Shares of Hibbett, Inc. surged $8.17, or 22.2 percent, to $45.03 on Friday after the sporting goods chain reported second-quarter earnings surpassed analyst targets. Sales arrived in line with guidance due to a strong start to back-to-school selling and as strength in some better footwear brands offset weakness in secondary brands and franchises.

Hibbett also reiterated its guidance for the year in a week that saw close competitors, Foot Locker and Dick’s Sporting Goods, reduce their outlooks. Macy’s also provided a cautious outlook for the year while Target reduced its guidance the prior week.

Shares are still well off the 2022 year-end closing price of $68.22 as Hibbett had slashed guidance in late May after reporting first-quarter sales missed plan due to softer consumer spending. Officials at the time also said promotional pressures are expected to last at least through the third quarter of this year to clear elevated inventories across the marketplace.

The heightened promotions and weaker consumer spending wound up causing Hibbett’s earnings and sales in the second quarter to come in below year-ago levels.

“We’re pleased to report a solid performance for the second quarter,” said Mike Longo, president and CEO, on a call with analysts. “While the current environment remains challenging, we’re proud of our ability to execute our strategy and reiterate our guidance for the year. Our consumers are still dealing with higher costs for essential items like food, utilities and gas and thus have reduced some of their discretionary spending.”

Longo said Hibbett was able to report sales in line with its guidance despite the broader pressures because the chain’s footwear business has remained “consistent” with strength in certain styles and back-to-school selling saw a healthy start. He credited Hibbett’s product team for coming up with an appealing footwear assortment. Longo said, “With the support of our major brand partners, we remain focused on providing a compelling quality product assortment that appeals to our customers in these current more selective demand trips.”

In the quarter, sales decreased 4.6 percent to $374.9 million, slightly below analysts’ average target of $376 million. Comparable sales decreased 7.3 percent with brick & mortar down 7.7 percent and e-commerce sales off 5.2 percent. E-commerce represented 15.1 percent of sales in the period, about even with 15.2 percent penetration a year ago.

“The second quarter concluded with a strong start to the back-to-school season,” Jared Briskin, EVP of merchandising, on the call.

Footwear Paces Q2 Sales Results
Footwear remained Hibbett’s strongest category during the quarter with a year-over-year decline in the low-single digits. Briskin said, “Results in footwear were challenged early in the quarter due to the performance of secondary brands and franchises, as well as an unfavorable launch calendar. Results in the latter part of the quarter were much improved due to an improved launch cadence and the start of back-to-school.”

Footwear results continue to be driven by product launches as well as the strength in basketball, lifestyle and casual categories. Hibbett has benefited from the sale of Yeezy products from Adidas in the current quarter but did not impact second-quarter results.

Hibbett also continues to see an improving trend in the running footwear business. Briskin noted that the running category has historically made up a smaller portion of Hibbett’s business versus other categories with the strength reflecting some bigger investments in performance running and the evolution of some lifestyle running offerings as “some new iterations of product that were delivered in preparation for back to school performed well.:”

Apparel and team sports categories were both negative for the quarter with apparel down high teens. Apparel continues to be affected by promotional activity due to elevated inventory levels in the market, according to Briskin. He noted that early results of fall seasonal apparel products as well as back-to-school accessories such as socks and backpacks “were encouraging.”

Combining footwear and apparel, sales were down high-single digits in men’s and kids. Both segments were affected by challenges in the launch calendar and weaker trends in secondary franchises. Women’s was up mid-single digits, driven by strong footwear results.

Merchandise Margins Dragged Down By Promotional Pressures
Gross margins in the quarter were down 160 basis points to 32.8 percent, driven primarily by a 215 basis points decline in average product margin resulting from higher promotional activity across both footwear and apparel categories. In addition, the year-over-year sales decline resulted in a deleverage of store occupancy costs of approximately 100 basis points. These unfavorable gross margin impacts were partially offset by lower freight, shipping and logistics expenses as a percent of sales in comparison to the prior year quarter.

SG&A expenses were up 200 basis points to 25.3 percent of sales due to sales deleverage. Bob Volke, SVP and CFO, said on the call, “We continue to experience headwinds related to wage inflation and have also incurred higher costs as a percent of sales in incentive compensation, medical expenses and data processing expenses versus the prior year second quarter.”

Net earnings fell 55.9 percent to $10.9 million, or 85 cents a share, from $24.7 million, or $1.86, a year ago, but topped analysts’ consensus estimate of 75 cents.

Operating income was down 48.8 percent to $16.0 million from $32.8 million a year ago with the operating margin eroding to 4.3 percent from 8.4 percent a year ago.

Inventory as of July 29 was $430.8 million, a 17.6 percent increase compared to the prior year second quarter and up 2.4 percent from the beginning of the year. The higher inventory levels in part reflect product cost inflation and mix as footwear inventory, which carries a higher average unit cost, is a bigger component of the overall inventory balance versus the comparable period.

Briskin said Hibbett “made some progress,” in reducing inventories although it still expects a continued promotional environment and “much more selective consumer” at least through the third quarter as it continues to reduce its inventory levels. He added, “These promotional efforts as well as support from our key brand partners will help us to achieve our goals for inventory reduction. While year-over-year inventory compares will continue to be volatile due to the challenges that affected the supply chain during fiscal 2023, our expectations remain the same for our inventory levels as we expect a year-over-year decline in the second half of the year.”

Hibbett’s Existing Consumer Base Increases Purchases
Addressing the state of the Hibbett consumers, Bill Quinn, SVP of marketing and digital, said Hibbett’s consumer research and analysis of loyalty data shows “most customers still have elevated concerns of the general impacts of inflation. Concerns over gas, grocery and utility costs remain high. There is also an added concern around resuming student loan payments later this year.”

Exploring loyalty purchase data, sales from new members were down in the quarter, driving the negative comp decline, although new customer purchases grew “significantly” in the latter part of the quarter as back-to-school selling and new launch products arrived.

Existing customers, which are the vast majority of Hibbett’s loyalty members, continued to spend more than the prior year, consistent with the first-quarter trends. Quinn added, “Strength in existing customer sales is a validation of our focus on a compelling product mix, superior customer service, a best-in-class omnichannel shopping experience and our strategic positioning in underserved markets.”

Looking ahead, Hibbett reiterated its outlook for the full year that calls for:

  • Total sales to be flat to up 2.0 percent;
  • Comp sales to be down low-single-digit with low-single-digit declines in both brick-and-mortar and e-commerce channels;
  • Gross margin to decline to a range of 33.9 percent to 34.0 percent from 35.2 percent in the prior year;
  • SG&A expense to improve to between 23.3 percent to 23.5 percent of sales from 22.8 percent in 2022;
  • Operating profit percent to erode to a range of 7.4 percent to 7.8 percent from 9.9 percent in the prior year; and
  • EPS to decline to a range of $7.00 to $7.75 from $9.62 the prior year.

In the Q&A session, Briskin admitted it’s hard to tell how much of the promotional pressures are due to excess inventories in the marketplace versus weak consumer demand. He said Hibbett is encouraged by the initial reads on fall assortments but said pressure is still being felt by weakness in some secondary brands and franchises as well as from the chain’s own high inventory levels. Briskin said, “As far as what we have in the pipeline, we’re very, very confident. The question remains just how fast we can get an optimal level and quality of inventory.”

Photo courtesy Hibbett