Hibbett, Inc. reported comp-store sales increased 15.5 percent versus the prior-year period and increased 39.6 percent compared to pre-pandemic calendar 2019 fourth quarter. However, earnings for the quarter and guidance for the current year slightly trailed Wall Street’s targets.

Fourth quarter EPS of $2.91 compared to Wall Street’s consensus target of $3.00. Revenue for the quarter of $458.3 million topped the consensus estimate of $482.6 million.

For 2023, Hibbett sees EPS in the range of $9.50 to $10.00 versus the analyst consensus of $10.40.

Shares in mid-day trading were down 71 cents to $69.84.

On a call with analysts, Hibbett’s President and CEO Mike Longo noted that beyond the comp strength in the quarter, EPS grew 133 percent to $2.91 and was up eight-fold versus the calendar 2019 fourth quarter.

“These results came from strong demand for our popular footwear brands and a recovery in inventory levels,” said Longo. “Despite that, these results did not meet our high expectations for ourselves and fell short of our guidance.”

The shortfall stemmed from lower sales. When it reported third-quarter results, Hibbett had projected comps for the year would be flat to up positive low-single digits. Comps for the year wound up being down 2.2 percent.

Progress Over The Pandemic
Longo highlighted the progress Hibbett has made from its transformation from a sporting goods retailer to a fashion retailer that was largely completed by the close of calendar 2019 and how the business has significantly re-based over the ensuing pandemic-impacted years.

Compared to the calendar 2019 fiscal year, Hibbbet’s sales in the just concluded fiscal year are 50 percent higher, its margin rate is 300 basis points higher, non-GAAP EBIT dollars are three times higher, and non-GAAP EPS is four times higher. Longo said Hibbett achieved its success by that by focusing on its three competitive advantages: superior customer service, a compelling assortment of hard-to-access products, and a best-in-class omnichannel experience.

“It’s our investment in these advantages and our strategy that drove our results,” added Longo. “None of this was inexpensive. These investments came with incremental costs, especially regarding managing in a chaotic environment. Now that we’re operating in a somewhat more normal environment, it’s time to address our SG&A and some areas where costs have increased.”

Longo said Hibbett is conducting a systematic review of its operating expense structure with a particular focus on SG&A. The company plans to continue to focus on growth investments, including category offense, increasing traffic, improving conversion and leveraging investments. Said Longo, “The focus within that is to drive effectiveness and efficiency. of the existing franchise and to drive growth in the future.”

Footwear Leads Q4 Category Gains
In the quarter ended January 28, sales increased 19.6 percent year-over-year to $458.3 million.

Brick-and-mortar comps increased 14.3 percent while e-commerce comps increased 21.4 percent on a year-over-year basis. Compared to the calendar 2019 fiscal fourth quarter, brick-and-mortar comps increased 32.6 percent and e-commerce sales grew 79.8 percent. E-commerce represented 17.4 percent of total sales for the quarter, compared to 17.1 percent a year ago and 14.2 percent for the calendar 2019 fiscal fourth quarter

On the call, Jared Briskin, EVP, merchandising said, “Our category offense continued to yield strong results in the fourth quarter and its focus on toe-to-head merchandising while leading with sneakers through the lens of men’s women’s kids and City Gear has proven successful.”

By category, footwear led the way in the fourth quarter, up mid-40s year over year, driven by strong launches as well as strength across lifestyle, basketball and casual categories. Footwear was up mid-50s versus the calendar 2019 fourth quarter.

Team sports was also strong, driven by strong results in cleats and cold-weather accessories. Compared to the calendar 2019 fourth quarter, team sports sales were up mid-single digits.

Apparel was down by negative teens in the quarter against significant increases in the prior year and in a more promotional climate. Compared to the calendar 2019 fourth quarter, team sports sales were up mid-20’s.

Specific to footwear and apparel and compared to year-ago results, kids led the way, up in the high 20’s while men’s and women’s both grew mid-teens. On a three-year stack, women’s grew in the mid-70’s; kids, low-50’s; and men’s, mid-30’s.

Briskin said supply chain investments helped Hibbett mitigate challenges of product delivery and flow of inventory in the quarter. He said, “These investments have increased our capacity and speed to market enabling our strong inventory position and sales results. As a reminder, the prior year was significantly impacted by supply chain delays, primarily in footwear. Our in-stock position of key footwear franchises and launch products drove our strong footwear results.”

Inventory as of January 28 was $420.8 million, a 90.2 percent increase compared to the prior-year fourth quarter.

The increase reflects lean inventory levels in the year-ago period. Compared to the end of the calendar 2019 fiscal year, inventory levels were up 46 percent, more aligned with the chain’s 40.9 percent sales increase. The increase is largely due to inflation as unit inventory levels are up 4 percent.

Said Briskin, “We look forward to fiscal 24 when We believe that the supply chain will be more predictable, allowing more precision regarding delivery, timing and inventory levels. Inventory comparables will be volatile due to the challenges in the supply chain during fiscal 2023. Our expectations are for year over year inventory growth in the first half of the year, and year over year declines in the second half of the year.”

Gross Margins Impacted By Promotional Activity
Gross margin improved by 10 basis points to 35.2 percent. The slight increase was driven by approximately 30 basis points of store occupancy leverage, approximately 25 basis points resulting from lower freight costs and approximately 15 basis points of efficiency gains in its logistics operations. These favorable factors were largely offset by a decline in the average product margin of approximately 60 basis points due to increased promotional activity.

SG&A expenses were reduced to 21.6 percent of sales in the latest quarter compared to  26.4 percent for the prior-year fourth quarter. The decrease of approximately 475 basis points was primarily the result of leverage from the year-over-year sales increase. Expense categories that were favorable to the prior year as a percent of sales included incentive compensation, professional fees, advertising, and repairs and maintenance.

Net income for the quarter jumped 117 percent to $38.4 million, or $2.91 per share, compared to $17.7 million, or $1.25, a year ago.

During the fourth quarter, HIBB opened nine new stores and closed two, bringing the store base to 1,133 in 36 states as of January 28, 2023.

Comps Decrease 2.2 Percent In Year
For the full year, sales inched up 1.0 percent to $1.71 billion. Comps sales decreased 2.2 percent year over year, but surged 40.9 percent compared to the 52 weeks ended February 1, 2020.

Brick & mortar comp sales decreased 4.9 percent and e-commerce sales advanced 14.0 percent compared to the prior year. In relation to the 52 weeks ended February 1, 2020, brick-and-mortar comps climbed 31.5 percent and e-commerce sales grew 115.5 percent. E-commerce represented 15.6 percent of total sales in the latest year compared to 13.8 percent in the prior year ended January 29, 2022, and 10.4 percent in the 52 weeks ended February 1, 2020.

Gross margin in the year declined 30 basis points to 35.2 percent primarily due to lower average product margin of approximately 195 basis points, approximately 65 basis points resulting from higher freight and transportation costs and deleverage of store occupancy costs of approximately 65 basis points. These unfavorable impacts to gross margin were partially offset by expense leverage of approximately 25 basis points in its logistics operations.

SG&A expenses were increased 20 basis points to 22.8 percent of sales primarily due to deleverage in wages and related employee benefits.

Net income for the year was down 26.5 percent to $128.1 million, or $9.62, from $174.3 million, or $11.19, for the 52-weeks ended January 29, 2022.

Hibbett said it ended the fourth quarter with $16 million of available cash and cash equivalents on its unaudited condensed consolidated balance sheet and $36.3 million of debt outstanding. Effective February 28, 2023, HIBB replaced its former $125 million unsecured credit facility with a new $160 million unsecured credit facility. The company said its new credit facility increases its financial strength and provides the company with greater operational flexibility.

2023 Outlook
Looking ahead, Bill Quinn, SVP of marketing and digital, said Hibbett’s consumer research indicates that Hibbett’s customers and most U.S. consumers are concerned about various financial aspects of life, particularly food and utility costs.

“When it comes to discretionary spend, we anticipate customers will make reductions in entertainment, travel and eating out before reducing retail expenditures. Also, our research indicates that customers likely plan to spend the same or more last year on footwear in specific key brands.”

Bob Volke, SVP and CFO, said Hibbett’s outlook for this year includes “a number of challenges to consider but also a handful of tailwinds that will help to mitigate these headwinds.”

Headwinds include inflation that will impact not only consumer sentiment and spending patterns but lead to wage pressure and higher prices paid for goods and services. The promotional environment is also expected to be “more significant” and headwinds will also include higher borrowing costs and “some intermittent, lingering” supply chain disruption.

Tailwinds include low unemployment and higher wages that should provide consumers with more purchasing power “and we feel our inventory assortment has become much healthier in the past several months and the unique and hard-to-find products we offer is expected to attract more customers to our stores and website.”

He further said additional investments in store development, the customer experience and back-office infrastructure will begin to yield operating cost leverage as the year progresses.

Looking ahead, Hibbett’s outlook calls for:

  • Total sales, including the impact of the 53rd week this year, are anticipated to be up mid-single digits year-over-year. The sales breakdown is
  • expected to be approximately 26.0 percent in the first quarter; 22.0 percent in the second quarter; 24.0 percent in the third quarter; and 28.0 percent in the fourth quarter.;
  • Comps are expected to grow in the low-single-digit range for the year. Brick & mortar Comps are expected to increase in the flat to low-single-digit range while e-commerce revenue is anticipated to be up in the high-single-digit range. Total comparable sales in the first half of the year are expected to increase in the low- to mid-single-digit range and to be flat to up low-single digits in the second half.
  • Net new store growth is expected to be in the range of 40 to 50 stores with new units relatively evenly spread throughout the year.
  • As a result of an increased promotional environment, a higher mix of e-commerce sales, potential supply chain disruptions and inflationary pressure on certain store occupancy costs, gross margins are anticipated to decline by approximately 20 to 30 basis points year over year, to a range of 34.9 percent to 35.0 percent. The expected margin remains above pre-pandemic levels.
  • SG&A as a percent of = sales is expected to increase 40 to 50 basis points year over year due to new store growth, wage inflation, increased incentive compensation and an increase in data and transaction processing fees. The expected full-year SG&A expense range of 23.2 percent to 23.3 percent of sales remains below pre-pandemic levels. SG&A as a percent of sales is expected to be lower in the first and fourth quarters and higher in the second and third quarters due to the anticipated sales mix.
  • Operating profit is expected to be in the range of 9.0 percent to 9.3 percent as a percent of sales, also remaining above pre-pandemic levels.
  • It is anticipated there will be debt outstanding under its line of credit for the majority of the year. HIBB believes borrowings will be more significant in the first half of the year as current inventory levels are not expected to decline significantly until after the back-to-school season. Interest expense for the full year is projected to be approximately 25 to 30 basis points of sales.
  • EPS is anticipated to be in the range of $9.50 to $10.00 a share using an estimated full-year tax rate of 24.0 percent and an estimated weighted average diluted share count of 12.7 million.
  • Capital expenditures are anticipated to be in the range of $60 to $70 million dollars with the largest share of this investment focused on new store growth, remodels, relocations, new store signage and improving the consumer experience.

Longo said, “Hibbett has demonstrated impressive growth in sales over the last three years, creating a solid foundation to continue to build upon in the years ahead. At the same time, we have expanded our geographic footprint and met our goal to achieve annual net new store growth of 30-40 units, adding 37 net new stores this past year. We are fortunate to have strong vendor partnerships that ensure we have the inventory to support customer demand across our sales channels. We have also continued to make critical investments in our infrastructure, both in the latest technologies to enhance the omnichannel functionality and through updates to our physical stores to showcase the latest merchandising that appeals to our fashion-conscious customers. Above all, we are focused on providing a compelling, quality product mix backed by best-in-class customer service regardless of the channel our customers shop.”

Longo concluded, “As we look ahead to Fiscal 2024, we believe there are several headwinds including inflation, higher interest rates and a more promotional retail environment. We anticipate consumers will be more cautious in their discretionary spending and while we still feel our unique assortment of high-demand footwear will drive traffic and sales, margins are expected to be negatively impacted. Hibbett has a proven business model and a strategy to leverage our model and extend our market reach. We will continue our store expansion efforts and believe there are significant opportunities to expand our coverage in more underserved areas in both existing and new markets. We look forward to the opportunities to continue building our Hibbett and City Gear brands and deliver greater value to our customers and shareholders in the future.”

Photo courtesy Hibbett Sports