Hibbett, Inc. (NASDAQ:HIBB) Q4 2023 Earnings Call Transcript

Hibbett, Inc. (NASDAQ:HIBB) Q4 2023 Earnings Call Transcript March 3, 2023

Company Representatives: Mike Longo – President, Chief Executive Officer Jared Briskin – Executive Vice President, Merchandising Bob Volke – Senior Vice President, Chief Financial Officer Bill Quinn – Senior Vice President of Marketing and Digital Ben Knighten – Senior Vice President of Operations

Operator: Greetings, and welcome to the Hibbett Inc. Fourth Quarter Fiscal Year 2023 Earnings Call. At this time all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. . 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 and Treasury. 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’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 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 two of the earnings presentation and the company’s Annual 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 may find a reconciliation to the most directly comparable GAAP measures on our website. Lastly, I’d 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.

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 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 Q4 earnings call. For those of you following along the slides, I’m on the slide three entitled results. Now before we get started, I would note that we’ve used FY’20 calendar 2019 as a basis of comparison for some time now because of the effects of the pandemic stimulus and all the other effects that you already know. Now that we’ve experienced a relatively normal seasonality last year, this quarter will be the last time we need to make these types comparisons. Q4 was a strong performance with a comp sales increase of 15.5% versus last year, an almost 40% increase versus FY’20. Operating margin for the quarter was 11.1% and diluted earnings per share was $2.91, an increase of 133% last year and up eight-fold versus FY’20.

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These results came from strong demand for popular footballer brands and a recovery in inventory levels. Despite that, these results did not meet our high expectations for ourselves and fell short of our guidance. We are going to address that particular issue through the course of this call, but first some history around the results. So I’m moving on to slide four entitled history. The last four years as you well know, have been eventful for all of us and Hibbett in particular, and while nobody needs a history lesson, it is instructed to review it through the Hibbett point of view. By the end of FY20 Hibbett was substantially complete with the transformation from a sporting goods retailer to a fashion retailer. A retailer that was squarely focused on a narrower, well-defined customer base in underserved markets, selling athletically inspired Footwear and apparel.

In FY21 of course, the pandemic struck and changed everything. Hibbett made some good decisions on how to navigate through the crisis, but those decisions drove the business higher, much higher. In FY’22, the reopening of the economy coupled with stimulus and market disruptions drove us another leg higher. And last year we dealt with the aftermath of the supply chain prices and its uneven effects, including inventory shortages. Since FY20 we have rebased the business at a higher level with sales 50% higher, gross margin percentage 300 basis points higher, non-GAAP EBIT dollars 3x times higher and non-GAAP earnings per share 4x four times higher. Last year we were able to consolidate those gains to produce sales of $1.7 billion and earnings per share of $9.62.

We achieved that by focusing on our three competitive advantages and by now are very familiar with them, but I’ll say them again. Superior customer service, a compelling assortment of hard-to-access product and a best-in-class omni-channel experience. It was our investment in these advantages and our strategy that drove our results, but none of this is inexpensive. With these investments came incremental cost, especially regarding managing in a chaotic environment. Now that we’re operating in a somewhat more than normal environment, it’s time to address our SG&A and some areas where costs have increased. As a result, we are conducting a systematic review of our operating expense structure with a particular focus on SG&A. In other words, we’re committed to improving operating cost leverage while still investing in the business model.

These investments are outlined in somewhat greater detail on slide five, entitled Strategic Imperatives. Our focus within that is to drive effectiveness and efficiency of the existing franchise and to drive growth in the future. And of course the four pillars category offense, increasing traffic, improving conversion and leveraging our investments are our strategic imperatives. So in summary, before I move on, I would like to thank all of our teammates in the stores, the distribution centers and the store support center. They are the ones who make all of these results possible. I’ll now turn the call over to Jared.

Jared Briskin: Thank you, Mike. Good morning. Please turn to slide six titled Merchandising. Our Category Offense continued to yield strong results in the fourth quarter. Intense focus on toe to head merchandising while leading with sneakers through the lens of Men’s, Women’s, Kids and City Gear has proven successful, and we see additional opportunities to optimize our business as we move into the future. We continue to believe that for the fourth quarter, due to the impacts of COVID and stimulus, the comparative fiscal took 2020 calendar 2019 is still irrelevant. Beginning in fiscal ’24 as Mike mentioned, we will no longer provide detailed commentary regarding the comparison to fiscal 2020. From a year-over-year category standpoint when compared to fiscal €˜22 calendar 2021, we saw strong results in Footwear and Team Sports.

This was offset by a weak performance across apparel. Footwear was our strongest category during the quarter, growing in the mid-40’s. Footwear sales were driven by strong launches, as well as strength across our Lifestyle, Basketball and Casual categories. Team Sports was driven by strong results in Cleats and Cold Weather accessories. Apparel was negative mid-teens of the quarter, up against significant increases in the prior year and a more challenging and promotional apparel environment. When compared to fiscal €˜20 calendar 2019, we saw positive comp results across all merchandise categories, but what drove the largest increase pumping in the mid-50’s. Apparel was up in the mid-20’s 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 ’22, calendar 2021.

Kids was our standout area growing in the high 20s. Men’s and Women’s, both through in the mid-teens. When compared to fiscal ’20 calendar ’19 Women’s grew in the mid-70’s, Kids in the low 50’s and Men’s in the mid-30’s. Investments in leadership, process improvement and technology in our supply chain have helped to mitigate challenges and product delivery and flow of inventory. These investments have increased our capacity and speed to market, enabling our strong inventory position and sales results. As a reminder, the prior year was significantly impacted by supply chain delays, primarily in Footwear, are in stock position of key Footwear franchises and launch products drove our strong Footwear results. Due to the supply chain disruption in fiscal 2022, we believe the most meaningful comparison regarding inventory is comparing to fiscal €˜20 calendar €˜19.

When compared to fiscal €˜20 calendar €˜19, inventory levels were up 46% at the end of the quarter, roughly imbalanced with our 40.9% sales gain. This increase is largely due to price inflation, as well as positive impacts on our mix of inventory and Footwear. When compared to fiscal 2020 calendar 2019 unit inventory levels were plus-4%. Our focus over the last three years was to secure enough for the most relevant inventory to provide a strong consumer experience, both in store and online. The chaos of the last three years certainly was challenging, but our team delivered and our results have been outstanding. As we look forward to fiscal €˜24, we believe that the supply chain will be more predictable, allowing more precision regarding delivery timing and inventory levels.

Year-over-year inventory compares will be volatile due to the challenges in the supply chain during fiscal 2023. Our expectations are for year-over-year inventory growth in the first half of the year and year-over-year declines in the second half of the year. I will now hand the call over to Bob to cover our financial results.

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Q&A Session

Bob Volke: Thank you, Jared. Please refer to slide seven, entitled Q4 Fiscal ’23 Results. Our results are reported on a consolidated basis that includes both the Hibbett and City Gear brands. Total net sales for the fourth quarter of fiscal 2023 increased 19.6% to $458.3 million from $383.3 million in the fourth quarter of fiscal ’22. Overall comp sales increased 15.5% versus the prior year fourth quarter. In comparison to the fourth quarter of fiscal 2020, the most relevant period prior to the pandemic, comp sales have increased by 39.6%. Brick-and-mortar comp sales were up 14.3% compare to the prior year’s fourth quarter and have increased by 32.6% versus the fourth quarter of fiscal ’20. E-commerce sales have increased 21.4% compared to last year’s fourth quarter and have increased by 79.8% on a three year stack.

E-commerce sales accounted for 17.4% of net sales during the current quarter compared to 17.1% in the fourth quarter of last year and 14.2% in the fourth quarter of fiscal ’20. Gross margin was 35.2% of net sales for the fourth quarter of fiscal 2023 compared with 35.1% in the fourth quarter of last year. This slight increase was driven by approximately 30 basis points of store occupancy leverage, approximately 25 basis point resulting from lower freight costs and approximately 15 basis points of efficiency gains in our logistics operations. These favorable factors were primarily offset by a decline in average product margin for approximately 50 basis due to increased promotional activity. Store operating, selling and administrative expenses were 21.6% of net sales for the fourth quarter of fiscal €˜23 compared 26.4% of net sales for the fourth quarter of last year.

This approximate 470 basis point decrease is primarily the result of leverage from the higher current quarter revenue. Although wage inflation continues to be a headwind, other spend categories that were favorable to the prior years as a percent of sales included inventive compensation, professional fees, advertising and repairs and maintenance. Depreciation and amortization in the fourth quarter of fiscal €˜23 increased approximately $1 million in comparison to the same period last year, reflecting increased capital investment on organic growth opportunities and infrastructure projects. We generated $50.7 million of operating income or 11.1% of net sales in the fourth quarter compared to $23.1 million or 6% of net sales in the prior years’ fourth quarter.

Diluted earnings per share were $2.91 for this year’s fourth quarter compared to $1.25 per share in the fourth quarter of fiscal 2022. We did not have any non-GAAP items in either period. Next, I will discuss the fiscal full year €˜23 results. I’m now referencing slide eight, so please move forward to that page. Thank you. Total net sales for the fiscal 2023 were $1.71 billion compared to $1.69 billion in the fiscal 2022, an increase of 1%. Overall comp sales decreased 2.2% versus last year. In comparison to fiscal 2020, comp sales have increased by nearly 41%. Brick and mortar comp sales decreased 4.9% for the year, but are up 31.5% compared to fiscal ’20. E-commerce sales increased 14% compared to fiscal ’22 and have increased by 115.5% over a three year period.

E-commerce sales account for 15.6% of net sales in fiscal ’23 compared to 13.8% in the prior year and 10.4% versus fiscal ’20. Gross margin was 35.2% of net sales for the full year fiscal €˜23 compared with 38.2% in fiscal ’22. The approximate 300 basis point decline was primarily due to the following factors; lower average product margin of approximately 195 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 and transportation were approximately 65 basis points. This is driven by higher fuel costs and an increase in our e-commerce mix. Deleverage of store occupancy costs of approximately 65 basis points, mainly due to higher utilities and store security costs.