While its more fashionable footwear performed solidly in the fourth quarter, continuing weak trends in performance apparel and footwear as well as equipment categories spoiled Hibbett Sports’ holiday quarter.
The sporting goods chain provided a fairly conservative outlook for the current year but expects to see the benefit of its roll out of several omnichannel initiatives, including e-commerce, in the back half of the year and said changes to its merchandise mix are already starting to pay off.
“While fourth quarter was more challenging than we would like, we remain confident in our strategy and opportunities that lie ahead,” said Jared Briskin, SVP and chief merchant. ”The continued declines of some of our legacy businesses such as performance apparel and footwear, licensed products and equipment continue to reinforce our direction, focusing on sports-inspired fashion products for our stores. We are also excited about the levers such as store-to-home shipping and e-commerce that we believe will help us stabilize some of our poor performing legacy businesses.”
Shares of Hibbett on Friday rose $2.33, or 8.5 percent, to $29.75 on the bullish sentiments.
In the fourth quarter, earnings slumped 30.4 percent to $12.1 million, or 54 cents a share.
On February 13, Hibbett had warned that its profits would slide to between 53 to 55 cents – down from its previous guidance of 64 to 70 cents – due to weaker traffic during the holiday season and lower-than-expected sales in apparel and equipment. The shortfall caused the chain to become more promotional to reduce inventories.
Sales increased 0.5 percent to $246.9 million. Comparable store sales slid 2.2 percent. Apparel and equipment both experienced declines, while footwear continued to show stronger sales with a mid-single digit increase with the benefit of improved assortments and in-stocks by store types.
Gross margins eroded to 33.0 percent from 34.8 percent. The decline was mainly due to markdowns taken to reduce inventory, a negative effect of product mix due to higher footwear sales, and de-leverage of logistics and store occupancy expenses associated with lower comps.
Store operating, selling and administrative expenses increased to 23.2 percent of sales compared with 21.8 percent in the same period a year ago. The higher rate was mainly due to de-leverage associated with lower comparable store sales and continued investments in the company’s omni-channel initiative.
Elaborating on the sales performance, Briskin said the company’s sports specialty stores were hurt most by the weakness in legacy categories. Athletic specialty stores fared better as the assortment in these stores is becoming more relevant but was held by declines in legacy categories. Its fashion specialty stores, which have a low penetration of legacy categories, performed “exceptionally well as improvements to our assortment resonated with our consumers.”
Apparel was down mid-single digits primarily due to ongoing weakness in accessories. Weakness in team sports-related products, socks and hydration led to declines. Branded apparel notably improved with a “very low” single-digit decline, said Briskin, as a focus on premium sports-inspired fashion styles performed better than the balance of its assortments. He added, “We continue to take a more meaningful position in this product in an effort to stabilize our branded apparel business. From a gender perspective, women’s was down low single-digits, kids down mid-single-digits, but men’s was up low single-digits.”
The licensed business was down double-digits and remains the company’s “most challenged” category.
“The core licensed business continues to be very difficult,” said Briskin. “This coupled with declines from events in the prior year quarter led to significant declines. Our license team did an excellent job of maximizing the Cubs World Series Championship, Clemson National Championship as well as Falcons Super Bowl run, but they were not large enough to offset the prior year.”
Team sports was down high single-digits. Cleated business was off low single-digits, but team equipment declined low double-digits. Fitness was also weak.
Footwear’s mid-single-digit gain was led by double-digit gains in men’s although all genders were positive. Key styles for the quarter were Retro and True Flight from Jordan; Huarache, Kyrie 3 and Air Force from Nike; and NMD, AlphaBOUNCE Shadow and Superstars from Adidas.
From an inventory perspective, Hibbett closed year below plan and is expecting improvement in inventory productivity throughout the current year. Added Briskin, “We will continue to invest in our footwear business while rightsizing some of our legacy businesses.”
Jeff Rosenthal, CEO, said the company is making “significant progress” with its store typing initiatives, or retrofitting stores based on demographics, as well as its focus on improving store in-stock positions on key items in footwear, equipment and apparel.
He said the company’s new POS system will be fully rolled out in the next three weeks and “give us many levers in helping us run our business more efficiently.” The company’s store-to-home capability is in pilot mode and so far is seeing “very positive results.” It’s scheduled to begin rollout in the first quarter. Store-to-home will enable Hibbett to locate an item and send it directly to its customers’ homes.
The company is also on track to launch its e-commerce site in the third quarter of this year, which will be fully integrated with stores and will include an enriched customer loyalty program. Said Rosenthal, “Once implemented, we feel these initiatives will provide an outstanding customer experience and will position us to drive long-term growth and shareholder value.”
For the full year, sales increased 3.2 percent to $973.0 million. Comparable store sales gained 0.2 percent. Net earnings were down 13.3 percent to $61.1 million, or $2.72 a share. Gross margins slid 50 basis points to 34.8 percent.
From an expansion standpoint, Hibbett opened 65 new stores, expanded 8 high performing stores and closed 31 underperforming stores in 2016, bringing the store base to 1,078 in 35 states as of January 28. Approximately 50 to 60 openings are projected in 2017 with approximately 25 to 35 store closures.
Rosenthal said the company opened its first three stores in California and is “very pleased with the results so far.” He added, “It gives us confidence that we could open many more, not just in the state of California, but as well as many other states throughout the U.S. Our goal to have over 1,500 stores in underserved markets has not changed.”
Looking to 2017, Hibbett provided a wide guidance range of $2.65 to $2.85, which compares to $2.72 in 2016. The year is expected to include charges ranging from 3 to 4 cents a share to support its omnichannel initiatives. Comps are expected to increase in the low-single digit range. Gross margins are expected to be relatively flat.
Photo courtesy Hibbett Sports
