Francisco Giants win this year in a low-volume part of the quarter. Noting that the 19-day period only represented 10 percent of business in the quarter, Rosenthal remained upbeat on holiday selling. Said Rosenthal, “Our inventory is in excellent shape and we have the right assortments, and we look forward into having another good quarter.”
Rebecca Jones, SVP of merchandising and marketing, said on the call that BTS sales were “healthy and business shifted as anticipated. Branded apparel, footwear and accessories all had strong performances.”
In activewear, Nike and Under Armour drove sales volume while Adidas gained market share in men's. Said Jones, “We saw high single-digit comps overall in the branded active area. Highlights were women's active, youth active and men's active areas.”
“Strong results” were also seen in NBA apparel and headwear, with its high school program doing well. Said Jones, “Adult collegiate apparel performed in low single digits for the quarter, while our collegiate youth and accessory business was soft. Major League Baseball was challenging during the quarter as the San Francisco Giants are not in our market areas.”
The overall performance of NFL apparel was “somewhat disappointing.” Jones noted that the majority of Hibbett’s stores in ”stronghold states of college football” while noting that Hibbett still sees a big opportunity for NFL product as the chain expands.
Looking to the fourth quarter, Jones said apparel traditionally becomes a higher percentage of Hibbett’s business “because of the gift-giving aspect of it.” North Face has been added to a “few” more doors this year to reach about half its total base and Jones said the chain is overall well positioned in the overall outerwear category.
“We have a very nice assortment across the board between Nike and Under Armour. And then in the stores that carry North Face, it's very clean and well-positioned assortment,” said Jones.
Footwear in the quarter grew “strong, single digits,” continuing to be led by running and basketball across all genders. Kids’ footwear performed particularly well.
“The Jordan business has continued to drive footsteps into the fashion doors and high sell-throughs have been achieved,” said Jones. Jordan, Nike, Adidas and Under Armour are leading the footwear gains.
Jones added that basketball remains “really healthy and we feel really good about where that's headed into the fourth quarter based off of the assortment that we've got and the allocations that we received from our supplier partners.”
On the running side, color and lightweight are still driving the gains.
Team sports drove mid-single digit comps in equipment. Said Jones. “We had a good football season, as well as a strong performance in basketball and volleyball. The fitness business continues to be soft and the soccer area grew moderately.”
Accessories delivered a “terrific” quarter with broad-based growth. The back-to-school backpack season was described as “very good, with Under Armour being the very clear winner. Socks accelerated and continues to be a very hot accessory of choice right now.”
Other factors driving the fatter bottom line was gross margin improving to
37.2 percent from 36.6 percent a year ago. Product margin increased 21 basis points, partially due to improvements in assortments and markdowns and the remainder due to mix. Warehouse and occupancy leveraged the remaining 34 basis points.
Selling, general & administrative expenses were reduced 67 basis points to 20.7 percent of sales due to leverage in store labor, debit card fees and stock-based compensation.
Inventories increased 5.1 percent over last year and were 1 percent higher on a per-store basis.
Hibbett opened 13 new stores in the quarter, expanded 4 high-performing stores and closed 2 underperforming ones, bringing the base to 848 stores in 26 states. For the year, it remains on pace to open 57 to 60 new stores and expand 17 high-performing doors.
“We have increased our real estate resources to grow even faster next year and for years to come,” added Rosenthal. “Our strategy still works well with an additional 400 markets that Hibbett can go to in 26-state area in which we currently operate. There is no reason that Hibbett should not be nationwide at some point in the future with over 1,300 stores.”
The investments include hires to help find new locations and the construction of a new 412,000-square-foot wholesaling and logistics facility in Alabama to begin in the early first quarter of next year. For 2013, Rosenthal expects openings “to be up a lot more than it is this year” although management wasn’t ready to offer firm projections.
“Our new stores are performing above pro forma, so we feel very confident on our strategy and where we can go,” said Rosenthal. “As we go to other states, go more westerly and some other places, there's no reason that we can't double the chain over time.”
Hibbett also indicated that it plans to add e-commerce over the next five years although those efforts are being slowed by its plans to move its headquarters and build the new distribution center. Mickey Newsome, executive chairman, added that Hibbett has “so much growth left in these new stores in small isolated markets that it doesn't concern us.”
