Hibbett Sees Mall Challenges Impact Q1 Gains; May Look Outside Small Market Strategy for Growth…

Hibbett Sporting Goods, Inc. saw HIBB shares fall 13.5% for the week to close at $25.50 on Friday after posting a fiscal first quarter with a very slight decrease in comp store sales that fell short of analysts’ expectations. At issue is some weakness due to a shift in Nike marquee product releases and a consumer shift to more fashion athletic footwear and away from classics, as well as a stronger Foot Locker impacting their business in the mall.

Company Chairman and CEO Mickey Newsome said that comps in their strip center doors, which make up about 64% of all locations, were up about 3% for the quarter, while the mall-based business comped down about 2% for Q1. Mr. Newsome also pointed to year-ago success with Baller Bands, which accounted for nearly a million dollars in the comp decline, and continued issues with NBA apparel for the flat quarter.

By month, February was slightly down on a comp store basis. The first half of March was said to be “very strong,” up in mid-single-digits, while the back half of the month was down roughly 10% due to the Easter shift. After ending the month of March flat to last year, April was up only 1%, a bit less than expected due to the Easter shift. Mr. Newsome said they are down in low-single-digits going into the second quarter, due primarily to a year-ago launch of an Air Jordan shoe. They hoped to see momentum turn this past weekend with a new shoe launching into the market.

The footwear business was “up slightly” compared to a 16% comp in Q1 last year. Key drivers were youth footwear, which was up in double-digits, and the cleated business, which was up in high-single-digits. Jeff Rosenthal, VP of merchandising, called out Nike marquee product, AF1’s, Asics Gel Kayano’s, and Crocs as key contributors. He said classics footwear sales were down further than planned. Most of the softness in footwear was on the women’s running side. He sees adding more Skechers and other fashion athletic product to address the trend. HIBB will also add Ecco for back-to-school and they expect to be adding the Heely’s skate product by year-end.

Rosenthal feels they can counter some of the issue in the mall by focusing on where they feel they can outmatch the competition. To that end, he sees a keener focus on cleated product and a new commitment to skate footwear. They are now in the business with Etnies and DC Shoes in addition to their Vans position.

Branded apparel was up in low-single-digits, with growth driven by youth activewear, technical performance product from Nike and Under Armour, and urban brands Enyce and Rocawear. The licensed apparel business was down in double-digits, with a tough anniversary against sales of regional Final Four teams last year coupled with a double-digit decline in pro licensed apparel. The NFL business was up in double-digits and MLB was up in low-singles, but the NBA business was down in double-digits.

The hardgoods business was slightly down, due in large part to the Baller Bands issue and AbLounger sales from last year. Football and soccer were up in double-digits and baseball was up in high-singles.

Average unit retail was slightly up and units were slightly down for the period. Traffic was down.

On a pro forma basis, net income for the first fiscal quarter increased 14.2% and earnings per diluted share increased 20.7%.

Comp store inventories were down 3%.

Hibbett opened a net of 11 new stores in Q1 for a total of 560 doors in 22 states at the end of the quarter. HIBB plans to open approximately 80 to 85 net new stores for the year, including approximately 15 to 18 net new stores in the second quarter.

HIBB expects to report earnings per diluted share of approximately 14 cents to 16 cents for the second quarter on a comp store sales increase of 1.0% to 2.0%. The retailer sees diluted EPS in the $1.08 to $1.12 per share range for the year, with comps increasing 2.0% to 3.0% for the period.

One interesting tidbit in the quarterly conference call with analysts was Mr. Newsome’s revelation that Hibbett will start to look at more major-market outerbelt type locations, a move that appears to run counter to their exclusive focus on small markets. Many of these outerbelt communities he described as thirty miles out from a metro area may have been small towns that have become a haven for middle income flight from traffic, housing price increases, and crime.

Newsome said it may cost more to go thirty miles out from Atlanta than it would in Hazard, Kentucky, but it would be offset by the increase in new business.

>>> These are also the same types of markets where Dick’s is making their home in the south…

>>> An unusual miss for the Hibbett team, but we suspect that the back half holds more promise…