Q3 2021 Hibbett Sports Inc Earnings Call

November 20, 2020

[music].

Greetings and welcome to the Hibbett sports the third quarter 2021 earnings conference call. During the presentation. All participants will be in the listen only mode. Afterwards, we will conduct a question and answer session at the time. If you have a question. Please press the one.

Fall by the four on your telephone if at any time during the conference you need to reach an operator. Please press star Zero as a reminder of this conference is being recorded on Friday November 20 at 2020.

I would now like to turn the conference over to Jason Freuchtel Director of Finance and Investor Relations. Please go ahead Sir.

Good morning. Please note the we have prepared a slide deck that we will refer to during our prepared remarks. The slide deck is available on hibbett Dot com via the Investor Relations link found at the bottom of the homepage. These materials may help you follow along with our discussion. This morning before we begin I would like to remind everyone that some of the management's comments during this conference call.

Forward looking statements these statements, which reflect the company's current views in respect of future events and financial performance are made in the reliance on the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted at the company's future results may differ materially from those anticipated and discussed in the forward looking statements.

Some of the the factors that could cause or contribute to such differences have been described in the news release issued this morning, and the company's annual report on form 10-K. The most recent quarterly report on form 10-Q and in other filings with the Securities and Exchange Commission. We were free refer you to those sources for more information also to the extent non-GAAP financial measure.

Jurors are discussed on this call you may find a reconciliation to the most directly.

Comparable GAAP measures on our website lastly, I would like to point out the managements remarks. During the conference call are based on information and understandings believed accurate as of today's date November Twentyth 2020, because of the time sensitive nature of this information at is the policy of Hibbett sports the limit its archived replay of this conference call webcast to appear.

Adjusted of 30 days.

Good day the part the participants on this call are Mike long ago, President and Chief Executive Officer, Bob Wilkie, Chief Financial Officer, Jared Briskin, Senior Vice President Chief Merchant Bill Clinton Senior Vice President of marketing and digital and been night and senior Vice President of operations I will now turn the call over to Mike long ago. Thanks.

Jason Good morning, and welcome to the Hibbett Q3 earnings call if you're following along using the slide the column on the third slide entitle introduction.

This quarter was a great outcome from a financial perspective for the company.

You saw in the press release, we reported the 21% sales comp our brick and mortar comp was almost 18% of ecommerce was 50%.

This resulted in a non-GAAP operating income of almost $33 million at a non-GAAP earnings per share of $1.45.

These results were made possible by the hard work of our 10000 teammates from the stores the store support center and the distribution center as always they put in the effort and the help lead us through another quarter in a challenging business environment.

Those of US on the call are proud to represent our teammates today and we wanted to make sure to think the mall for what they do each and every day.

And as I have said before retail is the ultimate team sport and I couldn't pick the better team to compete with income.

And speaking of our team I did want to highlight the press release from last week about recent changes to our merchandising team the new VP structure reporting directly to Jared Briskin allows us to better align our business around our consumer this new focus on the men's women's kids in the city of your business will allow at much higher.

Higher degree of kind of activity through the lens of the consumer we're very excited at Beretta banks, Lauren Portera, Stephanie Smith Brook, Frankel and Alicia Khan of taking these critical positions.

Let's move on to the next slide entitled Cobot response, a much of this you've heard before so I won't belabor the point, but as a reminder, hibbett adopted of stance that we would remain open in stores and online as long as we are in compliance with state and local restrictions with regards.

The the Corona virus, while running our stores. During these last several months. We've made several we made sure we followed the federal state local guidelines in order to ensure the safety of our consumers as well as our employees as a result of these actions.

We believe the consumers felt safe and continued to feel safe.

The shop at our employees feel safe to work.

This is pertinent to our current situation since we'll probably experience some short term disruptions through the winter due to the anticipated increases in virus cases being reported around the country.

We've seen this before and we believe we know what to do.

Moving on to the next slide sales drivers, we wanted to give you a little bit of background on the factors that we believe drove Q3 sales and continue to produce results.

As we discussed in our Q2 earnings call. We believe the increases in sales were driven by several factors, including a time earlier in the year. We saw a temporary closures of competitors are accelerating consumer adoption of the ecommerce.

Rotation of spending from travel and leisure and entertainment into our our business and the boost from fiscal stimulus and that gave consumers new and existing even more reasons to shop with us.

Net manifested itself by driving traffic to our stores into our website and yield at what we believe to be increased market share and higher sales.

This gave us an opportunity to retain many of the those customers and drive higher sales volumes into the future. In fact, our data shows that we've done a good job retaining these new consumers so far weve.

We believe we have tailwinds in the future as well.

In Q3, we did begin to see the effects of the closures of JC Penney, some JC Penney stores and all of the stage stores.

This presents an upside opportunity for us both in fashion and athletic categories and in order to capitalize on the as opportunities I'll remind you the merchandising team mates specific buys for those stores to handle the additional business that we anticipate.

Additionally, we see what we believe is continued consumer adoption of the omni channel experience. This plays to our strength with our best in class Omni channel plan.

Platform and finally, we believe that many of the new consumers, we attract at last quarter and continue to attract will continue to shop with us in the future in total we believe that these changes in the competitive landscape and changes in the consumer behavior will result in approximately $20 million to $40 million in incremental sales opportunity.

That really has only just begun.

But before we go any further on the future I would like to ask Jared briskin to provide some detail on our merchandising performance Jared. Thank you Mike. Good morning. If you. Please turn to the merchandising slide our store comp sales performance was driven by apparel and footwear with significant gains in sales and share of our mix from sports continues to be impacted by cash.

It was down low double digits our cash.

The head merchandising strategy is working as we continue to see additional items in the basket, leading active average transaction growth.

The apparel business is up in the mid Thirtys. This increase was driven by gains in athletic branded apparel fashion apparel licensed products and accessories. All genders were significantly positive from the athletic brands, we saw acceleration at our performance business as well as the lifestyle business consumers responded positively to.

Our fall assortment at upon delivery in early selling of fleece jackets and athletic bottoms were very strong.

Fashion brand performance was exceptional as our focus on debt and then fleets at our fall assortment were strong performers quick turn the T. is also performed well as our vendor partners worked with us on securing additional inventory.

License business with the growth driver for us captain jerseys performed exceptionally well and offset declines of the traditional fan business accessory business also achieved significant growth at Sox hydration underwear and the sunglasses all were significant gainers during the quarter.

Footwear business was up in the low Twentys. This increase was driven by strong gains across performance lifestyle basketball sandals and boots.

All genders were significantly positive with the women's growth outpacing mens and kids in.

In the performance business, our investment the technical running performed very well as we take advantage of the wellness trend.

Lifestyle and basketball results remained robust during the quarter.

During the quarter the launch business was exceptionally strong slides and sandals remained very strong as our team did an excellent job of chasing inventory during what is historically of sell down period.

All deliveries at our boot category also performed incredibly well.

Specific the footwear and apparel, our women's business was our fastest growing area with comp sales gains in the low fiftys.

Men's grew in the mid Twentys and kids in the high teens, we're very excited about future opportunities across all genders.

Inventory at the end of the quarter remained down with age levels approaching historic lows increased sales and shipment delays continue to pressure our inventory position with that said, we're very confident in the quality of our inventory and our outstanding deliveries, we continue to expect inventory levels to improve throughout the fourth quarter.

Our sales performance in inventory composition will give us a lot of confidence as we head into the fourth quarter increased confidence is also coming from the visual merchandising improvements we've made in our stores. This year by the end of the fiscal year, we will of remodeled 25 cities Citi Your stores as well as 54 hibbett stores remodeled two hour.

The prototype we're seeing exceptional results from this prototype thus far as our ability to highlight and sell total heads looks has been elevated increased focal points improved graphics, numerous mannequins and elevated sneaker walls are the highlights of this premium new store design.

During the fourth quarter, we will also be deploying our store refresh plan.

Refresh project focuses at elevating stores to a level similar to the new prototype with substantially less cost at a full of remodel. The refresh consists of new tables, and mannequins, new sneaker walls as well as the wall system as for the balance of the store, which will eliminate the look of data at slot wall. Our test rollout of this refresh the not only at looked at.

Credible improve our performance.

Now I'll turn the call over to Bob.

Thanks, Gerry and good morning, if you will please refer to the third quarter results slide.

As a reminder, we treat city gears and extension of the Hibbett business and these results are reported on a combined basis.

For the third quarter total net sales increased 20.3% the $331.4 million and consolidated comp sales increased 21.2%. This compares to third quarter fiscal 2020 sales of $275.5 million and a comp sales increase of 10.7%.

Brick and mortar comp sales remained strong and came in at 17.5% ecommerce sales grew at over 50% in the quarter representing attractive expansion in our omni channel platform.

For the quarter E Commerce sales accounted for 13 to per 13.2% of net sales compared to 10.5% in the third quarter of last year.

Our GAAP gross margin expanded significantly to 38.3% of net sales compared to 32.7% in the prior year third quarter.

At this approximate 560 basis point improvement was due to higher initial sell through a low promotional environment a reduction of inventory reserves and leverage of store occupancy costs that are included in our gross margin calculation.

There was a slight offset due to the higher volume of E commerce sales, which carry a slightly lower margin due to the incremental shipping costs associated with the sales excluding the reduction of inventory revaluation reserves in the current period adjusted gross margin was 38.1% this year to adjusted gross margin of 32.4% last year.

Store operating selling and administrative expenses were 26.1% of net sales in the third quarter compared to 29.1% in the third quarter fiscal 2020.

The decrease of approximately 300 basis points was primarily due to the leverage from the store from the strong sales performance as well as lower cost of acquisition integration activities associated with sit at year, excluding certain city gear acquisition. The integration expenses adjusted EPS Geneight was 26% of net sales compared to adjusted EPS.

End of 27.2% in the prior year third quarter.

On a GAAP basis, we generated 33.2 million of operating income, which compares to last year's operating income of 2.6 million, excluding all non-GAAP adjustments for the quarter. Adjusted operating income was 32.7 million or 9.9% of sales compared to operating income of $6.9 million in the third quarter of last year.

Sure.

GAAP earnings per share were $1.47 for this years third quarter and non-GAAP earnings per share were $1.45, primarily as the result of improving our inventory position over the last three months, we generated an operating cash outflow of $33.6 million. During the quarter. We also spent approximately $8.3 million in capital expenditures, which were largely.

Related to new relocated end remodeled stores in the prior year's third quarter operating cash flow was approximately 900000 and capital expenditures were 5.2 million.

I'll now have you move forward to the year to date results page.

The year to date basis sales increased 19.7% to $1.043 billion from 871.2 million over the first nine months of the prior year comp sales on the year to date basis, our 22% with brick and mortar expanding 11.6% and ecommerce growing 118.2.

On a year to date basis E commerce sales represent 16.6% of our total net sales compared to 9.1 per cent for the first nine months of last year. Our GAAP gross margin was 35% of net sales compared to 32.7% in the first nine months of 2020, excluding year to date inventory reserve adjustments in the current year.

And Citi your acquisition and strategic alignment costs in the prior year adjusted gross margin was 35.3% this year compared to 32.7 per cent for the first nine months of last year.

Year to date GAAP SG net expenses were 26.4% of net sales compared to 26.9% in the first nine months of last year. This modest decline was primarily driven by increased revenue adjusted EPS Geneight was 22.6% for the first nine months of the current year compared to 25.2% for the same period last year.

On a GAAP basis, we produced $67.4 million of year to date operating profit compared to last years operating profit of $28.3 million, excluding all non-GAAP adjustments in both years. Adjusted operating income was 110.2 million this year compared to adjusted operating profit of $43.7 million for the first nine months of the.

Last year GAAP year to date earnings per share were $2. The 98 cents for the current year compared to $1.18 in the prior fiscal year and non-GAAP earnings per share were 474, this year compared to $1.82 for the comparable period in fiscal 2020.

We have generated $145.3 million of operating cash flow on a year day basis and of spent 20.8 million in capital once again with the focus on new relocated end remodeled stores.

Over the first nine months of the part of your operating cash flow was 75.1 million and capital expenditures were $11 million.

Turning to the balance sheet.

We ended the quarter with 177.7 million in cash versus $77.4 million a year ago and we currently remain debt free we have a 75 million dollar of borrowing capacity available to us, but do not anticipate the need to borrow under our secured credit line based our current cash projections.

Inventory ended the quarter at 210.9 million at 27% decline from last year's third fiscal quarter. The continued strong sales in both the brick and mortar and online channels drove the year over year decrease however, despite the strong sales growth in the quarter, our inventory position increased over $28 million or nearly 16%.

Sent from last quarter, representing a focused effort on execution as well as our strong vendor relationships. We did not purchase any shares during the third quarter under our authorized share repurchase plan. We have just over 143 million of remaining authorization through January 29, 2022 for future share repurchases at management's discretion.

Now I'll review, our updated guidance on the slide titled future.

Our anticipated results for the fourth quarter fiscal 2021 are influenced by multiple factors as Mike mentioned earlier, we have attracted and retained new customers throughout fiscal 2021 permanent closures in the third quarter at any additional closures in the future should provide opportunities the capture new market share our strong vendor relationships and targeted per.

Says by our merchandising team will allow us to take advantage of the expected, resulting increase in business other supply chain and selling initiatives as well as continued accelerating adoption of E. Commerce should help drive sales growth as well.

While we continue to experience a great deal of economic uncertainty at the beginning of the holiday season due to the recent surge in COVID-19 case counts we are confident in our business model and the trends. We have recently seen as a result, we are providing limited GAAP guidance for the fourth quarter of fiscal 2021 from.

First we anticipate comp sales will be in the high single digit to low double digit range gross margin is expected to improve by 380 to 400 basis points in comparison to the fourth quarter of fiscal 2020 assets.

Yes, gionee as a percentage of sales is projected to be approximately 40 to 60 basis points below the the comparison in the fourth quarter of last year diluted EPS is forecasted to be in the range of at dollar to $1.10 with an assumption that the effective tax rate will be approximately 25% ended the dilute the diluted share count.

<unk> will be approximately $17.2 million, we do not anticipate the difference between our GAAP results and our non-GAAP results will be material in the fourth quarter.

That concludes our prepared remarks, operator, please open the line for questions.

Thank you.

Ladies and gentlemen, if you would like to registry of question. Please press the one four on your telephone.

You will hear at three teleprompter acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.

If you are using a speakerphone. Please the Chan said before entering your request.

One moment please for the first question.

Our first question comes from Sam Poser with Susquehanna. Please proceed.

Hi, good morning, gentlemen, thanks for taking my questions.

Well, let me ask you this <unk>.

You have about $10 a share in cash right now.

Can you give us some idea are you looking at any M&A right now and if so.

What can you tell us.

Certainly we are always Sam this is Mike good morning, great to hear my view.

Certainly we're always going to look at strategic alternatives and what we're doing at capital allocation is always the subject of of great debate Bob.

Yeah, Good morning, Sam.

Again as you heard in the in the prepared remarks, we are continuing to build our inventory balance we still feel at Theres, an opportunity for us to continue to to get that to more of an optimal level I think again as Mike said, we're always kind of keeping our options open. We're looking at how we can best deploy capital to get the return for shareholders.

I think again there is a lot of options on the table, whether it be potential you know M&A share repurchase.

Investment in new store units, so we're going to keep the kind of our options open going forward.

Okay. Thanks, and then and then you've got a situation, where I think as of March Belk, Dillard's or no longer going to the carrying Nike end you mentioned, the you're already seeing some benefit from.

Same stores and the.

And JC Penney, a close at closings of.

If you think about that on top of the I.

I guess your new customer retention and so on how what are the how does the how do you think about that going into next year.

How about that help you.

Hey, Sam there's and good morning at Stared, which I do believe it will help us theres certainly a disruption the continuing to go on in the market. We obviously have our work to understand the based off of that timing of based up on hand inventories of when that will occur but our team without question is focused on our ability to take advantage of that.

At disruption.

And then at them and then the sale of Cheyenne just add to that we have been testing the marketing programs to target displaced customers in that area.

So that is something that I end, we're prepared to do on in the future.

Thanks, and then I mean, and then you've had too you know fairly significantly strong quarters, the last two quarters.

At.

We sort of talked about it can you give can you say something that of.

You know why you're confident that.

You know, whether it's probably going to be some headwinds just because of the extreme extraordinary comps in Q2 and Q3 next year that you feel comfortable that you know you know a lot of the business you. The you've done so far is going to be sticky at all or the new customers are going to stick next year.

Going up I mean, I think thats, what gives you the confidence that the.

That but the that that you're going the other bill dog you know what's going on this year.

Yes.

Thanks, Sam Mike again, so yes, certainly we have had a very good experience this year.

We all understand the challenge of an 80 comp Q2 next year of what that two year comps going to look like but for the full year, we do have confidence and that confidence comes from a combination of factors one the experience at we'd gain this year and the playbook that we've written.

And have been executing against.

For the tactical side of the strategic plan the broader scope of what we're doing the have a great deal of confidence in what we're executing against the there and as this quarter of goes by we will gain additional visibility.

And as as you've noted in the end. We said we have the confidence to give guidance for Q4, which is unusual I think for retailers in the recent past and currently many retailers or neglect the are opting not to.

The give guidance, we at least half of the confidence. The look ahead 90 days and while the we didn't do a perfect job forecasting this quarter.

Mrs of mass, where they're at higher LOE, regardless, we have the confidence to put something out there and we did it again so.

So to your central question, what makes us feel good about next year you hit on some of those points and you know certainly new customer retention is the big deal and our experience and our capabilities Bill would you like the add anything to that.

Yeah, absolutely. So in Q2, we surveyed our new customers and they said they had a great experience and they will shop at us again.

Looked at their behavior in Q3, and they did what they said they came back and shop on a lot of that really is about providing a great in store customer experience and the great online customer experience.

Also part of that is having the loyalty program that naturally incentivizes end to shop, and we've got a great loyalty program and also what we've learned with new customers. It's critical that you communicate to the as new customers within at first 90 days. It's all at backend then back into the store and online to shop.

And that shopping experience with online and the pressure testing we've had from the pandemic has never been better on the also we've made great strides with our in store shopping experience as well and I'll turn it over to ban the comment.

Thanks, Bill you know, we're laying the ground work, obviously to make those customers stick as you mentioned, Sam Jerry talked about our store Remodels and ours and our other refresh project, where we went out there and touching end refreshing every location in the stores its all about blocking and tackling right. We've doubled down on our sales culture in stores there.

Taking all of our team members.

Training there.

During the quarter. We also conducted leadership training with our entire fuel management team at its our intention obviously too to give that end store experience to make those those customers in the you know those new customers that we've seen coming at our doors of stick for next year.

Thank you and the and then lastly.

How has your.

Relationships with key vendors.

Changed throughout this year.

As far as you know just a well I mean allocations plus.

As general you know.

Just I guess all cash.

Were at were extremely confident in our positioning with the vendors of support throughout the years continued to improve we continue to see the numerous opportunities with a large portion of our vendor partners.

And there are mobilizing against opportunities they have with both the hibbett brand as well as the city. Your brand. So we're very confident around how we're positioned and we're very confident about our opportunities in particular as there are some marketplace disruptions that we believe will be occurring.

Thanks, Thanks, very much in the race day say of having great held.

Thank you use well.

Our next question comes from Alex Parry with Bank of America. Please proceed.

[noise] perfect Congrats on a great quarter and thanks for taking my question.

I guess, just first Ah what gives you confidence in the high single digit at the low double digit comp outlook in the fourth quarter.

Especially in the absence of any stimulus programs and then just separately on that point, how do you see sort of the recent servicing the Kobe the of potentially impacting the business in the fourth quarter.

Thanks for the question. This is Mike I'll lead off and now the dish to Jared the follow up we do have confidence in this quarter and some of that as an extension of trends and experience that we see today and obviously you've got the results from Q3.

While there was a I I believe the bin bin will cover this in a moment there was a slight a small amount of stimulus that eat out into the market.

In Q3, we don't have any visibility a reason to believe that there will be any stimulus in Q4 and did not model that.

In our guidance. This is simply an extension of our current experience.

Are.

The math that we're doing around the new customer and bill will touch on that in a minute and what we're seeing interest in trends in brick and mortar in ecommerce Jared.

Yeah. Good morning, yes.

I think most importantly, the the quality of our inventory is exceptional at this point so that gives us a lot of confidence at our ability during the fourth quarter, our ability to enhance some trends that we've seen during the third quarter. Our team has really done an incredible job of securing of the right inventory and in particular.

There are not only what we have on hand at but also in our order book. So we're very confident in our opportunities in the fourth quarter were very confident around the cadence of launches at very confident about the position will begin with inventory.

Yeah. This is bill I'll add to that so from the customer perspective, we do have more new customers. Those new customers are shopping more frequently than us with us than prior new customers. If you look at last year. The also buying more during those visits.

So we're encouraged by their behavior.

We're also seeing just the huge increase in omni channel activity, which is very positive for us, though on that as customers who are buying both online and in the stores.

And as customers are worth more than any of our other customers and we're seeing that improvement or increase in behavior. There also.

Also at from an online perspective, we are seen large increases in traffic as the result of gathering customer information. So all of our files, whether its email tax.

Shakes that are out we can market to the us customers on easily the of the best in class Omni channel offering, which also drives traffic and sales and lastly, our online experience is better than it ever has been I'll turn it over to Ben talked about the stores. Thanks.

Thanks, Bill as Mike mentioned earlier, we did we did see some additional state unemployment unemployment benefits in a few markets, but that was quite honestly limited to the September timeframe in kind of had a minimal impact.

The quarter, obviously was strong you know absent any many meaningful stimulus out there and our focus is obviously the increasing our sales.

Through the culture in our stores all that will go away in Q4, I'm very confident in our team to execute at store level and part of the Jared and obviously Bill I think we can we can get to continue that in the quarter.

Perfect. That's really helpful. Thanks for that and I guess, just my last one here.

Can you give us an update on sort of the unit. How are you thinking about unit growth across both banners. Both for this year and then maybe longer term I think you sort of last quarter moved the cadence of unit growth from being sort of been at closer to you know at net opener and you know what what's driving that at some of that in house by.

I know your vendor partners, putting their number of distribution partners or just white space you see in the market just any other color there would be really helpful.

Yeah, you're correct we did.

Tell tell you until the market that we intended to go back to net double digit new store growth net of closures a end.

In the recent past there were multiple quarters, where the closures or.

We're we're more than the openings, we expect that to we are reversing that we have confidence around our new store model and we have confidence in where at where we're opening those stores and how we're opening those stores.

So the where we're opening the stores is a fair amount of math and science around.

The new model that we put in place and new ways of looking at how to approach at and taking some of the best practices from other retailers the.

We're in contact with an end frankly, we've worked for and then how we opened the stores I think is as important and <unk> of the efforts of the Jared and Bill and been on top of our best in class I T support inside the stores and the supply chain.

Changes that we've made to improve our speed to market, meaning you know this is product that's fashion at has a shelf life the faster it gets to the street the faster we begin to turn it and the lowers the likelihood of other markdown.

We like all of those things that we're doing and so when you combine them all together it gives us a great deal of confidence to go back to net openings in the double digit range, we have a lot of white space on the board.

Across the country.

We won't go into any detail as to where that white space is I would also say, we're also going to be judicious in how we do it there will be a combination and this is just retail one on one of the a combination of targeted markets, where we go in and do backfill and add to the market.

At density, where we've got an underserved customer or whether that underserved customer is in the middle of Houston or in Alexandria, Louisiana.

The value of the economic value of that underserved consumer and the economic value of that net new door can be equivalent whether it's in a dense urban market or a relatively a rural market. We are picking those sites very carefully.

And the the unbelievably good work the been and his crew are doing or how to change the culture in the stores with a laser focus on the consumer and the consumer experience that then supports the laser focus the bill Quinn's area has on the omni channel.

The it's those things go hand in hand, and as Bill said and I'll repeat the brick and mortar consumer is a great consumer and worth a lot. The the pure play E. Commerce consumer is a great consumer and worth a lot the omni channel. The consumer however is more valuable.

In terms of their total spend and that's the consumer that we have the best relationship with their in our markets, our brick and mortar markets and they're on our website and they are participating at BOPUS and robust and buy online ship to store curbside delivery at all of those services.

At our team of put together and finally.

I will tell you the Jared and his group have done a terrific job on selection of product and where that where that product goes because a market I store is not of store right and so every store has a micro merchandising slant. The there is commonality of inventory between stores.

But one of the examples that we give often is we have a store on the Bullard at New Orleans, and the store on Clay Board and New Orleans, and they couldn't be more different they are different in terms of the consumer taste, they're different in terms of the brands that we should carry and there are different in terms of sizes that we should put in those stores by store.

So that math and science and all of that goes into that you know goes through Jared the team and they've done a fantastic job of that so I'll pause and let you redirect the question where do you want to the go.

Yeah.

No I <unk> that was a very comprehensive answer. Thanks. Thanks, a lot for that and yeah, I think I'll pass the line at best of luck to your holiday.

Thank you you as well.

[noise] How's the reminder to register a question. Please press star one four on your telephone.

Next question comes from the line of Peter Benedict with Baird.

Please proceed.

Hi, guys. Thanks for items.

Thanks for taking the question, Mike you mentioned the misses the mess, but I think we can all agree at high Miss is better than a low mess.

The only other well well done [laughter] well done of.

So oh.

I guess the first question just maybe Bob around the gross margin improvement in the quarter of object can untangle kind of the product margin contribution there relative to the but the fixed leverage the occupancy at a warehouse and distribution of how you're thinking about the product margin of clear.

They get a strong again in the fourth quarter, but just maybe at the sustainability of those when we get back to maybe a more normalized emotional level. What are some of the puts and takes as you think about product margin.

Longer term that's my first question.

Hey, Peter Good morning, Gerard I think first and foremost does the mentioned at where we're at historic lows on aged inventory. So that's without question is having impact on the profit margin positively the rate of sales based on our Assortments at certainly accelerated which is translating into limited markdowns that along with all the work that sales team and Ben.

The steam of Don.

The product is being sold faster than we have historically without question.

The top of that with the quality of our inventory of our ability to limit our promotions.

Something we've been able to take advantage of without question and then lastly, as we continue.

We're really confident in the quality of our upcoming deliveries and that's where we feel that we do have upside from of product margin the perspective, as we head into Q4.

As a reminder to register the question. Please press the one four on your telephone. Our next question comes from Jim Shark Day with Moness Crespi Hardt. Please proceed.

Good morning, Thanks for taking my question I'm, just kind of following up on the previous question you know.

I guess.

Yeah, there's been limited supply in the marketplace and everyone's been kind of chasing the athletic product. So as we get into next year do you expect to have to increase promotional activity.

And then in terms of categories. How has gross margin this year benefit at from a sales mix away from team sports and then to apparel and footwear. Thanks.

Yes. Thank you I think your first and foremost our focus on maintaining a clean inventory position is incredibly important as we think about how we go forward into next year.

From the mix perspective, obviously, weve seen significant acceleration in both of footwear and apparel, but.

But up our team sports margin.

In normal years is very strong as well so I don't really see that being a dramatic impact due to mix. The big impact that we're seeing now is the health of the inventory of the limited clearance of both from an end store selling and at online selling and the quality of our inventory.

Great and then in terms of [noise] store Remodels and refreshes, how many stores do you think your refresh of fourth quarter and the what's the remodel and refresh plan for next year at.

Dan can you help us understand you know what kind of sales lift you're seeing at those stores or what kind of payback period, you're expecting for the Remodels and refreshes.

Yes, it will complete the job the refresh project at all Hibbett sports stores. During the fourth quarter were very excited about that project as mentioned at the economically at significantly lower than the cost of doing the full the remodel but gives us a strong impact in the look and feel.

Of the store.

From a remodeled perspective that the new store designs, we are seeing significant comp acceleration over and above.

Our overall comp at.

We have a similar plan for next year with regard to the number of Remodels that we did this year.

Okay, and then just the.

What the understand have you seen any change in your sales trends are.

The mix between the ecommerce or stores given the recent spike in Cobra cases or is that just something you think is a possibility or like we said later in the quarter.

Yeah.

Yes.

I think we'll see it's probably too early to debt.

How about that.

Okay, Thanks, and best of luck.

Our next question comes from Peter Benedict with Baird. Please proceed.

Hey, guys, sorry about that at.

That's true it up my phone just went the Ben anyway.

The other question I wanted to ask was just more around your supply chain end systems, how they sit today I mean, obviously your your your.

Experiencing an elevated level of the math, but that's going to continue or are there are there investments that need to get pulled forward here to support that at the next few years of how should we be thinking about a capital investment around supply chain systems anything else that you might need to to support the at the higher level of sales of the business.

Yes.

Yeah. This is Mike on the intimately involved and what we're doing on the strategy and supply chain. So I'll I'll take that one we have a very good distribution center and a it is completely outfitted I would say what we're doing today is less about capital and more about re end.

Engineering processes.

So we're going through the process there is a modest amount of capital needed, but it's in the 100000, you know here in their range not millions at a time.

Moving from a process that was more focused on loading trucks and having once a week deliveries in transitioning from that more into the fluid load.

Live load dispatch multiple times a week two of store.

Those changes don't actually require tons of capital equipment at its more about the application of knowledge and reengineer re engineering resources and so far all of the investments that we've made our expenses and those expenses at you can see in the PNM today.

So they're paying out they have high ROI is and we really at like what we're doing I would say we're in the early innings of those improvements of but I don't see any material impact to cash flow or to the balance sheet or to the PML as a.

A lot of it except.

Adding to sales.

And the faster we get again I'll repeat something I said earlier, the faster we get that product the market the higher ultimately our gross margin will be at.

And our sales.

Excellent and I guess my one follow up to that like maybe it's just how you're thinking about the store labor model I know, you're you're you're changing the culture in the store.

A lot of the merchandising slot at how.

How is the the store labor model evolving if at all at how are you thinking about kind of compensation there.

And any changes to the to that structure.

I'll take the first part of that the compensation, we think we're in the right range.

There might be an underlying might be an upward bias on wages and the future of but we'll see certainly there since the statutory changes that we've experienced those are all well chronicled in the news and generally when those happen doesn't have a material impact on us.

So we don't see a spiralling out of control of wage inflation, nor do we see the other side of the ledger on compensation on the benefit side, we don't see that spiralling out of control either.

So while we're not sanguine about it or we are watching it we don't have deep in grave concerns about it to the first part of your question about the actual labor model and how we run the stores I will tell you that the been Nitin and is staff have a deep non.

College on labor scheduling and we're going through a process now of of putting in a best in class labor scheduling system then.

At the Mikes point, we have begun the process rolling electronic labor scheduling to all stores to replace an existing system that we had in our hibbett locations and the that whole effort is really about maximizing the in store experience of the customer obviously labor is our largest controllable expense in the stores.

But it's how you use that labor and how you can maximize that labor and I think we're in an environment, where we can make sure that we get the right people in the right place at the right time, and you know from a labor scheduling standpoint actually increase our ability to service that customer with the process changes Mike is talking about with frequent.

He of delivered of stores, you know that actually AIDS us at store level not only to the to get the product you know in front of the customer quicker, but even from being able to stock those items, you know on our shelves and display of him the appropriate way a.

It actually helps us there and so our efforts around the labor model are really focused on the sales side of things I'm trying to take those friction points away from customers or minimize the task that we have to do and put in put the person in front of the customer more than in front of a box or before the stores open.

Doing those types of tasks, we think that's much more valuable having at interaction with customer and so the more things that we can streamline outweigh the better and you know the the the labor model that we put in place the and we continue to refine that's the basis of it.

Okay. That's that's great color. Thanks, so much guys.

Our next question comes from Sam Poser with Susquehanna. Please proceed.

Thanks for taking my follow up your inventory, let you say you're going to bring your inventory levels up but at your inventory levels at the end of the third quarter at the lowest day Ben since the third in the third quarter since 2013 since fiscal 13 at.

And your revenue you did in the quarter is what 60% above.

Net inventory level.

The revenue you did back in fiscal 13.

A lot of like what.

In the quarter.

Had you had at the way you wanted at where would your inventory be what is the optimum inventory level, that's sort of your building back to or or you feel you should of been at at the end of Q3.

[noise] [noise] as Amis Gerard.

Our expectation from it.

The where where we're at about 10 points away from where we like the from the year over year perspective.

I think we absolutely believe we can turn our inventory faster and that's part of the reason why our margins are improving is our ability to keep our inventory clean. We also feel that our sell through during the third quarter was a little bit too fast in certain places and potentially left the opportunity on the day.

Okay.

So that balance is what were really looking to strike is how do we ensure that we capitalize on as many of the opportunities as we possibly can while continuing to improve our rate of sales as he mentioned in there there's a lot of disruption the from a marketplace perspective the.

We want to make sure that we balance our.

Our ability to take advantage of all of those things with inventory, while ensuring that.

The current or inventory of faster than we have in the past.

Thanks, all the winter so that means you Shouldnt you think that like you should of been around $240 million at the end of the quarter that would've been sort of the.

The where are you where you would've liked to of Ben It's the my thinking about that right at little higher than that but you are not terribly far off.

Okay, and then and then secondly have you did you guys see any difference or what was the difference in your pro form at in your brick and motor performance from all of your mall based stores versus the strip Center.

Yeah, Hey, Sam is Jared I mean, our our mall stores performed very well, but they were not as strong as our non mall locations of the non mall stores, absolutely performed better than our mall locations as a whole.

And where are you up double digits of the malls to they're just not to the degree or was at a single digit.

Yeah. It's a profit was approximately there again sales were very strong at the mall just not at the levels of the strip center stores.

Well, Thanks again continued success.

Thank you.

As a reminder to register a question. Please press star one four on your telephone.

[noise] Mr. Along gold there are no further questions at this time. Please continue with your presentation or closing remarks, well. Thank you. So much we appreciate everyone's time and attention today.

We are proud the of the team that delivered these results and I can't say that of a.

We thank them for what they do each and every day.

We appreciate everyone being on the call today, we love talking about our business. The only thing we love more than that as going out and do end business. So I hope everyone has a great holiday season, and we'll see you again very soon thank you.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines at a great day everyone.

[music].

Yes.

[music].

The.

Greetings and welcome to the Hibbett Sports third quarter 2021 earnings conference call. During the presentation, all participants will be in the listen only mode. Afterwards, we will conduct a question and answer session at.

Time, if you have a question. Please press the one fall by the four on your telephone.

At any time during the conference you need to reach an operator. Please press star Zero as a reminder of this conference is being recorded on Friday November Twentyth 2020, I would now like to turn the conference over to Jason Freuchtel Director of Finance and Investor Relations. Please go ahead Sir.

All our forward looking statements these statements, which reflect the company's current views in respect of future events and financial performance are made in the reliance on the safe Harbor provisions of the private Securities Litigation Reform Act of 90, 95 and are subject to uncertainties and risks it should be noted at the company's future results may differ materially from those anticipated and discussed in the forward looking statements.

Some of those of the factors that could cause or contribute to such differences have been described in the news release issued this morning, and the company's annual report on form 10-K. The most recent quarterly report on form 10-Q and in other filings with the Securities and Exchange Commission. We were free refer you to those sources for more information also to the extent non-GAAP financial.

The measures are discussed on this call you may find a reconciliation to the most directly.

Comparable GAAP measures on our website lastly, I would like to point out of the managements remarks. During the conference call are based on information and understandings believed accurate as of today's date November Twentyth 2020, because of the time sensitive nature of this information at is the policy of Hibbett sports to limit its archived replay of this conference call the webcast to the period.

The of 30 days.

Good day the part the participants on this call are Mike long of President and Chief Executive Officer, Bob Wilkie, Chief Financial Officer, Jared Briskin, Senior Vice President Chief Merchant Bill Clinton Senior Vice President of marketing and digital and bin Laden Senior Vice President of operations I will now turn the call over to Mike Londo. Thanks, guys.

Good morning, and welcome to the Hibbett Q3 earnings call if you're following along using the slide the common the third slide entitle introduction of.

This quarter was a great outcome from a financial perspective for the company as you saw in the press release, we reported the 21% sales comp our brick and mortar comp was almost 18% and ecommerce was 50%.

This resulted in a non-GAAP operating income of almost $33 million at a non-GAAP earnings per share of $1.45.

Those of US on the call are proud to represent our teammates today and we wanted to make sure to think the mall for what they do each and every day.

And as I have said before retail is the ultimate team sport and I couldn't pick the better team to compete with.

This new focus on the men's women's kids in the city of your business will allow at much higher degree of kind of activity through the lens of the consumer we're very excited that Beretta banks, Lauren Portera, Stephanie Smith, Brooked Frankel and Alicia Khan of taking these critical positions, let's move onto the next slide into.

I will cover the response of much of this you've heard before so I won't belabor the point, but as a reminder, hibbett adopted a stance that we would remain open in stores and online as long as we are in compliance with state and local restrictions with regards to.

The the Corona virus, while running our stores. During these last several months. We've made several we made sure we followed federal state local guidelines in order to ensure the safety of our consumers as well as our employees as a result of these actions.

We believe the consumers felt safe and continued to feel safe.

To shop at our employees feel safe to work.

We've seen this before and we believe we know what to do.

Moving on to the next slide sales drivers, we wanted to give you a little bit of background on the factors that we believe drove Q3 sales and continue to produce results.

As we discussed in our Q2 earnings call. We believe the increases in sales were driven by several factors, including.

A time earlier in the year, we saw a temporary closures of competitors are accelerating consumer adoption of the E commerce.

Rotation of spending from travel and leisure and entertainment into our our business and the boost from fiscal stimulus and that gave consumers new and existing even more reasons to shop with us net manifested itself by driving traffic to our stores into our website and yield at what we believe to be.

The increased market share and higher sales.

We believe we have tailwinds in the future as well.

In Q3, we did begin to see the effects of the closures of JC Penney, some JC Penney stores and all of the sales stores.

Additionally, we see what we believe is continued consumer adoption of the omni channel experience. This plays to our strength with our best in class Omni channel plan.

That really is only just begun.

But before we go any further on the future of I would like to ask Jared Briskin. The provides detail on our merchandising performance Jared. Thank you Mike. Good morning. If you. Please turn to the merchandising slide our strong comp sales performance was driven by apparel and footwear with significant gains in sales and share of our mix. The sports continues to be impacted by cash.

It was down low double digits.

The head merchandising strategy is working as we continue to see additional items in the basket, leading active average transaction growth.

The apparel business was up in the mid Thirtys. This increase was driven by gains in athletic branded apparel fashion apparel license products and accessories. All genders were significantly positive from the athletic brands, we saw acceleration at our performance business as well as the lifestyle business consumers responded positively to.

Our fall assortment upon delivery and early selling of fleece jackets and athletic bottoms were very strong.

Fashion brand performance was exceptional as our focus on debt and then fleece at our fall assortment were strong performers quick turn the T. is also performed well as our vendor partners worked with us on securing additional inventory.

License business was the growth driver for us gaps in Jersey's performed exceptionally well and offset declines in the traditional fan business accessory business also achieved significant growth of Sox hydration underwear and the sunglasses all were significant gainers during the quarter.

Footwear business was up in the low Twentys. This increase is driven by strong gains across performance lifestyle basketball sandals and boots.

All genders were significantly positive with women's growth outpacing men's and kids in.

In the performance business, our investment the technical running before very well as we take advantage of the wellness trend.

Lifestyle and basketball results remained robust during the quarter.

During the quarter the launch business was exceptionally strong.

Slides and sandals remained very strong as our team did an excellent job of chasing inventory during what is historically of sell down period.

While deliveries at our boot category also performed incredibly well.

Specific the footwear and apparel, our women's business was our fastest growing area with comp sales gains in the low fiftys.

Many of the grew in the mid Twentys and kids in the high teens, we're very excited about future opportunities across all genders.

Our sales performance in inventory composition would give us a lot of confidence as we head into the fourth quarter increased confidence is also coming from the visual merchandising improvements we've made in our stores. This year by the end of the fiscal year, we will of remodeled 25 cities Citi Your stores as well as 54 hibbett stores remodeled two hour.

The new prototype.

Or seeing exceptional results from this prototype thus far as our ability to highlight and sell to the heads looks has been elevated increased focal points improved graphics, numerous mannequins and elevated sneaker walls are the highlights of this premium new store design.

During the fourth quarter, we will also be deploying our store refresh plan. This refresh project focuses at elevating stores to a level similar to the new prototype with substantially less cost than a full of remodel. The refresh consists of new tables, and mannequins, new sneaker wells as well as the wall system as for the balance of the store, which will eliminate the look.

Of dated slot wall, our test rollout of this refresh none of the it looked at incredible improve our performance.

I will turn the call over to model.

Thanks, Gerry and good morning, if you will please refer to the third quarter results slide.

As a reminder, we treat city gears and extension of the Hibbett business and these results are reported on a combined basis.

Brick and mortar comp sales remained strong and came in at 17.5% ecommerce sales grew at over 50% in the quarter representing attractive expansion in our omni channel platform.

For the quarter E Commerce sales accounted for 13% to 13.2% of net sales compared to 10.5% in the third quarter of last year.

Our GAAP gross margin expanded significantly to 38.3% of net sales compared to 32.7% in the prior year third quarter. This approximate 560 basis point improvement was due to higher initial sell through a low promotional environment, a reduction of inventory reserves and leverage of store occupancy costs.

That are included in our gross margin calculation.

There was a slight offset due to the higher volume of E commerce sales, which carry at slightly lower margin due to the incremental shipping costs associated with the sales excluding the reduction of inventory revaluation reserves in the current period adjusted gross margin was 38.1% this year to adjusted gross margin of 32.4% last year.

Store operating selling and administrative expenses were 26.1% of net sales in the third quarter compared to 29.1% in the third quarter fiscal 2020.

The decrease of approximately 300 basis points was primarily due to the leverage from the store from the strong sales performance as well as lower cost of acquisition integration activities associated with so the year, excluding certain city gear acquisition integration expenses adjusted EPS DNA was 26% of net sales compared to adjusted EPS.

End of 27.2% in the part of your third quarter.

On a GAAP basis, we generated $33.2 million of operating income, which compares to last year's operating income 2.6 million, excluding all non-GAAP adjustments for the quarter adjusted operating income was $32.7 million or 9.9% of sales compared to operating income of $6.9 million in the third quarter of last year.

Sure.

GAAP earnings per share were $1.47 for this years third quarter and non-GAAP earnings per share of were $1.45, primarily as the result of improving our inventory position over the last three months, we generated an operating cash outflow of $33.6 million. During the quarter. We also spent approximately $8.3 million in capital expenditures, which were largely.

Related to new relocated end remodeled stores in the prior year's third quarter operating cash flow was approximately 900000 and capital expenditures were $5.2 million.

I will not have you move forward to the year to date results page.

On a year to date basis E commerce sales represent 16.6% of our total net sales compared to 9.1% for the first nine months of last year. Our GAAP gross margin was 35% of net sales compared to 32.7% in the first nine months of 2020, excluding year to date inventory reserve adjustments in the current year.

And Citi your acquisition and strategic alignment costs from the prior year adjusted gross margin was 35.3% this year compared to 32.7 per cent for the first nine months of last year.

Year to date GAAP EPS gene expenses were 26.4% of net sales compared to 26.9% in the first nine months of last year. This modest decline was primarily driven by increased revenue adjusted EPS Geneight was 22.6% for the first nine months of the current year compared to 25.2% for the same period last year.

Last year GAAP year to date earnings per share were $2 of 98 cents for the current year compared to $1.18 in the prior fiscal year and non-GAAP earnings per share were 474, this year compared to $1.82 for the comparable period in fiscal 2020.

We have generated $145.3 million of operating cash flow on the year to date basis and of spent 20.8 million in capital once again with a focus on new relocated end remodeled stores.

Over the first nine months of the price of your operating cash flow was $75.1 million and capital expenditures were $11 million.

Turning to the balance sheet.

Inventory ended the quarter at 210.9 million of 27% decline from last year's third fiscal quarter. The continued strong sales in both the brick and mortar and online channels drove the year over year decrease however, despite the strong sales growth in the quarter, our inventory position increased over $28 million or nearly 16%.

Sent from last quarter, representing a focused effort on the execution as well as our strong vendor relationships. We did not purchase any shares during the third quarter under our authorized share repurchase plan. We have just over $143 million of remaining authorization through January 29, 2022 for future share repurchases at management's discretion.

Now I'll review, our updated guidance on the slide titled future.

Purchases by our merchandising team will allow us to take advantage of the expected, resulting increase in business other supply chain and selling initiatives as well as continued accelerating adoption of E. Commerce should help drive sales growth as well.

While we continue to experience a great deal of economic uncertainty at the beginning of the holiday season due to the recent surgeon COVID-19 case counts we are confident in our business model and the trends. We have recently seen as a result, we are providing limited GAAP guidance for the fourth quarter of fiscal 2021.

Yes, Jon Benet as a percentage of sales is projected to be approximately 40% to 60 basis points below the the comparison in the fourth quarter of last year diluted EPS is forecasted to be in the range of at dollar to $1.10 with an assumption that the effective tax rate will be approximately 25% ended the dilute the diluted share count.

<unk> will be approximately $17.2 million.

Do not anticipate the difference between our GAAP results and our non-GAAP results will be material in the fourth quarter.

That concludes our prepared remarks, operator, please open the line for questions.

Thank you Bill.

Ladies and gentlemen, if you would like to registry of question. Please press. The one four on your telephone you will hear at three tone from technology or request.

Share question has been answered and you would like to withdraw your registration. Please press the one fall by the three if you are using a speakerphone. Please the Tran said before entering your request.

One moment please for the first question.

Our first question comes from of Sam Poser with Susquehanna. Please proceed.

Hi, good morning, gentlemen, thanks for taking my questions.

Well, let me ask you this.

Well you have about $10 the share in cash right now.

Can you give us some idea are you looking at any M&A right now and if so.

What can you tell us.

Certainly we are always Sam this is Mike good morning, great to hear hurting you.

Certainly we're always going to look at strategic alternatives and what we're doing the capital allocation is always the subject of of great debate Bob.

Yeah, Good morning, Sam.

I think again as Mike said, we're always kind of keeping our options open we are looking at how we can best deploy capital to get the return for shareholders.

I think again there is a lot of options on the table, whether it be potential you know M&A share repurchase.

Investment in new store units, so we're going to keep.

Kind of all our options open going forward.

Okay. Thanks, and then and then you've got a situation, where I think as of March Belk, Dillard's or no longer going to be carrying Nike end, you mentioned, the you're already seeing some benefit from.

A stay of stores and.

At JC Penney.

Close at closings.

If you think about that on top of the.

I guess, your new customer retention and so on how what the how does that how do you think about that going into next year.

At that help you.

Hey, Sam this end.

Good morning, its Jarrett.

We believe it will help us there is certainly a disruption the continuing to go on in the market.

Obviously have our work the to understand the based off of that timing of based up on hand inventories of when that will occur but.

But our team without question is focused on our ability to take advantage of that disruption.

And then the and then the sale of Cheyenne just add to that we had been test the marketing programs to target displaced customers in those areas.

So that is something that we're prepared to do in the future.

Thanks, and then I mean, and then you've had two fairly significantly strong quarters the last two quarters.

I talked about it can you give can you say something that.

Why you're confident that.

There's probably going to be some headwinds just because of the extreme extraordinary comps in Q2 and Q3 next year that you feel comfortable that you know.

You know a lot of the business you you've done so far is going to be sticky.

At the new customers are going to stick next year.

Yes, I mean, I think thats, what gives you the confidence that.

That but the that you're going the other build on what's going on this year.

Thanks, Sam Mike.

Again, so certainly we have had a very good experience this year.

We all understand the challenge of an 80 comp Q2 next year of what that two year comps going to look like but for the full year, we do have confidence and that confidence comes from a combination of factors. One the experience that we gained this year end the playbook that we've written at.

End of been executing against a.

For the tactical side of the strategic plan the broader scope of what were doing the of a great deal of confidence in what we're executing against the there.

And as this quarter goes by we will gain additional visibility.

And as as you noted the and we've said we have the confidence to give guidance for Q4, which is unusual I think for retailers.

In the recent past and currently.

Many retailers or neglect are opting not to give guidance, we at least half of the confidence. The look ahead 90 days and while we didnt do a perfect job forecasting this quarter.

This is a miss where theyre at higher LOE, regardless, we had the confidence to put something out there and we did at again so.

So to your central question, what makes US feel good about next year you hit on some of those points and certainly new customer retention is the big deal.

And our experience and our capabilities Bill would you like to add anything to that.

Yes, absolutely. So in Q2, we surveyed our new customers and they said they had a great experience and they will shop with us again.

Also part of that is having a loyalty program that naturally incentivizes end to shop, and we've got a great loyalty program and also what we've learned with new customers. It's critical that you communicate to the as new customers within at first 90 days. It's all at backend then back into the store and online to shop on and that shopping experience with online and the pressure test.

We've had from the pandemic has never been better on the also we've made great strides with our in store shopping experience as well and I'll turn it over to bend the comment thanks.

Thanks Bill.

You know, we're laying the ground work, obviously to make those customers stick as you mentioned, Sam Jerry talked about our store remodels in our space in our refresh project, where we went out there and touching and refreshing every location in.

In the stores its all about blocking and tackling right. We've doubled down on our sales culture in stores and are taking all of our team of.

The training there.

During the quarter. We also conducted leadership training with our entire fuel management team and it's our intention obviously too to give that in store experience to make those those customers and the those new customers that we've seen coming at our doors of stick for next year.

Thank you and then lastly.

How has your.

Relationships with key vendors.

Changed throughout this year.

As far as you know just the.

I mean allocations plus margin.

The general can you go.

Just I guess.

We're extremely confident in our positioning with the vendors support throughout the years continued to improve.

We continue to see numerous opportunities, but a large portion of our vendor partners.

They are mobilizing against opportunities they have with with both the hibbett brand as well as the city of your brands. So we're very confident around how we're positioned and we're very confident about our opportunities.

Good day or as there are some marketplace disruptions that we believe will be occurring.

Thanks, Thanks, very much in the race day say of have a great help.

Thank you. Thank you use oil.

Our next question comes from Alex Parry with Bank of America. Please proceed.

Perfect Congrats on a great quarter and thanks for taking my question.

I guess just first so what gives you confidence in the high single digits, the low double digit comp outlook in the fourth quarter.

Especially in the absence of any stimulus programs and then just separately on that point, how do you see sort of the recent surge in Kobe, the potentially impacting the business in the fourth quarter.

Thanks for the question. This is Mike I'll lead off and now the dish to Jared the follow up.

We do have confidence in this quarter and some of the as an extension of trends and experience that we see today.

And obviously, you've got the results from Q3.

While there was a I believe the bin bin will cover this in a moment there was a slight small.

Small amount of stimulus that eke out into the market.

In Q3, we don't have any visibility or reason to believe that there will be any stimulus in Q4 and did not model that.

In our guidance. This is simply an extension of our current experience.

Are.

The math that we're doing around the new customer and bill will touch on that in a minute and what we're seeing in true and trends in brick and mortar in ecommerce Jared.

Yes, good morning, yes.

I think most importantly of the quality of our inventory.

His exceptional at this point, so that gives us a lot of confidence in our ability during the fourth quarter.

Our ability to enhance some trends that we've seen during the third quarter. Our team has really done the incredible job of securing the right inventory.

In particular of not only what we have on hand at but also in our order books. So we're very confident in our opportunities in the fourth quarter were very confident around the cadence of launches at very confident about the position will begin with inventory.

And the spell I'll add to that so from the customer perspective, we do have more new customers. Those new customers are shopping more frequently than us with us than prior new customers. If you look at last year. The also buying more during those visits so we're encouraged by their behavior.

At the scene just the huge increase in omni channel activity, which is very positive for us, though on that as customers who are buying both online and in stores on end as customers are worth more than any of our other customers and we're seeing that improvement or increase in behavior. There.

Also at from an online perspective, we are seeing large increases in traffic as a result of.

Gathering customer information all of our files, whether its email text.

Et cetera, we can market to the us customers and easily the best in class Omnichannel, offering, which also drives traffic and sales and lastly, our online experiences that other than it ever has been I'll turn over to Dan talk about the stores. Thanks.

Thanks, Bill as Mike mentioned earlier, we the.

We did see some additional state unemployment unemployment benefits in a few markets, but that was quite honestly limited to September timeframe and kind of had a minimal impact.

The quarter, obviously was strong you know absent any many meaningful seamless out there and our focus is obviously on increasing our sales.

Through the culture in our stores all that will go away in Q4, I'm very confident in our team to execute at store level and pardon the Jared and obviously bill I think we can we can continue that in the quarter.

Perfect. That's really helpful. Thanks for that.

I guess just my last one here.

Can you give us an update on sort of the unit. How are you thinking about unit growth across both banners. Both for this year and then maybe longer term I think you sort of last quarter moving to the cadence of unit growth from being sort of a net closer to the you know at.

Net opener and you know what what's driving that at some of that being helped by your vendor partners cutting their number of distribution partners or just white space you see in the market just any other color there would be really helpful. Yes.

Yes, you're correct we did.

Tell tell you until the market that we intended to go back to net double digit new store growth net of closures.

In the recent past there were.

Multiple quarters, where the closures.

So the where we're opening the stores is a fair amount of math and science around.

The new model that we put in place and new ways of looking at how to approach that end, taking some of the best practices from other retailers.

That were in contact with an end frankly, we've worked for.

And then how we open the stores I think is as important and the efforts of Jared and Bill and then on top of our best in class I T support inside the stores and the supply chain.

Changes that we've made to improve our speed to market, meaning this.

This is product thats fashion at has a shelf life of faster it gets to the street the faster we begin to turn it and the lowers the likelihood of other markdown.

Across the country.

And add to the market density, where we've got an underserved customer.

Whether that underserved customer is in the middle of Houston or in Alexandria, Louisiana.

And the the unbelievably good work the bin and his crew are doing or how to change the culture in the stores with a laser focus on the consumer and the consumer experience that then supports the laser focus the bill Quinn's area has on the omni channel.

The it's those things go hand in hand, and as Bill said and I'll repeat the brick and mortar consumer is a great consumer worth a lot. The the pure play E. Commerce consumer is a great consumer and worth a lot the omni channel consumer however is more valuable.

In terms of their total spend and that's the consumer that we have the best relationship with their in our markets, our brick and mortar market and they are on our website and they are participating at BOPUS and robust buy online ship to store curbside delivery at all of those services.

At our team of put together and finally.

But one of the examples that we give often is we have a store on board and New Orleans and the store on Clay Board in New Orleans, and the couldn't be more different they are different in terms of the consumer taste. They are different in terms of the brands that we should carry and they're different in terms of sizes that we should put in those stores by store.

So that math and science in all of that goes into that.

Those through gerrits team and they've done a fantastic job of that so I'll pause and lets you redirect the question, where you want it to go.

No I that was very comprehensive answer thanks, Thanks, a lot for that.

And yeah, I think I'll pass non at best of luck your holiday.

Thank you as well.

As a reminder to register a question. Please press star one four on your telephone.

Our next question comes from the line of Peter Benedict with.

Baird. Please.

Please proceed.

Hi, guys. Thanks for items. Thanks.

Thanks for taking the question, Mike you mentioned the misses the mess, but I think we can all agree at high Miss is better than a low mess.

The leu well well done.

Thank you well done.

So oh I.

I guess the first question, just maybe Bob or on the gross margin improvement at the quarter at all.

You can untangle kind of the product margin contribution there relative to the.

The next leverage occupancy at a.

Warehouse and distribution at that how you're thinking about the product margin clearly going to the strong again in the fourth quarter, but just maybe the sub.

Staying the ability of those when we get back to maybe a more normalized promotional level. What are some of the puts and takes as you think about product margin longer.

Longer term that's my first question.

Hi, Peter Good morning, Gerard I think first and foremost debt as I mentioned, the where we're at historic lows on aged inventory. So that's without question is having impact on the profit margin positively the.

The rate of sales based on our Assortments of certainly accelerated which is translating into limited markdowns that along with all the work that Bill's team at Ventas team at Don.

Product is being sold faster than we have historically without question.

The top of that at the quality of our inventory our ability to limit our promotions.

Something we've been able to take advantage of without question and then lastly, as we continue.

We're really confident in the quality of our upcoming of deliveries and that's where we feel that we do have upside from a product margin perspective, as we head into Q4.

As a reminder to registry of question. Please press the one four on your telephone. Our next question comes from Jim Chartier with Moness Crespi Hardt. Please proceed.

Good morning, Thanks for taking my question.

Just kind of following up on the previous question.

You know.

I guess.

Yeah, there's been limited supply in the marketplace. The natural it's been kind of chasing the athletic product. So as we get into next year do you expect to have to increased promotional activity.

And then in terms of categories. How has gross margin this year benefit of from a sales mix away from team sports and then to apparel and footwear. Thanks.

Yes. Thank you I think your first and foremost our focus on maintaining a clean inventory position is incredibly important as we think about how we go forward into next year.

From the mix perspective, obviously weve seen significant acceleration in both of footwear and apparel.

At up or team sports margin.

In normal years is very strong as well so I don't really see that being a dramatic impact due to mix. The big impact that we're seeing now is the health of the inventory of the limited clearance both from an end store selling end at online selling and the quality of our inventory.

Great and then in terms of.

The store Remodels and refreshes, how many stores do you think your refresh of fourth quarter and the what's the remodel and refresh plan for next year end to end can you help us understand you know what kind of sales lift you're seeing at those stores or what kind of payback period, you're expecting the the remodels and refreshes.

Yes, so we will complete the job the refresh project at all Hibbett sports stores. During the fourth quarter were very excited about that project as mentioned at the economically at significantly lower than the cost of doing the full of remodel but gives us a strong impact in the look and feel.

Of the store.

From a remodel of perspective that the new store designs, we are seeing significant comp acceleration over and above.

Our overall comp.

We have a similar plan for next year with regard to the number of Remodels that we did this year.

Okay, and then just the.

What the understand have you seen any change in your sales trends are.

Yes, the mix between the ecommerce or stores given the recent spike in Cobra cases or is that just something you think is a possibility or like we did at later in the quarter.

Yes.

I think we'll see it's probably too early to talk about that.

Okay, Thanks, and best of luck.

Our next question comes from Peter Benedict with Baird. Please proceed.

Hey, guys, sorry about that.

That's true with my phone just want that but anyway.

The other question I wanted to ask was just more around your supply chain end systems.

How they sit today I mean, obviously, you're you're you're experiencing an elevated level of the math, but thats going to continue.

Are there other investments that need to get pulled forward here to support that at the next few years of how should we be thinking about.

The capital investment around supply chain systems anything else that you might need to.

To support the at the higher level of the sales of the business.

Yes. This is Mike on the end.

Emily involved and what we're doing on the strategy and supply chain. So I'll I'll take that one.

We have a very good distribution center and it is completely outfitted I would say what we're doing today is less about capital and more about reengineering processes.

So we're going through the process there is a modest amount of capital needed, but it's in the 100000 here in their range not millions at a time.

Moving from a process that was more focused on.

Loading trucks.

And having once a week deliveries in transitioning from that more into the fluid load.

Live load.

Dispatch multiple times a week two of store.

Those changes don't actually require tons of capital equipment, it's more about the application of knowledge and reengineer re engineering resources.

And so for all of the investments that we've made our expenses and those expenses you can see in the PNM will today, so they're paying out they have high ROI.

And we really at like what we're doing I would say we're in the early innings of those improvements but.

But I don't see any material impact to cash flow or to the balance sheet or to the PML as the result of at except.

Adding to sales.

And the faster we get again I'll repeat something I said earlier, the faster we get that product the market the higher ultimately our gross margin will be.

And our sales.

Excellent and I guess my one follow up to that like maybe it's just how you're thinking about the store labor model I know, you're you're changing the culture in the store.

A lot of on the merchandising front at.

How is the the store labor model evolving if at all.

How are you thinking about kind of compensation there.

And any changes to that structure.

I'll take the first part of that the compensation, we think we're in the right range.

There might be at underline might be an upward bias on wages in the future of but we will see certainly there are some statutory changes that we've experienced those are all well chronicled in the news and generally when those happen doesn't have a material impact on the us.

So we don't see a spiralling out of control of wage inflation, nor do we see the other side of the ledger on compensation on the benefit side, we don't see that spiralling out of control either.

So while we're not sanguine about it we are watching it we don't have the thing grave concerns about it to the first part of your question about the actual labor model and how we run the stores I will tell you the been Nitin and his staff.

Have a deep knowledge on labor scheduling and we're going through a process now of.

Putting in.

A best in class labor scheduling.

System then.

Yeah, the mikes point.

But then the process rolling electronic labor scheduling to all stores to replace an existing system that we had.

In our hibbett locations and that whole effort is really about maximizing the in store experience of the customer.

Obviously labor is our largest controllable expense in the stores.

But it's how you use that labor and how you can maximize that labor and I think we're in an environment, where we can make sure that we get the right people in the right place at the right time and.

From a labor scheduling standpoint actually increase.

Our ability to service that customer with the process changes Mike is talking about with the frequency of delivered of stores.

You know that actually AIDS us at store level, not only to the to get the product end.

One of the customer quicker, but even from being able to stock those items on our shelves and display them the appropriate way at.

At actually helps us there and so our.

Efforts around the labor model are really focused on the sell side of things are trying to take those friction points away from customers.

Minimize the task that we have to do and put in put the person in front of the customer more than in front of the box or before the stores open doing those types of tasks, we think thats much more valuable having at interaction with customer and so the more things that we can streamline that way the better and the the labor day.

All of that we put in place and we continue to refine.

That's the basis of it.

Okay. That's that's great color. Thanks, so much guys.

Our next question comes from Sam Poser with Susquehanna. Please proceed.

Oh, Thanks for taking my follow up your.

Your inventory you say, you're going to bring your inventory levels up but at your inventory levels at the end of the third quarter at the lowest day Ben since the third in the third quarter since 2013 since fiscal 13.

And your revenue you did in the quarter is what 60% above.

Net inventory level.

The revenue you did back in fiscal 13.

A lot of like what.

In the quarter.

Had you had at the way you wanted at where would your inventory be what is the optimum inventory level, that's sort of your building back to or or you feel you should of been that at the end of Q3.

Hey, Sam is Jeremy.

Our expectation from inventory, where where we're at about 10 points away from where we like the from the year over year perspective.

I think we absolutely believe we can turn our inventory faster and Thats part of the reason why.

Our margins are improving is our ability to keep our inventory clean.

We also feel that our sell through during the third quarter was a little bit too fast in certain places and potentially left the opportunity on the table.

So that balance is what we're really looking to strike.

How do we ensure that we capitalize on as many of the opportunities as we possibly can while continuing to improve.

Our rate of sales.

As you mentioned there is a lot of disruption the from a marketplace perspective, we want to make sure that we balance our ability to take advantage of all of those things with inventory, while ensuring that we.

The current or inventory faster than we have in the past.

Thanks, one of them and so that means you should you think that like you should of been around $240 million at the end of the quarter that would have been sort of the.

The where you where you would have liked to of Ben It's the am I thinking about that right at little higher than that but you are not terribly far off.

Okay, and then and then secondly have you did you guys see any difference or what was the difference in your form at in your brick and motor performance from your.

Your mall based stores versus the strip center.

Hey, Sam is chair at I mean, our our mall stores performed very well, but they were not as strong as our non mall locations of the non mall stores, absolutely performed better than our mall locations of the whole.

And were you up double digits at the malls to the just not to the degree or was that a single digit.

Yeah. It's a profit was approximately there again sales were very strong at the mall just not at the levels of the strip center stores.

Well, Thanks again continued success.

Thank you.

As a reminder, interest rate question. Please press star one four on your telephone.

Mr. Along gold there are no further questions at this time. Please continue with your presentation or closing remarks, well. Thank you. So much we appreciate everyone's time and attention today.

We are proud the of the team that delivered these results and I can't say at enough.

We thank them for what they do each and every day.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines have a great day everyone.

Q3 2021 Hibbett Sports Inc Earnings Call

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