<span style="color: #a1a1a1;">Hibbett Sports reported blockbuster second-quarter results and announced goals to take significant market share in the months ahead, particularly from challenged department store competitors. Inventory levels at the quarter’s end were down 33 percent, but inventory flow is expected to improve to drive second-half gains.
The strong results weren’t so surprising as Hibbett, in a pre-announcement on July 20, said it expected second-quarter same-store sales to climb in excess of 70 percent. But the results topped even that heady projection, and momentum has continued in the third quarter despite the chain running low on inventory.
“This quarter was a remarkable outcome from a financial perspective for the company,” said Mike Longo, president and CEO, on a conference call with analysts. “From sales to gross margin to profits and cash flow, this was an unprecedented quarter.”
The sales gains are expected to significantly slow from the 79.2 percent hike in same-store sales seen in the second quarter as the period benefited from a number of temporary boosts. For the second half, same-store growth is projected in the mid-single-digits.
Profit gains also expected to moderate with EPS in the second half projected in the range of 85 cents to $1.00, compared to 83 cents in the 2019 second half. Gross margins are expected to improve by 50-to-70 basis points, while SG&A is expected to leverage by 70-to-90 basis points.
In the second quarter ended August 1, net earnings on an adjusted basis were $50.0 million, or $2.95 per share, compared with an adjusted loss of $2.4 million, or 13 cents. Results more than doubled Wall Street’s consensus estimate of $1.15.
On a reported basis, earnings were $40.4 million, or $2.38, compared with a net loss of $8.8 million, or 49 cents, a year ago.
Temporary Competitive Closures Boost Q2 Sales
On the call, Longo spent considerable time explaining the sales drivers in the second quarter that included a number of temporary drivers as well as some that are expected to accelerate Hibbett’s growth in the long-term.
First, Hibbett benefitted from the temporary closures of its competitors, “which we believe gave us the advantage of accessing new consumers, both in-store and online,” said Longo.
Longo noted that since mid-March, Hibbett has adopted a stance to remain open in-stores and online as long as state and local restrictions are in compliance. The posture enabled stores to remain open at certain points while nearby competitors were closed. Moreover, he added, “As a result of these actions, when we reopened our stores, we were fully staffed, and we believe that our consumers felt safe to shop. And since we continued to do business throughout this time, we reopened with the freshest and newest inventory to sell.”
A second driver of the strong second-quarter sales performance was accelerating consumer adoption of e-commerce, which gave Hibbett “yet another set of new consumers who could test-drive our best-in-class, omnichannel experience.” Overall, Hibbett estimates that 27 percent of in-store traffic and 49 percent of its online business came from new consumers.
A third sales driver was pent-up demand from stores being closed starting in March as well as a boost from government-issued stimulus checks.
Boost From Store Closures At JC Penney And Stage Stores
Looking to the long term, Longo noted that Hibbett is just beginning to see the benefits from the permanent closure of a number of its competitors who also sell apparel and footwear. He singled out JC Penney and Stage Stores, which combined are planning to close approximately 250 stores within two miles of an existing City Gear and Hibbett Sports location.
“That represents a meaningful upside opportunity for us in both the fashion and athletic categories,” said Longo. Also including potential market share gains from smaller competitors going out of business due to the pandemic, customers discovering the company online, an amplified focus on retention efforts, and a $20-to-$40 million annual incremental sales opportunity Hibbett foresees.
“For this, and a number of other reasons, we are very confident in our future,” said Longo. “While we won’t likely report another quarter like this one, we do expect continued sales momentum into the third quarter.”
Among categories in the second quarter, apparel saw mid-80 percent comp growth and footwear was up mid-90 percent. Team sports was down mid-teens and held back by the impact of COVID-19 in team sports leagues.
The apparel business was driven by significant gains in branded apparel, licensed products and accessories. All genders were significantly positive. Jared Briskin, SVP and chief merchant, said “sneaker connectivity”, or connecting apparel to sneaker looks, remained critical in helping to drive gains in units and transaction size in apparel.
From the athletic brands in apparel, Hibbett saw an acceleration in its performance business as well as the lifestyle business as fitness, wellness and casual lifestyle trends all accelerated. Hibbett’s fashion brand performance was “exceptional as we were able to capitalize on strong performances in denim, twill and tees,” said Briskin.
The retailer’s licensed product apparel business also saw “significant” growth and is also believed to benefit from a focus on sneaker connectivity. Caps, jerseys and tees all performed well.
The accessory business achieved significant growth as socks, hydration and sunglasses all were gainers. Among new categories, masks and underwear drove incremental sales and are “quickly becoming meaningful categories,” said Briskin.
Footwear Comps Up 90 Percent
Footwear gains were driven by performance, lifestyle, basketball, and its sandal category, which includes slides. All genders were positive with women’s growth outpacing men’s and kids.
The performance footwear business was helped by the accelerating health and wellness trend. Lifestyle and basketball results “were explosive” as the launch calendar was favorable, and key franchises sold “through very quickly.” Slides and sandals also saw significant acceleration as consumers spent more time at home due to COVID-19.
Across footwear and apparel, women’s saw triple-digit growth, men’s was up mid-80’s percent and kids gained mid-70’s percent.
The bottom line was boosted by an improvement in gross margin by 670 basis points to 37.0 percent driven by higher sell-through, a reduction in inventory valuation reserves and leverage of store occupancy expenses. These impacts were slightly offset by a higher mix of e-commerce sales which carries a lower margin due to incremental shipping costs. Excluding adjustments to inventory valuation reserves in the quarter, non-GAAP gross margin was up 640 basis points to 36.7 percent.
SG&A expenses were reduced to 22.6 percent of sales from 31.8 percent a year ago as a result of leverage gained from the strong sales performance. Excluding certain COVID-19 and City Gear acquisition and integration expenses, comparable SG&A expenses on a non-GAAP basis were slashed 920 basis points to 19.3 percent of sales.
Inventory Levels Down 33 Percent
Inventory at the quarter’s end was down 32.7 percent. Briskin said the significant reduction in inventory was due to surging sales as well as “a fantastic job of inventory management by our team.” Aged inventory is slightly elevated mostly due to the effects of COVID-19 on team sports.
Briskin said the retailer has made “appropriate investments to balance out trends with potential uncertainty” tied to the pandemic and the inventory declines are expected to moderate in the back-half.
Asked about inventory and allocations in the Q&A session, Briskin said, “Our partners have been incredible in helping us manage the flow of inventory.” He said the retailer has been selling product “as fast as we get it,” and supply is expected to better catch up with demand soon.
Overall, Hibbett still expects its inventory position to be down in the back-half, but in a “better inventory position” versus the end of the second quarter. Briskin added, “Our team has done an incredible job of making incremental buys for the back-half of the year.”
Photo courtesy Hibbett Sports City Gear
