Hibbett, Inc. (NASDAQ:HIBB) Q3 2023 Earnings Call Transcript

Hibbett, Inc. (NASDAQ:HIBB) Q3 2023 Earnings Call Transcript November 29, 2022

Hibbett, Inc. misses on earnings expectations. Reported EPS is $1.94 EPS, expectations were $2.51.

Operator: Greetings, and welcome to the Hibbett Incorporated Third Quarter 2023 Conference Call . As a reminder, this conference is being recorded. I would now like to turn the call over to Gavin Bell, Vice President of Investor Relation. Thank you. You may begin.

Gavin Bell: Thank you, and good morning. Please note that we have prepared a slide deck that we will refer to during our prepared remarks. The slide deck is available on hibbett.com via the Investor Relations link found at the bottom of the homepage or at investors.hibbett.com and under the News & 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 Reform 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 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 2 of the earnings presentation and the company’s annual report on Form 10-Q, and other filings with the Securities and Exchange Commission. We refer you to those sources for more information. Also to the extent non-GAAP financial measures are discussed on this call, you may find a reconciliation to the most directly comparable GAAP measures on our Web site. Lastly, I would like to point out that management’s remarks during the conference call are based on information and understandings believed accurate as of today’s date, November 29, 2022.

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; Jared Briskin, Executive Vice President, Merchandising; Bob Volke, Senior Vice President and Chief Financial Officer; Bill Quinn, Senior Vice President of Marketing and Digital; and Ben Knighten, Senior Vice President of Operations. I’ll now turn the call over to Mike Longo.

Mike Longo: Good morning. And welcome to the Hibbett City Gear Q3 earnings call. For those of you following along on the slides, I’m on Slide 3 entitled overview. We’re pleased with our strong top line performance for the third quarter boosted by a busy back to school selling season, which landed more in the current quarter this year versus the second quarter last year as consumers waited closer to the start of school to make purchases. That helped deliver a nearly 10% year-over-year increase in comparable sales in Q3 and an increase in diluted earnings per share in excess of 15%. We had confidence in our improving inventory position going into the third quarter and our sell through is strong as we continue to experience robust sales for our popular footwear brands.

However, we did experience some challenges related to our apparel sales, which impacted our gross margins. We also saw margins continue to be challenged by the impact of high fuel and freight costs, increased utility costs and wage inflation. In Q3, these cost headwinds affected the operating margin somewhat more than in an expected higher volume quarter like Q4. Overall, our team did an outstanding job executing this quarter despite the ongoing macroeconomic pressures. We continued to leverage the strength of our business model and provided outstanding service in both our stores and through our expanding omnichannel platform. Moving on to Slide 4, I’d like to reiterate our success in rebasing our sales and profits at higher levels versus pre-pandemic levels.

On a three year stack, that is compared to FY €˜20, our total Q3 sales grew 57% and our diluted earnings per share increased approximately 15 fold on a GAAP basis and 6 fold on a non-GAAP basis. These results derived from significant improvements to our underlying business model, which will continue to support our long term growth. As we enter the last quarter of the year and the important holiday selling season, we remain confident we will meet our objectives for fiscal year €˜23. Moving on to the topic of inventory. We ended the quarter at just over $400 million, which we believe will support our expected holiday demand and meet the needs of our consumers. We’re fortunate to have strong vendor partnerships, which support our ability to have sufficient inventory levels of the right product mix to drive sales.

In addition to the amount of inventory, we’re very positive about the quality of that inventory as we approach the holidays. We continue to offer a compelling range of trend relevant brands and products that appeal to our fashion conscious consumers. While the current inflationary environment is certainly challenging for families faced with higher prices for food, shelter and gas, we continue to see strong demand. As we enter the fourth quarter, we remain committed to executing our strategy and optimizing our performance. Our best-in-class omnichannel business model, our superior service in the stores and our compelling merchandise assortment creates differentiation in the marketplace, 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 in the coming years.

As a result, we are reaffirming our full year fiscal guidance. Bob will cover this in further detail in a few moments. Before turning the call over to Jared, I’d like to thank our approximately 11,000 team members across the organization. They’re the face of our company. They continue to represent our brand across our network of over 1,100 stores, our omnichannel platform, our logistics facilities and our store support center. And then finally, before I conclude the recent 2023 omnichannel leadership report from retail cloud platform provider NewStore, audited the omnichannel capabilities of 300 luxury, premium and lifestyle retail brands in North America. According to the research and feedback provided from a team of mystery shoppers, Hibbett was cited as one of the top five omnichannel retailers.

We’re extremely honored to be included in this exclusive group and even more grateful for the hard work of all of our team members whose commitment to excellence is being recognized in our industry. I’ll now turn the call over to Jared. Thank you.

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Jared Briskin: Thank you, Mike. Good morning. If you turn to Slide 6, merchandising. For the third quarter, our sales performance was inline with our expectations across our merchandise categories. We continue to believe that due to the impacts of COVID and stimulus during the last two fiscal years, the comparative fiscal ’20 calendar 2019 is the most meaningful comparison. When compared to the third quarter of fiscal 2020, comp sales were up 51.7%. From a year-over-year category standpoint when compared to fiscal ’22 calendar 2021, all categories performed as expected. Footwear and accessories were the standout categories during the quarter. Footwear had a comp sales increase in the high 20s and accessories were up high single digits.

Apparel and Team Sports were both negative in the quarter, up again significant increases in the prior year. When compared to fiscal ’20 calendar 2019, we saw positive comp results across all merchandise categories. Footwear drove the largest increase, up in the low 70s, Apparel was up in the high 30s and Team Sports was up mid single digits. Specific to Footwear and Apparel, men’s, women’s and kids all showed significant growth when compared to fiscal ’20 calendar 2019. Women’s growth was more than double, kids grew in the mid-60s and men’s grew in the low 50s. As Mike referenced earlier, we are confident at our inventory position. The increased inventory levels are largely attributed to better in-stock position of key footwear franchises.

As a reference to my sales commentary, we also believe the most meaningful comparison regarding inventory is comparing to fiscal ’20 calendar 2019. When compared to fiscal ’20 calendar 2019, inventory levels were up 40% at the end of the quarter and balance with our 57% sales gain. This increase is largely due to price inflation as well as positive impacts to our mix of inventory in footwear. When compared to fiscal ’20 calendar 2019, unit inventory levels were plus 2%. Our results in the third quarter combined with our strong quarter end inventory position continue to give us confidence that our toe-to-head merchandising strategy is working and elevating how we serve consumers. I’ll now hand it over to Bob to cover our financial results.

Bob Volke: Thanks Jared, and good morning. Please refer to Slide 7, entitled Q3 FY ’23 Results. As a reminder, our results are reported on a consolidated basis that includes both the Hibbett and City Gear brands. Total net sales for the third quarter of fiscal 2023 increased 13.5% to $433.2 million from $381.7 million in the third quarter of fiscal ’22. Overall comp sales increased 9.9% versus the prior year third quarter. In comparison to the third quarter of fiscal 2020, the most relevant period prior to the pandemic comp sales increased by 51.7%. Brick-and-mortar comp sales were up 7.9% versus the same period in fiscal 2022 and have increased by a robust 42.5% versus the third quarter of fiscal ’20. Our online business continues to grow as e-commerce sales increased 22% compared to the third quarter of fiscal 2022 and have increased by 124.7% on a three year stack.

E-commerce sales accounted for 15% of net sales during the current quarter compared to 14% in the third quarter of fiscal ’22 and 10.5% in the third quarter of fiscal ’20. Gross margin was 34.3% of net sales for the third quarter of fiscal 2023 compared with 36.3% in the third quarter of last year. The approximate 200 basis point decline was primarily due to a lower product margin of approximately 245 basis points, partially offset by approximately 45 basis points of expense leverage in our logistics operations. Product margin decreased as a result of increased promotional activity primarily on apparel and a higher mix of e-commerce sales, which carry a lower margin than brick and mortar sales. Expense leverage in our logistics operations was due to higher sales in the current quarter and the timing of expenses related to repairs and maintenance and supplies.

Freight costs a percent of sales compared to the prior year increased by approximately 10 basis points, but this was offset by approximately 10 basis points of store occupancy leverage. Store operating, selling and administrative expenses were 23.9% of net sales for the third quarter of fiscal €˜23 compared with 25.2% of net sales for the third quarter of last year. This approximate 130 basis point decrease is primarily the result of leverage from the higher current year revenue. Although wage inflation continues to be a headwind other spend categories, such as medical expense, professional fees, repairs and maintenance and supplies were favorable. Depreciation and amortization in the second quarter of fiscal €˜23 increased approximately $2.1 million in comparison to the same period last year, reflecting increased capital investment on organic growth opportunities and infrastructure projects.

We generated $34.2 million of operating income or 7.9% of net sales in the third quarter compared to $33.4 million or 8.8% of net sales in the prior years’ third quartered. Diluted earnings per share were $1.94 for this year’s third quarter compared to $1.68 per share in the third quarter of fiscal 2022, an increase of 15.5%. We did not have any non-GAAP items in either period. Next I will discuss the fiscal 2023 year to date results. I’m now referencing Slide 8, entitled year to date FY €˜23 results. Total net sales for the first nine months of fiscal €˜23 were $1.25 billion compared to $1.31 billion in the first nine months of fiscal €˜22, a decrease of 4.4%. Overall comp sales decreased 7.4% versus the same period in the prior year.

In comparison to the first nine months of fiscal 2020, comp sales have increased by 41.3%. Brick and mortar comp sales decreased 10.2% versus the first nine months of fiscal 2022 but have increased by 31% versus the first nine months of fiscal €˜20. E-commerce sales increased 11.2% compared to the same period of fiscal 2022 and have increased by 135.5% on a three year stack. E-commerce sales accounted for 14.9% of net sales during the current fiscal year compared to 12.8% for the first nine months of fiscal 2022 and 9.1% in the first nine months of fiscal €˜20. Year to date gross margin was 35.3% of net sales in fiscal 2023 compared with 39.1% in the same period of last year. The approximate 380 basis point decline was primarily due to the following factors; a decline in product margin of approximately 225 basis points due to promotional activity, primarily in apparel and a higher mix of e-commerce sales, which carry a lower margin than brick and mortar sales; increased cost of freight transportation of approximately 90 basis points, this is driven by higher fuel costs and an increase in our e-commerce mix; deleverage of store occupancy costs of approximately 90 basis points, mainly due to the year over year decline in total sales, coupled with higher rent and utility costs.

These unfavorable impacts to gross margin were partially offset by expense leverage of approximately 25 basis points in our logistics operations. SG&A expenses were 23.2% of net sales for the first nine months of fiscal ’23 compared with 21.5% of net sales for the same period of last year. This approximate 170 basis point increase is primarily the result of deleverage from the lower current year revenue, expense categories such as wages, data processing, advertising and general supplies necessary to support a larger store base and increased e-commerce activity contributed to the increase in SG&A. Depreciation and amortization in the first nine months of fiscal €˜23 increased approximately $7 million in comparison to the same period last year, reflecting our ongoing commitments to invest in organic growth opportunities and infrastructure improvement projects.

We have generated $117.7 million in operating income or 9.4% of net sales in the first nine months of the fiscal year compared to $205.1 million or 15.7% of net sales in the prior year’s first nine months. Year-to-date diluted earnings per share were $6.71 for fiscal €˜23 compared to $9.74 per share in the same period of fiscal €˜22. We did not have any non-GAAP items in either fiscal year. Turning to the balance sheet. We ended the quarter with $25.1 million in cash and cash equivalents. Net inventory at the end of the third quarter of fiscal €˜23 was $404.8 million, an 83% increase from the beginning of the fiscal year and a 56.4% increase from the same period last year. Inventory levels are generally higher at the end of the third quarter as we build toward the holiday selling season.

Much of this dollar increase has been driven by cost increases as unit volumes have grown at a much slower pace. We have short term debt of $51.7 million outstanding on our $125 million line of credit at quarter end, mainly as a result of our inventory build and capital expenditure investments. Capital expenditures during the second quarter were $17 million, bringing the year-to-date total to $47.5 million. Capital spend consists primarily of store development, technology and infrastructure projects. During third quarter, our store count increased by net of nine units, comprised of 11 new locations and two closures. On a year-to-date basis, we increased store count by net of 30 with 33 new locations, one rebrand, and four closures. Our total store count stands at 1,126 as at the end of the third quarter.

During the third quarter, we’ve repurchased 160,637 shares under our authorized share repurchase program for a total cost of approximately $9 million. On a year-to-date basis, we have repurchased approximately 797,000 shares at a total cost of $38.5 million. We paid a recurring quarterly dividend during the quarter in the amount of $0.25 per eligible common share for a total outflow of 3.2 million. For the first five months of fiscal €˜23, dividend payments have amounted to $9.7 million. Before we give guidance, I’ll turn the call over to Bill to discuss some latest consumer insights.

Q&A Session

Bill Quinn: Thank you, Bob. As Mike stated, while the current inflationary environment is certainly challenging for families faced with higher prices for food and gas, we continue to see and anticipate strong demand. Through recent customer research, we know that customers plan to spend more this year during the holidays. In particular, they plan to spend more on apparel and an even greater increase in footwear purchases. For Q3, our customer research indicated that customers would spend more. We certainly saw that with over a 20% increase in sales through our loyalty program versus last year. This helped drive our comparable sales increase of nearly 10% year-over-year. Our growth to last year as well as to FY 2020 has been driven consistently by a couple major factors.

First, the number of shoppers in our customer base has grown substantially. In fact, the number of active customers in our loyalty program achieved record levels in Q3 due to our ongoing acquisition and retention efforts. The second factor is that our average ticket continues to increase substantially due to gains in average unit retail. We see both increased customers and higher AUR as structural in nature, keeping our business rebase line well above FY ’20. Turning to our e-commerce business. In Q3, sales increased 22% versus last year and 125% versus FY ’20. These results were driven by three main factors; first, our inventory position is greatly improved; second, traffic increased due to our expanded customer base; and third, we improved our customer experience.

Elevating our omnichannel experience is multifaceted and includes ongoing efforts to improve our delivery experiences, enhance our customer service and improve the design and features of our Web site and apps. We anticipate our digital sales in Q4 will continue to accelerate due to the three factors I mentioned as well as growth in average unit retail. The increase in AUR is important as it will drive improve our online economics since higher retails reduce fulfillment costs as a percent of sales. I will now turn the call back to Bob to discuss our guidance.

Bob Volke: Slide 10 summarizes our fiscal 2023 guidance. Although there continue to be some potentially significant business and economic challenges that may impact the fourth quarter, we wanted to reiterate the guidance we provided at our last quarterly update. Total net sales for the full year expected to increase in the low single digit range in dollars compared to our fiscal 2022 results. This implies comparable sales are expected to be in the range of flat to positive low single digits for the full year. Full year brick-and-mortar comparable sales are expected to be in the flat to positive low single digit range, while full year e-commerce revenue growth is anticipated to be in the positive high single digit range. Net new store growth is expected to be in the range of 30 to 40 stores.

As a result of product margin headwinds, higher freight and transportation costs, store occupancy deleverage and a higher mix of e-commerce sales, gross margin as a percent of net sales is anticipated to decline by approximately 290 to 310 basis points compared to fiscal 2022 results. This expected full year gross margin range of 35.1% to 35.3% remains above pre-pandemic levels. SG&A as a percent of net sales is expected to increase by 10 to 20 basis points in comparison to fiscal 2022 due to wage inflation, costs associated with growth in e-commerce, a larger store count and annualization of back office infrastructure investments we made in fiscal 2022. The expected full year SG&A expense range of 22.7% to 22.8% as a percent of net sales is below pre-pandemic levels.

Operating income is expected to be in the low double digit range as a percent of sales, also remaining above the pre-pandemic levels. Diluted earnings per share are anticipated 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 diluted share count of $13.3 million. We continue to project capital expenditures in the range of $60 million to $70 million with a focus on new store growth, remodels and additional technology and infrastructure investments. That concludes our prepared remarks. Operator, please open the line for questions.

Operator: Thank you . Our first questions come from the line of Alex Perry with Bank of America.

Alex Perry: Just first, could you maybe just talk through what gives you confidence to reiterate the guidance? I think it implies an acceleration in same store sales versus the 3Q and a lot less sort of year over year gross margin compression versus the 200 bps you saw in 3Q. Is that based on trends you were sort of seeing to date or is it based on did you work through a lot of the sort of elevated apparel inventory that required clearance, sort of what gives you confidence to sort of reaccelerate here into the fourth quarter?

Bob Volke: We do have confidence in Q4. And I think that we’ve got a couple of different ways of looking at it. We’ll start with the customer and then we’ll go to inventory. So Bill, if you’ll lead us all?

Bill Quinn: So first part of that is we’ve asked our customers and they do anticipate spending more during this holiday season. The biggest category that’s going to get that gain is footwear. On top of that, as I stated, we’re in a record position as far as our member base. We’ve got a ton of active members also record position as far as our ability to communicate with customers in terms of email, text, push, social media, et cetera. So we’re in great condition, great shape there. On top of that, we’re seeing good sell throughs in particular high yield product. I’ll turn it over to Jared to talk about inventory.

Jared Briskin: So just a couple things. First and foremost, as a reminder, last year in Q4 was heavily pressured by a lack of inventory, in particular a lack of footwear inventory. It was essentially flat to the third quarter, which was a little bit surprising. As a reminder, we’ve talked about it, our inventory is extremely well positioned right now, very fresh, very new and highly concentrated in key footwear franchises. So we’re very confident as we head into the fourth quarter around the composition of inventory, in particular as it relates to footwear. Historically, the fourth quarter improves in the low to mid teens from a revenue standpoint when compared to the third quarter. So that gives us some confidence. We didn’t see that last year due to the inventory problems.

But when you go back and look at historicals, that’s typically the Q4 versus Q3 split. And then lastly, if you look at the second quarter and third quarter compare back to fiscal €˜20, that’s pretty consistent in the 50s from a growth perspective, which gives us, again, a lot of confidence as we go into fourth quarter based off that trend.

Alex Perry: And then just as a follow-up, the sort of implied 4Q gross margin guide implies less year over year compression. Is that based on, have you worked through a lot of the apparel, is it still expected to be as promotional? And then any color you can give on how November is shaping up would be helpful?

Jared Briskin: I mean, again, we’re really confident where our inventory is getting incredible support from all of our vendor partners, and we want to make sure that our inventory is seasonally relevant on our floors. If you think about the last couple of years, particularly in apparel due to all the supply chain disruption, there really hasn’t been a seasonally relevant apparel story on our floors or anyone else’s floor for that matter. So we still have some things to work through primarily from spring and summer and that was some of the impact that we saw during the third quarter. But again, nothing that we are terribly concerned about. I will — as a reminder, some quarters that were aided by stimulus, as an example, had some gross margins that were at unsustainable levels and last year, the third quarter really was the last one of those. So that’s one reason why we don’t see as much of deleverage coming as we go forward into the fourth quarter.

Bob Volke: Just one last follow up point. I think also, you’re talking about a pretty strong Q4, gets a little bit more leverage and things like the store occupancy bucket. So obviously, would feel like we would see a little bit of improvement on a quarter-over-quarter basis there as well.

Operator: Our next questions come from the line of Justin Kleber with Baird.

Justin Kleber: Mike, in the press release, there were a few comments I was hoping to get some more color on. First, just the opportunities you mentioned around expanding digital capabilities. Is that around fulfillment or maybe what specifically were you alluding to? And then the second comment on identifying opportunities to extend your market reach. Just wondering if that was in reference to continued organic store growth or maybe something else on the M&A front?

Mike Longo: I’ll take those in reverse order. The M&A part of the equation has probably slowed down considerably. I think everyone saw what happened over the past few years and most of the players have been taken off the board. So probably not, but never say never. With regards to expanding our market, we continue to be — see opportunities to open new doors and believe that we disclosed that we opened the Vegas market most recently, that was our new market this year. And the balance of those stores, the rest of the stores that we opened we’re filling opportunities. I personally visited a ton of stores in the past two weeks to include the Vegas market, great stores, great locations, great crews and the product is spot on and the omnichannel capabilities really shine through in those stores.

So very excited about that. The filling stores that I also saw, we’re operating at a very high level, so we’re excited about that. Then as you would imagine, there are all sorts of other opportunities to extend our market reach in terms of inside the categories we already owned, continuing to exploit opportunities there, as well as adding two categories that we aren’t currently participating in, in a big way. Those things always cycle up and down and you’ll see the change in mix at the macro level between men’s and women’s and kids at the micro level between denim and twill, and all those things that apparel and footwear retailers obsess over, that’s we get paid to do. That detail that we go through, well we don’t often talk about it, is part of the opportunity that’s there, and what frankly we get paid to do is exploit those opportunities.

Then with regards to digital, we have the best mousetrap and we’re very proud of what we have there, and that best-in-class omnichannel experience we know is a bit of a race though. And so we don’t breast on our borrows and so we meet weekly on the list of opportunities that we have, the things that we can do and the list is longer than we can get done in any given year. So the opportunity is there. Bill, if you want to expand upon that, please.

Bill Quinn: So I think you mentioned fulfillment, we’re absolutely working on that. You can break that into a couple pieces. The first one is how long it takes for you to prepare an order, which we’re working on. And then also how long does it take to actually deliver that order, which we’ve got numerous initiatives around. So yes, fulfillment is a big focus for us. The other thing is just the customer experience. And obviously, we have a very good offering of omnichannel capabilities and we spend a lot of time on the design as well as testing of our Web site, apps. But currently, we have installed all of the customer pain points that are out there. So we are not going to stop, as Mike mentioned, there are customer pain points that are out there that we are going to invest in solving and those are pain points that are common, both online and in store.

Justin Kleber: Just a follow-up, unrelated on the comment on wage inflation. Curious if that pressure is accelerating and can you give us a sense of how much wages are up on a year-over-year basis or maybe where your average hourly wage rate stands today versus pre-pandemic levels?

Mike Longo: Bob mentioned earlier, our SG&A and the wage pressures we have experienced. The one thing I would say though, that’s been going over a while. We have actually seen a little bit of mitigation there, that growth has slowed, which is obviously good. Our job is to mitigate that cost, both in the stores, the SSC and our distribution centers. Some of our investments in technology and automation are starting to come online, and that’s really helping us to control those. We are also focused on managing our overtimes as well as continue to look our labor model and making sure that we have got it dialed in exactly right. But hopefully that answers your question. We are actually seeing a little bit of a slow in that growth. Still there, but slow.

Operator: Thank you. Our next question comes from the line of Mitch Kummetz with Seaport Research Partners.

Mitch Kummetz: First off, just on apparel. I was hoping you could elaborate on the competitive pricing pressure that you are seeing there. Maybe just getting to some of the specifics and then how you see that kind of carrying through into the fourth quarter?

Jared Briskin: So yes, we have obviously seen, the apparel promotions ramp up. I mean, we expected them to ramp up but we believe they’ve ramped up even more than expected. Our big challenge in the third quarter was less with regard to competition and was more with regard to our desire to get to a seasonally appropriate work. So we were fairly aggressive around spring and summer product that delivered late and maybe we didn’t get through as much as we would like. Typically in the back end of the quarter, you get an offset of seasonal product and unfortunately this year with some weather challenges back into the quarter, we didn’t see that come to fruition. The other part of that is with our improvements in footwear inventory and our consumers very focused on footwear that likely led to some pressure in some of the apparel businesses as well.

So we are less reactive to the competitive environment. We are more reactive to our business and how we want our floors to look as we get into future seasons.

Mitch Kummetz: And then on footwear, I’m curious with the discontinuation of Yeezy, a couple of things. First off, just kind of remind us how important that business was to you? And as that’s gone away, are you seeing demand transferring to other brands or is it just — or is that demand just going away? And in particular, are you seeing demand maybe transfer to the Retro Jordan business? And I’m curious, if that is happening, does that benefit you just kind of given better allocations there and kind of your relative position in that business versus some of your competition?

Jared Briskin: So first and foremost, very small business for us. We were in the process of seeing some planned tightening growth as we were to go forward, but unfortunately that didn’t forward. So not a business that we’re terribly concerned about comping. But we do think it’s an advantage for us based off the other product lines that we carry. With that inventory not being in the market for the fourth quarter or the foreseeable future and our ability to get additional inventory and the highly coveted footwear styles, we do feel like that’s an advantage for us in the fourth quarter and as we go forward.

Operator: Our next questions come from the line of Cristina Fernandez with Telsey Advisory Group.

Cristina Fernandez: I had a couple of questions I wanted to see if you could expand on the consumer trends you are seeing. How stable is the demand? Are you seeing any trade downs on any change in behavior, meaning are you finding consumers waiting more for promotions to make the purchase?

Mike Longo: We certainly are cognizant of the fact that the consumer is feeling pressure from inflation. We believe that our positioning in the industry and in retail in general skews more towards the hard to get the luxury items as we continue to call it affordable luxury items, which then causes the consumer to make different choices. We believe that one of the things that you’re putting your finger on is the middle class shopper moving up and down in the price range based upon pressures they’re seeing. We have a bit of a different point of view and our consumer approaches that a little bit differently. Bill?

Bill Quinn: So we haven’t seen customers trade down nor waiting. The behavior is for some customers, not all customers, number one, are impacted by inflation. Other customers that are they’re going to cut back in things like eating out as well as buying for themselves. So that is the behavior of trend. But again, our customers overall plan to spend more during the holidays. And then on the not waiting, customers are actually spending a little bit earlier in certain cases, and that’s being driven by concerns around availability as well as some of the promotions.

Jared Briskin: I’d also chime in just purely from a liquidation perspective, we continue to see our best liquidations in the more premium price points and best level product across footwear and apparel. So again, our positioning in those products, we feel does give us some advantage, but we are seeing significant continued acceleration in our sell foods in those best level products that typically carry a higher price.

Cristina Fernandez: And then my second question was around the benefit you’re seeing from Nike pulling back from some of your retail competitors. How is that materializing given the level of promotions out there, particularly in apparel?

Jared Briskin: We’re definitely seeing the improvement where the distribution buzz cut back for sure. It’s certainly more outsized in the footwear area right now than it is in the apparel area. But we’re seeing it across the board and again, feel like it’s something we can continue to take advantage of for the foreseeable future.

Cristina Fernandez: And then the last question I had, it’s more for Bob on the, again, on the fourth quarter outlook, it implies really significant operating margin expansion, based on my math north of 500 basis points solidly double digits. So on the SG&A side, is it mostly just leverage on the higher sales or any other cost rolling off or lapping that would allow you to get that amount of operating market expansion?

Bob Volke: Clearly, some higher sales give you that leverage point, and that’s going to be the biggest individual factor. But again, as we’ve continued to kind of evolve our business over the last couple years, we’re taking some pretty critical looks at some of our spending categories. I think, Ben touched on it earlier, we are doing a lot of things within the stores to manage labor. We’ve got a lot of under technology that’s starting to really pay dividends, things we’ve invested over the last couple years. And I do believe that overall, we’re working hard to kind of maintain that cost structure so that not only do we get leveraged during times of stronger sales, but we can manage those expenses more effectively even in additional quarters going forward.

Operator: Thank you. There are no further questions at this time. I would now like to hand the call back over to Mike Longo for any closing comments.

Mike Longo: Well, thank you very much for your time today. We appreciate the opportunity to speak to our business and to congratulate our teammates on another successful quarter, and we appreciate it. So with that, we’ll conclude.

Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.