Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Hibbett Sports, Inc. (NASDAQ:HIBB)

Q1 2010 Earnings Call

May 22, 2009 10:00 am ET

Executives

Mickey Newsome – CEO

Gary Smith – VP & CFO

Jeffry Rosenthal – President & COO

Analysts

Rick Nelson – Stephens Inc.

Chris Horvers – JPMorgan

Dan Wewer – Raymond James

Sean McGowan – Needham & Company

Mitch Kaiser – Piper Jaffray

Anthony Lebiedzinski – Sidoti & Company

John Lawrence – Morgan, Keegan

Seth Cohen – Unspecified Company

David Turner – Avondale Partners

David Magee – Suntrust Robinson Humphrey

Sam Poser – Sterne, Agee

Chris Svezia - Susquehanna Financial Group

Operator

Good morning everyone, and welcome to the Hibbett Sports, Inc. conference call. At this time for opening remarks and introductions I would like to turn the conference over to the Chairman and Chief Executive Officer, Mr. Mickey Newsome.

Mickey Newsome

Good morning everyone. This is Mickey Newsome. We have with us also Gary Smith, our Chief Financial Officer and Jeffry Rosenthal, our President and Chief Operating Officer We appreciate you being on our conference call today and we appreciate your interest in Hibbett Sporting Goods. Before we start, Gary Smith will cover the Safe Harbor language.

Gary Smith

Thank you. In order for us to take advantage of Safe Harbor rules, I would like to remind you that any projections or statements made today reflect our current views with respect to future events and our financial performance.

There is no assurance that such events will occur or that any projections will be achieved. Our actual results could differ materially from any projections due to various risk factors which are described from time-to-time in our periodic reports with the SEC.

Mickey Newsome

Thank you Gary, as you know from our press release late yesterday, our first quarter earnings per share were $0.38 compared to $0.32 first quarter last year and we had a 16.4% increase in net income year over year. It’s the best first quarter earnings per share ever at Hibbett.

In very challenging times we feel that we are effectively managing our business. For instance our net cash is $34.6 million at the end of the quarter versus $20.7 million at the end of the fourth quarter. Inventory per store is down 5%.

From a real estate standpoint we opened 14 new stores and closed six. We ended the quarter with 753 stores. We plan to open 65 to 70 stores this year and close 20 to 25. We deal with a lot of small landlords and we and they are experiencing a lot of uncertainty.

Many new store deals are falling out because of lack of money on the landlord side and small landlords are having a great difficulty getting bank financing. But our real estate team is working very hard and smart and we feel that we can get our new stores this year.

More then 95% of our new stores will be in strip centers, very similar to last year. Mostly in small isolated markets where a sporting goods store is needed. We will also expand approximately 15 over performing stores that need more square footage to continue their sales increase.

When the retail environment improves we will grow our store base at a faster rate. We have identified almost 400 additional small markets to put Hibbett Sporting Goods stores in, in just our 24 state area. Now for some further comments we’ll go to our President, and Chief Operating Officer, Jeffry Rosenthal.

Jeffry Rosenthal

Good morning, overall sales for the quarter increased 8% and same store sales increased 2.4%. February sales were up 9.56% versus 1.9% last year. March was up 1.23% versus 8% down last year. April was minus 5.4% versus last year up 9.8%.

Our store personnel continues to improve on items per transaction. Number of items per transaction are up 1.88% and the average selling point price of items are up slightly. From the merchandise, active wear was up slightly on a comp store basis. Women’s was up mid single-digits and youth was up mid single-digits.

Key vendors, Nike and Under Armour, continue to perform well. Urban Apparel as planned was off double-digits. College and pro licensed apparel was down mid single-digits. However we had some key drivers during the quarter such as North Carolina winning the NCAA Championship and New Era 5950 major league baseball headwear.

Overall apparel inventory is down and much cleaner then last year. Accessories were up high double-digits; socks, shoe care and sunglasses. Oakley and Nike and Under Armour performed well. Our new systems with replenishment continue to make us be in stock more often.

Our footwear was up mid single-digits. Key performers were Nike Shox, Air Force One’s, Jordan’s, Under Armour training and running, ASICS technical running, Converse and DC shoes. Men’s was up low single-digits, women’s was off mid single-digits, and kid’s was up double-digits.

Cleats, which continue to perform well were up mid single-digits with kid’s baseball cleats and women’s softball cleats. Equipment was down mid single-digits, however volleyball, football, soccer, and basketball were up low single-digits.

Fitness was off low single-digits and baseball was off mid single-digits. We feel good about our first quarter performance with well-managed inventory and with our margin improvement. So far Q2 has started off slow off high single-digits versus mid single-digit gains last year going against the stimulus checks from one year ago.

And the movement of going against tax-free days will make second quarter a challenge. Last year in the second quarter there were 11 states with tax-free holidays and last year at third quarter there was one state. This year there is going to be only two states in the second quarter where there are 11 states in the third quarter.

With this shift in the tax-free days we expect our third quarter performance to be very good.

Mickey Newsome

Thank you Jeffry, with some additional comments, Gary Smith, our Chief Financial Officer will speak with you.

Gary Smith

First quarter total sales were $157.7 million which was an 8.1% increase from the previous year. We opened 14 stores and closed six and had 753 stores at quarter end, a 7.7% increase. Gross profit increased 64 bps due to favorable leveraging of warehouse and occupancy costs and inbound freight.

Warehouse costs were under last year’s dollars, occupancy cost was down 1.6% on a store-by-store basis while rent costs were down 3%. This was somewhat offset by higher charges in taxes and utilities and inbound freight was down 16 basis points.

Store operating, selling, and admin costs increased 26 basis points in the first quarter. This was due to the increased number of inventories taken in the first quarter this year versus last year and the expensing of certain equity award costs in the first quarter this year versus second quarter last year.

On a per store basis, SG&A costs were up slightly at 1%. Excluding the timing issues mentioned above, per store cost would be down about 1%. Depreciation and amortization leveraged 18 basis points versus last year and was under last year’s dollars.

This was due to leasehold improvement costs on a store-by-store basis declining approximately 50% over the past few years and reduced fixed assets basis due to previous year store impairment charges.

Operating income was at $17.6 million and 11.1% versus last year’s $15.4 million and 10.6%. EPS came in at $0.38 versus last year’s $0.32. From a balance sheet perspective the company ended the quarter with $34.6 million in cash versus $6.5 million last year and $10.7 million in short-term debt, as net cash provided by operating activities increased over $15 million for the quarter.

Inventories increased 2.5% over the previous year but they were down approximately 5% on a store-by-store basis and we spent $2.9 million in CapEx for the quarter.

Mickey Newsome

Thank you Gary, we are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of

Operator

Your next question comes from the line of Rick Nelson – Stephens Inc.

Rick Nelson – Stephens Inc.

Can you address the acceleration in comps during the quarter and what drove the strength in February and the subsequent slowdown, is it the comparisons or is it underlying demand which is softening.

Jeffry Rosenthal

Well in February some of the tax refunds seemed to be a little bit later this year coming from January into February so there was a lot more money out in the marketplace. We also felt there was a little bit of pent up demand from holiday and as we went through the quarter there was just a tougher comparison as we went on.

Rick Nelson – Stephens Inc.

Is it specific categories that—

Jeffry Rosenthal

Really in the first quarter it was really early, with footwear was really the main driver and I think a lot of people spent a lot of their tax refund on footwear.

Rick Nelson – Stephens Inc.

And has footwear slowed along with the comps.

Jeffry Rosenthal

Yes and we expect it to because I think very similar to the tax refund the amount of stimulus money in the second quarter also effected footwear to some degree. But we expect to be having very good third quarter on footwear when they have to get shoes for back to school.

Rick Nelson – Stephens Inc.

Also you finished with a very healthy cash position at the end of the quarter, where do you see cash at year-end if you hit your store opening targets and earnings estimates.

Gary Smith

Anywhere up to $2.00 a share, probably $50 million to $60 million.

Rick Nelson – Stephens Inc.

And are you contemplating stock buybacks or a dividend.

Gary Smith

Stock buyback a little bit more then dividend, but we really wouldn’t feel comfortable going into debt to buy our stock back at this point in time.

Rick Nelson – Stephens Inc.

And then also if you could provide any color on regional areas have strength or weakness.

Jeffry Rosenthal

We really seem to be doing better in the Midwest down, Texas, Oklahoma, Kansas, Nebraska, a little bit in Kentucky. Little bit weaker on the east coast, Florida, North Carolina, South Carolina, and Arizona out west.

Operator

Your next question comes from the line of Chris Horvers – JPMorgan

Chris Horvers – JPMorgan

Can you talk about how you think about new openings next year given the real estate environment, how many you signed up and how many you think you can get done for the year and also on the 15 stores that you’re expanding, could you provide some details maybe what they have in common, what they’ve been comping, what the age of those stores are, perhaps what the sales per foot level is versus the chain.

Mickey Newsome

Let me say this, there’s a lot of uncertainty. For us to get our 70 deals done or so and new stores opened, we’ll have to have a 140 or 150 deals that we agree with to do. And we’ll have that many fallouts. We’re dealing with small landlords. Its just unbelievable how many fallouts we’re having but having said that, we’re working very hard.

We’ve got a lot of deals working and we think we’ll get our stores and its going to be backend loaded as it usually is. But we’ve been trying to go to Monroeville, Alabama with a store for three years. We’ve had three different landlords try to do something and each time we had an agreement and the deal fell through because he couldn’t get financing.

So we’re running into a lot of that but we are getting very good deals on rents and we’re getting our stores built so its very favorable there. But it’s a challenge to get new stores in small markets because we deal with more then 300 landlords, we only have 700 and something stores. So its pretty complicated but we’ll get our stores.

And there’s no shortage of markets to go to. Its just we’ve got to have real estate in the market that we want to be in.

Chris Horvers – JPMorgan

And then on the 15 stores that you’re expanding, maybe some details on the levels that they’re up, comp and sales per foot versus the chain.

Mickey Newsome

Typically we’ll have a store between 4,000 and 5,000 square feet and it will be doing well over a million dollars and it will be very crowded and if we can expand it slightly, we see a big jump. And 95% of the time you’ll see a big jump without even adding merchandise.

You just re-present what you have much more effectively. Now we really like these expansions, they’re really paying off. We don’t expand the underperformers, it’s the over performers that we expand and every time we do we get favorable results.

Chris Horvers – JPMorgan

Okay and then finally I just want to clarify, did you say off high single-digits in May and given that the comparisons really ramp up into the July timeframe, do you think that perhaps you’re down low double-digits in comps in 2Q?

Gary Smith

Well certainly the stimulus picks up a little bit when you, as you go through the quarter however June was up last year approximately 9%. A good chunk of that was due to the fact that the Fourth of July fell into June last year versus July the year before.

So I think we’re seeing in June and July it would be a mid single-digit comp increase last year which would be attributable to mostly stimulus. Right now I would think that we could be up high single-digit or maybe a little bit higher then that but we’ve seen some lessening of that trend lately.

Jeffry Rosenthal

And really the biggest thing is really the tax free days moving almost 73% of our stores are in tax free days and so that is a really a big effect, it’s the last week of July, it’s a big volume week for back to school.

Mickey Newsome

Let me explain on tax frees, currently there’s only 17 states doing tax-free weekend holidays in the July, August timeframe and we’re in 13 of them. Its mainly a Sunbelt thing. And it is a big deal. You cannot believe how the consumer comes out if he buy stuff without paying sales tax. And its going to shift a lot of sales from July to August which means from the second to third quarter.

We expect to have a big time start in our third quarter in August and we should have a good third quarter.

Chris Horvers – JPMorgan

Just to clarify, you said down, you think down high single-digits in those months.

Gary Smith

For the end of the quarter, that’s where we should be.

Operator

Your next question comes from the line of Dan Wewer – Raymond James

Dan Wewer – Raymond James

Diggs during their conference call this week, noted that they were seeing increased promotional activity that they were initiating some of that, are you seeing any overlap in your categories, I guess specifically apparel and footwear where promotional intensity from Diggs or anyone else seems to be increasing.

Jeffry Rosenthal

I [see] its very comparable to last year. I believe overall marketplace the inventory is a lot cleaner. I don’t see anything really effecting us that much from that end.

Dan Wewer – Raymond James

So there is no increase in promotional activity in your categories from a year ago.

Jeffry Rosenthal

We don’t see it.

Dan Wewer – Raymond James

And then second, what are your thoughts on the current trends in new active apparel and footwear, if there’s anything new, exciting that may stimulate demand or are you concerned that its just more of the same and not creating a reason for consumers to step up and buy another performance top or bottom.

Jeffry Rosenthal

I think, from an apparel standpoint we continue to see our athletic apparel business is pretty good. We see a lot of small little niche things coming up more regional type buys which we feel pretty good about. As we get into footwear I think from a technical running side we’re seeing a lot of demand there and we will continue to see that.

I think really what we are seeing now is just, we really noticed this in the last few years, there’s just a lot of shifts in the way consumers buy. I think we see a lot more peeks and valleys and I think when it peeks it really is high and then I think the way money is today, is they buy it when they need it.

And I really think that’s what we’re going to see, its going to be a little bit slow and then I think back to school is going to be very good. And then slow down again until you all the way get out to Christmas time again. So I think we’re really seeing a shift in the consumer patterns on the way they buy and we’re adjusting our flow of inventory to hit those demands.

Dan Wewer – Raymond James

The last question I have regarding North Face if you have a better sense on the number of stores that will be given that product in the third and fourth quarter of this year and how that would compare against last year.

Jeffry Rosenthal

It will be significantly higher then it was last year and for competitive reasons we really can’t give that out.

Dan Wewer – Raymond James

And what was the number of stores last year that had the product.

Jeffry Rosenthal

It was in about 50 doors.

Operator

Your next question comes from the line of Sean McGowan – Needham & Company

Sean McGowan – Needham & Company

Couple of questions, can you talk about the pattern of openings for the balance of the year and closings, will it be similar to last year or very different.

Mickey Newsome

It will be similar to last year. Its going to be third and fourth quarter loaded and the expansions will be the same way.

Sean McGowan – Needham & Company

On the expansions, just it doesn’t matter with the number as small as what you talked about, but just conceptually, would those stores stay in the same store sales base or would you remove them and treat them like new stores.

Mickey Newsome

If it expands say from 5,000 to 6,500 it would stay in the same store base but if it goes from a, say we’ve got in Oxford, Mississippi, we had 4,000 square feet in an enclosed mall, and we moved down the street into about 7,000 square feet in a Wal-Mart Super Center, that’s a store closed and a store open. [inaudible]

Sean McGowan – Needham & Company

Okay, and is the tax rate that’s shown in the quarter a good rate to use for the whole year.

Gary Smith

That’s correct.

Operator

Your next question comes from the line of Mitch Kaiser – Piper Jaffray

Mitch Kaiser – Piper Jaffray

I don’t know if you mentioned merchandise margins, could you let us know how they trended in the quarter and if I missed it, I apologize.

Gary Smith

They were flat.

Mitch Kaiser – Piper Jaffray

Okay, and then on the real estate side, I was down at ICSC and noticed you had a booth down there and I know Jeff, Gray, and team were down there and you mentioned the difficulty in getting things up and running but could you just give us some color on what you’re seeing in terms of real estate rates.

Mickey Newsome

The rates are coming down, we’re paying lower rents now then we were three years ago. There’s no question. And we’re a very desirable tenant because we’ve got cash on our balance sheet. But having said that, we deal with so many little mom and pop landlords, financing is a real issue.

They may get halfway through finishing our store and then they don’t finish it. So we’re running into some of that but eventually we’ll get them. But it just makes it more difficult in the meanwhile.

Mitch Kaiser – Piper Jaffray

And I know it was occupancy costs I think you mentioned were down 3%, have you seen some of that already this year.

Gary Smith

Yes, that was in the first quarter.

Mitch Kaiser – Piper Jaffray

Yes in the first quarter, right.

Gary Smith

Rents were down 3, occupancy was down about 1.6, 1.7, some of those savings were offset by higher utility and taxes. But we would expect to see that trend continue throughout the year.

Mitch Kaiser – Piper Jaffray

Okay, and if I heard Chris’ question correctly, you think comps potentially down negative high singles in the second quarter but could you give us, I know you’ve maintained a low single-digit comp estimate for the full year, could you give us the magnitude on what you think the shift of the tax free holidays might be in terms of comp for the third quarter then.

Gary Smith

It could equal or be as much as the stimulus which could probably be anywhere from 4% to 5%.

Mitch Kaiser – Piper Jaffray

Okay so thinking about a 4% to 5% comp for the third quarter then, is that what you’re saying.

Mickey Newsome

No I think it could be more then that. I think the shift in tax-free is going to amount to somewhere in that range.

Operator

Your next question comes from the line of Anthony Lebiedzinski – Sidoti & Company

Anthony Lebiedzinski – Sidoti & Company

Couple of questions here, you did a pretty good job reducing your inventories, do you see a further reductions on a per store basis and maybe if you could give us some quantification for that and also how much of your product mix is now on order replenishment and where do you see that at the end of the year.

Jeffry Rosenthal

We expect to continue to reduce inventory by year-end and it will be interesting because a lot of the second quarter will shift for back to school so we will have some inventory there but as we go and end the year, we’ll have lower inventory. So we expect that to continue.

Anthony Lebiedzinski – Sidoti & Company

Okay and as far as how much of your product mix is on order replenishment.

Jeffry Rosenthal

We’re over 20%.

Anthony Lebiedzinski – Sidoti & Company

And what’s the year-end target.

Jeffry Rosenthal

We would hope to be over 25%.

Anthony Lebiedzinski – Sidoti & Company

Also I think you had mentioned that some of the SG&A you had equity incentives moving from second quarter of last year to the first quarter of this year, how much was that.

Gary Smith

Between inventory taking and stock option expense it was about 40 basis points.

Anthony Lebiedzinski – Sidoti & Company

Okay, and also how many of your stores were in percentage rent in the quarter.

Gary Smith

Probably 130.

Operator

Your next question comes from the line of John Lawrence – Morgan, Keegan

John Lawrence – Morgan, Keegan

Just real quick, on the equipment side, was there anything last year really strong on the baseball side, baseball being a little slow, is it economy or is there anything else there that you think causes that.

Jeffry Rosenthal

There really wasn’t anything that we were up against last year. Really where we saw some increases were more on the [depleteable] type things like baseball pants and that. Where we saw a little bit of a struggle is on some of the things like kid’s might not have bought a baseball bat pre season so that’s where we saw some decreases.

But when you saw like helmets and baseball pants, we did have increases.

John Lawrence – Morgan, Keegan

Okay so across the category it was better then that. Secondly on real estate, how many stores come up for lease renewals next couple of years.

Gary Smith

Our leases are usually five year with a five-year option and we have kick outs to three and seven years if we don’t get agreed upon sales. So I would say on a minimum basis it would be 20% of our stores and it could be upwards of that based on kick outs.

Operator

Your next question comes from the line of Seth Cohen – Unspecified Company

Seth Cohen – Unspecified Company

Just had a quick question for you, you know hearing a little bit in the marketplace, you have put your stores next to Wal-Mart for a good portion of the stores and it sounds like Wal-Mart has become a little bit more aggressive both with their men’s and women’s athletic apparel with their Starter brand and Danskin brand. Are you familiar with these deals that they’ve set up and how do you think about it and how do you think it will impact you going forward.

Jeffry Rosenthal

I really don’t think it will effect us even though they’ve had the Starter brand and they’ve had, but the brands that we carry they do not carry and our price points are much higher, much more technical, so I really don’t think it has an effect.

Seth Cohen – Unspecified Company

I guess my question is more along the lines of they were pretty much a private label focused athletic category with athletic works and now they’re basically, replaced those private label with two branded well recognized brands and they’re promoting them in all their circulars and they hired Tony Romo on the Starter side and they’re doubling the rack count in their stores. So none of this concerns you?

Jeffry Rosenthal

You know, I really believe with Nike and Under Armour and North Face and Oakley and adidas, its just a much higher demand product and that’s just going to be perceived as being a lower priced brand. So its not a concern.

Seth Cohen – Unspecified Company

And then the second question was just in terms of SG&A, top line was up 8.1%, SG&A was up 9.5%, could you give a little bit more color in terms of what happened to margins there.

Gary Smith

There were two items which were basically timing issues that fell into the second quarter last year and were into the first quarter this year. They accounted for about 40 basis points. One was we took more inventories this year first quarter then last year and there were certain stock option related 123R related expenses that fell into the first quarter this year versus the second quarter last year.

If you exclude those on a per store basis, the SG&A dollars were down about 1%.

Mickey Newsome

In regard to Wal-Mart, in a small market we just about will not go if Wal-Mart is not there. We want to be as close to them as possible. And the more people they put in that parking lot the more customers we get in our stores so, but they’re our ally, they’re not our enemy. We want to be as close to them as possible.

Operator

Your next question comes from the line of David Turner – Avondale Partners

David Turner – Avondale Partners

Two questions, I noticed that you have pretty tightly correlated with Wal-Mart historically from a traffic standpoint and it seems like in April there was a pretty significant departure in, Wal-Mart still had some fairly favorable things to say and it looks like that’s when things kind of turned negative for you. Was there any calendar items or any other outliers or anomalies that might describe the differentiation between the traffic trends.

Mickey Newsome

Business tailed off for us in April, no question but we were going against a big time April one year ago with a high comp mark so I think those two things.

David Turner – Avondale Partners

Just a tough comparison.

Mickey Newsome

Yes, we had a tough comparison but our traffic was off in April versus last year.

David Turner – Avondale Partners

And then secondly, I had depreciation, in my model I had depreciation a little higher then what you reported and it looks like you’ve got, well it doesn’t look like, you do have more stores then you did a year ago, and I know there’s some new systems you’re depreciating. Is there, has there been any change to how D&A is calculated or is it, and I guess the follow-up on that is, is this the current D&A a good proxy for how its going to be for the year.

Gary Smith

Pretty much, if you multiply it by four and you’ll come out close to what the year will be but certainly our leasehold improvements are tracking 60% less then they were a few years ago. We’re probably getting more turnkey and the landlords are doing a little bit. And we take our impairment charges as a normal expense as we go forward and if you looked at the fixed assets, the basis is less then it was a year ago so therefore the depreciation will be less.

Operator

Your next question comes from the line of David Magee – Suntrust Robinson Humphrey

David Magee – Suntrust Robinson Humphrey

Just a couple of questions, one when you see your business decelerate the way it did during the first quarter and kind of coming into the second quarter, what expenses were you able to ratchet back quickly to offset that and at the same time are you doing anything different as far as advertising to try to pump up the top line a little bit.

Gary Smith

On the expense side certainly first quarter was above our plans, second quarter is tracking a little bit below our plans. If you follow EBIT over time on the upside since we don’t add much expenses, we can really convert very well. As we went into this year we went through line item by line item and took out about 2% so we should be in a little bit better favorable position but for a one or two month trend, I don’t think we’re going to start tearing the guts of the company apart.

David Magee – Suntrust Robinson Humphrey

The bonus accrual, was that flattish on a year-to-year basis in the first quarter.

Gary Smith

It was a little bit higher I think in the first quarter this year versus last.

David Magee – Suntrust Robinson Humphrey

As a percentage of sales.

Gary Smith

But the comparisons going forward won’t be as skewed as much as they were last year.

David Magee – Suntrust Robinson Humphrey

Which means it will be less as a percent of sales going forward.

Gary Smith

That would be right.

David Magee – Suntrust Robinson Humphrey

Okay, the population of states doing the tax-free is that the same as last year. You mentioned 13 states, did Mississippi ever decide to do that.

Jeffry Rosenthal

I believe they are, and I believe its in the second quarter for Mississippi.

David Magee – Suntrust Robinson Humphrey

But they’re new this year, right.

Jeffry Rosenthal

They’re new, yes.

David Magee – Suntrust Robinson Humphrey

Anybody else that would be new.

Jeffry Rosenthal

There’s a few states that still aren’t finalized, I know Arkansas is looking maybe to do something but they aren’t finalized and there’s still a few states that we haven’t heard yes or no but if they will it will probably be in the third quarter.

Mickey Newsome

Mississippi is a new state. That will be big.

David Magee – Suntrust Robinson Humphrey

And then lastly the baseball comments notwithstanding, I sort of thought equipment was showing some maybe lesser declines or some less negative trends there. Am I—

Jeffry Rosenthal

You’re right, based on just such a big part of the first quarter and being off, but we really, I have seen a lot of improvement especially I mentioned some of the categories that were up and we’re starting to see that business stabilize. I think our systems are helping us stay in stock better and we expect to get closer to being flat or even running up in equipment which even like our fitness was just barely off and that’s the best its been in quite a while.

So even though we’re a little disappointed on where we ended up, we feel like our equipment business is starting to turn around.

Operator

Your next question comes from the line of Sam Poser – Sterne, Agee

Sam Poser – Sterne, Agee

Just a couple of quick questions for you, as far as merchandise margins go, you said they were flat for the quarter, correct, year over year.

Gary Smith

Yes.

Sam Poser – Sterne, Agee

Previously they had been trending up with the implementation of the different systems and moving things towards replenishment and quicker towards moving to markdowns and slower moving products, do you think that for the duration of the year you might be able to get merchandise margins to inch up year over year again.

Gary Smith

We would think so.

Sam Poser – Sterne, Agee

And what do you think caused them to be flat versus trending up in this quarter. Was it the promotional environment or product mix.

Jeffry Rosenthal

It was really a little bit more on the mix.

Sam Poser – Sterne, Agee

And then on the stores in which you have North Face currently, if you kind of look at it from a comp basis, how much do you think that that contributes incrementally to the performance of those stores with North Face.

Gary Smith

The majority of our stores in the fourth quarter had double-digit comps because of the add on of North Face.

Sam Poser – Sterne, Agee

And you think that’s a good proxy for the incremental doors that get it in 2009 or is that reasonable to assume.

Jeffry Rosenthal

We hope so.

Gary Smith

Maybe mid to high single.

Operator

Your next question comes from the line of Chris Svezia - Susquehanna Financial Group

Chris Svezia - Susquehanna Financial Group

Just a point of clarification, just in terms of the shifts that are going on, the two pieces, well actually the tax free holidays one, but the other piece the rebate checks, I think in the past rebate check piece was probably a couple million dollars. Just a point of clarification, the tax holiday you through out a $4 to $5 million shift, is that what you were trying to clarify.

Gary Smith

We were talking of percentage of comps. We feel that they may have had equal weight throughout last year.

Chris Svezia - Susquehanna Financial Group

Okay so the 4 to 5 is a percentage.

Gary Smith

Correct.

Chris Svezia - Susquehanna Financial Group

Okay and then I guess as you look to, could you tell me by chance what percentage of your business now is done with Nike.

Gary Smith

Over 50%.

Chris Svezia - Susquehanna Financial Group

Okay, and how, I know you, the relationship with Nike I think back in October became a strategic relationship with you, how do you know that’s, [inaudible] on the product side, allocations, things of that nature. At what point do you anticipate maybe that helping a little bit on the margin more so on product flow, things of that nature.

Jeffry Rosenthal

I think its always an ongoing discussion that we have with them and as we get better product and as we become more important we’ve gotten a lot of return privileges and other things from Nike that we have hopefully will get margin increase coming from that.

Mickey Newsome

Of course we’re always asking for bigger discounts with all of our major vendors, almost at every meeting.

Chris Svezia - Susquehanna Financial Group

Right, okay, and the last thing just out of curiosity, just on consumers that come to your store either shopping for team sports, apparel, whatever the case might be, do you get a sense that they’re either trading down or delaying a purchase, or just kind of, I know pricing has been pretty good in key categories for you. So I’m just trying to get a sense of are consumers just coming in just maybe deferring some purchases more recently or are they just trading down a bit whether its in cleats or in some type of product.

Jeffry Rosenthal

We still see the better goods performing very well. For instance, we just delivered the college of World Series new bats and they’re very expensive bats, in the $300 range, and they’re performing very well. I think the only thing that you do see is sometimes you may, they may delay on some of the higher purchases like a baseball bat.

Instead of going every season for one, they may have, they may make it last two seasons. So some of those type items but like pants and apparel, we see them coming back for mouthpieces, those type things. We don’t see a decrease.

Mickey Newsome

The price per item was not down.

Operator

Your final question is a follow-up from the line of Mitch Kaiser – Piper Jaffray

Mitch Kaiser – Piper Jaffray

Just a quick question, could you explain the sequential decline in depreciation, what happened there and then if you could give us an estimate for the full year.

Gary Smith

Certainly the decline was due to two reasons, one was the [totaled] costs were about 50% less then they were a few years ago. We’re probably getting more turnkey and the landlord is doing a little bit more. Our equipment is down a little bit also in the stores.

And then we impair stores as we go on when they meet the rules with the, they don’t meet on the cash flow basis, so that’s reduced our basis going forward. So the $3.2 million times four ought to give you pretty close to what the annual depreciation should be.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Mickey Newsome

Thank you, while we had a solid first quarter we know the current second quarter will be a challenge because of the lack of stimulus checks versus last year and because of the huge shift of the tax free days to the third quarter this year that were in the second quarter last year.

But we feel really good about the third quarter. There’s a lot of positives. The tax-free shift obviously is the big one. Last year in the third quarter we had $4.00 gas, hopefully we won’t have that this year. We won’t have the negative Presidential election this year in the third quarter like we did last year.

We’ve got an improved merchandise selection versus last year. We’ve improved in systems, the automatic replenishment is really paying off. We’re getting greater vendor and landlord support because we’re growing our store base and we have cash on our balance sheet. We are not a credit risk. Both vendors and landlords love that.

We have a great future at Hibbett. We appreciate you being on the call today. And we look forward to speaking with you in August where we will discuss our second quarter results. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Hibbett Sports, Inc. F1Q10 (Qtr End 05/02/09) Earnings Call Transcript
This Transcript
All Transcripts