Hibbett Sports, Inc. said 11.9% comp store sales growth for the fiscal second quarter ended July 31 boosted total sales 13.6% for the period, but the company missed earnings estimates as operating expenses jumped 12% for the quarter. Despite missing Q2 Street estimates, however, management for the Birmingham, AL-based retailer upped outlook for fiscal 2011 to a range of $1.45 to $1.55 per diluted share based on promising comparable store sales trends.
In a conference call with analysts, company President and CEO Jeff Rosenthal called the first half of 2010 “tremendous,” noting that HIBB earnings have already equaled what the company achieved in the first three quarters of fiscal 2009.
Rosenthal added that the strongest performing categories for the quarter were apparel, footwear and activewear, with activewear up double digits on significant strength generated from women’s and girls’ activewear products. Key brands for the activewear segment were Nike and Under Armour. Licensed product was also up double digits on strong performance from both college and pro lines, which Rosenthal said was “a good trend going into the important college (and) NFL football seasons.” Footwear was up high-single digits, driven by women’s product, sandals for all brands and strong sales of the Nike Lunar Air and Free lines and Reebok product. HIBB expects toning to be a “good category going forward” as the company continues to integrate the product into more stores.
Equipment was up single digits for the quarter, driven by football, soccer and basketball and strong sales from Nike, Under Armour, Easton, Wilson, McDavid and Shock Doctor. Management said the World Cup helped complement sales for soccer — especially for cleats and apparel — and the trend has carried into August.
For the Accessories segment, Rosenthal said sales of shoe care, socks, sunglasses and miscellaneous items “continued to outperform the entire company” as the company’s operations team worked to drive more items per transaction.
Among other results, management noted that strong same-store sales were driven by increased in-store traffic as well as more items per transaction and a higher average dollar per transaction. Average price per item was slightly down for the quarter.
Monthly comps for HIBB were up 12.8% in May, up 13.3% in June and up 9.5% in July, with some momentum from July shifting into Q3, partially because the state of Georgia did not have a tax free weekend this year as compared to the year-ago period. Tax-free holidays benefit about 11 states and affect roughly half of Hibbett’s stores.
Management said the third quarter should also benefit from a shifting retail calendar, a higher store count outside of the southeast and numerous school openings later than in the past. Gross margins improved 215 basis points on strong retail margins, which improved 60 basis points due to better discounts, fewer promotions and improved shrinkage rates.
Hibbett ended the second quarter with $66.0 million of available cash and cash equivalents on the consolidated balance sheet and $3.1 million in debt. At quarter-end a year ago, the company had $15.6 million of available cash and cash equivalents with no debt.
Along with the aforementioned updated earnings guidance, management noted that for the first 19 days of August, comps were up low-double digits.
Hibbett expects second half comps to rise mid to high-single digits.
Company CFO Gary Smith said that August represents more than 40% of the third quarter. “We don't see us losing that much momentum going forward,” said Smith. “And in those numbers, we see a high-single to double-digit third quarter and a flattish fourth quarter.”
Management also noted that Hibbett should have about twice the number of stores carrying The North Face gear than the year-ago fourth quarter, which had about 150 stores with the premium outdoor apparel brand.
Among other growth drivers for the remainder of the year, management said the company expects to see strength from Reebok’s Zig line and from Under Armour’s basketball footwear. When asked if Hibbett has plans to start selling online, management said that they have looked at it from a “strategic plan” standpoint, maintaining the company will implement some type of e-commerce – although not in the near future.
During fiscal 2011, the company said it expects to open approximately 30 new stores and expand approximately 20 high performing locations. In its efforts to increase operating margins, Hibbett intends to close 10 to 15 underperforming stores, which management said is permitted by the terms of the respective leases.
