Hibbett Sports Inc., in slashing its guidance for the year, joined a number of retailers finding the delay in tax refunds created a worse-than-expected drag on first-quarter sales. The bigger problem is it’s created a murky read for both retailers and the investment community on whether assortments in the marketplace are working.
The delay was caused by tax refunds connected to Earned Income and Additional Child tax credits. To enable the IRS to more closely check for fraud such as identity theft as well as errors, a 2015 law pushed back the timing of such refunds until at least February 15. But the IRS further warned taxpayers that refunds likely would not start arriving in bank accounts or on debit cards until the week of February 27. The refunds had typically gone out in January.
Both Foot Locker and Finish Line had already indicated that basketball footwear particularly was hurt by the delays because it came after a number of shoe launches took place around the NBA All Star Game on February 17.
“We experienced a slow start to the quarter with a double-digit decline in comparable store sales in February, most of which we believe was attributable to a delay in tax refunds,” said Jeff Rosenthal, Hibbett’s president and CEO, in a statement. Comparable-store sales improved “significantly” in March to the positive mid-single-digit range, but did not offset the decline in February.
Added Rosenthal, “So far in April, we are very pleased with continued comparable-store sales in the mid-single-digit range, driven by strength in footwear and the successful rollout of our store-to-store/home initiative. Looking forward, we believe that our store-to-store/home capability and the launch of our e-commerce initiative in the third quarter will help drive comparable-store sales. Simultaneously in the first quarter, we increased our emphasis on expense controls, which we believe will help to maximize profitability.”
With the decline in sales, along with additional clearance markdowns, earnings are expected in the range of 94 cents to 97 cents in the first quarter, down about 22 percent from $1.22 in the same period a year ago. Hibbett didn’t offer guidance specifically for the first quarter, but Wall Street’s target on average was $1.15 a share.
For the year, earnings are now projected to be in the range of $2.35 to $2.55, which assumes additional markdown pressure going forward to liquidate aged inventory. Previously, the sporting goods chain expected earnings between $2.65 to $2.85. With the new guidance, profits for the year are expected to slide between 6 and 14 percent from $2.72 reported in 2016.
Hibbett plans to issue its first-quarter earnings release before the market opens on Thursday, May 18, 2017. On Wednesday, shares of Hibbett were down $1.50, or 5.4 percent, to $26.35.
Hibbett is far from alone.
In issuing its own profit warning on April 20, Foot Locker said its sales were “significantly” impacted by delays its shoppers are seeing in getting back their income tax refund this year.
“We mentioned on our 2016 earnings conference call on February 24 that the first quarter of 2017 would be challenging, based on the slower-than-usual start in the United States,” said Richard Johnson, chairman and CEO. “We believe the delay in the issuance of the vast majority of income tax refund checks until after the NBA All-Star Game significantly affected our February comparable-store sales, which were down low double digits.”
Johnson added, “March sales rebounded well, up high single digits; however, the strength we experienced once income tax refund checks started flowing into our customers’ hands did not fully offset the slow start to the quarter. Encouragingly, we are now having a strong Easter selling period, with April comparable sales likely up low double digits, which we see as confirmation that the customer’s appetite for our exciting product assortments has not changed.”
On March 24, Finish Line reported comps at the Finish Line chain were down 4.7 percent, at the low end of guidance calling for declines in the range of 3 to 5 percent. The shortfall was particularly blamed on a 15.5 percent same-store tumble in February. Finish Line said the IRS’s decision to delay income tax refunds compared with last year meant they did not begin to see a meaningful sales lift until February 22.
Sam Sato, CEO, noted on a conference call that Nike signature products from Kyrie Irving, Nike Zoom LeBron Soldier 10, and a few Jordan retro items, were “all doing very well” in December and January but faced challenges in February against the bigger year-ago comps. Said Sato, “The tax refund delay, I think it squashed a little bit of the open to buy for consumers.”
Still, Sato said that while casual athletic roundly performed well, other categories were weaker than planned even accounting for the refund delays. Said Sato, “Elements of our offering didn’t resonate with our customers. This was true in both running and basketball, our two largest categories, where full price selling fell short of forecast.”
On March 10, Bob Dennis, chairman, president and CEO of Genesco, said 2017 “is off to a sluggish start, which was expected with the IRS delaying close to $68 billion at its peak of income tax refunds compared with February a year ago.” Journeys and Lids are impacted in particular by delays in tax refunds.
“Comp trends improved significantly when the IRS started catching up and the refunds injected a higher level of spending into the economy,” said Dennis. “However, like any scenario when sales are pushed out, there is a degree of uncertainty as to whether we will make it all up. And this, combined with our outlook that it will take a little longer to get to the other side of the Journeys fashion rotation, plus some uncertainty with the direction of the overall retail economy causes us to be cautious about the current year, particularly in the first quarter.”
On March 23 in reporting fourth-quarter results, Shoe Carnival said it couldn’t provide an update on its first-quarter performance due to tax refund delays and Easter arriving three weeks later versus the prior year. CEO Cliff Sifford described tax refunds as “almost like a second back to school” for Shoe Carnival.
When it reported fourth-quarter results on March 13, DSW indicated that the impact of delayed tax refunds and the timing of several initiatives such as its website redesign and Ebuys acquisition would create headwinds weighing on earnings during the first half of the year.
When it reported fourth-quarter results on March 16, Caleres indicated that although it expects its Famous Footwear chain to show a mid-single-digit comp gain in the first quarter, the tax and Easter shifts, as well as store closings in the Northeast due to storms, makes the estimate “a very big moving target.”
Photo courtesy Hibbett Sports