Q1 2022 Hibbett Sports Inc Earnings Call

May 28, 2021

Greetings and welcome to the Hibbett sports first quarter 'twenty 'twenty 2 earnings conference call.

During the presentation, all participants will be in a listen only mode. Later, we will conduct a question and answer session at.

At that time, if you have a question. Please press the 1 followed by the 4 on your telephone.

Any time during the conference you need to reach the operator, Please press star zero.

As a reminder, this conference is being recorded Friday may 28th 'twenty 'twenty 1.

It is now my pleasure to turn the conference over to Jason Fructose Director of Finance and Investor Relations. Please go ahead.

Good morning. Please note that we have prepared a slide deck that we will refer to during our prepared remarks slide deck is available on hibbett dotcom via the Investor Relations link found at the bottom of the homepage or at investors that hibbett Dot Com. These materials may help you follow along with our discussion. This morning before we begin I would like to remind everyone that some of them.

Management's comments during this conference call are forward looking statements. These statements, which reflect the company's current views with respect to future events and financial performance are made in reliance from 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 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 other filings with the Securities and Exchange Commission. We refer you to those sources for more information also to the extent of non-GAAP financial.

All measures are discussed on this call you may find a reconciliation on to the most directly comparable GAAP measures on our website lastly, I would like to point out that management's remarks. During the conference call are based on information and understandings believed accurate as of today's date May 'twenty 8 'twenty 'twenty, 1 because of the time sensitive nature of this.

Information It is the policy of Hibbett sports to limit the archived replay of this conference call webcast to a period of 30 days the.

Participants on this call are Mike Longo, President and Chief Executive Officer, Bob Wilkey, Senior Vice President and Chief Financial Officer, Jared Briskin, Senior Vice President and Chief Merchant Bill Quinn 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 and good morning, and welcome to Hibbett SKU 1 earnings call of your following along using the slide deck I'm of the third slide entitled introduction.

This quarter was a terrific outcome from a financial perspective for the company as you saw in the press release, we reported an increase of 87% per comparable sales.

And the components of that were 113% per brick and mortar and E. Commerce was 1%. This resulted in operating income of just over $110 million and diluted earnings per share of $5 <unk>.

These results were made possible of course by the hard work of our 10000 teammates in the stores the store support center and the distribution center.

As always they help lead us through another quarter in a challenging business environment. We are proud to represent of our teammates today I wanted to make sure to thank them for a job well done.

We believe that our results put us on track to significantly outperform our previously announced fiscal year guidance later, Bob bulky will address at new guidance, but first I want to highlight some of the reasons for the strong Q1 performance.

Several factors last year gave both new and existing customers, even more reasons to shop with US. This included competitive closures increased e-commerce adoption spending rotation into our product categories and of course fiscal stimulus as a result, we believe we have increased our market share the moment.

From these factors gave us even more opportunities to attract and retain new consumers and our data shows that we've done a good job retaining them so far.

Let's talk a little bit more about sales drivers on slide 4.

As we stated previously our competitive advantage of advantages of service selection and a best in class Omni channel capability provide us with a strong and resilient business model that continues to satisfy our existing customers, while also attracting and retaining new customers without sacrificing our ability to deliver.

Premium consumer experience, we continue to update and expand our product assortments improve our supply chain capabilities and enhance our overall consumer experience both in store and online.

Our first quarter results exceeded expectations, both in sales growth as well as a strong gross margin performance. Some of the key contributors to these results included <unk>.

First of all delivering a number of business model improvements earlier than anticipated.

Those include things like supply chain innovations continued emphasis on the store culture.

And numerous other investments that will provide future benefits.

All of those factors.

We are that we continue to see large increases in new customers and gains in customer retention net.

We saw existing consumer shopping frequency and continued order value increases.

As well competitive closures and limited distribution had a larger impact than projected and finally of course, we had stimulus payments that not only came on early but were more significant than anyone probably forecast.

And as a reminder, we did not put that in our guidance previously.

The combination of these factors drove higher sales, which allowed us to maintain a high gross margin and provides significant leverage on our SG&A.

So moving on to slide 5.1 of the give you a little bit of insight into the next few quarters of course some of the factors mentioned previously are temporary while others will persist into the future and could significantly improve our opportunity to drive incremental sales and profitability. We believe these factors that will have a lag.

<unk> impact into the future include continued improvements in our business model.

Additional investments in the consumer experience new customer retention.

<unk> on competitive closures and reductions in distribution of key brands and improved inventory position.

That last factor improved inventory position of warrants a little bit of additional discussion.

We estimate our inventory position at the end of the first quarter was approximately $80 million to $100 million below where we wanted it to be.

In order to support customer demand and that shortfall cost of sales, we expect to make progress toward achieving our desired inventory levels in the coming months when our inventory position improves we expect at the increased revenue from a higher in stock position, who will provide the opportunity to deliver incremental sales that will help.

Mitigate much of the drag when the benefit of the temporary factors fade.

Now turn over the call to Jared to discuss our merchandising performance.

Thank you, Mike if you turn to the merchandising slide.

We have incredible results across all categories, including triple digit gains at apparel team sports.

Sports recovered nicely from the Covid declines in the year ago period also achieving triple digit growth all.

All genders saw significant growth led by our women's business, which grew triple digits.

Our total head merchandising strategy in consumer focus continue to impact our results positively strong cross category connectivity led to increases in average unit retail end items per sale.

As a reminder, we announced the structural change to our merchandising organization last November of realigning, our leadership and teams to be more consumer focused across categories organized by men's women's kid's and team sports and city gear.

At this structural change throughout our buying planning and allocation teams has enabled us to more closely align and focus our assortments to our consumers.

We believe that we have made significant progress in our execution of while our results have been fantastic. We are just starting to deliver assortments driven from this organizational change, which gives us confidence as we look forward.

Apparel business was up triple digits, all apparel categories included branding apparel fashion apparel licensed apparel and accessories, all were up triple digits. All genders were significantly positive from the athletic brands. We continue to see strong demand for athleisure loungewear and performance product flooded color.

<unk> between tops and bottoms toll to small connectivity and sneaker connectivity, where our primary drivers are fashion brand business continued to be exceptional continued expansion of denim end collections with strong connectivity to sneakers drove our results.

Licensed business was explosive during the quarter as investments in Jersey, and hats tie to our total head merchandising strategy continued its recent strong performance.

Accessory business remained very strong with sunglasses socks underwear and sneaker accessories driving the business.

But where our business was up in the low seventies with strong results across basketball lifestyle slides and performance all genders were significantly positive with women's growth outpacing men's and kids basketball lifestyle and slides were the standout categories in the quarter classic footwear and launch product continued to be in high demand.

Casual shoes as well as slide in sandals were also standouts for the quarter.

Specific to footwear and apparel, our women's business was our fastest growing area with triple digit sales.

Men's grew in the low eighties and kids in the high Sixty's.

The increased sales and supply chain disruption continue to pressure inventory, while our results are fantastic our inventory levels are not allowing us to provide of consumer experience store standards and likely led to missed opportunity. Our merchants continue to work to fill this void we received significant focus from our vendor partners regarding opportunities.

To improve our inventory position based on current projections, we expect inventory levels to be up in comparison to fiscal 'twenty as we head into back to school, but still below fiscal 19 levels and now Bob will take you through the financial results.

Thanks, Jared and good morning, if you will please refer to the seventh slide titled first quarter of fiscal 2022 results. As a reminder, our results include both hibbett and city gear and are reported on a combined basis.

For the first quarter total net sales increased 87, 8% to $506.9 million in consolidated comp sales increased 87, 3%. This compares to first quarter fiscal 2021 sales of $269.8 million and of comp sales decline of 19, 5% over a 2 year period our comp.

Sales increased 51, 4% brick and mortar comp sales were robust during the first quarter and came in at 113, 5% versus fiscal 2021 and of 45, 7% increase relative to the first quarter of fiscal 2020.

E Commerce comp sales were essentially flat with a 1% increase compared to last year's first quarter, but reflected a 106, 4% comp versus the first quarter of fiscal 2020. As a reminder, our stores were only opened to the public for approximately 60% of the available days in the prior year first quarter, which drove a significant amount of business to the <unk>.

Online channel as a result e-commerce sales accounted for 11, 7% of net sales in the current quarter compared to 22, 3% in the prior year first quarter. However, the current quarter mix of ecommerce sales is still approximately 340 basis points higher than the first quarter of fiscal 2020.

Our GAAP gross margin expanded significantly to 41, 4% of net sales compared to 27, 5% in the prior year first quarter. This approximate 1390 basis point improvement was due to higher initial sell through of low promotional environment, a mix shift away from ecommerce sales, which carry a lower margin due to incremental fulfillment costs.

Leverage of store occupancy expenses and a decline in noncash inventory valuation reserves related to a lower of cost per market lower of cost of our net realizable value consideration in the prior year incremental noncash inventory reserve expenses were recorded as a result of uncertainty brought about by the pandemic our current quarter gross margin of 40.

1.4% is comparable to the non-GAAP gross margin of 29, 4% reported in the prior year, which was adjusted to exclude $5.1 million of noncash inventory reserve adjustment.

Store operating selling and administrative expenses, excluding depreciation and amortization were 18, 1% of net sales in the first quarter, which was well below the 33, 1% reported in the first quarter of fiscal 'twenty..1 in addition to leverage gained from the strong sales performance. The prior year included significant noncash impairment expenses for goodwill trade.

And select store assets brought about by uncertainty related to Covid plus several hundred thousand dollars of city gear acquisition and integration activities.

Putting these pandemic related impairment and valuation costs and certain city gear acquisition and integration expenses prior year SG&A expenses on a non-GAAP basis were 23, 9%. Thus the current year SG&A expense rate of 18, 1% represents an approximately 580 basis point decrease versus the adjusted prior year first quarter.

Results. This decrease was primarily due to leverage from the significant sales increase depreciation.

Depreciation and amortization increased approximately $1.2 million from last year, reflecting increased capital investments on organic growth opportunities in infrastructure projects.

On a GAAP basis, we generated $110.2 million of operating profit or 21, 7% of net sales, which compares to last year's operating loss of $22.1 million, excluding all non-GAAP adjustments during last year's first quarter or $110.2 million of operating income this year compared to operating income of $7.8 million in the.

The first quarter of fiscal 'twenty 1.

GAAP diluted earnings per share were $5 for this year's first quarter and we did not identify any nonrecurring items in our current quarter results and last year's first quarter GAAP loss per share was <unk> 92, and adjusted diluting earnings per diluted earnings per share were <unk> 31.

Driven by strong sales robust margin leverage of SG&A expenses and a reduction in our inventory balance over the last 3 months, we generated operating cash flow of $107.1 million during the current quarter compared to $3.9 million of operating cash flow in the prior year first quarter.

We spent approximately $7 million in capital expenditures, which were largely related to new relocated and remodeled stores in the prior year first quarter capital expenditures were approximately $4.1 million.

Turning to the balance sheet.

We ended the quarter with $279 million of cash and cash equivalents up from $209.3 million at the beginning of the quarter and $106.2 million a year ago, our entire $75 million of borrowing capacity remains available, but we do not anticipate the need to borrow from our secured credit line based on current cash projections net.

Net inventory ended the quarter at $182.4 million or 9.7% down from the beginning of the quarter and of 24, 6% decline from last year's ending balance. The continued strong sales in both the brick and mortar and online channels. In addition to ongoing constraints in the supply chain drove the decrease in our inventory position is Mike <unk>.

Mentioned earlier, we feel we will start to see inventory balances rise over the next several months.

During the first quarter of the company repurchased 541283 shares of common stock at a cost of $37.3 million under our authorized share repurchase plan as disclosed earlier. This morning, Our board has increased our share repurchase authorization by $500 million in response to confidence in our projected financial performance and the related cash.

Cash flow generation.

Next I'll review, our updated fiscal 2022 guidance on the eighth slide titled updated guidance.

Given the strong results for the first quarter, we are revising our full year outlook for fiscal 2022, which ends on January 29.2022.

This update is influenced by several factors as we have previously mentioned, we attract and retain new customers throughout fiscal 'twenty, 1 due to pent up demand market disruption and government stimulus payments, we feel we continue to attract and retain additional new customers in fiscal 'twenty..2 we expect that accelerating consumer adoption of E. Commerce will continue to drive growth across our best in.

Omni channel platform. Those factors in addition to our strong vendor relationships and targeted purchases by our merchandising team have us well positioned to take advantage of expected increases in our business double digit store growth improved improving the in store consumer experience. In addition to supply chain and selling initiatives should also help drive sales.

<unk> as well.

We are now forecasting comp sales for the full year in a range from positive high single digits to positive low double digits. This is up from previous guidance of negative low single digits to positive low single digits relative to last year of the first quarter represented the easiest comp for the year and earlier guidance did not include government stimulus payments that landed during the quarter also of.

As a reminder of the benefit we expect to experience from the closure of Jcpenney and stage stores will lap during the third quarter.

We now expect gross margin performance will be lower over the next 3 quarters than what we experienced in the first quarter of fiscal 'twenty 2 to an expected increase in our inventory position headwinds on freight and shipping costs and a potential increase in promotional activity. However, we expect gross margin will be favorable to both GAAP and adjusted fiscal 2021 gross margin percentages on a full year.

Our previous guidance indicated of year over year decline in gross margin performance on a GAAP basis.

We continue to expect to deliver SG&A leverage on a full year basis compared to both GAAP and adjusted SG&A reported in fiscal 2021, but we believe SG&A as a percentage of sales will increase over the next 3 quarters in comparison to the first quarter of fiscal 2022 due to wage and related benefit in cap impacts performance based.

Of an equity cost and increased costs in categories, such as travel and insurance.

Lastly, diluted EPS is now forecasted to be in the range of $8.50 to $9 versus our previous outlook that projected diluted EPS of $5 to $5.50, our diluted EPS forecast assumes an effective tax rate of approximately 25% and a weighted average diluted share count of approximately $16.9 million, we do not anticipate the <unk>.

Between our GAAP results and non-GAAP results will be material for the current fiscal year.

From a capital expenditure perspective, we continue to target investments of $45 million to $50 million focused on organic growth opportunities that we believe will lead to incremental sales and profitability and also on strategic infrastructure projects that will enhance our distribution and back office efficiency. We believe that these investments will assist in attracting new customers retaining new and existing.

Customers enhance the consumer experience in stores and online and modernize our technology and processes. In addition to our capital expenditure plans, we intend to Opportunistically allocate capital to share repurchases and currently have approximately $599 million available under our expanded share repurchase program. Following the expansion of our share program earlier today.

We expect to provide longer term financial and operational targets and additional insight into our compelling product offerings and customer centric culture. During our first formal investor day that will take place on June 24th we look forward to your attendance at that event.

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

Thank you if you would like to register a question or comment. Please press. The 1 followed by the 4 on your telephone.

Here at <unk> prompt technology of request. If your question has been answered and you would like to withdraw your registration. Please press. The 1 followed by this 3.1 moment please.

The first question comes from Sam Poser of Williams trading. Please go ahead.

Good morning, everybody. Thank you for taking my questions.

Yes.

Okay.

I assume that was in your guidance.

Well first of all could you give us some idea of how may is looking at parts of the momentum continues.

Quarter to date.

Hey, Sam it's Bob.

Again, I think obviously, we've had strong momentum ending the first quarter. You can expect that we continue to feel pretty positive about the outlook and we're not going to get into any specific month by month of the performance at this point, but.

Again I think.

As we've said earlier pretty pretty positive about what we feel the future looks like.

And then from a from a SG&A perspective do you.

I assume that it.

It doesn't mean, you're going to leverage every quarter in Q2 is probably the most difficult compare so could we assume that delever Q2 and then.

Potential end see leverage in the other quarters of that is that a good way to think about it.

Again, not going to get into the specific quarter by quarter, but yes last year, we said the easiest comp with Q1, the toughest comp of clearly Q2.

We still think that we can do a lot of good things from an SG&A leverage standpoint, but it is a little bit.

Different from quarter to quarter, but again, we will just looking more to full year guidance at this point.

Okay, and then can you.

You talked about your new customer retention can you give us some some details on the.

On on sort of on your on the MVP program, how many people how many people you got this year. How many people are shopping twice more than once you sort of talked about in general terms. If you could give us some color of more specifics that would be greatly helpful.

Yeah.

Hi, Sam itself.

So we had a record number of people sign up this quarter to our loyalty program.

We also had a record number of new member shopping.

In the program.

Not only an increased level of new member shopping, but also more transactions for those new members as well as of higher transaction value.

We've been following that as new members starting last may when we start to gain this new members and so far we've seen lower levels of attrition versus prior year and even the year before that.

We are effectively keeping new customers better than we ever have before.

Part of that is of course, having a wonderful in store and online experience at the other piece of that is we have their information our files of ground by millions in terms of E mail push tax they were able to effectively communicate with them like never before on a per.

Part of that is our loyalty program, where we incentivize them of course to make more trips.

Okay and then.

You got a lot of cash on the balance sheet.

How how are you.

And you did reduce.

<unk>, the buyback authorization, but outside of the buyback and the store remodels.

How and openings how.

Are there other things you're looking at for use of that cash.

And I think again first and foremost we want to replenish inventory values, that's going to be 1 of our big use of cash and obviously as you would replenish inventory that generates more business. So it kind of becomes a little bit cyclical, but we targeted again, the $45 million to $50 million in capital expenditures, which is you've touched on is geared heavily toward the front end.

The house of the store.

Aspect.

Again, we still feel like there is a source of opportunity in the marketplace to.

You need to invest in ourselves from additional capital additional inventory and additional share repurchase opportunities. So that's basically the trifecta of of <unk>.

Capital allocation Hey, Sam This is Mike I would like to add a couple of comments hope youre doing well today.

Look we I think everyone noticed that capex has virtually doubled.

From our run rate in previous years, and that's a recognition of the fact that we have an opportunity to significantly invest in the consumer experience both in brick and mortar as well as the omni channel experience and we think that we're in the early innings of that investment from.

From the things that Ben is doing in the stores to get the sales culture embedded we think that we're very very early in that process. The results of remarkable and all the things that bill is doing in the omni channel experience and the incessant.

Obsession with making it perfect and we will never be perfect, but that is of the goal. He continues to increase the loyalty program the raffle program.

And all of those aspects that make that the best in class Omni channel experience.

While we love, where we're at we're nowhere near where we're going to be so im very bullish on the future of those investments.

I've got 2 more 1 your double digit.

Store unit growth on the press release at said by banner does that mean that you'll open at least 20, new stores net this year and that's up from <unk> and prior to that.

Am I correct about that.

Yes, north of that so you are right. We have said, we will do double digit unit growth in the hibbett brand and double digit unit growth in the city gear brand and those are net of whatever of few closures will have this year.

Okay and then.

Thank you.

But I'll come back kind of I'll come back from our.

Thank you.

Our next question comes from Alex Perry of Bank of America.

Hi, Thanks for taking my question and congrats on another exceptional quarter.

Just first.

How should we think about com.

Comps from the second quarter in particular with the lapping of the stimulus benefits from last year may be partially offset by the child tax credit benefits.

Seem to be coming and then just specifically with on the inventory are you seeing a shift in sort of the launch calendar from <unk> given the inventory delays end.

Just off of that like how much of a drag was inventory this quarter end how much of it is.

Is it expected to continue to be a drag of the second quarter.

Hey, Alex Good morning Jared.

Certainly we're up against some very difficult quarter, certainly in the second quarter, but we're real confident the improvements we made at the company certainly our trend we.

We do expect access to inventory to continue to improve at some of the supply chain issues improve so we like our odds.

Specific to your I believe your last question with regard to inventory we've.

<unk> had a very consistent flow of inventory.

Obviously has resulted.

And a significant improvement in sales so what the merchant team has done in partnership with our vendors to chase. This trend there were on has been a herculean effort.

Not be more proud of what they've been able to do and we do expect as we get closer to back to school will be at a much improved inventory position and expect the quality of our inventory to remain at the levels that it's at.

Specific to the launch calendar of there've been some launches that have shifted whether it be month to month quarter to quarter I wouldn't say they've been any more frequent than what we've seen historically, we always deal with changes in the launch calendar.

So some of that is fairly normal.

<unk> seen some.

Certainly due to the impact of the supply chain, but again not a completely abnormal.

Process that we've been through in the past.

Perfect that's really helpful.

And then it sounds like you saw a positive impact from competitor closures end.

Limited vendor distribution more limited vendor distribution in the quarter can you, maybe just maybe give us some more detail on that particularly in then.

Maybe an update on the market share opportunity since I think the last time, you said it was sort of $20 million to $40 million of an annualized benefit of digests included stage in J C. Penney and I think there has been.

They are public companies they come out and publicly said, they're losing access to Nike product. So just wondering if you could sort of give us an update there.

Yes, it's jaret again, I mean, certainly there's lots of marketplace changes, whether it be from closures or whether it be from changes in distribution strategy by.

By a number of our partners what we seen initially with regard to stage and Jcpenney is that those stores that did have a closure in their market are performing.

Better than our average sales very very pleased with what we've seen from that so far there are more of that will occur certainly as we go throughout this year, but some of that is in the early innings, we need to get to a point where inventories completely flushes out of some of those.

Banners that may be are losing distribution and we certainly see that as a significant opportunity for us as we go forward.

Perfect and then just my last question can you just give us some more color on what is expected to drive the gross margin strength over the next 3 quarters of.

Are the expectations and the guidance for the promotional environment to remain fairly limited here.

Hey, Alex Jarrett again, yes, we do expect that the promotional environment should be limited.

Lots of conversation around <unk>.

Kate is back to normal not quite sure of what normal means.

Today, so but based off of the health of inventory of the marketplace of lot of the distribution changes that are occurring certainly at the health of our inventory at.

We're at record level lows in the aged inventory, we would expect that promotional activity to remain fairly low.

Perfect. That's really helpful best of luck going forward.

Thank you very much thank you.

As a reminder, via the phone lines of my personal 1 followed by the 4 if you'd like to register a question or comment.

The next question comes from Peter Benedict of Baird. Please go ahead.

Hey, good morning, guys.

So first just following up maybe on that last question.

Part of the last question.

The typical season, we understand that.

Very little of that is typical of whats right.

Right now.

But seasonality would suggest that your second quarter revenues are down.

I don't know anywhere north of 20% sequentially versus <unk>.

That would imply a lack of mid teens comp decline and I know youre, not giving guidance, but I'm just trying to understand given what you see there is.

Is there any sign that we're going to be maybe.

Maybe following normal seasonality or are we just still at it.

Trends that make those kinds of analyses kind of worthless and the short term. That's my first question.

Hey, Peter.

Certainly hard to predict I don't know if I would call them worthless certainly an input.

<unk>.

And to try to understand what that cadence is.

The things that we're most excited about obviously, we're up against a big quarter, and certainly very healthy numbers, but Mike referenced all of the improvements that we've made across the company.

<unk> with the access that we've seen with regard to new customers and we really do feel that the build of inventory is going to significantly help us as we go through and get closer into back to school.

So certainly lots of questions around timing.

Will it begin normal back to school, we certainly believe it will be a significantly better at back to school was at a year ago, when that will occur still somewhat unsure but.

But really confident in the improvements we've made across the company at really proud of the improvements we've made within merchandising connecting to our consumers.

But certainly know that it is a big number that we're up against and modeling out.

Some of those month by month cadence quarter by quarter cadence.

Very difficult at this point with the information being so drastically different than what we've seen historically.

Yes.

That's fair and you guys have done a great job here, but I.

I guess shifting to gross margin just curious.

Any color on kind of zelle at those product margins performed at <unk> versus <unk> versus maybe occupancy.

And it sounds like.

You guys don't expect too much promotional activity to return, which makes sense given the inventory situation, but just wanted to confirm that at.

Your outlook doesn't really assume promotions and markdowns kind of get back to anywhere near normal over the balance of the year.

Yes, Peter it's Bob.

Again, I think we continue to see strength in the product margin line and obviously with the sales volume. We've as we've said multiple times, we get some significant leverage off of the store occupancy piece.

Of those sales numbers again are up against some tough compares last year. There is a little bit of pressure on not only the product margin side as we start to replenish inventory values, but you get a little less leverage obviously on the occupancy as you move forward to so.

At twice that were being.

A little bit more cautious on what that looks like we expected there to be headwinds obviously at some point, we've been blessed to get through another quarter with a really strong overall gross margin number but there is some.

Concerned at that number will start to.

Dropped a little bit of over the next 3 quarters.

Okay and then my last question is just.

Can you just maybe elaborate on the investments and customer experience.

That youre doing and also some of the supply chain initiatives, you've been alluding to.

Curious kind of any any more specific specifics you can provide around that thank you.

Hey, Peter it's Phil.

So actually spent.

We spent a lot of time.

Doing research and analysis design and testing around what we're calling next generation omni channel experiences. So.

Those are going to be focused on number 1 our loyalty program.

Making that easier to use even easier than it is today as well as more valuable for our members of <unk>.

1 loyalty number 2 our launch process and our App.

They are very good today, but we're going to make us even better so we have some.

Very unique and industry, leading plans around that piece and then lastly around fulfillment.

How to get things faster to customers.

It is of 3 things that we're very focused on around our next generation Omni channel.

I'll chime in it's been.

From the in store experience.

Number 1 we want to make it fun for both of our customers.

And our associates in the stores and so we've been doing a lot there.

Inclusive of.

Updating the stores through our refresh program.

Our new store design.

Upgrading of music that we play in stores things of that nature to again make at a compelling environment you want to spend time at.

We've also done some things from.

From a store standpoint, obviously within training.

Many of our leadership training at store level done some things with contest of Spiff again to just increase the experience both for our associates and our customers and consumers when they come in.

Okay great.

This is Mike I'll talk about the supply chain for just a second.

It's always been my view that retail is an extended supply chain and so it's incredibly important to what we do in all represent what they're doing today.

The 3 priorities in order of priority.

When we started this journey where velocity.

Then capacity than efficiency, so the velocity.

A lot of those initiatives are underway and they started with frequency of delivery and speed to market. Those have yielded great results and you see them in the sales line and the gross margin line because I'll remind you. This stuff has a shelf life.

And the faster at a faster it's in the store and in the hands of the consumer the higher the turn the higher the growth of.

The second part of that capacity was incredibly important because we expect it to grow and we have grown and we've turned in a substantial amount of growth in the short amount of time and so as a result of that capacity has become ever more important. So for example, going from a 5 day of week operation to a 7 day of week operation.

By judiciously investing in things that increase the throughput through the distribution centers as well as in the transportation side and then third efficiency always comes last because you have to be effective before we can be efficient you have to be good before he can be frugal and so the efficiency.

<unk> are underway.

And they are all of the things that you would expect that we're doing in the supply chain.

To lower the labor costs and improve the turns.

Thanks.

That's great color. Thanks, so much guys look forward to diving deeper on the 24th.

Thank you.

The next question comes from Cristina Fernandez Telsey Advisory Group. Please go ahead.

Hi, good morning, and congratulations on a good quarter.

Amit.

I have 2 questions wanted to ask first about the higher average ticket can you comment on what youre seeing as far as consumers trading up of purchasing more items would have fallen with the higher apparel sales could you put some pressure on ticket so any color there would be helpful.

Hi, Christine at sale. So a couple of things our average unit retail. So the average unit has gone up and obviously, we had less clearance so thats part of at.

Also the amount of units per ticket has also gone up and that's a result of our focus on total had not.

Not only selling the sneaker, but the apparel and accessories that go with it as it is of 2 of the main driving factors.

Thanks, and then the second question I have with net the quantification of the shortfall at inventory of the $80 million to $100 million I guess whats that relative to at <unk>.

Or was that just your estimate of the sales you left on the table during the quarter based on demand and do you think you can recover that here in the second quarter.

Yes. Good morning, it's Jared so that commentary of specific inventory levels. So certainly the the lack of inventory does translate to a potential sales shortfall. So again, we feel like to provide the right customer experience both in store and online we had a GAAP of approximately $80 million to $100 million in.

Sorry.

Thank you.

The next question comes from Sam Poser of Williams trading. Please go ahead.

I've got a couple of follow ups.

Just being built into the guidance from the balance of the year have you.

The 20% of $40 million benefit from stage and Jcpenney changed as the child tax credit built into that number.

To the guidance.

Yeah, Sam I think we've made a brief comment too we think that.

Fact of the closures of Jcpenney and stage was probably a little bit more favorable than we had originally anticipated.

We obviously of bake that kind of run rate into the future at this point of child tax credit just like stimulus from the past we understand it's kind of.

It's it's a known item, but with some of the unemployment benefits that some of the states are going to be cutting off plus the combination of women, who the tax credits are going to.

We really just did not know how to factor that in from a standpoint of timing wise. So the estimate really does not include any potential impact of that.

Alright, so that actually leads right into my next question. So you guys have done as we've called out.

I believe you've done a very good job of.

As you wrote here really improving your I just call it consumer engagement, either omni channel and stores and so on so far at that shows up in your results.

How much.

But then youre concerned.

And the.

There is other sort of macro factors that are impacting the guidance.

How much did stimulus do you think helped the quarter how much of the how much.

How much control do you guys really feel like you have as to what's happening next.

And relative relative to the numbers you put out there because yes I understand the macro but then you continue to improve all of the consumer facing stuff, which appears to be driving business and if you keep getting better that should theoretically could keep getting better at does that overwhelm.

Like how are you judging that versus sort of the macro.

And as you know in headwinds you do you have sort of built in.

2 of your commentary on the call and in the press release.

Sam you don't have any easy questions I could answer.

Yes.

I think I think it's obviously difficult to.

To isolate stimulus I mean, we've got a lot of moving parts and none of these are mutually exclusive obviously, we attracted new customers and some of them had stimulus money, we have existing customers some of them had stimulus money.

At depending on when.

When they joined US whether it was second third or fourth quarter last year and why they came to us there's just a lot of different moving parts there.

Again, we feel very confident in the base that we're building and in the experience we are providing to the consumer but.

Clearly not going to run away from the fact that stimulus has a significant impact on our on our results. The difficulty is when we get to a period, where there is not some of these moving parts of what does that business look like so again I think we feel like this is a long game. This is not something we're running quarter by quarter. We're looking at of long term opportunity here.

And even though we see a little bit of pressure on margin and in SG&A in the back third 3 quarters of this year compared to Q1, we want to remind people that there is still much better than it was a couple of years ago. So we think we've built a much stronger engine, we've built a much stronger base and again, we can't really start to.

Get into all of the separate pieces because there are so many moving parts, but again trying to keep that longer term perspective in mind.

Uh huh.

Alright.

I'll follow up on everything else offline. Thanks, so much.

That was our final question from Paul back over to our host for any closing remarks.

Well, thank you everyone for attending the call.

We are very proud of our team.

We're very excited about our results.

And that's enough celebration for us at its back to work. So we hope that everyone has a safe weekend Huawei Honor Memorial day, and we look forward to getting back together soon thank you so much.

Thank you. This does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your lines. Thank you and have a good day.

Okay.

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Yes.

[music].

Greetings and welcome to the Hibbett sports first quarter 'twenty 'twenty 2 earnings conference call.

During the presentation, all participants will be in a listen only mode. Later, we will conduct a question and answer session.

At that time, if you have a question. Please press the 1 followed by the 4 on your telephone.

At any time during the conference you need to reach the operator, Please press star zero.

As a reminder, at this conference is being recorded Friday may 28th 'twenty 'twenty 1.

It is now my pleasure to turn the conference over to Jason Fructose Director of Finance and Investor Relations. Please go ahead.

Good morning. Please note that we have prepared a slide deck that we will refer to during our prepared remarks slide deck is available on hibbett dotcom via the Investor Relations link found at the bottom of the homepage or at investors at Hibbett Dot Com. These materials may help you follow along with our discussion this morning.

4 we began I would like to remind everyone that some of management's comments. During this conference call are forward looking statements. These statements, which reflect the company's current views with respect to future events and financial performance are made in reliance from the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks it should be noted that.

At the company's future results may differ materially from those anticipated and discussed in the forward looking statements. Some 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, and most recent quarterly report on form 10-Q, and other filings with the Securities and Exchange Commission, we refer you to those sources for more information.

And also to the extent non-GAAP financial 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 May 28.2000.

'twenty 1 because of the time sensitive nature of this information at is the policy of Hibbett sports to limit. The archived replay of this conference call webcast to a period of 30 days.

Thanks, Jason Good morning, and welcome to Hibbett SKU, 1 earnings call of your falling along using the slide deck I'm on the third slide entitled introduction.

At this quarter was a terrific outcome from a financial perspective for the company as you saw in the press release, we reported an increase of 87% per comparable sales and the components of that were 113% per brick and mortar and E Commerce was 1%.

This resulted in operating income of just over $110 million and diluted earnings per share of $5. These results were made possible of course by the hard work of our 10000 teammates in the stores the store support center and the distribution center.

As always they help lead us through another quarter in a challenging business environment. We are proud to represent our teammates today and wanted to make sure to thank them for a job well done.

Several factors last year gave both new and existing customers, even more reasons to shop with US. This included competitive closures increased e-commerce adoption.

Spinning rotation into our product categories and of course fiscal stimulus as a result, we believe we have increased our market share. The momentum from these factors gave us even more opportunities to attract and retain new consumers and our data shows that we've done a good job retaining them so far.

Let's talk a little bit more about sales drivers on slide 4.

As we stated previously our competitive advantage of advantages of service selection and a best in class Omni channel capabilities provide us with a strong and resilient business model that continues to satisfy our existing customers, while also attracting and retaining new customers without sacrificing our ability to deliver of <unk>.

Premium consumer experience, we continue to update and expand our product assortments improve our supply chain capabilities and enhance our overall consumer experience both in store and online are.

Our first quarter results exceeded expectations, both in sales growth as well as a strong gross margin performance. Some of the key contributors to these results included <unk>.

First of all delivering a number of business model improvements earlier than anticipated.

Those include things like supply chain innovations continued emphasis on the store culture.

And numerous other investments that will provide future benefits.

Other of those factors.

We are that we continue to see large increases in new customers and gains in customer retention next we saw existing consumer shopping frequency and continued order value increases.

As well of competitive closures and limited distribution had a larger impact than projected and finally of course, we had stimulus payments that not only came on early but were more significant than anyone probably forecast.

And as a reminder, we did not put that in our guidance previously.

The combination of these factors drove higher sales, which allowed us to maintain a high gross margin and provides significant leverage on our SG&A.

Moving on to slide 5.1 of them to give you a little bit of insight into the next few quarters.

Of course, some of the factors mentioned previously are temporary while others will persist into the future and could significantly improve our opportunity to drive incremental sales and profitability. We believe these factors that will have a lasting impact impact into the future include continued improvements in our business model additional.

Investments in the consumer experience new customer retention.

Capitalizing on our competitive closures and reductions in distribution of key brands and improved inventory position.

That last factor improved inventory position of warrants a little bit of additional discussion.

We estimate our inventory position at the end of the first quarter was approximately 80% to $100 million below where we wanted it to be.

In order to support customer demand and that shortfall cost us sales, we expect to make progress toward achieving our desired inventory levels in the coming months when our inventory position improves we expect at the increased revenue from a higher in stock position, we will provide the opportunity to deliver incremental sales that will help.

[noise] mitigate much of the drag when the benefit of the temporary factors fade.

Now turn over the call to Jared to discuss our merchandising performance.

Thank you, Mike if you turn to the merchandising slide.

We have incredible results across all categories, including triple digit gains at apparel team sports recovered nicely from the Covid declines in the year ago period also achieving triple digit growth all genders saw significant growth led by our women's business, which grew triple digits or.

Our total head merchandising strategy in consumer focus continue to impact our results positively strong cross category connectivity led to increases in average unit retail end items per sale.

As a reminder, we announced the structural change to our merchandising organization last November realigning, our leadership and teams to be more consumer focused across categories organized by men's women's kid's and team sports and city gear.

At this structural change throughout our buying planning and allocation teams has enabled us to more closely align and focus our assortments to our consumers.

We believe that we have made significant progress in our execution and while our results have been fantastic. We are just starting to deliver assortments driven from this organizational change, which gives us confidence as we look forward.

<unk> enhanced tie to our total head merchandising strategy continued its recent strong performance.

Accessory business remained very strong with sunglasses socks underwear and sneaker accessories driving the business.

Basketball lifestyle and slides were the standout categories in the quarter classic footwear at launch product continued to be in high demand casual shoes as well as slide in sandals were also standouts for the quarter.

Specific to footwear and apparel, our women's business was our fastest growing area with triple digit sales.

Men's grew in the low eighties and kids in the high <unk>.

The increased sales and supply chain disruption continue to pressure inventory, while our results are fantastic our inventory levels are not allowing us to provide of consumer experience store standards and of likely led to missed opportunity. Our merchants continue to work to fill this void. We received significant focus from our vendor partners regarding opportunities too.

Over a 2 year period, our comp sales increased 51, 4% brick and mortar comp sales were robust during the first quarter and came in at 113, 5% versus fiscal 2021 and of 45, 7% increase relative to the first quarter of fiscal 2020.

E Commerce comp sales were essentially flat with a 1% increase compared to last year's first quarter, but reflected a 106, 4% comp versus the first quarter of fiscal 2020 as a reminder, our stores were only open to the public for approximately 60% of the available days in the prior year first quarter, which drove a significant amount of business to the <unk>.

1.4% is comparable to the non-GAAP gross margin of 29, 4% reported in the prior year, which was adjusted to exclude $5.1 million of noncash inventory reserve adjustments.

And select store assets brought about by uncertainty related to Covid plus several hundred thousand dollars of city gear acquisition and integration activities.

Results. This decrease was primarily due to leverage from the significant sales increase.

Depreciation and amortization increased approximately $1.2 million from last year, reflecting increased capital investments on organic growth opportunities in infrastructure projects on.

First quarter of fiscal 'twenty 1.

Turning to the balance sheet.

We ended the quarter with $270.9 million of cash and cash equivalents up from $209.3 million at the beginning of the quarter and $106.2 million a year ago, our entire $75 million of borrowing capacity remains available, but we do not anticipate the need to borrow from our secured credit line based on current cash projections net.

Net inventory ended the quarter at $182.4 million or 9.7% down from the beginning of the quarter and of 24, 6% decline from last year's ending balance. The continued strong sales in both the brick and mortar and online channels. In addition to ongoing constrained some of the supply chain drove the decrease in our inventory position is Mike <unk>.

Mentioned earlier, we feel we will start to see inventory balances rise over the next several months.

Cash flow generation.

Next I'll review, our updated fiscal 2022 guidance on the eighth slide titled updated guidance.

Given the strong results for the first quarter, we are revising our full year outlook for fiscal 2022, which ends on January 29 of 2022 this update.

It is influenced by several factors as we have previously mentioned, we attract and retain new customers throughout fiscal 'twenty, 1 due to pent up demand market disruption and government stimulus payments, we feel we continue to attract and retain additional new customers in fiscal 'twenty..2 we expected accelerating consumer adoption of E. Commerce will continue to drive growth across our best in class.

<unk>.

Reminder of the benefit we expect to experience from the closure of Jcpenney and stage stores will lap during the third quarter.

We now expect gross margin performance will be lower over the next 3 quarters, there won't be experienced in the first quarter of fiscal 'twenty 2 to an expected increase in our inventory position headwinds on freight and shipping costs and a potential increase in promotional activity. However, we expect gross margin will be favorable to both GAAP and adjusted fiscal 2021 gross margin percentages on a full year base.

Our previous guidance indicated at year over year decline in gross margin performance on a GAAP basis.

We continue to expect to deliver SG&A leverage on a full year basis compared to both GAAP and adjusted SG&A reported in fiscal 2021, but we believe SG&A as a percentage of sales will increase over the next 3 quarters of comparison to the first quarter of fiscal 2022 due to wage and related benefit in cap impacts performance based incentive.

And equity costs and increased costs in categories, such as travel and insurance.

Between our GAAP results and non-GAAP results will be material for the current fiscal year.

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

If you would like to register a question or comment. Please press. The 1 followed by the 4 on your telephone you will hear at retail prompt technology of request. If your question has been answered and you would like to withdraw your registration. Please press. The 1 followed by this 3.1 moment please.

The first question comes from Sam Poser of Williams trading. Please go ahead.

Good morning, everybody. Thank you for taking my questions.

Yes.

Okay.

I assume that was in your guidance.

Well first of all could you give us some idea of how may is looking at has the momentum continues.

Quarter to date.

Hey, Sam it's Bob.

Again I think.

As we've said earlier pretty pretty positive about what we feel the future looks like.

And then from a from a SG&A perspective do you.

I assume that.

It doesn't mean, you're going to leverage every quarter at Q2 is probably the most difficult compare so could we assume that delever Q2 and then.

Potential end see leveraging of the other quarters of that is that a good way to think about it.

Again, not going to get into the specific quarter by quarter, but yes last year, yeah. As we said at the easiest comp with Q1, the toughest comp is clearly Q2.

We still think that we can do a lot of good things from an SG&A leverage standpoint, but it is a little bit.

Different from quarter to quarter, but again, we will just looking more to full year guidance at this point.

And then can you you talked about your new customer retention can you give us some some details on the.

Hi, Sam it's bill.

So we had a record number of people sign up this quarter to our loyalty program.

We also had a record number of new member shopping.

In the program.

Not only an increased level of new member shopping, but also more transactions for those new members as well as of higher transaction value.

We've been following that as new members starting last may when we start to gain this new members and so far we've seen lower levels of attrition versus prior year and even the year before that.

We are effectively keeping new customers better than we ever have before.

Part of that is of course, having a wonderful in store and online experience at the other piece of that is we have their information.

<unk> of ground by millions in terms of email push taxed at we're able to effectively communicate with them like never before.

Part of that is our loyalty program, where we incentivize them of course to make more trips.

Okay and then.

You got a lot of cash on the balance sheet.

How how are you.

And you did.

<unk>, the buyback authorization, but outside of the buyback and the store remodels.

How and openings how are there other things you're looking at for use of that cash.

And I think again first and foremost we want to replenish inventory values, that's going to be 1 of our big use of cash and obviously as you would replenish inventory of that generates more business. So it kind of becomes a little bit cyclical, but we targeted again, the $45 million to $50 million in capital expenditures, which is you've touched on is geared heavily toward the front end.

The house of the store aspect.

Again, we still feel like Theres sort of source of opportunity in the marketplace to continue to invest in ourselves from additional capital additional inventory and additional share repurchase opportunities. So that's that space of the trifecta of of cash.

Capital allocation Hey, Sam This is Mike I would like to add a couple of comments hope youre doing well today.

Look we I think everyone noticed that capex has virtually doubled.

From our run rate in previous years, and that's of recognition of the fact that we have an opportunity to significantly invest in the consumer experience both in brick and mortar as well as the omni channel experience and we think that we're in the early innings of that investment from.

The incessant.

Our obsession with making it perfect and we will never be perfect, but that is the goal. He continues to increase the loyalty program the raffle program.

And all of those aspects that make that the best in class Omni channel experience.

While we love, where we're at we're nowhere near where we're going to be so I am very bullish on the future of those investments.

Okay, 2 more 1 your double digit.

Store unit growth on the press release at said by banner does that mean that you'll open at least 20, new stores net this year and that's up from <unk> and prior to that.

Am I correct about that.

Yes, north of that so you are right. We have said, we will do double digit unit growth and the hibbett brand and double digit unit growth in the city gear brand and those are net of whatever of few closures will have this year.

Okay and then.

Thank you.

Right.

I'll come back kind of I'll come back from our side.

Thank you.

Our next question comes from Alex Perry of Bank of America.

Hi, Thanks for taking my question and congrats on another exceptional quarter.

Just first how.

How should we think about comp.

Comps in the second quarter in particular with the lapping of the stimulus benefits from last year may be partially offset by the child tax credit benefits.

It seems to be coming and then just specifically with on the inventory are you seeing of shifts didn't sort of the launch calendar from <unk> given the inventory delays end.

Just off of that like how much of a drag of inventory this quarter end how much of it is at.

At expected to continue to be a drag of the second quarter.

Hey, Alex Good morning Jared.

Certainly we're up against some very difficult quarter, certainly in the second quarter, but.

We're confident the improvements we made at the company certainly our trend we.

We do expect access to inventory to continue to improve at some of the supply chain issues improve so we like our odds.

Specific to your I believe your last question with regard to inventory we've.

<unk> had a very consistent flow of inventory.

Obviously has resulted.

And a significant improvement in sales of what the merchant team has done in partnership with our vendors to chase. This trend that we're on has been a herculean effort.

Not be more proud of what they've been able to do and we do expect as we get closer at back to school will be at a much improved inventory position and expect the quality of our inventory to remain at the levels that it's at.

Specific to the launch calendar at there've been some launches that have shifted whether it would be a month to month quarter to quarter I wouldn't say they've been any more frequent than what we've seen historically, we always deal with changes in the launch calendar.

So some of that is fairly normal.

<unk> seen some.

Certainly due to the impact of the supply chain, but again not a completely abnormal.

Process that we've been through in the past.

Perfect that's really helpful.

And then it sounds like you saw a positive impact from competitor closures end.

Limited vendor of distribution more eliminate vendor distribution in the quarter can you, maybe just maybe give us some more detail on that particularly in men.

Maybe an update on the market share opportunity since I think the last time, you said it was sort of 20% to $40 million of an annualized benefit but that just included stage and Jcpenney and I think there has been.

They are public companies they come out and publicly said, they're losing access to Nike product. So just wondering if you could sort of give us an update there.

Yes, it's jaret again, certainly there is lots of marketplace changes, whether it be from closures or whether it be from changes in distribution strategy by.

By a number of our partners what.

While we've seen initially with regard to stage and Jcpenney is that those stores that did have a closure in their market are performing.

Better than our average sales very very pleased with what we've seen from that so far there are more of that will occur certainly as we go throughout this year, but some of thats in the early innings, we need to get to a point where inventories completely flushes out of some of those.

Banners that maybe you are losing distribution and we certainly see that as a significant opportunity for us as we go forward.

Perfect and then just my last question can you just give us some more color on what is expected to drive the gross margin strength over the next 3 quarters.

Are the expectations and the guidance for the promotional environment to remain fairly limited here.

Hey, Alex Jarrett again, yes, we do expect that the promotional environment should be limited.

Lots of conversation around of.

Kate is back to normal not quite sure of what normal needs today.

Today, so but based off the health of inventory of the marketplace of lot of the distribution changes that are occurring certainly of the health of our inventory.

We're at record levels lows in the aged inventory, we would expect that promotional activity to remain fairly low.

Perfect. That's very helpful best of luck going forward.

Thank you very much thank you.

As a reminder, via the phone lines you May press. The 1 followed by the 4 if you'd like to register a question or comment.

The next question comes from Peter Benedict of Baird. Please go ahead.

Hey, good morning, guys.

So first just following up maybe on that last question.

Part of the last question.

The typical season, we understand that.

Very little of that is typical of what's going on right now.

But seasonality would suggest that the second quarter revenues are down I.

I don't know anywhere north of 20% sequentially versus <unk>.

That would imply like a mid teens comp decline and I know youre, not giving guidance, but I'm just trying to understand given what you see there is.

Is there any sign that we're going to be.

Maybe following normal seasonality or are we just still at it.

Trends that make those kinds of analyses kind of worthless and the short term. That's my first question.

Hey, Peter.

Certainly hard to predict I don't know if I would call them worthless certainly.

<unk>.

And to try to understand what that cadence is.

The things that we're most excited about obviously, we're up against a big quarter, and certainly very healthy numbers, but Mike referenced all of the improvements that we've made across the company.

Thrilled with the access that we've seen with regard to new customers and we really do feel that the build of inventory is going to significantly help us as we go through and get closer into back to school.

So certainly lots of questions around timing.

Will it be at normal back to school, we certainly believe it will be a.

At lead better back to school was at a year ago, when that will occur still somewhat im sure but.

But really confident in the improvements we've made across the company at really proud of the improvements we've made within merchandising connecting to our consumers.

But certainly know that it is a big number that we're up against and modeling out.

Some of those month by month cadence quarter by quarter cadence.

Very difficult at this point with the information being so drastically different than what we've seen historically.

Yeah.

That's fair and you guys have done a great job here, but I guess shifting to gross margin just curious.

Any color on kind of develop those product margins performed at <unk> versus <unk> versus maybe occupancy.

And it sounds like.

You guys don't expect too much promotional activity to return, which makes sense given the inventory situation, but just wanted to confirm that at.

Your outlook doesn't really assume promotions and markdowns kind of get back to anywhere near normal over the balance of the year.

Peter It's Bob.

Again, I think we've continued to see strength in the product margin line and obviously with the sales volume. We've as we've said multiple times, we get some significant leverage off of the store occupancy piece.

At twice that were being.

Concerned at that number will start to.

Dropped a little bit here over the next 3 quarters.

Okay and then my last question is just.

Can you just maybe elaborate on the investments and customer experience.

That youre doing and also some of the supply chain initiatives, you've been alluding to.

I'm, just curious kind of any any more specifics.

Specifics you can provide around that thank you.

Hey, Peter it's Phil.

So we don't actually spent.

We spent a lot of time.

Doing research doing analysis design and testing around what we're calling next generation omni channel experiences so does.

Is there going to be focused on number 1 our loyalty program.

Making that easier to use even easier than it is today as well as more valuable for our members of <unk>.

1 loyalty.

Number 2 our launch process and our App.

They are very good today, but we're going to make us even better so we have some day.

Very unique and industry, leading plans around that piece and then lastly around fulfillment and how to get things faster to customers. So.

So those are 3 things that we're very focused on around our next generation Omni channel.

I'll chime in it's been from.

From the in store experience.

Number 1 we want to make it fun for both of our customers.

And our associates in the stores and so we've been doing a lot there Inc.

<unk> of.

Updating the stores through our refresh program.

And our new store design.

Upgrading of music that we play in stores things of that nature of to again make at a compelling environment you want to spend time at.

We've also done some things.

From a store standpoint, obviously within training, we continue our leadership training at store level done some things with contest of Spiff again to just increase the experience both for our associates and our customers and consumers when they come in.

Okay great.

This is Mike I'll talk about the supply chain for just a second.

It's always been my views at retail is an extended supply chain and so it's incredibly important to what we do at all represent what they're doing today.

The 3 priorities in order of priority.

When we started this journey where velocity.

Then capacity than efficiency, so the velocity.

A lot of those initiatives are underway and they started with frequency of delivery and speed to market. Those have yielded great results and you see them in the sales line and on the gross margin line because I'll remind you. This stuff has a shelf life.

And the faster at a faster it's in the store and in the hands of the consumer the higher the turned the higher the growth the <unk>.

Second part of that capacity was incredibly important because we expect it to grow and we have grown and we've turned in a substantial amount of growth in a short amount of time and so as a.

All of that capacity has become ever more important. So for example, going from a 5 day of week operation to a 7 day of week operation.

By judiciously investing in things.

Net increase the throughput through the distribution centers as well as in the transportation side and then third efficiency always comes last because you have to be effective before we can be efficient you have to be good before it can be frugal and so the efficiency initiatives are underway.

And they are all of the things that you would expect that we're doing in the supply chain.

To lower the labor costs and improve the turns so thanks.

That's great color. Thanks, so much guys look forward to diving deeper on the 24th.

Thank you.

The next question comes from Cristina Fernandez Telsey Advisory Group. Please go ahead.

Hi, good morning, and congratulations on a good quarter.

Okay.

I have 2 questions 1 of talk first about the higher average ticket can you comment on what youre seeing as far as concern.

I'm rooting of trading up of purchasing more items I would have thought.

With the higher apparel sales.

Pressure on ticket so any color there would be helpful.

Hi, Christine at Bell, So a couple of things our average unit retail. So the average unit has gone up and obviously, we had less clearance so thats part of at all.

Also the amount of units per ticket has also gone up and that's a result of our focus on total had not.

Not only selling the sneaker, but the apparel and accessories that go with it. So those are 2 of the main driving factors.

Thanks, and then the second question I have with the simplification of the shortfall in inventory of the 80 to 100 billion.

Yes.

Patients or was that just your estimate of the sales you left on the table during the quarter based on demand.

And you can recover that here in the second quarter.

Have a GAAP of approximately $80 million to $100 million in inventory.

Thank you.

The next question comes from Sam Poser of Williams trading. Please go ahead.

I've got a couple of follow ups.

Just being built into the guidance from the balance of the year have you has the 20% of $40 million benefit from stage and Jcpenney changed as the child tax credit built into that number.

To the guidance.

Yes, Sam I think we've made a brief comment too we think that the.

The impact of the closures of Jcpenney and stage was probably a little bit more favorable than we had originally anticipated.

We obviously of bake that kind of run rate into the future at this point of child tax credit just like stimulus from the past we understand it's kind of.

It's it's a known item, but with some of the unemployment benefits at some of the states are going to be cutting off.

The combination of when and who the tax credits are going to.

We really just did not know how to factor that in from a standpoint of timing wise. So the estimate really does not include any potential impact of that.

Alright, so that actually leads right into my next question. So you guys have done as we've called out.

I believe you've done a very good job of.

As you wrote here you know really improving your I'd just call it consumer engagement, either omni channel and stores and so on so far at that shows up in your results.

Much.

But then you are concerned.

In the.

There's other of sort of macro factors that are impacting the guide.

Uh huh.

How much did stimulus do you think helped the quarter how much of this how much.

How much control do you guys really feel like you have as to what's happening next.

And relative relative to the numbers you put out there because yes I understand at the macro but then you continue to improve all of the consumer facing stuff, which appears to be driving business and if you keep getting better that should theoretically could keep getting better at does that overwhelm.

Like how are you judging that versus sort of the macro headwinds you know and headwinds you do you have sort of built in.

2 of your commentary on the call and in the press release.

So Sam you don't have any easy questions I could answer.

Yes.

I think I think it's obviously difficult to.

Depending on when.

When they joined US whether it was second third or fourth quarter last year and why they came to us its just a lot of different moving parts there.

Again, we feel very confident in the base that we're building and in the experience we are providing to the consumer but.

Clearly not going to run away from the fact of stimulus has a significant impact on our on our results. The difficulty is when we get to a period, where there is not some of these moving parts of what does that business look like so again I think we feel like this is a long game. This is not something we're running quarter by quarter. We're looking at of long term opportunity here.

And even though we see a little bit of pressure on margin and in SG&A in the back third 3 quarters of this year compared to Q1, we want to remind people. There is still much better than it was a couple of years ago. So we think we've built a much stronger engine, we've built a much stronger base and again, we can't really start to.

Get into all of the separate pieces because of there are so many moving parts, but again trying to keep that longer term perspective in mind.

Uh huh.

Alright.

I'll follow up on everything else offline. Thanks, so much.

That was our final question from Paul back over to our host for any closing remarks.

Well, thank you everyone for attending the call.

We are very proud of our team.

We're very excited about our results and that's enough celebration for us and it's back to work. So we hope that everyone has a safe weekend Huawei honor of Memorial day, and we look forward to getting back together soon thank you so much.

Thank you. This does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your lines. Thank you and have a good day.

Q1 2022 Hibbett Sports Inc Earnings Call

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