Q2 2022 Hibbett Inc Earnings Call
News and events section. These materials may help you follow along with our discussion. This morning before we begin 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 on the safe Harbor provisions of the private Securities litigation.
Warm act of 1995 and are subject to uncertainties and risks it should be noted that the company's future results may differ materially from those anticipated and discussed in the forward looking statements. Some of these factors.
That could 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.
<unk> really report on Form 10-Q, and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information also to the extent non-GAAP financial measures are discussed on this call you will find a reconciliation 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.
Recent code based on information and understandings believed accurate as of today's date August 27th 2021.
Because of the time sensitive nature of this information it isn't a policy of habit to limit the archived replay of this conference call webcast to a period of 30 days. The participants on this call are Mike Longo.
<unk>, our 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 Knighton Senior Vice President of operations I will now turn the call over to Mike long ago, Thanks, Jason and good morning and welcome.
<unk> Q2 earnings call.
Following along using the slide deck I'm on the third slide titled introduction.
This quarter's financial performance was a strong outcome for the company as you saw in the press release, we reported a decrease of 6% for total comp sales for the quarter, having said that we were comparing to a total comp for.
To the hit last year was 79%.
Means our two year comp was a strong 73% for the quarter and 63% year to date. This resulted in operating income of $66.0 million and a diluted earnings per share of $88.0
These results were made possible.
The SEC by the hard work of our 10000 teammates in the stores the source Sports center and the distribution centers they executed their respective responsibilities at a high level and help lead us through another quarter and.
In a challenging business environment, we're proud to represent our teammates today and wanted to make sure to thank them for a job well done.
And as I've said repeatedly this is my favorite team sport and I Love our team.
We believe our results put us on track to significantly outperform our previously announced fiscal year guidance and Bob <unk> will address that new guidance in his remarks in a few minutes, but first I want to highlight some of the reasons for the strong.
Q2 performance.
Factors last year gave both new and existing customers compelling reasons to shop with us.
This included competitive closures increased e-commerce adoption spending rotation into our product categories and some fiscal stimulus as a result, we believe we've increased our market share.
Sure the momentum from these factors gave us even more opportunities to attract and retain new customers and our data shows that we've done a good job retaining them so far.
So, let's talk a little bit more about sales drivers on slide four.
As we stated previously our competitive advantages of service selection and.
<unk> and class Omnichannel capability.
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 a premium consumer experience.
We continue to update and expand.
And our best our product Assortments improve our supply chain capabilities and enhance our overall customer experience both in store and online.
Our second quarter results delivered a strong two year sales growth as well as a strong gross margin performance. Some of the key contributors to these results include first.
Expand delivering on a number of business model improvements earlier than anticipated and those include supply chain innovation continued emphasis on store culture and numerous other investments that will provide future benefits.
Second we added new customers, while retaining our existing customers at above historical levels.
Third we experienced year over year gains in the number of existing customers shopping with us and their average purchase price amount continued to increase and finally competitive closures and limited distribution continue to impact our sales profit positively.
The combination of these factors drove our solid quarterly.
The results and allowed us to maintain a high gross margin.
Moving on to slide five we wanted to give you some insight into our next few quarters.
Of course, some of the factors mentioned previously previously we are temporary while others will persist into the future and could significantly improve our opportunity.
Sales to drive incremental sales and profitability. We believe the factors that will have a lasting impact in the future include continued improvements to our business model additional investments in the consumer experience new customer retention capitalizing on competitive closures and the reduction in distribution of key brands.
And an improved inventory position and to discuss some of that I will now be I will now turn the call over to Jared to discuss our merchandising performance Jared.
Thank you Mike Good morning, and if you'll turn to the merchandising slide.
For the second quarter, all categories were significantly above plan, because we were able to accomplish.
And as I already have the prior years' significant sales increase our focus on Tilda had merchandising continues to drive results.
Women's licensed products and team sports achieved double digit growth for the quarter, but were offset by declines in our men's and kids business.
All genders, and all categories achieved double digit growth as compared to.
Comps in that 2020 with women's being the standout area with triple digit growth over the two year period.
Our apparel business declined mid single digits during the quarter drivers remain color connected tops and bottoms sneaker connectivity and Tal to small connectivity from adults to kids sizes.
From the athletic.
With <unk>, we continue to see strong demand for lifestyle product and improvement in performance products.
Our fast fashion brand performance continued to be very strong our vendors in this space are very nimble and they've worked very closely with us to mitigate supply issues.
Dan I am remains an important growth driver.
Lytic branch. This business was very strong led by headwear and jerseys and looks inspired about the nineties are resonating and there is significant demand.
Speaker accessories bags and sunglasses had strong results during the quarter, but were offset by a pandemic related items such as masks in the year ago period.
The footwear business.
The decline mid single digits basketball and lifestyle footwear continued to drive our footwear business classics demand remains very strong.
The running business was also strong during the quarter as our elevated investment in this area has resonated with our consumers.
Casual shoes as well as slides in sandals continue to perform.
Secondly, well.
Specific to footwear and apparel, our women's business was our fastest growing area with men's and kids is declining.
Inventory remains under pressure due to the increased sales volume and supply chain disruption.
Merchants are working tirelessly with our vendor partners to deliver what we have on order as well as secure additional inventory.
Exception on current projections and information, we expect inventory levels to be up to fiscal 'twenty. One during the back half of the year, but to remain below fiscal 'twenty levels I will now turn the call over to Bob to discuss our financial results.
Thanks, Jared and good morning, please refer to the seventh slide titled second quarter fiscal 2000.
Phase II results as a reminder, our results include both hibbett and for the year and are reported on a combined basis.
For the second quarter total net sales decreased five 1% to $422.0 million and consolidated comp sales declined six 4%.
This compares to second quarter fiscal 2021 sales.
$2447.0 million and a comp sales increase of 79, 2% over a two year period, our comp sales have increased 72, 8% brick and mortar comp sales were solid during the second quarter and came in at three 8% decrease versus the fiscal 2021, but we're up 64, 5%.
Sales of relative to the second quarter two years ago.
E Commerce comp sales declined 24% compared to last year's second quarter, but reflected a 153, 3% comp versus the same period two years ago in the prior year second quarter consumer shopping habits were disrupted as a result of the COVID-19 pandemic.
Percent that drove incremental business to our online channel as a result E. Commerce sales declined to 13, 1% of net sales in the current quarter compared to 15, 7% in the prior year second quarter. However, the current quarter mix of ecommerce sales is still approximately 450 basis points higher in the second quarter of fiscal 2020.
Our GAAP gross margin expanded meaningfully to 39% of net sales compared to 37% in the prior year second quarter. This approximate 200 basis point improvement was due to higher initial sell through of premium priced product.
Low promotional environment improved e-commerce margin and a slight mix shift away from ecommerce, which despite an.
The improved margin still carries a lower rate due to the cost of fulfillment excluding adjustments to our noncash inventory valuation reserve last year. The current year gross margin of 39% is comparable to adjusted gross margin of 36, 7% in the prior year.
So our operating selling and administrative expenses.
Overall, leading depreciation and amortization were 22, 3% of net sales in the second quarter, which was slightly below the 22, 6% reported in the second quarter of fiscal 2021. This decrease was the result of having minimal costs in the current year associated with city gear acquisition and integration activities, excluding certain city gear acquisition and.
It can expenses prior year SG&A expense on an adjusted basis was 19, 3%. Thus the current year SG&A expense rate of 22, 3% represents an approximately 300 basis point increase versus the adjusted prior year second quarter results. This increase was primarily related to the incremental cost of operating fully staffed.
Integrator across regular business hours, engaging and targeted advertising aimed at attracting new customers in disrupted markets and investments to improve the customer experience and to drive efficiency and back office processes.
As a reminder, many of our stores operated at less than regular business hours with slightly reduced staffing levels in the prior year second.
Stuart.
Depreciation and amortization increased approximately $900000 from last years second quarter, reflecting increased capital expenditures on store development initiatives plus additional growth opportunities in infrastructure projects.
On a GAAP basis, we generated $66.0 million of operating profit in the quarter or 14 points.
Second quarter percent of net sales, which compares to last year's second quarter operating profit of $59.0 million, excluding all non-GAAP adjustments during last year's second quarter or $66.0 million of operating income this year compared to adjusted operating income was $76.0 million in the second quarter of fiscal 2021.
GAAP diluted earnings per share were $88.0 for this year's second quarter, and we had no adjusting items in the current period.
Last year's second quarter GAAP diluted earnings per share were $40.0
And adjusted diluted earnings per share were $97.0
And I will turn to slide eight.
On a year.
Basis sales increased 32% to $927.0 million, which is up from $715.0 million over the first six months of the prior year and significantly higher than the $602.0 million in the first six months of fiscal 2020 relative.
Relative to fiscal 2021 comparable sales increased 30.
Year to date <unk> percent brick and mortar comparable sales were up 39, 9% while E. Commerce sales decreased 11, 4% E. Commerce represented 12, 4% of total sales in the current year compared to 18, 2% of total sales in the comparable period last year.
Looking back two years for the first six months of fiscal 2020.
Comparable sales increased 63, 4% brick and mortar comparable sales increased 56, 9% and ecommerce sales grew 127, 7% over the two year period or.
Our year to date GAAP gross margin was 43% of net sales compared to 33, 4% for the first six months of fiscal.
21, excluding adjustments to a noncash inventory valuation reserve last year. The current year gross margin of 43% is comparable to the adjusted gross margin of 33, 9% in the prior year.
First half SG&A expenses were 20% of net sales compared with 26, 6% of net sales in the first six months of last.
2000, excluding certain <unk> acquisition integration expenses and pandemic related impairment and valuation costs that occurred last year current year SG&A expense of 20% of net sales reflected an improvement of approximately 100 basis points from adjusted SG&A expenses of 21% over the first six months of last year.
On a GAAP.
Last year basis, we produced $177.0 million a year to date operating profit compared to last year's operating profit of $36.0 million, excluding all non-GAAP adjustments last year, our year to date operating profit of $182.0 million compared to adjusted operating profit of $82.0 million over the first six months of last year.
GAAP they up year to date diluted earnings per share were $97.0
Compared to $51.0 in the prior fiscal year since there were no adjusting items in the current year the diluted earnings per share of $97.0 compares to $33.0
For the comparable period of fiscal 'twenty, one excluding all non-GAAP adjustments.
Driven by strong.
With robust margins and leverage of SG&A expenses, we generated operating cash flow of $120.0 million on a year to date basis and have spent $28 million in capital, which was largely related to new store openings relocations, remodels and expansions of existing stores.
Over the first six months of the prior year operating.
Sales flow was $187.0 million and capital expenditures were $17.0 million.
Turning to the balance sheet.
We ended the quarter with $184.0 million in cash and cash equivalents. This is down from $279.0 million at the beginning of the quarter and $225.0 million a year ago as we continued to deploy.
Operating had built inventory and fund capital expenditures, while also returning cash to our stockholders.
We entered into a new five year $100 million unsecured credit agreement with regions Bank. During the second quarter, we have no outstanding borrowings at present and do not anticipate the need to borrow from its unsecured credit line based on current cash projections.
Cash net inventory at quarter end was $224.0 million and 18, 9% increase from the beginning of the quarter and a 19, 1% increase from last year's second quarter as Jeff previously mentioned, we have continued to strengthen our relationships with our vendor partners and our buying team continues to work around the significant challenges posed by the global supply chain.
To obtain merchandise, but is highly coveted by our customer base.
During the second quarter, we returned $87 million to our stockholders as we repurchased just over 985000 shares of common stock at a cost of $85.0 million under our authorized share repurchase plan and distributed $11.0 million as a part of our first ever recurring.
Chain quarterly dividend.
For the year, we have repurchased approximately $1 million 527000 shares of common stock at a cost of $125 million under our share buyback plan. In addition, our board of directors has declared the next quarterly dividend payment and the amount of 25 per common share to stockholders of.
Recurring at the close of business on September nine 2021.
Next I'll review, our updated fiscal 2022 guidance on the ninth slide entitled updated guidance.
Given the strong performance in the second quarter, we are revising our full year outlook for fiscal 2022, which ends on January 29, two.
A record 22.
This update is influenced by several factors as mentioned in previous comments, we attract and retain new customers throughout fiscal year 2021, due to pent up demand market disruption and government stimulus payments, we continue to attract and retain additional new customers in fiscal 2022.
We expect that accelerating.
<unk> thousand and tumor adoption of E. Commerce will continue to drive growth across our best in class Omnichannel platform. Those factors. In addition to our product selection and improved inventory position have us well positioned to take advantage of additional revenue opportunities.
Net double digit store unit growth incremental improvements to the in store consumer experience.
Consumer capital investments and supply chain capabilities and corporate infrastructure should also help drive sales and profitability growth.
We're now forecasting comp sales for the full year in the positive mid teens, which is up from previous guidance of high single digits to low double digits, although we expect comp sales to be positive in both the third and fourth.
We also expect the year over year growth to slow.
We expect gross margin performance will be lower in the second half of the year in relation to the first half of fiscal 2022 due to potential headwinds on freight and shipping costs and deleverage from store occupancy costs. We continue to expect gross margin will be favorable to both the GAAP and adjust.
Third quarter fiscal 2021 gross margin percentages on a full year 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, and we believe SG&A as a percent of sales will increase in the second half of the year in comparison to the first half of fiscal 'twenty to do.
Adjusted agent related benefit impact performance based incentive and equity cost performance based incentive and equity costs and increased costs in categories, such as repairs and maintenance travel and insurance.
Depreciation expense is expected to deleverage slightly in the back half of the year due to the expected level of capital expenditure.
Well I'd like to point out that we believe year over year gross margin and operating margin comparisons will be more difficult in the third quarter than the fourth quarter due to fixed cost leverage consideration.
Lastly, diluted EPS is now forecasted to be in the range of $11 to $61.0 versus our previous outlook for projected diluted EPS of $58.0 to $9.
Our diluted EPS forecast assumes an effective tax rate of approximately 25% and a weighted average diluted share count for the year of approximately $18.0 million shares.
We do not anticipate the difference between our GAAP results and non-GAAP results will be material for the current fiscal year.
From a capital expenditure.
From a capital expenditure perspective.
We remain committed to investing in our business for the long term and have identified additional investment opportunities. We now forecast capital expenditures of approximately $70 million focusing 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 backdrop.
Back office efficiency, we believe that these investments will assist in attracting new customers improve retention of new and existing customers enhance the consumer experience in stores and online and modernize our technology and processes and.
In addition to our capital expenditure plans, we intend to opportunistic opportunistically allocate capital to share.
Purchases and as of the end of the second quarter of approximately $516 million available under our share repurchase program. We also remain dedicated to returning additional capital to our stockholders in the form of a recently initiated recurring quarterly dividend program.
That concludes our prepared remarks, operator, please open the line for questions.
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Iconic.
Thank you. Our first question is from Alex Perry with Bank of America. Please proceed with your question.
Hi, Thanks for taking my question and congrats on another great quarter.
So I think there is an implied slowdown in the two year stack in the guidance can you explain sort.
What is being considered that would lead to a slowdown.
Most of it yes.
Completing challenges carrying inventory and.
In the back half and then maybe just off of that could you give us a little more color.
<unk> sort of the cadence of the.
Comp progression in <unk>.
Our queue. Thank you.
Yeah, Alex it's Eric I'll take the first part of the question.
We obviously were very confident in the results that we've had here recently without question and we are currently starting to go up against additional and very strong numbers from the year ago period, There's certainly some.
<unk> four concerns with regard to the supply chain I guess I would characterize it as chaotic and somewhat fluid.
But we feel really strongly about our flow of goods and <unk>.
Our ability to hit the numbers that we talked about.
I think I'll turn it back to Bob maybe to answer the second part of your question.
Yes.
But in the back half of the year.
Okay.
Coming off of.
Strong quarters over the web.
For period.
It's a little bit tougher to keep comping.
Large numbers, so we still expect to see positive comps in the back half of the year.
I think we're.
What's kind of implied somewhere in the <unk>.
Mid to upper single digits for the back half of the year, So again between defense.
The momentum going.
That's really helpful. And then just my second question.
So in light of the newly raised guidance and thank you to the guidance.
About next year that you gave.
Investor Day.
How should we be thinking about that changing at all like you know is there still scenario.
Are you planning for positive same store sales and gross margin expansion.
<unk> a pretty high base. This year, just any more color on shaping for next year.
Gave us.
Obviously a challenging.
Question from a standpoint of yes.
So we've kind of outperformed a lot of our expectations here over the last several quarters again, we still expect that we've got future growth opportunities.
I think as we continue to pile one good quarter. After another obviously the hurdle rate gets a.
More difficult.
But we still feel confident in our long term outlook again. This is not a linear equation, we don't necessarily go up in certain step year after year quarter after quarter, but again, we think over an extended period of time, we still have opportunities to grow obviously sales and continue to expand our margin and profitability.
A little bit.
Perfect. That's really helpful best of luck going forward.
Thank you. Our next question is from Sam Poser with Williams trade. Please proceed with your question.
Thank you for taking my questions.
I've got a few let me just I just want a clarification your youre, saying that youre going to comp up in the <unk>.
Versus this year versus last year in the back half or versus two years ago and backs out.
Now we will comp positive in the back half of this year versus last year.
In.
The range.
<unk> you mentioned was how much.
Mid to high single digits is our expectation.
Doesn't that put your full year comp above your guidance.
No thats basically to get to the guidance.
Okay.
Okay.
Compared to.
Again.
Fiscal Q2 'twenty Jared.
Women's men's and kids I'm, sorry, I'm, sorry, footwear apparel and team sports versus two years ago could you give us.
Some color there as to what it was.
Versus a couple of years ago. Please.
Yes, as I mentioned, Sam first of all <unk>, but all of our categories and genders were up double digits compared to the two year ago period, certainly the standout.
As I referenced was our women's area.
Next would be our kids area, which was incredibly strong and as a reminder, those two areas where a significant.
For us as we evolved our entire merchandising organization to try and capitalize on that opportunity.
Our smallest area of growth was our team sports area, we were thrilled with the double digit improvement over the two year ago period, but the growth was really driven by footwear and apparel.
Great and then.
Focus on.
It can.
And also when when you gave your analyst day, you said that you.
Do you expect based on the prior guidance for for this year that you anticipated that next year's EPS.
ROE versus fiscal 'twenty, one 'twenty two excuse me and the question is.
Based on what you know today is that still the case.
When we look into fiscal 'twenty three.
Yeah.
Again, Hi, Sam.
Sam It's Bob.
I don't know if we were definitive in saying it was definitely we said I think the question was more along with like could it grow and I think the answer was yes, we thought it could certainly grow year over year as I just mentioned when we talk to Alex here and the last question.
As we continue to stack strong quarters that obviously.
Increases the bar a little bit.
Hi.
Again, I am going to repeat what I, just said, but it again it may not be completely linear again I still think it is possible and I still think that we will do the best we can to continue to grow on a year over year basis.
But again I don't think we've made a firm commitment to that's just that's our that's our expectation and hope that we can continue to do that.
Alright.
Ill, let someone else go in both back end. Thank you.
Thank you. Our next question comes from Cristina Fernandez with Telsey Group. Please proceed with your question.
Yes, good morning, and thank you for taking my question. My first question is on the last call you talked about.
Increasing inventory by let's say 80 to 100 million I think was the number by the end of the year do you still think that it's possible just given.
The supply chain constraints.
System.
Okay.
Yes, so good morning, it's Derrick I would say.
Operation is certainly to continue to try and get our inventory levels.
Caught up to those numbers, but based off the demand that we're seeing in some of the constraints, that's becoming more difficult but at the same time.
We have effectively operated on a significantly lower amount of inventory and our team has gotten more comfortable and operating.
They are at lower amounts of inventory, so I think it.
It really becomes more about the flow of that inventory how trend rate. We are not sure we have it at the right time.
So that's what we're focused on now we're controlling the things that we control control with regard to the supply chain, but we're very confident in the inventory that we have in the flow of inventory coming in.
With 11.
And then my follow up is.
Can you provide more details about what the incremental capex is going this year, the $70 million forecast now versus <unk> $45 million to $50 million.
As a couple of kind of major buckets on that.
So obviously store development when.
How about new store growth expansion.
Expansion Remodels refreshes of our stores. We've again, we've got the opportunity to kind of move that forward a little bit more quickly.
We figure. This is just something that we would be doing over time any way. So we've accelerated some of that to get some bigger bang for the buck into the future. That's a piece of it the <unk>.
When we talk to is what were kind of referring to is as the overall store infrastructure project, we had committed to putting our smart safe and all of our hibbett stores and as a result of kind of going into those stores and upgrading some of the technology. We decided to also attract some of the it infrastructure to give us more it capabilities as well as just kind of refreshing the.
Peaks during around some of the the cash wraps and some of the other fixtures within the store. So just again to accelerate those projects from something we probably would've done normally over a two or three year period took advantage of kind of the timing and move that stuff forward again, I want to be clear that the $70 million is not the new baseline for the go forward spend.
But it wasn't an advantage or an opportunity we took advantage of in the current year Kristina.
Kristina This is Mike I'm going to tag along on that comment we think theres a lot of upside on those investments, we're very excited about them.
Bob outlined some of the some of the broad strokes, there, but our opportunity.
<unk>, who invest in and improve the consumer experience is still there is still provides upside.
In my opinion is one of the more exciting aspects of this quarter. The fact that we took the bold step we see those opportunities and were executing against them. So I'm really enthusiastic about that so thanks for asking the question.
Thank you very helpful.
Okay.
Thank you. Our next question comes from Jim Chartier with <unk> Crespi Hardt. Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
Yeah.
So you're one of the few companies that has seen a big access.
Ration in their two year sales trend and I'm just curious if you could provide a little color in terms of.
What drove that.
Improvement relative to first quarter was it just better inventory availability or were there other factors at play.
Well. Thank you, yes, we're very excited about the two year comp.
I think thats.
<unk> that everybody's been waiting on is how are they going to do how's hibbett going to do against the 79%.
Second quarter last year, and Thats been the speed bump everyone's been waiting to see how we're going to perform against and I got to tell you I'm very excited about this performance.
73, two year comp is.
That's something to get excited about so pretty proud of that pretty proud of how the team executed against it.
Do we expect to have 79%, 87% comps from here on out probably not but certainly we aspire to do great things. So we're continuing to push that.
No the efforts have been in the stores and bill with digital and marketing at Jared and merchandising Theres, a lot of exciting things coming and I can't wait to get after it.
Great and then.
On your.
Customer retention trends Youre now that you know the.
As you know mostly reopened in stores that were closed last year.
Our open again, you are you seeing any change in customer retention trends.
Hi, This is bill Clinton. Good morning, Yes, we are actually very very positive trends overall in customer retention.
When.
The country reopen our stores back in May of last year, we track each customer cohort group by months May of 2020 June et cetera.
And what we're seeing in this cohort is lower attrition lower one and done.
Also on top of that more trips higher average purchase value and on top.
When we even seen lapsed customers customers that we haven't seen a while come back in.
And shop with us.
And then in terms of our lapsed customers and Thats something that Youre doing in terms of your outreach or is that's just happening organically.
Yes, we are actually doing a lot of outreach to lapsed customers.
That was definitely part of it.
The other part of it is we continue to improve our model.
If you look at the level of customer service that we provide in our stores as well as online and continue to improve that customer experience.
On top of that we continue to improve product team and our vendors.
And have just done.
So that plastic job there and lastly, our best in class loyalty program.
<unk> customers.
Our easy to use and provides a lot of benefits to them.
Great and then last year, you would put out a target I think of $20 million to $40 million sales penetration from competitor store closings.
What are you seeing in the markets, where stage and Jcpenney stores closed and then how are you tracking versus your initial expectation.
This is Mike we feel really good about that estimate we're seeing those sales come in we track.
All of the competitive closures as well as changes in distribution.
Reported externally within a three mile radius of our stores, we know where those competitors are we believe we have a pretty accurate model of what it means to our sales forecast we're executing against that.
We have gone to the level of detail of.
During the.
As we have things like marketing against those opportunities and getting the consumer awareness.
To know that we're there and we've got the product and we are ready to serve those consumers we've gone to the lengths of changing the product mix in the store and adding two product.
Done a great job Ben has done a great job and coaching.
Obviously.
Our employees in the stores and getting ready for that so we feel really good about the estimate there is more to come.
Thank everybody remembers it was this time last year that stage stores began actually close their stores I believe is the 26 or 27th of August one thing that we.
<unk> see very clearly was we thought that it would it would be more it would come in quicker and so what we saw was somewhere along the lines of 45 to 60 days before the effects began to really show up in our cash registers that has been relatively consistent.
And.
Didn't go as you would think about it now were going to annualize those numbers at least again stage, but.
As you continue to think about the future and how those sales opportunities layer in we still got upside against all of those publicly reported.
Changes in distribution they.
And so don't all come into effect until the end of this calendar year. So all of those upsides are still in the future except for the stage stores comp.
Did I answer your question yet that was great I appreciate it sure. Thank you. Thank you.
Okay.
I really thank you. Our next question is congestion Klaiber with Baird. Please proceed with your question.
Yes, hi, everyone. Thanks for taking the questions.
Just first off as we think about the timing and magnitude of back to school how much of that business do you think came at the tail end of <unk>.
Or is most of that hitting.
Hitting here in <unk>.
Yes, so back to school in General this is Mike back to school in General, we think is going to mimic historical levels and historical sales curves in terms of timing and seasonality.
We did see that it shifted a little bit to the right it shifted.
Yes, a little bit later.
Simply because I mean for all the obvious reasons I think that school districts and parents had a general.
There was some angst out there and I think that they gave themselves a week or two additional lead up to back to school to prepare themselves for it.
So we.
Shifting a little C and we won't comment any further than this specific thing we do believe that.
A little bit of the sales from Q2 moved into Q3 I don't think its something you should.
You should think of as material, but we did we did see Ben how's it going into stores with regards to the back to school Yeah Mike.
Echo some of those comments excuse me of course, comparing to last year, which we really didn't have a back to school. So comparing the two years ago definitely off.
A little bit later shift there I've been very happy with our results by the way and it continues and we do have a lot of stores in the northern and western markets that still haven't gone back and we'll go back go after labor day, but been very pleased with results, we get a lot of things.
Things in store and market capture that particularly with our DSM, leading local efforts to promote.
From a marketing standpoint around back to school with backpack giveaways and things hyper local event, which we've been very excited about but it continues one definitely saw a shift.
Nothing major there and they're.
Results thus far.
Okay. That's good to hear maybe.
Maybe a question for Bob just in terms of the gross margin outlook the SEC.
Half rate being below the first half I think makes sense, but do you think the second half gross margin.
We'll be above last years second half which was around.
We have seven six.
Yes.
By the way just and welcome welcome to the process here.
I think we have a we have a tough compare in Q3 coming up here because last year was Q3 was our highest margin quarter of the year.
We have some opportunities.
Third marketplace to get access to product.
At maybe some discounted prices but.
I think again, we are we are.
Struggling to two.
Figure out exactly where all the margin movement is going we are going to see some deleverage, we think in and shipping and freight costs also some of the.
And the competition against the store occupancy number is going to be a little bit more challenging challenging excuse me, but we think overall for the back half of the year. We think we can certainly comparable or have a strong compared to the last half of last year.
Okay, and then just one last one if I could sneak in and just going back to the long term guidance.
Some of them outlined at the meeting.
It's been asked a few times here, but.
The 15 to 25 basis points of annual improvement that you guys talked about when you set that guidance.
Are you using the old base for this year, which was something north of 12 or.
Or did you outline this expansion knowing that your.
You are going to be moving higher I think based on todays guidance youre going to be north of 14% on the operating margin line. So just trying to make sure I understand exactly what youre, what youre, saying now in terms of a go forward basis. Thank you.
Yeah.
As we said, we keep stack and pretty strong quarters on top of each other I think the 15 to 25 was clearly.
Basically based off of a slightly lower estimate from what we have achieved here in the most recent quarter again thinking about this over a longer term cycle not just in a linear equation.
Still think we're going to end up where we said we'd be over a multiple multiple year period. It may not just be that big of a lift from period to period to period.
Okay. Thank you guys and congrats on the strong results. Thank.
Thank you.
Thank you. Our next question is from John Lawrence with the Benchmark Company. Please proceed with your question.
Yes, thanks, Congrats guys.
Mike would you comment a little bit about we've.
This week.
Some of your competitors and just really strong.
Reports for the space can you talk a little bit about <unk>.
You've indicated about what you've done to be able to help your business, but is there is there something structural in the sporting goods business that besides.
We've seen closers that have set this up on a higher bar for going forward.
Good morning, John.
Welcome.
Thanks for the question.
I think this industry is in a very good place.
The reason that I believe that is I think the consumer has.
<unk>.
<unk> put money.
The opportunity to have a job.
Is there I think that.
Great deal of the angst that we were suffering through last year, while it hasn't dissipated I think that coping skills of the consumer have improved in a much more realistic.
<unk>.
As to how to cope with the pandemic I think all of the concerns that we all had about our kids going to be able to go to school, what's going to happen to us in general I think all of those have we.
We have been able to.
Comp against it and I think I think people's outlooks have gotten much better.
So the strength of the mental mindset combined with the just basic microeconomics of how theyre doing as an individual on how their families or ferring combined with.
A very good job by the brands of controlling the distribution of the product continuing.
Innovate continuing to provide new reasons to consume all of those combined into a demand curve that we think is really strong. So the demand continues to exceed the supply that then leads to all of the things that you know I'm going to say now right.
<unk>.
Youre going to see.
Prices continue to creep up and that will that will be less about inflation and more about demand exceeding supply youre going to see continued high turns in sell throughs at the store level and online. Those then lead to higher gross margins on.
So <unk>.
Certainly we're going to see some inflation creep in on the product cost.
As long as the gross margin continues to keep pace that means actual the.
The gross profit dollars per product are actually going to be higher.
We are certainly.
The property challenges in the supply chain I don't think you need me to go chapter and verse on that we all know what they are they're publicly reported do you all see it anybody who has tried to order anything has found that it's hard to get so that means that we're going to see disruptions in the supply chain, it's going to cause problems with timing, it's going to cause increased.
Going to straight cost is going to.
Cost us more in supply chain, but all of those are swapped.
By the benefits of an increased demand oversupply and that GAAP continues to increase now that won't last forever, because we all know what economic says, it's going to catch up but by the time it catches up the industry itself.
Kris will be in a completely new place and that place is again, we've got innovative products, we're addressing the consumers' needs and we're doing it in innovative ways, both the brands and the retailers themselves.
For my part I couldnt be more bullish about our industry in our segment.
Sell for what we're doing and how it's looking going forward.
Great. Thanks, so much for that insight.
Just one question can you remind us a little bit I mean, when you. When you look at this women's business and your reformulated, the buying teams and restructured that remind us a little bit because.
And obviously.
That's turned out to be a pretty bullish move.
And pretty.
Dramatic and the numbers can you walk through that just a little bit.
Yes. Thank you good morning, Yeah. So really pleased with the results I mean, we took an opportunity we felt like we had significant opportunity.
After women's and kids business and with the men's business being our largest business. We felt like we weren't putting enough time enough effort into growing the women's and kids business, though we were able to bring in some external talent.
Helped significantly and we reorganized the entire merchandising area with leadership across men's women's.
As well as city here.
That focus has allowed us to really dig in and look at all of these incremental opportunities and then really put forth a strong effort in partnering with Ben and the ops team in Vail and the marketing team to really ensure that we're really getting after these consumers individually and trying to capitalize.
And he has on what really was a lot of low hanging fruit and so really pleased it was really more about providing the focus and then making the appropriate investments and frankly, taking some risk in inventory in.
In these areas based off the data that we saw.
Yes.
Yes.
Thanks for that update congrats spirit and what bill.
But a lot on there because the way thats come to life in the stores really connectivity at a higher level across those vendors right and so now when you walk in the store when we talk about Tilda here you see it come to life much more so than it has done historically and so we now have that connectivity in store from footwear to the apparel accessories and so.
That's where it shows up for the customer and we see the results.
Thanks, a lot congrats again.
Thank you.
Thank you. Our next question is from Sam Poser with William Street. Please proceed with your thoughts.
Hi.
That can follow up on the supply chain specifically.
Specifically.
How when you are looking for this fall this is probably for Jared when Youre looking at this fall and then looking into spring 'twenty two we're starting to hear that some of the even the vendors are raising prices specifically large ones.
And that Theyre, starting to adjust orders. So I wanted to know I wanted to get your impression of what's going on and.
To what degree are you getting your fair share or more than your fair share. However, you want to attack that thanks.
Hey, Sam.
I think I would revert.
I just wanted something I said earlier first and foremost.
It's pretty chaotic it is fluid it is changing rapidly.
Our team has done a great job without questions they've been tasked with having to kidney with continually redo resort reallocate rebuy.
And find opportunities and have done.
Back to the remarkable job and we've been doing this for the last 16 months. So.
We know how to do it we've been doing it.
Thing that were were.
Where it used to do although we don't like it.
So we're going to control the things that we can control, we feel really strongly about the flow of our inventory.
And we feel very strongly about the way.
Others are treating our business.
You really don't want to answer the question I mean, we've heard I'll be blunt, we've heard that Nike has one taken.
I guess January orders that were written prior and raise the prices 5% to 10% Andrew.
Our vendor hearing that theyre, starting to cancel some spring orders with other retailers are you seeing those specific things.
Yeah.
Sam we've seen some price increases I don't think that would be a surprise that there is nothing that we've seen that we're concerned about.
<unk>, Mike mentioned earlier, the complement of the price increases will allow us to continue to drive additional gross margin.
With regard to any cuts or cancellations as I said earlier. These are things we've been dealing with for the last 16 months.
As of right now our vendors have done an incredible job of treating our business as a priority and I would expect.
I think that way.
Thank you very much continued success guidance.
Okay.
Thank you. Our next question is from Alex Perry with Bank of America. Please proceed with your question.
Hi, yes, thanks for taking my follow up question here I just wanted to.
Goodbye.
Maybe Jared if you are seeing the consumers sort of willing to substitute too.
Between brands between.
Products based on the inventory about though the show.
If they came in looking for.
Air Jordan one.
Well intact.
It may.
Maybe substitute based on the inventory availability. Thank you.
Yes, Thanks, Alex Good question I mean, certainly.
As Mike mentioned, the demand has been far greater than supply. So we are seeing.
More of an opportunity for substitutions, but at the same time consumers frequently want what they want.
So we've done a lot.
Our company to be able to ensure that we can provide access to consumers that certainly paying off but we are absolutely seeing.
I wouldn't say necessarily a full trade, but consumers are a little bit more accepting of similar products, but I think.
Thank you have some really good insight to this from a store perspective, I'm going to flip it over to Matt Yes.
Thank you.
I can't classify it as a more understanding than they had been historically around inventory levels, because they see it kind of throughout the year.
In our industry or in other industries, and the limited supply or.
One day, it's not there the next day, just because of the sell throughs.
So we've seen some substitution out there that you probably haven't historically, but still very brand loyal by nature.
But.
When you have to buy for back to school you have to buy some back to school and so you've kind of shop around and figure out where you can get what you are looking for.
It's here and we hope we provide that in the best way.
Okay.
Perfect. That's really helpful. Thanks again.
Okay.
Okay.
As a reminder, if you would like to ask a question. Please press star.
One on your telephone keypad.
It looks like we have a few questions over the webcast to summarize.
How do you think about your capital allocation strategy in terms of returning capital to shareholders do you view repurchasing additional shares or increasing your dividend a higher priority.
Well.
This is Bob again, we believe they are both important parts of the capital allocation strategy at this point in time, we have still as I mentioned in my in my comments over half a billion dollars available to repurchase shares.
We will certainly be opportunistic and doing that you've seen that we've been fairly aggressive in the first six months of the year I would expect.
Well again that that that will be a priority for us as we go forward. The dividend is now established we expect that it will be fairly stable here for the next couple of quarters, but again, we will continue to kind of evaluate all of those opportunities.
As we continue to have the <unk>.
Cash available to support that program.
Okay.
Thank you there are no further questions at this time I'd like to turn the floor back over to management for any closing comments.
Thank you for your time. This morning, we always love to speak to our business answer questions and represent our teammates on the call again, we're very bullish about the industry.
We love our team, we love our business model and we really appreciate your time this morning, and so thank you we will sign off now goodbye.
Okay.
Ladies and gentlemen, thank you for your participation. This does conclude today's conference.
Disconnect your lines and have a wonderful day.
Yeah.