Hibbett, Inc. said fourth-quarter comps were negatively affected by 10 percent in the footwear category and 5 percent overall due to delivery delays. However, officials are bullish on a return to robust growth in the second half of 2022 due to improving inventory levels and strengthening partnerships with major vendors, including Nike.

The two primary questions from analysts in the Q&A session on its quarterly call regarded the retailer’s confidence in securing allocations from Nike and the expected drivers of improving trends in the back half.

Improved Allocations From Nike
The concerns around vendor allocations come as Foot Locker, on February 25, reduced its sales guidance for 2022 due to sharply-reduced allocations from Nike, attributable to its direct-to-consumer (DTC) push and included a notable decline in product launches. Nike is expected to supply about 55 percent of Foot Locker’s sales by Q4 2022 and continue at that level into 2023, down from 65 percent in Q4 2021 and as high as 75 percent overall in 2020.

In its DTC push, Nike also exited other accounts last year, including DSW, Urban Outfitters, Shoe Show, Dunham’s Sports, Olympia Sports, and Big 5. Nike has expressed a desire to work with fewer, strategic premium wholesale accounts and shift away from “undifferentiated” stores.

On Hibbett’s fourth-quarter call, Jared Briskin, SVP and chief merchant said, “As we’ve said on previous calls, we’re very confident in our positioning with our strategic vendor partners. COVID had a dramatic impact on the supply chain, which led to short-term things regarding order management issues, order changes and cancellation play, so on and so forth. But, at the same time, we’ve been able to deliver a significant amount of receipts over and above historical norms, which I think reflects the level of support and priority that we’re getting from our strategic partners.”

He said Hibbett’s appeal to vendors is partly because the chain focuses on “the underserved consumer in underserved markets” that the bigger brands aren’t reaching with their primarily urban locations. Investments have enhanced the positioning in recent years to deliver a “premium consumer experience” at the store level and build its omnichannel network. Added Briskin, “That’s highly differentiated in the marketplace and remains largely complementary to our partners.”

Michael Longo, CEO and president, noted that at the beginning of the current fiscal year, Hibbett estimated that approximately 54 percent of its stores faced no competition within three miles that carry products from the chain’s key brands. The figure expanded to almost 70 percent when estimating stores with one or fewer competitors within three miles.

“We believe this is a significant factor in our success going forward,” said Longo.

Nike’s move last year to stop shipping to numerous accounts was expected to star in October 2021, and Briskin expects the distribution changes will start helping Hibbett in the first quarter but “broaden” its impact over the course of the year as inventories are further reduced in the marketplace.

Second-Half Growth Acceleration
As far as expectations for strong improvement in the second half, Briskin said the first quarter would be the “most difficult” quarter with the year-ago quarter boosted by stimulus spending. The 2021 first quarter saw a comp gain of 87.3 percent year over year and 51.4 percent on a two-year basis.

Hibbett said that as the year progresses, supply chain constraints would ease, the timing of inventory receipts would become more consistent and predictable, the benefits from Nike’s distribution changes would pay off more significantly, and Hibbett’s overall inventory position would strengthen. Said Briskin, “We believe that when we get to the back half of the year, it will be more of an optimal level to support our business.”

Results in the fourth quarter, ended January 29, were in line with the update Hibbett provided on February 18, when it said lower traffic and transaction counts in the back half of the quarter would cause EPS to arrive in the range of $1.18 to $1.25, well below prior guidance calling for EPS in the range of $1.85 to $2.05.

The update also included a warning that same-store sales decreased 1.0 percent in the quarter, missing its guidance of positive high-single-digit comp sales.

The retailer also, at the time, provided guidance for the current year, calling for same-store sales to decline the negative low-single-digits with declines in the negative low-teens range in the first half of the year followed by an expectation of positive high-single-digit comp sales in the second half.

EPS was seen in the range of $9.75 to $10.50, down from $11.19 in 2021. Hibbett reiterated its 2022 outlook while reporting fourth-quarter results.

Factors Driving The Fourth Quarter Shortfall
On the analyst call, Michael Longo, CEO and president, said that in addition to a surge in COVID-19 cases, the fourth quarter’s shortfall reflected the impact of inventory shortages, inflation and the lack of government stimulus. He said supply chain disruption was the “biggest factor” that affected Q4 sales with late deliveries, most notably footwear, driving an approximately negative ten percent comp for January. He said inflationary pressures across fuel, food and housing effectively lowered consumers’ available discretionary income and is expected to continue to weigh on sales in the first quarter before lessening over the remaining quarters of the year. Finally, he said the fourth quarter lacked the stimulus spending this year versus last year that “materially affected sales.”

In the quarter, sales increased 1.7 percent to $383.3 million and gained 22.5 percent on a two-year basis.

Same-store sales declined 1.0 percent, reflecting strong sales trends leading up to Christmas, but traffic and transactions declined in the back half of the quarter. Brick-and-mortar comps decreased 1.6 percent, while e-commerce comps sales increased 1.8 percent. E-commerce sales represented 17.1 percent of total sales in each period.

On a two-year basis, comps increased 20.7 percent with gains of 15.9 percent for brick and mortar and 48.1 percent for e-commerce.

Gross margin in the quarter eroded to 35.1 percent from 37.1 percent a year ago, primarily due to shifting launch schedules, additional promotional activity, higher freight costs, and deleveraging in store occupancy costs resulting from the negative comp sales performance.

SG&A was reduced to 26.4 percent of sales compared with 26.8 percent a year ago. This slight improvement results from more efficient management of wage and related employee benefit expenses and lower impairment charges partially offset by increased costs of advertising, professional services, transaction fees, and back-office infrastructure expenses. Excluding certain City Gear acquisition and integration expenses a year ago, SG&A expenses were reduced to 26.4 percent of sales from 26.7 percent.

Net income reached $17.7 million, or $1.25 per share, down 26.6 percent from adjusted earnings of $24.1 million, or $1.40, a year ago. After costs related to the acquisition of City Gear, net earnings in the year-ago period were $24.1 million, or $1.40 per share.

2021 Sales Jump 19 Percent
For the full year, sales jumped 19.1 percent to $1.69 billion and surged 42.8 percent on a two-year basis. Comps increased 17.4 percent year-over-year with a growth of 21.4 percent at brick-and-mortar, offsetting a decline of 1.6 percent in e-commerce. E-commerce sales represented 13.8 percent of sales compared to 16.7 percent in fiscal 2020. Over two years, comparable sales vaulted 43.7 percent with a 37.9 percent gain in brick and mortar and an 89.0 percent hike in e-commerce.

Net income in the year was $174.3 million, or $11.19, climbing 67.1 percent from adjusted earnings of $104.3 million, or $6.12, in the year-ago period. Net earnings were $74.3 million, or $4.36, in fiscal 2020 after including adjustments related to COVID-19 and the acquisition of City Gear.

Footwear Weakness Offsets Apparel Strength In Q4
Digging deeper into merchandise categories, Jared Briskin, SVP and chief merchant, said Hibbett had a “mixed” performance in the fourth quarter. Apparel and team sports were “very strong,” with apparel sales up mid-teens and team sports ahead in the low-twenties. Footwear lost momentum, suffering a mid-single-digit decline due to the shipment delays that affected product launches.

Said Briskin, “When compared to fiscal 2020 fourth quarter, our results remain impressive. All genders and categories were up double-digits when compared to fiscal 2020 with apparel the most significant growth category up more than 50 percent.”

Briskin said that while the fourth quarter was below expectations, results achieved for the year provided confidence that the strategic shift in its merchandising organization and its toe-to-head merchandising strategy “are working and elevating how we serve consumers.”

In apparel, he key incremental investments in denim, premium fleece, jerseys, and kids apparel performed above plan during the quarter.

“Our athletic brand performance was excellent during the quarter,” said Briskin. “Key trends included footwear connectivity, matching mono-color tops and bottoms and premium fleece. Denim in both tops and bottoms was the driver of our fashion brand business. Our essential denim programs and denim in our streetwear collections performed exceptionally well. Jerseys and hats remain a hot trend and added significant upside during the quarter.”

Footwear continues to be impacted more significantly by supply chain challenges than other categories negatively affecting basketball, lifestyle and running styles, although demand remains “extremely high,” said Briskin. Incremental investments in casual footwear have remained a priority, with the category more than doubling in revenue during the quarter.

Across footwear and apparel categories, women’s improved mid-single-digits and kids improved low-teens. Men’s faced the most significant inventory pressure and were down mid-single-digits.

Inventory Increased 9.5 Percent At Quarter End
As expected, inventory ended the quarter up 9.5 percent over last year. During the latter part of December and January, a slowdown of deliveries impacted inventory estimates by an additional 30-to-45 days to drag down January sales results.

During the year, Hibbett secured an additional $185 million in receipts at a cost over and above historical norms to meet the demand despite supply chain challenges.

“We were able to accomplish this by improving our priority with our vendor partners, securing incremental product from our vendor partners in the season as well as through booking periods and increasing our processing capacity by more than 50 percent within our supply chain,” said Briskin. “The additional slowdown of deliveries continues to pressure our ability to get to an optimal level of inventory. We’re confident in our order book, but the timing of deliveries remains incredibly fluid. Based on current estimations, we do expect inventory levels to continue to improve throughout the first half of the year, reaching levels closer to optimum levels in the back half of the year.”

2022 Outlook
In line with the update provided on February 18, the outlook for the current year includes:

  • Total sales are expected to be relatively flat in dollars. Brick-and-mortar comps are expected to be in the negative low-single-digit range, while e-commerce is anticipated to be in the positive mid-single-digit range.
  • Comps are expected to be in the negative low-single digits. Comps are expected to be in the negative low-teen range in the first half and positive high-single-digit in the second half of the year.
  • Net new store growth is expected to be in the range of 30-to-40 stores.
  • Gross margins in the year are expected to decline in 130-to-160 basis points due to ongoing supply chain challenges, a higher mix of e-commerce sales, increased promotional environment, inflationary pressures, and some deleverage of store occupancy costs. The expected gross margin range of 36.6 percent to 36.9 percent is above pre-pandemic levels. Gross margin rates in comparison to the prior year are expected to become more favorable as the year progresses.
  • SG&A, as a percent of sales, is expected to increase 70-to-100 basis points due to wage inflation, deleverage of fixed costs driven by relatively flat sales expectations, and the annualization of back-office infrastructure investments. The expected full-year SG&A expense range of 23.3 percent to 23.6 percent is below pre-pandemic levels. The year-over-year quarterly SG&A comparisons are expected to become less challenging in the back half of the year due to an expectation of an improving inventory and sales environment.
  • Operating profit is expected to be in the low-double-digit range as a percent of sales is also above pre-pandemic levels.
  • EPS is anticipated to be in the range of $9.75 to $10.50 versus $11.19 in fiscal 2021.

Photo courtesy Hibbett Sports