Helped by tighter expense controls and better product margins, Hibbett Sports, Inc. reported third quarter earnings increased in the mid-teens and raised its outlook for the year. Overall EPS of 30 cents per share in the quarter came in ahead of Wall Street's consensus estimate of 24 cents a share.
Comps in the third quarter dipped 0.2%. By month, August was slightly down, September was slightly up, and October was relatively flat. Strip stores outperformed mall stores; non-urban stores outperformed urban stores.
Among categories, the licensed apparel business was down low-single digits although September and October have been positive and college overall was positive for the quarter, said HIBB President Jeff Rosenthal on a conference call with analysts. Branded apparel was up mid-single digits, led by women's and girls’ branded apparel. A focus on being less reliant on urban brands and more on performance has worked in apparel, said Rosenthal. “It really sets us up for the future much better,” he said. “We're not as reliant on some fashion goods so it really should build a better core going forward and when we do have those up-trends in fashion we should be that much better for it.”
Footwear was down mid-single digits, although that marked an improvement over Q2 amid some signs of improving trends in performance products. “Our cleated business was up double digits as customers are buying for need,” said Rosenthal.
Similar to apparel, the chain continues a shift started in the second quarter to further emphasize performance footwear while decreasing fashion offerings. That process is expected to continue through next year's BTS selling season.
“It's not like we're getting out of the fashion,” cautioned Mickey Newsome, chairman and CEO, on the call. “We're just down-grading it and upgrading the other, the performance.”
Hibbett will also be expanding toning footwear for Q4.
In addition, Hibbett will add “a little more” value product in footwear and ASPs are down around 2%. But the chain is particularly calling out value offerings with its shoe tables and signage.
“We've always had value, but we've maybe not gotten credit for it from the consumer standpoint and we're just looking at calling it out better and we also look at definitely looking at it from a buy and just making sure that we have some value available,” said Rosenthal.
Equipment was up high-single digits with baseball, volleyball, football, basketball and fitness all up. The accessories business “continues to be terrific, up high double digits,” said Rosenthal. The team business continues to improve on items per transaction.
Among brands, The North Face, a newer brand for Hibbett, is “performing very well” on the apparel side. There core apparel lines, Nike and Under Armour, “also “continue to perform extremely well.” Rosenthal also mentioned that some “smaller niche brands” are performing “very well” in apparel. Rosenthal said they “really feel good” about where they are in apparel and equipment going forward. He sees both areas performing at very high levels through Q4.
Regarding November, management said new arrivals of activewear and footwear have helped support sales in recent weeks.
“The first 19 days of November our comp store sales are slightly negative between minus one and minus two, but comps have been stronger in the last week than earlier in the month because of new store merchandise our stores recently received,” said Newsome.
But he also hopes Q4 brings a big win for the sports licensing business. “Alabama is still playing and we have Texas in the championship [run] and we have the Saints, so from a team standpoint we're sitting good right now,” said Newsome.
Gross margins increased 71 basis points, mostly in product margin as initial mark-ups rose and markdown rates decreased.
Inventories increased 5.5%, but remained relatively flat on a store-by-store basis.
Hibbett will open 42 stores this year, expand 18 to 20 high-performing locations, and close 20. Newsome noted that the company was “certainly not happy with our new store count.” Of the 94 deals agreed on by the company and landlords last year, 38 fell through largely due to the lack of landlord's ability to get financing. Due to the challenges finding real estate, Newsome said the company is looking at some new states, mentioning Utah, Montana, South and North Dakota and Colorado. He nonetheless noted that opportunities are more limited in these rural states.
Newsome said the expansion of its top stores, which typically increases square footage from 5,000 to 7,500, over the last three to four years “have been very successful.” He sees the opportunity to have 80 to 90 more expanded.