Hibbett Sports Raises 2011 Guidance on Strong First Quarter Performance

Sales in its first quarter ended April 30 increased 10.4 percent, to $203.7 million, the first time quarterly sales surpassed $200 million.  Comps increased 6.8 percent on top of a 14.5 percent gain a year ago. Net income climbed 23.1 percent to $21.3 million, or 76 cents a share, handily topping Wall Street’s consensus estimate of 67 cents.

On a conference call with analysts, company President and CEO Jeff Rosenthal noted that a record first quarter operating margin of 16.8 percent was a direct result of cleaner inventories, improved merchandise assortment execution, and continued benefits from its investments in systems.   He said the number of items per transaction were up 1.9 percent and the average selling price per item was up 4.7 percent as the small market retailer saw increased traffic per door.

He also noted that in first 19 days of the second quarter comps were up approximately 6 percent. Said Rosenthal, “Our improvement in aged inventory and our customer service has put us in a position to have a good second quarter.”

Becky Jones, SVP of merchandising, noted that activewear apparel posted gains in the mid-teen increases across all genders.  She said “investments with key suppliers, Nike and Under Armour, are paying off.” HIBBs licensed apparel business was down in the single-digits on a percentage basis, but still exceeded expectations with MLB and NBA leading the way. Strong sales of Heat, Bulls, Celtics, Knicks and Lakers items propped up NBA sales.

Accessories continued to run up double-digits, led by footwear accessories. Jones said Hibbett’s “replenishment process and team continues to contribute to the consistent sales gain.”
Footwear delivered a “strong double-digit performance,” led by “tremendous growth” in men’s and kids. Key brands driving growth included Nike, Reebok, Jordan and Adidas.

Equipment sales were up in single-digits. Baseball was flat, football rose high-single digits, basketball jumped high-teens, and soccer ran up double-digits. Key suppliers were Adidas, Valeo, Easton and Rawlings.

Gross profit improved 140 basis points. Retail profit margin grew over 100 basis points due to better discounts and less promotions. Warehouse and occupancy levered favorably. SG&A expense rates decreased 9 basis points in the quarter as Hibbett continued to make strategic technology investments. It also opened six more stores than last year’s first quarter.

Inventories increased 5.9 percent over the previous year, but only 1.6 percent on a per-store basis.

For fiscal 2012, the company expects to open approximately 50 to 55 new stores, close 10 to 15 and expand 15 high-performing doors. Rosenthal said Hibbett’s new stores are performing “well above pro forma.” The company had 114 stores closed during the quarter as a result of tornados and all stores are open and no employee were hurt.

The company increased its earnings guidance for the current year to a range of $1.80 to $1.95 per share and an increase in comparable store sales in the low- to mid-single-digit range. Hibbett had previously projected $1.70 to $1.90 per share for the quarter.

In the Q&A session, Rosenthal said the strong merchandising margin improvement stemmed from higher initial markups, cleaner inventory and assortment planning efforts. Said Rosenthal, “As we get better at planning assortments by door, we are definitely rightsizing the inventory and we are also flowing our inventory much better and we still think we have significant improvements to do in all of those.”

Jones added that particularly encouraging for margins going forward is the aged inventory position. Said Jones, “That bodes well for the fact that we wont be moving product as much product into clearance as we have had in the past and it allows us to not be as promotional because we dont have to go after clearance sales or even put branded product on any kind of promotion.”

Jones added that the company has seen some price increases for the back half of the year, but it’s been largely as expected.
“The footwear increases really are not anything, at this point in time, that we are too uncomfortable with because the footwear changes from the style and we really focus on the premium product,” said Jones. “When you are looking at a $2 to $5 increase on a price point in that price range, it is not that impactful.”

Regarding apparel, the price increases are more for Spring 2012 product. But she added that strong  innovation in both categories is helping offset any price resistance from consumers.
“When footwear comes out with great products, whether it is lightweight running or great new basketball shoes, and the consumer wants it, the consumer is going to pay for it,” said Jones. “And we are seeing the same thing with some of our apparel product that has hit the floor this Spring from an innovation perspective. Everybody was concerned with can you sell a T-shirt at $25 and the answer is Yes because it is innovative.”

Rosenthal said the company remains conservative in its outlook given still  high unemployment rates and inflationary pressures although he admitted that overall business  prospects appear brighter than a year ago.

“Right now, we feel pretty good about where we are and where the consumer is,” said Rosenthal. “And the consumer definitely is spending money, especially in footwear, right now and we are going through some good times. But we just want to be a little conservative.”