Q4 2022 Hibbett Inc Earnings Call
Yes.
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Ladies and gentlemen, thank you for your patience the conference will be starting in a minute or two thank you for your patience.
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Greetings and welcome to Hibbett, Inc. Fourth quarter earnings results at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Gavin Bell Vice President of Investor Relations. Thank you you may begin.
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 <unk> dot com via the Investor Relations link found at the bottom of the homepage bored investors Dot hibbett dot com and under the news and events section. These materials may help you follow along with our discussion this morning.
Before we begin I'd 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 Reform Act of 1095 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 the factors that could cause or contribute to such differences have been described in the news release issued this morning and are noted on slide two of the earnings presentation in the company's annual report on Form 10-K . Most recent quarterly report on Form 10-K 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 may 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 are based on information under understandings believed to accurate as of today's date March four 2002.
Two because of the time sensitive nature of this information. It is the policy of Hibbett, Inc. 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 <unk>, Senior Vice President and Chief Financial Officer, Jared Briskin Executive Vice President merchandising Bill Quinn Senior Vice President of marketing and digital and Ben Knight Senior Vice President of operations I will now turn the call over to Mike long ago, Good morning, and welcome to the Hibbett Q4.
Earnings call for those of you following along on the slides I'm on the slide entitled overview Slide number three as.
As you know, we pre release sales and earnings two weeks ago in order to get information to you ahead of today's call while that data reflected results below our expectations and the guidance. We gave you previously.
It was important to provide an update to you as soon as we were reasonably certain of the results. Today's press release provides our updated results in the for the fourth quarter and for the full fiscal year, So and to review the Q4 FY 'twenty two results sales increased one.
A one 7% with a negative one comp the two year comp was a plus 27% and a diluted earnings per share of $1 25 for the full year FY 'twenty. Two we had a 17, 4% comp a two year comp of a positive 43, 7%.
And diluted earnings per share of $11 19.
We believe the results of Q4 negatively impacted.
By a handful of factors in addition to a surge in COVID-19 cases, we feel the other primary factors fall into three general categories inventory inflation and income and the inventory category. The biggest factor that affected sales in Q4 was a supply chain disruption that resulted in a shortfall.
Inventory versus what we forecast the late delivery of specific products, most notably footwear drove an approximate negative 10 comp for the last month of the quarter and that resulted in an overall negative comp of negative 5% for the quarter.
The second bucket is inflation.
Top three goods and services affected by inflation or fuel food and housing. These three things effectively lowered the consumer's discretionary income available to purchase goods and services.
This trend is also expected to continue into Q1, but will begin to abate as we anniversary the changes throughout the year.
The third bucket income.
Reflect around the lack of stimulus this year versus last year and that caused a change in consumer behavior when blessed with excess income last year. The consumer had few disposable had less disposable income.
In the current quarter than last year, and so that materially affected sales.
And so moving onto the fourth slide historical performance.
Yeah.
I want to remind everybody that the sales growth and related financial performance improvement of our business over the most recent several fiscal years has been material, while it's easy to get caught up in evaluating results on a quarter by quarter basis, we manage our business for the longer term outlook in mind, while the last two fiscal years had been positively.
Impacted by stimulus and changes to the competitive landscape. Among other factors. We've also seen steadily improving underlying business factors and that model has improved and has allowed us to take advantage of the opportunities afforded to us in the current circumstances.
We believe those improvements were driven by investments in the business model investments in the consumer experience, new customer retention and an improving inventory position.
As a reminder, at the beginning of our fiscal year. The one that we're in now we believe that approximately 54% of our stores will have no competition within three miles that carry product from our key brands.
If you look at the stores with one or less competitors within three miles that figure increases to almost 70%. We believe this is a significant factor in our success going forward.
As you can see from the tables on this slide the rapid sales growth has driven significant diluted earnings per share expansion. In addition to generating a huge lift in operating income as a percent of net sales.
As stated in this morning's press release, I believe that our improved omnichannel business model compel and compelling merchandise assortment creates differentiation in the marketplace and provides us with a competitive advantage in the eyes of the consumer and our vendor partners and puts us in a position to deliver strong sales and profitability.
Results in the coming years ill now turn the call over to Jared. Thank you.
Thanks, Mike Good morning.
Please turn to slide five merchandising for.
For the fourth quarter, we had a mixed performance across our merchandise categories as expected apparel and team sports were very strong with apparel up mid teens and team sports up in the low twenties.
Amendment, our footwear category slowed as deliveries were further impacted by the challenges in the supply chain, we estimate that comps were affected negatively by approximately 10% in the footwear category and 5% overall due to the headwinds from delays associated with the launch products.
When compared to fiscal 2024th quarter. Our results remain impressive all genders and categories were up double digits when compared to fiscal 2020 with apparel, the most significant growth category up more than 50%.
While the fourth quarter was below our expectations. The results that we achieved for the year gives us confidence that the strategic shift in our merchandising organization and our <unk> ahead merchandising strategy are working and elevating how we serve consumers.
In the fourth quarter apparel business increased in the mid teens further developments of our apparel business across all genders has been and remains a priority for us.
Key incremental investments in denim premium fleece jerseys and littles performed above plan during the quarter.
Our athletic brand performance was excellent during the quarter key trends included footwear connectivity matching monoculture tops and bottoms and premium fleece.
Denim in both tops and bottoms was the driver of our fashion brand businesses are essential denim programs as well as denim in our street wear collections performed exceptionally well.
Jersey's and hats remain a hot trend and added significant upside during the quarter.
But we're business decreased mid single digits in the fourth quarter and continues to be impacted more significantly by supply chain challenges in other categories.
Delays as a result of the supply chain affected basketball lifestyle and running negatively although demand remains extremely high.
Incremental investments in casual footwear has been and remains a priority and this category more than doubled during the quarter.
Specific to footwear and apparel women's improved mid single digits and kids improved in the low teens men's was down mid single digits and as are most pressured area regarding inventory.
As expected inventory ended the fourth quarter up approximately 9% for last year.
During the latter part of December and January we saw a slowdown of deliveries impacting our inventory estimates by an additional 30 to 45 days.
This was unexpected and had a meaningful impact to sales in January .
I'm incredibly proud of the team's efforts to secure inventory to support our increased business during fiscal 'twenty two in the midst of all the reported supply chain challenges. Our team was able to secure deliver in process and additional $185 million and received that cost over and above historical norms. We were.
To accomplish this by improving our priority with our vendor partners securing incremental product from our vendor partners in season, as well as through booking periods and increasing our processing capacity by more than 50% within our own supply chain.
The additional slowdown of deliveries continues to pressure our ability to get to an optimal level of inventory, we're confident in our order book, but timing of deliveries remains incredibly fluid.
Based on current estimations, we do expect inventory levels to continue to improve throughout the first half of the year, reaching levels closer to optimum levels in the back half of the year I will now turn the call over to Bob to discuss our financial results.
Thanks, Jared and good morning, please refer to slide six for some highlights of the fiscal fourth quarter of 'twenty. Two as a reminder, we report our results on a consolidated basis that includes both the hibbett and city gear brand.
For the fourth quarter total net sales increased one 7% to $383 3 million in comparison to the fourth quarter of fiscal 2021 and reflected a two year sales increase of 22, 5% compared to the fourth quarter of 2020 comparable sales for the quarter fell 1% compared to the prior year fourth quarter, but increased 20.
7% over two year period.
And mortar comp sales decreased one 6% versus the same period in fiscal 'twenty, one, but we're up 15, 9% on a two year stack.
E Commerce sales increased one 8% in the current quarter and have risen by 48, 1% over two years E. Commerce sales accounted for 17, 1% of net sales during the current quarter our percentage of that was unchanged from the fourth quarter of fiscal 2021 in the fourth quarter of fiscal 2020 E. Commerce sales accounted for 14 two.
Percent of net sales.
Sales trends were strong during the first half of the quarter, but the flow of inventory receipts subsequently slowed in a number of scheduled deliveries were delayed as Gerry noted previously.
This has had a material impact on footwear inventory in select product launches. In addition, inflation concerns and an uptick in COVID-19 case counts also contributed to traffic and transaction volume declining in late December and throughout the month of January .
GAAP gross margin was 35, 1% of net sales compared with 37, 1% in the prior year period. This approximate 200 basis point decline was primarily due to shifting launch scheduled additional promotional activity higher freight costs and deleverage in store occupancy costs, resulting from the negative comp sales performance gap.
Store selling general and administrative expenses were 26, 4% of net sales compared with 26, 8% for the fourth quarter of last year. This approximate 40 basis point improvement as a result of more efficient management of wage and related employee benefit expenses and lower impairment charges, partially offset by increased cost of advertise.
<unk> professional services transaction fees and back office infrastructure expenses, excluding certain Citigroup acquisition integration expenses that occurred during the fourth quarter of fiscal 2021 current quarter SG&A expense of 26, 4% compared to the prior year adjusted figure of 26, 7% an improvement of around 30 base.
This points dipped.
Depreciation depreciation and amortization in the fourth quarter of fiscal 2022 increased approximately $2 7 million in comparison to the same period last year, reflecting increased capital investment on organic growth opportunities in infrastructure project.
In the current year fourth quarter, we generated $23 1 million of GAAP operating income or 6% of net sales compared to $31 million or eight 2% of net sales in the prior year fourth quarter, excluding all non-GAAP adjustments during last year's fourth quarter or $23 1 million of operating income this year compared to adjusted operating income.
$31 2 million in the fourth quarter of fiscal 'twenty one.
GAAP diluted earnings per share were $1 25 for this year's fourth quarter and did not include any nonrecurring items in last year's fourth quarter GAAP diluted earnings per share were $1 39, and adjusted diluted earnings per share were $1 40.
Capital expenditures during the fourth quarter were $27 3 million, consisting primarily of ongoing infrastructure investments and store development projects. During the fourth quarter, we opened 12, new stores, including one rebrand and closed two stores, which also reflects one rebrand.
In the fourth quarter, we purchased nearly 417000 shares under our authorized share repurchase program for a total cost of approximately $29 5 million.
Let's move to the full year results on slide seven.
For the full year sales increased 19, 1% to $1 69 billion up from $142 billion in fiscal 2021, and increased 42, 8% versus the $1. One 8 billion reported in fiscal 'twenty.
In relation to fiscal 'twenty, one comparable sales increased 17, 4% brick and mortar comparable sales were up 21, 4% and ecommerce sales reflected a slight decrease of one 6%.
Relative to two years ago total comparable sales increased 43, 7% brick and mortar comparable sales increased 37, 9% in E. Commerce sales grew 89% over the two year time period he.
E Commerce represented 13, 8% of total net sales during fiscal 'twenty, two compared to 16, 7% of total net sales in fiscal 'twenty, one and 10, 4% of net sales in fiscal 'twenty.
For the year GAAP gross margin was 38, 2% of net sales compared to 35, 5% for fiscal 'twenty. One. This was the result of historically high margin performance in the first half of this year, which was driven by higher sell through a low promotional environment and a greater mix of in store sales, which carry a higher margin than e-commerce sales.
Adjustments to a noncash inventory reserves in fiscal 'twenty one the current year gross margin of 38, 2% is comparable to the adjusted gross margin of 35, 8% in the prior year.
GAAP SG&A expenses, including goodwill impairment in the prior year were 22, 6% of net sales for the current year compared with 26, 5% of net sales in the prior year. This improvement is the result of wage and related employee benefit expense leverage and lower impairment charges, partially offset by increased cost of advertising and professional services.
Excluding certain citigroup acquisition, and integration expenses and pandemic related impairment and valuation costs that occurred in the prior fiscal year current year SG&A expense of 22, 6% of net sales compares favorably with adjusted SG&A expense of 23, 7% of net sales in fiscal 'twenty one on.
On a GAAP basis, we produced $228 2 million of operating income in fiscal 'twenty, two compared to last year's operating income of $98 4 million, excluding all non-GAAP adjustments in the prior fiscal year. Our current your operating income of $228 2 million, representing 13, 5% of net sales is comparable to adjusted operating income of one.
<unk> hundred $41 4 million or 10% of net sales in fiscal 'twenty one GAAP.
GAAP year to date diluted earnings per share were $11 19 for the current year compared to $4 36 in fiscal 'twenty, one excluding all non-GAAP adjustments in the prior year $11 19 diluted earnings per share. This year compares to adjusted diluted earnings per share of $6 12 and fiscal 2021.
Driven by strong sales robust margins and leverage of SG&A expense, we generated operating cash flow of $159 5 million in fiscal 'twenty, two and invested $71 2 million in capital, which was largely related to new relocated and remodeled and expanded stores plus various infrastructure projects.
During fiscal 'twenty, two we returned $278 $8 million in cash to our shareholders, we repurchased nearly three 4 million shares under our authorized share buyback program at a total cost of $267 8 million and have paid out almost $11 million via our regular recurring quarterly dividend that was initiated in <unk>.
June of fiscal 'twenty two.
Turning to the balance sheet, we ended the year with $17 1 million in cash and cash equivalents, which is down from the previous year's ending balance of $209 3 million as noted previously capital expenditures share repurchases and dividends were significant uses of cash during the year, our entire $100 million of borrowing capacity remained available to.
At the end of the fiscal year.
Net inventory ended the year at $221 2 million or nine 5% increase from the beginning of the year consistent with comments. We've made previously we continue to strengthen our relationships with our vendor partners and have worked collaboratively with the entire vendor community to build and strengthen our inventory position.
Before we discuss our fiscal 2023 guidance, we wanted to dig a little deeper into some of the elements that we feel set us apart from our competition and represent the way we have upgraded and transformed the organization in the last couple of years.
Bill Quinn will provide insights into our customer and digital strategy and then been night and will provide a real life example of how we are elevating and executing our in store experience I'll now hand, it off to bill.
Good morning, and thank you Bob.
Looking back over the last couple of years, many of our customer metrics have rebased above pre pandemic levels. This was accomplished by improving programs that engage and retain customers.
Specific examples include revamping, our loyalty program investments in mobile our launch process as well as general in store experiences.
Our new loyalty program launched in fall of last year is even easier to use and provides more value to customers. As a result, our loyalty penetration grew to 56% this quarter versus 54%. Prior year also the number of VIP members, our highest value customers grew 16% year over year for that.
Quarter.
Looking at member data for the entire year. We are also seeing healthy signs are one and done right for customers only make one purchase has declined 9% for the year and the amount of lapsed members that have reactivated increased 38% versus the prior year.
The number of customers, earning loyalty benefits and redeeming their benefit has significantly increased this has caused the total value of loyalty benefits redeem to increased by 23% year over year.
Our final view and understanding of our customer behavior can be achieved by looking at pandemic versus pre pandemic behavior. In Q4, we had a 9% increase in the number of active customer shopping and a 13% increase in sales per customer versus two years ago.
Omnichannel shoppers have grown by over 40% customers acquired during the pandemic in 2020, and 2021 are continuing to have lower monthly attrition rates than historical average it.
Over the course of the last two years, we have improved our customer experience, but we are not done this year there'll be even greater focus customer experience can be a broad term. Our approach is very specific and we will focus on the removal of customer friction points.
In Q3, and Q4 of last year, we performed various large research studies for customer friction points were identified and prioritized using.
Using this research we are making investments in the customer experience, which include adding organizational resources, increasing our capabilities by adding new technology partners, and making capital investments that will add new omnichannel capability.
We will continue to deliver significant value to our underserved customers with a best in class Omnichannel experience.
Turning to our e-commerce business comparable sales increased one 8% in Q4 and 48% versus two years ago ecommerce represented 17% of total net sales for the quarter traffic to our website and apps increased approximately 30% during the quarter. Unfortunately due to inventory.
<unk>, we were unable to convert this traffic at historical rates.
In FY 'twenty to inventory availability has had a significant impact on our ecommerce comp.
This fiscal year upcoming increases in inventory as well as past present and future investments in driving ecommerce conversion, we will produce between high single digit to low double digit growth rate.
Entering into this new fiscal year, we are continuing to keep a pulse on how our customers are feeling in general through recent customer research very few of our customers have described their financial health as a worse than last year, but they are concerned about inflation.
They believe that rising inflation will have a general impact on a discretionary spending which includes restaurants entertainment and retail this will be something we will keep a close eye on as we navigate the first part of this year.
I will now turn the call over to <unk> to discuss our in store experience.
Thanks, Bill I'd like to move to slide nine.
Both Jared and Bill provided information related to our merchandising and digital strategies I want to talk a little bit about how that translates translates to the in store experience and one way to do this is by taking look at an individual market <unk>.
<unk>, Mississippi fits into our strategy of servicing underserved consumers in underserved communities.
<unk> is located equal distance between Vicksburg in Baton Rouge on the Mississippi River.
The definition of an underserved market situated in a rural area, whose main economy revolves around agriculture.
The population of Natchez has approximately 14000 people you can see the trade area on the map depicted in Blue you can see that consumers for many of the surrounding communities do their shopping in Natchez. So the trade area actually has 25000 potential consumers.
Areas, approximately 22 miles wide and the demographics are listed on the slide <unk>.
Additionally, there are no competitors within 50 miles except for our own store four miles away across the river that store in a trade area depicted in Red is doing approximately 800000.
In February of this year, we opened two locations, one hibbett and one citigroup and matches the projections on both stores are a combined $2 2 million annually, yielding a forecasted ROIC well in excess of 20%.
In this underserved area, we have three stores that we'll do approximately $3 million annually in sales. Another point worth covering is that because these stores are new we opened with a full merchandise assortment. This combined with our sales culture reinforced through associate training as well as the Omnichannel experience, we offer consumers including.
<unk>, our loyalty program bulbous bow online pickup and store Robus reserve online pickup in store or watch shoe raffle system and access to merchandise through our vendor drop shipment.
This allows us to provide a unique in store experience that our consumers appreciate.
Since opening sales in the Hibbett store have been twice the sales volume of the average store during the same period in the city gear stores more than double the average volume. We believe this demonstrates that our consumers will shop with us and reward us with their business. When we have the selection and depth of inventory they desire.
With both Hibbett and city gear stores in the market, we differentiate ourselves with a culture built on salesmanship, a superior product assortment and best in class omnichannel capabilities to reach specific underserved consumers.
In markets like niches, we can reach consumers who are hard to capture.
These stores for used sales that are both incremental and complementary to our vendor partners I'll now turn it back over to Bob <unk> to discuss our guidance.
Thanks, Ben Slide 10 summarizes the fiscal 2023 guidance consistent with the directional guidance. We provided two weeks ago, we expect the following from a sales perspective.
Total net sales are expected to be relatively flat compared to fiscal 2022, implying comp sales are projected to be in the negative low single digits.
Comp sales are projected to be in the negative low teen range in the first half of the year, followed by a high single digit comp sales in the back half of the year. Our sales forecasts are based upon assumptions that as the year progresses supply chain constraints will ease timing of inventory receipts becomes more consistent and predictable and our overall inventory position strengthens.
Net new store growth is estimated in the range of 30% to 40 stores with new unit spread fairly evenly throughout the year.
From an overall financial results standpoint, and again consistent with our earlier guidance. We expect the following fiscal 2023 gross margins are forecasted to be in the range of 36, 6% to 36, 9% down from the results of fiscal 2022, but above pre pandemic levels.
Ongoing supply chain challenges, a higher mix of ecommerce sales carry a lower margin than brick and mortar sales and increased promotional environment inflationary pressure and deleverage of store occupancy will all contribute to this anticipated decline. We believe gross margin results in comparison to fiscal 'twenty, two will become more favorable as the year progressed.
Yes.
SG&A as a percent of net sales is projected to be in the range of 23, 3% to 23, 6% higher than fiscal 2022 levels, but also favorable to pre pandemic results.
Wage inflation deleverage of fixed costs, driven by relatively flat sales expectations and annualized <unk> of back office infrastructure investments in fiscal 'twenty two our drivers of this anticipated SG&A increase.
<unk> to gross margin, we feel SG&A comparisons on a year over year basis will become less challenging in the back half due to an expectation of an improved inventory position and a more favorable sales environment.
Operating income is anticipated to be in the low double digit range as a percent of sales.
Diluted EPS is forecast to be in the range of $9 75 to $10 50.
Using an estimated full year tax rate of approximately 24, 5% and an estimated weighted average share count of $13 5 million capital expenditures are projected in the range of $60 million to $70 million with a focus on new store growth Remodels and additional technology and infrastructure investments are capped.
<unk> allocation strategy continues to include the expectation that we will repurchase shares throughout the year and pay recurring quarterly dividends.
That concludes our prepared remarks, operator, please open the line for questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Sam Poser with Williams trading. Please proceed with your question.
Thanks for taking my question guys.
And Paul.
Let's see where it is right at number one.
The aged inventory.
<unk> said in the press release was slightly elevated versus last year, how does that aged inventory compared to 2000.
Two years prior.
Okay.
Yes, Hey, good morning, Sandwich, Jared, yes, slightly elevated year over year, but still significantly below kind of historical averages.
Thanks.
Can you also Gary to talk about the sales trends.
Could you give us some more color on the total sales trends by months.
Fourth quarter, especially January how much it fell off.
Yes.
Yes, I think as we said I mean, we were really confident in the fourth quarter I mean, we had.
Some pretty robust numbers in the November period, which gave us a lot of confidence.
Unfortunately, as we stated kind of the volatility in some of the delivery expectations.
Towards the end of the quarter had a pretty significant impact.
Particular in January <unk>, we were very very pleased with November very happy with December and January was more difficult for sure I think in our prepared remarks, we noted.
Effective January by low teens around 10%.
So January was down 10% or down worse than that because of the impact of the.
Footwear on the entire quarter down about 10% Sam.
Thanks.
And then.
Can you give us some I mean, given all the noise right now with late delivery stimulus and so on can you give us some.
Bob our Jared can you give us some help with what Q1 and Q2, especially in the first quarter are going to look like from a comp.
From a comp perspective on how to think about that.
Relative to the rest of the year because.
You are up against some big compares.
You are up against some big compares.
Yes.
These extraneous factors.
Yes, sure Sam So clearly the most difficult compares in the first quarter.
We certainly know there was a significant impact with regard to stimulus in the year ago period.
That will have slightly less effect as we get into the second quarter, but still we do believe there was a fairly significant amount of extra.
Extra funds out in the marketplace.
The real opportunity as we see it is in the back half we've been continuing to fight pressures with regard to the supply chain and inventory balances and we have two really big excuse me mitigating factors around our business and offsetting the stimulus the first being inventory and as we stated unfortunately.
Little bit later than we had expected with that additional 30 to 45 days and then the second is our ability to take advantage of all of the <unk>.
Distribution changes that have occurred in the marketplace.
Our ability to take advantage of that is also dependent on inventory.
As we go through the year, we do expect our inventory balances to continue to improve we are up year over year as we said.
But we're not at a level, where we can optimize the level of revenue to our expectations. As we go through the first and second quarter that will continue to build and we do believe that when we get to the back half of the year will be at more of an optimal level to support our business.
Great and then lastly, the.
Can you talk about your relationship with your largest vendors.
Particularly the one from <unk> and how.
How confident you are in.
Sure.
What's happening there how they're supporting your new store opening plan.
So.
Yes, sure Sam as we said on previous calls, we're very confident in our positioning with our strategic vendor partners. Obviously Covid has had a pretty dramatic impact on the supply chain. That's led to a lot of short term thing is with regard to order management issues or changes in cancellation plays so on and so forth.
But at the same time, we've been able to deliver.
A significant amount of receipts over and above historical norms, which I think reflects the level of support and priority that we're getting from our strategic partners.
Our strategy continues to be to focus on the underserved consumer.
Under served market and mentioned earlier, all reinforced with a premium consumer experience and that's highly differentiated in the marketplace.
And remains largely complementary to our partners.
Thanks, very much continued success.
Thank you.
Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.
Hi, yes, thanks for taking my question.
So just a follow up on that last point, so the competitive environment. It seems like a lot of other competitors. There are series of losing access as some of your vendors go increasingly DTC.
It seems like sort of implied in the guidance.
Commentary that you are not seeing a similar trend there.
And then I guess another way of asking it would be like I think historically, maybe your top vendor was around 68% of Dallas and the last time you disclosed.
Would you expect that to sort of increase or decrease as we sort of move throughout the year. Thanks.
Hey, good morning, Alex I appreciate the question.
I'm going to answer this the same way I just did again, we're very confident in our positioning with a strategic vendor partners.
Now this.
Projects going forward I think we need to get.
Some understanding and help with regard to the supply chain and be able to get to a more normalized position with regard to that but again as far as our positioning with key vendors.
Very clearly understand our strategy they very clearly understand.
What we bring in a very very highly differentiated.
Environment.
Focus on the underserved consumer.
Our increased investment in consumer experience are continuing to put us in a strong position with all of our strategic vendor partners.
Perfect. That's really helpful. And then just on the quarter was a major headwind in the supply chain high.
Hi, E launch footwear product on the mens.
Side is that like.
Fair way of characterizing that was there any.
Apparel headwinds in there what about some more sort of like everyday shoes from from your top.
Your top vendors.
Yes, its pretty unpredictable to.
To be transparent there obviously were impacts across all of our categories, but certainly more focused on the footwear category as a whole.
The disruption in the delay when we talk 30% to 45 days as you are aware the hi E product.
Selling out in many cases the day, we get it certainly if not the day of the week, we get it.
And absolutely in the period that we get it so when we miss deliveries by 30% to 45 days it.
It can have a pretty significant impact in today's environment versus maybe what it would have impacted historically.
When there were lower liquidation rate.
Got you and then just my last one just on the promotional sort of commentary it seems like for Marshalls.
<unk> came back for you.
Last quarter for the first time in a while was that specific we just to drive traffic given.
Lack of some of the launch product and then have you seen industry promos come back at all and what would be sort of the expectation for the overall.
Promotional environment throughout the industry as you go through this year.
Yes, so some of the increased promotional activity was absolutely to drive traffic at the end of the quarter.
Certainly we are quite disappointed as we started to see January unfold I think overall there is.
A slightly increased level of promotions I think.
With the current challenges around inventory in the supply chain I Wouldnt expect a dramatic increase in promotions throughout this year I think we'll see.
More promotions than maybe we've seen in the last 12 months to 18 months, but I do not expect it to get anywhere close to the promotional environment that we saw pre pandemic.
That's really helpful and best of luck going forward.
Thank you I appreciate it.
Our next question comes from the line of Justin <unk> with Robert W. Baird. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the questions.
Just first wanted to follow up on the comp outlook.
Try to better understand the inputs behind the second half inflection you guys just talked about the improvement in inventory, but curious what you're factoring in from a macro standpoint.
Because we're still going to be lapping stimulus.
And the inflationary pressures.
Facing your consumers, probably youre going to get worse not better. So just trying to understand kind of the macro inputs within year within your comp outlook and your confidence level on forecasting high single digits across the back half of the year.
Yes, it's jaret I think I'll start on that one so first and foremost.
We got to the back half of last year.
As we've talked about we were not happy with the consumer experience in stores with regard to available inventory and that certainly impacted our digital business as well, so first and foremost our reasoning for our heightened guidance around the back half is where we expect our inventory to be relative to last year. So number one we expect to be able.
To take advantage of that.
That in conjunction with our investments and improvements in consumer experience. We do believe will be a healthy driver for us.
Secondly, the distribution changes that are occurring in the marketplace.
We think will be largely complete at that point and Thats. The time, where we expect that we'll really see a significant acceleration again in the markets, where we are the only distribution point for our strategic partners.
Okay.
Okay and then.
A question for Bob.
As we think about the <unk>.
Maintaining the double digit EBITDA margin EBIT margin here for.
For this fiscal year I guess, if sales don't improve as you expect over the second half how much flexibility from an expense perspective.
You have to maintain.
The op margin north of 10%.
Yes.
We've obviously talked about this a lot and we've got some contingency plans in place should should the expectation at the topline.
Not live up to what we want but.
At some point again it just depends on magnitude. This is this is a very volatile.
Situation as far as being able to manage expenses to track revenue we've got a.
And infrastructure that we feel is stronger more resilient than it's been in previous years.
We've also committed to certain investments and we're not going to give up on driving consumer experience and we're not going to give up on putting ourselves into the best position to be able to take advantage of opportunities going forward. So.
We obviously have some flex like I said, we can we can deal with some up and down but.
Just things that I think it's just more a matter of magnitude as the year plays out.
Okay, and then just last question.
Maybe this one's for Mike, but clearly the market is skeptical about your guidance for this fiscal year, just based on where the stock's trading at so curious.
Either your view or the board's view on willingness to tap into that borrowing capacity you have to more aggressively.
Buy shares here with it trading at four to five times earnings.
We do believe that.
Our share buyback program is instrumental in how we return capital to our shareholders.
As you are well aware and we talk often three uses of free cash flow, our capex, which is the most important way we deliver capital back to the shareholders and that's by reinvesting in the business model and that means the consumer experience primary.
And as you know, we're paying a dividend and then to your point the share repurchase program is an important part of what we do and we're committed to it as you know we still have outstanding capacity on our board approved.
Share buyback program.
Bob has given you some specific guidance around our plan on how many.
How many shares are going to buybacks, we're committed to it we believe in it and it's a big part of what we do.
Okay.
Alright, Thanks, guys and best of luck.
Thank you so much we appreciate it.
Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your question.
Thank you and good morning.
I wanted to ask about it.
How do you feel about achieving the targets you gave out at the analyst day last year for 2020 for fiscal year 'twenty five in light of the guidance for this year you still think you can get to $2 billion in sales and perhaps see operating margin expansion.
The next couple of years I don't know if its getting back to 17 and a half it's realistic, but how do you see that progression and what could be a long term operating margin target.
Hey, Kristina its Bob.
Again, obviously a lot has changed since we released those.
Yes forecast back in June we're still confident that we are moving in the direction I've said multiple times these are not necessarily linear.
Does that go.
Perfect straight line, but.
Yeah again, I think we still feel confident that that $2 billion number is out there for us we've taken obviously a little bit of a pause here in the fourth quarter, mostly due to again the supply chain issues and the related inventory.
That does have an impact also on how quickly we can grow the chain overall terms.
Also I would say to be very honest that the margin and the SG&A rates were obviously, a pretty stellar levels here throughout fiscal 'twenty two.
So again the goal is that we will not.
Significantly back slide, but again I don't think its going to be again directly linear throughout the next couple of years, but we feel with the infrastructure. We built over the last 18 months to 24 months when we get the inventory situation straightened out continue to grow stores I believe all the numbers. We put on paper are still very achievable in the future.
Thank you and then I have a.
A question, perhaps for Jared can you talk about.
The hygiene product launches were delayed from the fourth quarter to perhaps.
Spring or later this year, how does that flow over the course of the year and how do you.
Sure about your specific product allocations from Sidoti.
Footwear styles.
Yes, Hello, good morning.
It largely or where we feel with regard to the heights styles again relates back to our positioning I mean, we're confident in our order book and what's in our pipeline.
I would continue to expect launch dates and delays of product continued to be very fluid.
So I think that's what's causing some.
And any ability to predict on our side based off when we're going to receive those deliveries and then should we.
Launch dates actually move or not or are we just going to receive their product. After the launch date. So that's providing some volatility but as far as what we have in the pipeline and our order book, where we're very confident.
And then last one.
On the cash balance and a $17 million this quarter, it's a little bit below where it was pre pandemic. One balance sheet is still comfortably you feel like it's a good many months that want to have on the balance sheet going forward.
Again at this point in time, we feel that the cash is more valuable to us as we're deploying it into the business and back to the shareholder as I mentioned earlier, we have our entire $100 million line of credit available to us.
I think again, we're trying to use the cash as efficiently and.
Affectively as we can I don't think Theres any magic number we probably historically people tended to think you need $30 $40 $50 million on the balance sheet again, we're going to use the cash like I said as quickly as we can get a solid return on that investment. So I don't see us having any set minimums and again, we'll use the line of credit judiciously as we need to.
Two and feel that we're in pretty good shape from a liquidity standpoint going forward.
Okay.
Our next question comes from the line of Jim Sure care with homeowners Crispy and Hardt. Please proceed with your question.
Good morning, Thanks for taking my question.
I was wondering what you think.
Assuming you have sufficient inventory.
What do you think the sales opportunity from the reduction in Nike's distribution is for you.
Is that kind of captured over time, and if so what kind of time period would it take to kind of realize all of that opportunity.
Yes, Jim This is Mike. Thanks for the question, we have previously talked about.
The knowns last year of Jcpenney and stage stores.
State stores going out of business Jcpenney being cut off and we hung a number on there we feel really good about that estimate and our measurements.
Lead us to believe that we hit those numbers.
What we were forecasting going forward as youre, pointing out where a number of other undifferentiated retailers, who lost the ability to buy and distribute product from our major brand partners that effect is going to be most pronounced in the fiscal year that we started.
Four weeks ago. So we're looking forward to seeing those results. We don't we have not historically and have not yet.
Penned a number to that specifically that we've talked about publicly.
So.
We will we have that in our guidance, let's say it that way we have a lot of confidence that it is a tailwind to the business and it will help us offset the headwind that we're going to see primarily in Q1 from last year's stimulus.
So we feel really good about that aspect of the business. When you combine that with all of the other things that we're talking about today.
<unk> goes into we have the underserved customer we have our three pillars of our competitive advantage. We have the ability to continue to land inventory, we're going to be in an advantageous position going forward, we love our consumer experience going forward and the investments we're about to put into it both in brick and mortar as well.
As omnichannel.
I like what we're doing now what I like it better if the results year over year were positive we'll of course, but as everyone knew we hit a peak last year in Q1 and that was always going to be the thing that as was said earlier causes skepticism.
Very realistic and sober about that as our U and so therefore, our guidance going forward took all of that into account. We've got a range of diluted earnings per share with a plan that we feel very confident about.
What are you seeing from the.
Undifferentiated retailers, losing Nike or do they still have Nike product in our stores.
Do you expect it to be complete by the end of first quarter.
And then I guess.
Is it a similar opportunity to stage and JC penney's or maybe a bigger opportunity.
Hey, good morning, Jim as Jared.
Yes, so I think that the expectations was it would be a pretty clean environment.
The early part of this year.
Based off of all the distribution changes and we believe.
Due to some of the delivery delays and impacts of the supply chain some of that likely will push out a little later than we potentially have originally estimated.
Again, we largely you would expect that during the second quarter.
At the latest.
All of those distribution changes would be in effect.
We did see from the stage and Jcpenney example, that Mike referenced earlier.
It does take about a 60 to 90 day clean up for them.
Once they are through their inventory and then we start to see the real impact. So as we go throughout this year, we'll continue to see the impact broadened.
But I would expect that some of the undifferentiated retailers will still have some product at least at the beginning of this year.
Great and then just if I can.
Good.
Would you size it kind of the opportunity in relation to kind of curious if any do you is it a similar type of opportunity or is it potentially bigger.
Yes, we believe based off the accounts that we've done with regard to number of stores in our markets that will be closing, we do believe its a broader opportunity.
Great. Thank you.
Our last question comes from the line of Sam Poser, which is a follow up question from Williams trading. Please proceed with your question.
Hi, Bob. Thank you for taking my second question here, Bob could you give us for the quarter I know you guys don't normally do it but can you break out the different components of the gross margin.
With some specific specificity.
In the fourth quarter relative to the drop.
A drop of the gross but relative to the gross margin versus the prior year.
Merchant margin freight and so on.
We won't.
Speak to specific numbers, but I can tell you that kind of all components certainly were down compared to the prior year, we did see.
Pressured in the product margin side of things again, mostly based on the mix of the product as well as the.
Overall.
Basket of the consumer we do have headwinds in freight so that was definitely contributing as well and we expect those headwinds obviously continue into fiscal 'twenty three and we also lost a little bit of ground on store occupancy. So all of those components were all.
<unk> kind of negative compared to the same period of the prior year.
So we expect that we're going to see some of that again early in fiscal 'twenty three as we move forward.
Thanks, So I mean, what's the biggest what was the big was the biggest piece of the occupancy just because of the difference or can you give us some view of the.
Each one hurt could you say, which one was the biggest Switzerland second 123 can you rank them for us at least yes.
Yes, I would say probably its going to be freight is probably the biggest headwind. We've got in terms of just pure basis point change year over year, and it's pretty pretty similar I would say between occupancy and the product side of things. So.
But yes definitely escalated here in recent months.
And when we think about the first half of the year, especially the first quarter.
Occupancy is probably going to move way up because just because of the compare on the comp.
Yes, Sir.
Yes, I think.
Like I said in the comments, we feel like the comparisons will get easier as the year progresses, but yes, when <unk> got a coming off of an 87, plus it's going to be pretty tough to leverage store occupancy end of the first part of the year.
Thanks, and then lastly, do you expect in Q1.
The negative comp.
To start with.
One to start with the to start with a three.
We're sticking with our kind of overall guidance, which is negative teens in the first half of the year, we're not going to get into quarter by quarter.
Okay.
Okay, alright, thanks, very much and good luck.
That concludes our question and answer session I would like to hand, the call back to management for closing comments.
Thank you so much for your participation today, we're proud of the business, but we are more proud of our 11000 teammates out there in the store support center the distribution centers and our stores, we couldnt be prouder of them and all of these results come as a result of their very hard work and their dedication. So thank you to them and.
That concludes today's call. Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.