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Hibbett Sports, Inc. (NASDAQ:HIBB)

Q1 2015 Earnings Conference Call

May 23, 2014 10:00 AM ET

Executives

Tripp Sullivan - IR, Corporate Communications, Inc.

Jeff Rosenthal - President and CEO

Becky Jones - SVP of Merchandising

Scott Bowman - SVP and CFO

Analysts

Peter Benedict - Robert W. Baird

Dan Wewer - Raymond James

Mike Baker - Deutsche Bank

David Magee - SunTrust Robinson Humphrey

Camilo Lyon - Canaccord Genuity

Rick Nelson - Stephens Inc.

Sam Poser - Sterne Agee

Sean Naughton - Piper Jaffray

Anthony Lebiedzinski - Sidoti & Company

Mark Smith - Feltl & Company

Chris Svezia - Susquehanna

Sean McGowan - Needham & Company

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports, Inc. first quarter 2015 Conference Call. During the presentation all participants will be in a listen only mode. Afterwards we'll conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Friday, May 23, 2014. I would now like to turn the conference over to Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Tripp Sullivan

Thank you and good morning. In order for us to take advantage of Safe Harbor rules, I'd like to remind you that any projections or statements made today reflect the Company's current views with respect to future events and its financial performance. There is no assurance that such events will occur or that any projections will be achieved. The company's actual results could differ materially from any projections due to various risk factors which are described in the Company's press release and SEC filings. At this time I'll turn the call over to Jeff Rosenthal.

Jeff Rosenthal

Thank you and good morning, everyone. Welcome to the Hibbett Sports first quarter earnings call. I have with me this morning Scott Bowman, Senior VP and Chief Financial Officer; Becky Jones, Senior VP Merchandise, Marketing and Logistics; as well as Cathy Pryor, Senior VP of Store Operations.

I would like to start off by thanking our associates who have worked very hard the last several months. Their commitment to excellence not only drove a strong comparable store sales gain but also allowed the Company to achieve significant milestones necessary for our continued growth. Not only did we achieve a 4.1% comp, we are also pleased to report that we opened 16 new stores, expanded four high performing stores, and closed four stores; putting us at 939 stores at the end of the quarter, netting 12 new stores in Q1. It is a Q1 record for us and puts us on track to net 65 new stores by the end of the year.

So far, this quarter sales have been slow due to a shift in (launch) [ph] shoes, however we are very positive we will have a good second quarter. Over the last 30 days or so we have fully transitioned to our new wholesale and logistics facility with very little issues to speak of. We are excited in the potential that this facility will deliver in terms of getting the right product to the right place more efficiently than ever before. We have also begun executing on the first phase of our omni-channel roadmap. This phase is centred on two important areas that will be needed as we lay down the foundation right through 360 degree customer experience.

Number one, firming up our IT infrastructure by investing in technology, people and processes. Number two, upgrading our store technology and hardware including point-of-sale. Over the coming months I will continue to share the progress with you on this very important and highly focused endeavor for our Company. As we continue work through these and other strategic initiatives, I’m confident that we will deliver on our goals, both financial and operational this year.

I'll now turn the call over to Becky Jones.

Becky Jones

Good morning. First quarter comp sales were driven by branded apparel and footwear. All categories in branded apparel comps positive, both men's and women’s business remained as growth opportunities. In our fashion stores Jordan and KB apparel led the way and Levi’s also had a nice positive comp. In men’s performance tees and shorts were high performers. Compression was softer compared to last year’s Under Armour compression program launch.

Women’s performance, pants, bras and shorts sales were quite strong. We saw particular strength in the kids category, especially in branded boys products. Girls branded also enjoyed substantial comp growth. Socks, headbands and branded caps remained volume drivers in accessories. The license of hairline and headwear business was soft overall, however the women’s apparel business and license is experiencing strong growth and has continued upside for the year. License headwear remained soft, while branded headwear is trending upward and consumers are shifting their choices to brands such as Costa, Nike and Under Armour.

In equipment, we were pleased with results in baseball and softball, including the cleat category. Protective equipment and sports medicine were also highlight. Soccer had a nice quarter with world cup inflatables leading the way. And Nike has dominated in the soccer cleat business. In the footwear business, basketball had a tremendous quarter fuelled by Jordan as well as Nike Signature, LeBron, Kobe and KD. Although Jordan Retro has performed extremely well, we are just as pleased with the performance of off court Jordan Silos.

Total running is stable in our stores with Nike Free Run still the dominant unit driver. However Roshe Run has also been impactful to the business and we saw good results in the Nike Free Trainer 5.0. The kids’ footwear business has been dominated by Under Armour running silos.

Inventory levels on a buy-store basis is down than last year and we are in a healthy place going into summer. Back-to-school assortments are robust with receipts planning to arrive late June, early July and our marketing initiatives are in place to connect with our customer and we anticipate a good back-to-school season. Scott Bowman will discuss our financial results at this time.

Scott Bowman

Thank you and good morning. For the first quarter total sales increased 21.9 million to 261.9 million an increase of 9.1% over the prior year. Comp sales were up 4.1%, by month comps were 7.2% in February, 2.9% in March and 0.9% in April. Gross profit rate decreased 38 basis points in the quarter. Product margin decreased 44 basis points mainly due to markdowns associated with managing our inventory.

Warehouse and store occupancy decreased six basis points as a percent of sales which was due to leverage gain from comp sales partially offset by additional costs related to our new wholesale and logistics facility. SG&A expenses increased 8.5% in the quarter but decreased 11 basis points as a percent of sales. This was mainly due to leverage gain from comp sales and favorable benefit cost. Depreciation and amortization decreased two basis points as a percent of sales in the quarter.

I would also like to point out that we capitalized our new wholesale and logistics facility in April and the quarter reflects one month of depreciation for this facility. The income tax rate for the quarter was 37.7% which was lower than last year’s rate of 38.2% due to a state tax adjustment last year. Operating and income of 45.7 million increased 7.6% from last year and was 17.4% of sales versus 17.7% last year a decrease of 24 basis points. Diluted earnings per share came in at $1.09 per share versus $1 last year an increase of 9%.

From a balance sheet perspective the company ended the quarter with 110.3 million in cash versus 103.2 million last year with no bank debt. Inventories increased 0.4% over last year and were 6% lower on a per store basis. We spent 8.6 million in CapEx for the quarter including approximately 5.2 million for our new wholesale and logistics facility. Also for the quarter the company bought back 198,000 shares for a total of $10.8 million. At quarter end we have approximately 219 million remaining under the existing purchase authorization.

With that review operator we are now ready for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Peter Benedict with Robert W. Baird. Please proceed.

Peter Benedict - Robert W. Baird

I guess first question is on the product margins, I know they were down it sounds like for the year correct me if I am wrong, but you're thinking they still could be slightly up, so how should we think about the cadence over the remaining three quarters, is there any particular opportunity in any one or two quarters that you’re looking at? And how does kind of the mark down management system kind of play into that?

Becky Jones

We actually think that from a margin perspective going forward that we’ll probably see a little bit of improvement in every quarter going forward. MDO we really wanted it to address some of our older inventory in the first quarter, so we took advantage of that and we did clear out some clearance that we needed to get rid of. So our inventories are in pretty good shape and because of that we think it will be alright.

We have about, I think by the time we get to back to school, we’ll have about 70% of our categories on the markdown optimization program, so the impact of bringing on new categories is going to become less and less as the year goes on.

Peter Benedict - Robert W. Baird

That’s helpful. And then on the back to school topic, is there any kind of timing as you look 2Q, 3Q in terms of when school is going to be opening tax holidays, things like that. And then also just on the timing of product launches you alluded to that being a bit unfavorable I think so far and can you give us a little more color on that? Thank you.

Becky Jones

We have a pretty good size launch that will be tomorrow and I think that that’s going to level things out a little bit for us comparatively for and then we'll go forward in to the quarter after that. As far as back to school is concerned, we kind of almost look at it as a bridge between July and August because not all of the schools and all of the states have made decisions around where they’re having their tax free and that’s always kind of a last minute thing. So we’ve got some information but we don’t have enough yet to say exactly what’s going to happen from the tax free week and shift.

Operator

Thank you. Our next question comes from the line of Dan Wewer with Raymond James. Please proceed.

Dan Wewer - Raymond James

Jeff I may have missed it, but did you give the quarter to date sales numbers like you normally do?

Jeff Rosenthal

Yes, we were down slightly for the first few weeks.

Dan Wewer - Raymond James

Same store sales down like 5%? Or low singles?

Jeff Rosenthal

Low single.

Dan Wewer - Raymond James

They're low single-digits quarter to date. And then the pace of same store sales decelerated looks like every month during the first quarter. What were the reasons for that?

Jeff Rosenthal

Yes, I’ll start off on that Dan, I think if you look at February it was really strong and as we had that really bad weather at the end of January I think we saw a little bit of a bounce back after we got into February and the weather cleared for us, couple of that was some tax money flowing into February helped us out quite a bit. March did moderate a little bit, it’s kind of more normal but typically how we look at the business, we look at January and February together kind of because a lot of the same products are sold during that period and you do have some shifts and seasonality weather event. So we feel really good about February and March. As we got into April it did soften a little bit more but keep in mind if you look on a two year basis now its 4.4% I think so it’s pretty well in line with the quarter from a two year stack.

Dan Wewer - Raymond James

I was just thinking that if April was up low single digit and May is running negative, it looks like the last two month same store sales are flattened out. Was that due -- did you say that changes in launch of new product or is it just a softer demand in the category?

Jeff Rosenthal

Well, really this month it is a little bit of a shift on launch tomorrow is a very big launch and such low volume in the month of May, some of those shifts did have a pretty dramatic impact because we saw over 80% of our business (start) [ph] to for the second quarter.

Dan Wewer - Raymond James

If I just try to -- do you think that there has been some weakening in demand?

Jeff Rosenthal

It’s really hard to say.

Becky Jones

Our brand and apparel business is still comping in a strong place quarter to date even today and we know that certainly in our footwear business, our basketball business is still very-very strong, our running business is pretty stable overall as well. So still early in the quarter knowing that its impact was -- what's impactful in the back part of the quarter with the back to school timing as well as launches that we know that are out there, we’re pretty comfortable with where we’re headed for second quarter.

Dan Wewer - Raymond James

Okay. And then just a last question. Scott can you walk us through the sequence of operating margin outlook, it sounds like on the one hand merchandise margin trends remain favorable for the balance of the year but you do have all the infrastructure build from last year and this year. So could you just kind of going forward remind us what are the additional headwinds and when we’ll begin to anniversary those and creating an opportunity for us and improvement year-over-year?

Scott Bowman

Yes, I think what you’ll see Dan is that merch margins like Becky said will improve a little bit compared to last year as we go forward. Keep in mind last year that first quarter was the only quarter we saw an increase in merch margin last year and second quarter is actually down over 50 points and so from a comparable standpoint and just based on the current outlook on MDO we feel that the merch margin will improve a bit as we go through the quarter.

If you look at the new wholesale and logistics facility it is up and running now and since it’s fully operational those costs will now start getting cost of goods whereas prior when we were getting ready for the transition those costs were flowing more into SG&A. So the depreciation will remain at a higher level for the remainder of the year and the operational cost of that new facility will start hitting cost of goods sold and I would say going forward that it will be a pretty even spread on that incremental expense hitting cost of goods. We do finish our lease in December for the old facility and so you’ll see those costs drop off at that point but until then it should be a pretty even waiting across the months of the year.

Dan Wewer - Raymond James

And when -- just [indiscernible] the last question when you were talking about increasing margin rate going forward, that was referring to merchandise margin, correct? I guess the GAAP gross margin will drop because of the new DC as well as [indiscernible] the old lease.

Jeff Rosenthal

Yes, so the guidance that we gave on the last call 20 to 25 basis points of impact for the new facility still holds, that looks like it’s still within that range, but you may see some slight favorability in January when we get out the lease for the old facility.

Operator

Thank you. Our next question comes from the line of Mike Baker with Deutsche Bank. Please proceed.

Mike Baker - Deutsche Bank

Hi. Thanks guys. I wonder if you could give us any color on the comps, any impact on whether do you think a lot of retailers actually had the reverse situation as you did in terms of the cadence, but in weather really and then weather got better, you guys had the opposite, so I am just curious weather had any impact and then maybe to help us with that color anything standout regionally that would help us get that color? Thanks.

Jeff Rosenthal

Yes, I’ll start off, we did have some store closures coming into the first quarter and we had about almost 1,000 more store days of closures versus the prior year and most of that was weighted in February, so February would have been even better. From a comp standpoint it would have added little more than one point of comp had we not had those closures.

Mike Baker - Deutsche Bank

That’s one point to February or to the quarter?

Jeff Rosenthal

To the quarter.

Mike Baker - Deutsche Bank

Okay. I was so surprised I guess that the business didn’t pick at all in April as weather improved and again I guess you think that just has to do with the more difficult comparison in April?

Jeff Rosenthal

It did pick some. We did have a little bit of weather issues at the end of the quarter with tornados and stuff all throughout the southeast, but really with the Easter shift and one less day and some of those type things definitely had a little bit of an impact also.

Mike Baker - Deutsche Bank

Okay anything regionally standout and I guess related to that -- what are you seeing competitively? Are there any competitors in certain regions that are doing anything differently?

Jeff Rosenthal

Not really. We see pretty much business as usual. Certain states continue to drive specially out west we’re doing extremely well and some of the more southern states are doing well, so really not seeing an impact from any competition or anything like that.

Operator

Thank you. Our next question comes from the line of (Red Jedrusik) [ph] with Merrill Lynch. Proceed.

Unidentified Analyst

Hi, thanks for taking my question. Just in terms of the markdown optimization, can you talk about the lift you’re seeing in categories where it’s been in place for a full year and now you’re kind of (dislike going) [ph] that initial rollout?

Jeff Rosenthal

Yes, I mean what I can tell you in general is that, as we have products that have gone through a full cycle under the program or close to a full cycle, we’re seeing some good results. And just to give you an example, if you take a category like Fleece, it really gives us a good benefit because we had different prices zones and markdown cadences based on those zones. So in Wisconsin we can take a different approach versus Florida and the cadence and the amount of markdowns that we take on that type of product. And so we’ve seen some pretty big wins in those categories that are more regionally focused and we need to alter the cadence based on regions and also the benefit of being through the full cycle and taking early markdowns at the early part of the cycle and then seeing the benefit on the backend. So that’s all I can tell you in general and so it is working like we had planned and we’ll continue to see those benefits as we get more products towards the end of the cycle.

Unidentified Analyst

Can you just give a little bit -- just on the quarter day? Can you just give a little bit more color on terms of the traffic versus AUR and then maybe kind of how that progressed throughout the quarter? Was it mostly traffic that’s slowed down in April?

Jeff Rosenthal

Yes, for the most part when you a change in our comps, for the most part it is mostly traffic driven. So if you just look at the full quarter, first quarter versus last year’s fourth quarter, the improvement in the comp that we saw was almost all traffic driven. And so typically when you see the comp go up and down, it’s mostly traffic.

Unidentified Analyst

And just a last question, where is the new store productivity tracking? Are there any markets like (transfer) [ph] market you can call out? Thank you.

Jeff Rosenthal

Yes, overall I mean the productivity remains very strong. It’s in the high 70s, 76% to 77%. So we continue to be encouraged not only by the number of new store openings but the productivity that we’re seeing on those new stores. And I would say if you kind of look regionally in general towards the southwest, it’s probably where we’re seeing the biggest productivity and gains on those new stores.

Operator

Thank you. Our next question comes from the line of David Magee with SunTrust. Please proceed.

David Magee - SunTrust Robinson Humphrey

Do you see any sort of pattern as you look at your -- at the comps in terms of those stores that are located close to Walmart and maybe seeing the more economically distressed consumer pulling back this year relative to the other stores?

Jeff Rosenthal

David, not really, we still look sometimes and sometimes it doesn’t always go as you would think it would, some of our highest unemployment areas are some of our best comping stores. So really depends on making sure you have the right products and the right places, but really it’s not as big an impact as it looked by store certain brands no matter what type of economy or what’s going on have been selling well. Our Jordan business is probably the best it’s ever been and some of those are some of the more depressed areas really.

David Magee - SunTrust Robinson Humphrey

Thanks Jeff. And then secondly the -- when you see traffic decelerate at what point do you decide to pull some lever as weather is marketing or price or what not and I guess in this case you probably are thinking that is just really going to reverse itself once you get better product out there. But is there -- are there levers that you might pull if business doesn’t respond over the next couple of weeks?

Jeff Rosenthal

Sure. We look at it where it is in the season and stuff and we definitely see shopping patterns change throughout the year and a lot of times it really just depends on some of those type things. It seems we definitely see consumers and this is not a new trend shopping closer to need or what the launches for that weekend or those things. We see some of the high peak times such as holiday and back to school we definitely have customers coming in that have changed sometimes in between has been a little bit slower but when they have products -- new products are coming in that also drives traffic. There are levers that we can pull if we want, we have over 4 million in the fee on customers that we can reduce things we have text and mobile marketing that we can pull levers if we feel that we need to. But we really have seen a pretty good shopping patterns going around holidays and launches and definitely key periods of the year such as back to school.

David Magee - SunTrust Robinson Humphrey

So the consumer is there but just is more bunched up around the events and then the valleys between those events might be deeper?

Jeff Rosenthal

Yes, we see -- and this has been going on for quite a while but we see it even more so but we still see the first and 15th of the month being very important to the business and pay cycles and those type things. Those really haven’t changed.

Operator

Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please proceed.

Camilo Lyon - Canaccord Genuity

Thanks. Good morning everyone. I wanted to just dig into the traffic and ticket discussion a little bit further. So it sounds Scott that the traffic was the main driver here in the first quarter, that’s a pretty sharp I think reversal from what it had been last year where ticket was the main driver. So my question is from a pricing perspective are you at the point where pricing is no longer viewed as a main driver of comp and you’ve kind of stopped out at taking your consumer up this pricing ladder or do you see further opportunities to drive price increases?

Scott Bowman

Yes, let me clarify a little bit, Camilo. When I made that comment what I meant was that the change in comp that we saw in the fourth quarter to what we saw in the first quarter, the main difference in that movement was generated by transactions. So transactions were still flat to slightly down, so ticket was the still the main driver but the change that you saw in the comp was driven more by improvement in transactions. So as we stood in Q1 we still saw fairly flat transaction and being mostly driven by ticket, but transactions did improve sequentially over the prior quarter.

Looking forward especially with the strength that we see in basketball and some of the new products coming out in back to school, we still see that opportunity to improve our average ticket and the operations folks continue to work at items per basket. And so they continue to see some opportunity to improve that as well.

Camilo Lyon - Canaccord Genuity

Okay, thanks for the clarification there. So, the follow up to that is then -- is there an underlying senior that maybe consumers are feeling incrementally more pressure from whether it’s the macro landscape just being challenging or maybe intensifying competitive pressures as the big boxes start to encroach somewhat on your territories such that you might want to alter how you view your pricing algorithm?

Jeff Rosenthal

Not really, we don’t see that as being a pressure.

Operator

Thank you. Our next question comes from the line of Rick Nelson with Stephens. Please proceed.

Rick Nelson - Stephens Inc.

[Indiscernible] down in the comps has anything to do with the DC that transition. I know that your per-store inventory was down 6%?

Jeff Rosenthal

No Rick we planned it to be exactly where it was last year in the first quarter we were up about 8% comp inventory and we felt it was too high so purposely have our inventory levels where we’re at. We’re very excited about going through the transition really with no really issues and we’re up and fully functional today and that’s something that we’re very proud of and we planned our inventory to be right about where it’s at, so that was not an issue.

Becky Jones

All receipts have been completely on time and going to the new facility exactly as that would have been going through the old facilities. It’s just a more efficient building for us and that you see is going to have nothing but a positive impact.

Rick Nelson - Stephens Inc.

I know 2Q is a follow up to one, in the past season it’s really tiny. Do you change any of your internal models based on what you have seen of late at this point?

Jeff Rosenthal

Well probably the biggest thing and really the biggest factor really in second quarter is when back to school start and when does tax free start. So we definitely get ready earlier than most other retailers, because we’re still even though we’re in 31 states we have such a high concentration if school start early. So as we get -- we’ll start deliveries, some pretty big deliveries in June and early July to get ready for that. That’s probably where we’ve shifted a little bit more inventory going that way, that’s probably the biggest change in second quarter. But really May and really to get up to Father’s Day it's mostly t-shirts and shorts and some sandals and some of those type things which aren’t the highest volume, you’re kind of between soccer season and football season. So we really pay the next six weeks or so, really trying to get ready for back to school.

Rick Nelson - Stephens Inc.

And can I ask you about the mall base there, comps versus strip centers, if there is any difference there? And looks like some of the mall based footwear stores are putting up bigger comps, [indiscernible] giving different allocations that would put them in a competitive advantage.

Jeff Rosenthal

Yes, our mall stores have performed a little bit better than our strips, some of our mall stores are definitely a little bit more fashion driven. So we have seen the performance in our mall based stores a little bit better this time than we have maybe in previous quarters.

Operator

Thank you. Our next question comes from the line of Sam Poser with Sterne Agee. Please proceed.

Sam Poser - Sterne Agee

A couple of questions, can you give us a detail on traffic conversion tickets and UPTs for the quarter?

Jeff Rosenthal

Yes we don’t really track conversion stand but from a ticket transaction standpoint, ticket was up mid-single and then transaction was down low single-digit.

Sam Poser - Sterne Agee

And then have you seen, what kind of changes have you seen in your allocations from on the marquee product. Are you seeing better -- are you seeing more product -- are you getting more Jordan shoes and more KDs and Kobes and so on and so forth. I mean are you making progress there?

Jeff Rosenthal

Yes Sam we continue to always make progress with Nike, we really don’t give it out. But we continue to be a major factor for Nike and as we continue to grow we continue to work on that and it has gotten better.

Becky Jones

You got to give it to Nike too because they are very good at making sure that they keep demand up in the market place. So it’s always a negotiation and a work in progress but you have to appreciate the fact that they keep the demand up.

Sam Poser - Sterne Agee

And then lastly given the new DC and these ongoing investments in the new POS systems and eventually I guess to ecommerce. How much will the benefit from the new DC help to offset or offset some of the costs or the deleverage of those other expenses. I mean how do you see the benefits of that, I mean sort of all things being equal scenario.

Scott Bowman

We think it will definitely help and as we get further down the road we’ll have more details on how those will line up but in general after we get the new facility up to full speed and get that product warehouse in that new facility we certainly will see some benefits from the sales and a margin standpoint, we will take it fairly slow as we ramp up just to make sure that we onboard those products efficiently. But especially as we get into next year, we should definitely see some benefit from that new facility that will offset any other incremental costs that we’re seeing.

So that’s part of what we’re trying to do Sam, it put things in the pipeline like our new wholesale and logistics facility markdown optimization as it matures, new allocation system that will be going live here in a couple two three weeks as well as business intelligence. So it’s all being kind of thought out to put those things in the pipeline so that when you do invest in other big projects like omni-channel we do have some offsets.

Sam Poser - Sterne Agee

You would have more offsets next year than you do this year because, just because of the amount of initiation this year so to speak.

Scott Bowman

That’s correct.

Jeff Rosenthal

Absolutely and as we go throughout the year we'll start -- as we build inventory in our DC and be able to fill in on sizing, we believe that it’s a huge opportunity as we get throughout the year and really the biggest benefit really will be next year where we think we can get some fourth quarter and we think between that and MDO, a new allocation system, all those things are really setting us up for later this year, and really into next year. And we feel really excited about that and we're able to grow stores at a pretty significant pace.

Operator

Our next question comes from the line of Sean Naughton with Piper Jaffray; please proceed.

Sean Naughton - Piper Jaffray

Thanks for taking the question and I apologize if I missed this, but anything in terms of an e-commerce update, kind of where you guys are, what type of evaluation you guys are still in the process of doing, and then also to the extent that you think that that’s having any impact on the transaction trends of your business in the March-April timeframe?

Jeff Rosenthal

Yes, as I mentioned in my opening remarks, we have started the people and the processes and getting POS going so, as we get further along the road we'll make more comments on that, but right now, really -- most of what we're going to comment on is really our new store growth and some of the other things such as the logistics facility and the markdown optimization. But as we get further in the year I will definitely update as to where we are at.

Sean Naughton - Piper Jaffray

Okay, anything about what you’re seeing on your own side, or are there more people, kind of on your side looking for product today and I know you can't transact with Hibbett today there, but is anything you guys are learning from that standpoint or anything you can lean from what’s happening with some of your most valuable customers that you have in the stores?

Jeff Rosenthal

I think, one positive thing that I will point out is, if you look at our MVP members, we're over 4 million strong right now and so the growth -- and those members has been quite robust and the percentage of transactions by MVP members is now around 40%, so that percentage has grown quite nicely over the last year as well.

Sean Naughton - Piper Jaffray

And then anything in terms of -- just looking out from an inflation standpoint that you guys are concerned about in terms of product inflation for the balance of the year?

Jeff Rosenthal

Not really. I think it holds pretty steady this year. It’s not as dramatic as I think we've seen in years past, I think it’s a little bit more consistent than it has been.

Sean Naughton - Piper Jaffray

Okay and then just -- I know you touched on this a couple of times, but just the inventory per store number being as low as it is -- do you feel like that caused you to miss any sales in that April time period where you were only up 90 basis points. I would have assumed that that would have been a little bit better given the fact that we had the shift of Easter this year.

Jeff Rosenthal

We feel really comfortable where our inventory levels are, obviously sometimes, some categories you could have a little bit more and some a little bit less, but overall we felt that we had plenty of inventory due to sales.

Operator

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company, please proceed.

Anthony Lebiedzinski - Sidoti & Company

A couple of questions, as far as the product launches I think you guys mentioned that you have a product launch tomorrow. Anything else in the second quarter that we should be aware of as far as new product launches?

Becky Jones

The product launches are relatively consistent year-over-year as far as what’s coming at us, we don’t really talk about what exactly they are in difference to what our agreement is with Nike. We are allowed to talk about it about a week before it happens, and we stand up for that because we want to keep those launches coming. But when we look at it from a comparative perspective, we are feeling comfortable that we have plenty to do, the amount of volume that we need to get out of it.

Anthony Lebiedzinski - Sidoti & Company

Got it, okay. And just a quick question on the store expansions, you did another four in the quarter; so how many in total do you have in this format and also how many more do you think you can do down the road?

Jeff Rosenthal

Right, we’ll do close to 15 this year. We've identified over 100 more that we would love to expand. Up to date, I’m not exactly sure of that number. Do you have that Scott, or

Scott Bowman

With expansions?

Jeff Rosenthal

Yes.

Scott Bowman

Yes,, we've done four so far.

Jeff Rosenthal

Just four this year. I do know how over the length of time, we can get that for you Anthony.

Anthony Lebiedzinski - Sidoti & Company

Okay, that’s fine. And as far as store growth for this year, how should we think about the store growth by quarter, it looks like the first quarter you did more than usual and typically I guess in the past you've been more backend loaded. So how should we think about the timing of new store openings?

Jeff Rosenthal

I think, Anthony, you will continue to see us shift a little bit more the new stores into the first half which is kind of a conscious effort on our part. Last year we did better. We were close to 35% of our new stores during the first half. We think we’ll do a little better than that this year may be closer to 40% in the first half.

Operator

Thank you. Our next question comes from the line of Mark Smith with Feltl & Company. Please proceed.

Mark Smith - Feltl & Company

Hey, good morning guys. Just real quick to confirm, your price optimization tool, is your rollout complete now?

Becky Jones

No, it’s not. By the back to school, we’ll have about 70% of our categories up on the markdown optimization program and we intend to have it completed by the end of the year.

Mark Smith - Feltl & Company

Perfect, and then Scott. Any update on tax rate expectations?

Scott Bowman

Yes, so as we go out throughout the year, a lot of the tax rate will hinge on some of these extender programs work opportunity tax credits and those type of things, which is kind of ongoing discussion in Washington. So that could move the needle a little bit either way. The other thing is that we should start to see some favorability as some of the tax credits roll in from our new facility that we opened here recently.

Operator

Thank you. Our next question comes from the line of Chris Svezia from Susquehanna. Please proceed.

Chris Svezia - Susquehanna

Good morning every. Scott question for you just maybe remind -- remind us what was the monthly comp progression for Q2 last year, just remind us? So I think it started soft but I’m just trying to remember what it was, can you just walk me through that?

Scott Bowman

So, for May we did a negative 0.4%, June 1.7%, July negative 0.4%.

Chris Svezia - Susquehanna

Okay. Thank you. And then just a follow-up on product margin for a second, when you talk about the opportunities and you get markdown optimization really in place, do you think merchandize motion could actually be positive on the year or do you just think as you flow through the year it could turn positive by the time you get to call it, fourth quarter, just trying to clarify that.

Scott Bowman

I think more the later, so our guidance was flat to slightly positive, so we think we’ll be right in that range, but we think we’ll see continued improvement from that to the end of the year.

Chris Svezia - Susquehanna

Okay and on the occupancy cost side, is that still sort of in the 4ish you pretty guided at 4 comp, pretty darn close, is that still sort of the thought process as you kind of think about quarterly flow?

Scott Bowman

Yes, that’s pretty close. With some of the extra expenses we have to leverage (uptick to) [ph] expenses it will be closer to 5%.

Chris Svezia - Susquehanna

Okay.

Scott Bowman

We did leverage occupancy in the first quarter however with 4% comp.

Chris Svezia - Susquehanna

Okay, all right, fair enough. And then Becky just a question for you just on the running business in general, just curious your thoughts as you kind of think further out to the balance of the year or just as we had a little further in to back to school, products called Under Armor, it’s a new product coming to market just ASP, any thoughts about the running business in terms of providing stability and growth in that categories if you think about it?

Becky Jones

Well, when we look at the running silos in general Nike Free is still driving a lot of business for us and we’ll continue to support that going forward. We’ve seen some nice pickup with the Roshe Run on the floor and then we’re also expanding our door base a little around SpeedForm from Under Armor for the back to school timeframe. We launched that in limited number of doors late in the year and it did well enough that we will impact put that to more locations for the back to school season. Our consumer really likes that Under Armor brand.

Operator

Thank you. Our next question is a follow-up from the line of Peter Benedict with Robert W. Baird. Please proceed.

Peter Benedict - Robert W. Baird

Hey, guys. Scott, quick question. Can you isolate the impact of the new DC in the first quarter? I know you’re expecting 20 to 25 basis points for the year. How does that look in 1Q?

Scott Bowman

It was -- keep in mind that was spread a little bit between gross margin SG&A because once we turn the facility live and then it switched over to cost and goods, but all in it was more like 15 basis points, so a little bit less.

Peter Benedict - Robert W. Baird

Okay, perfect and then the ACA impact I think you’re expecting that to hit you by a couple of points this year, how was that in the first quarter?

Scott Bowman

Actually, it's a little bit less in the first quarter and the main reason for that is because claims came in favorable. We did see the membership grow but claims were favorable and it was up against an elevated number from last year.

Peter Benedict - Robert W. Baird

Okay and last question obviously it was a sizable amount of cash in the balance sheet here, are you kind of holding that back to make some of these investments that you guys alluded to earlier or how should we thinking about kind of store growth going forward, I mean, you had that record number open in the first quarter, do we see an upside bias to the number of stores you think you can open this year and then early thinking on next year? Thanks.

Scott Bowman

Well we certainly have a good start on new store openings and capital usually isn't a big constraint for those openings, it’s more about finding those right locations that will hit our pro forma. So we’ll continue down that path, we do have enough for investments looking forward. We will keep our buyback elevated where that makes sense. As you look at first quarter our buyback was -- did show an increase but most of that increase was in the last six, eight weeks of the quarter. So we’ll continue to take advantage of the buyback as well.

Operator

Our next question comes from the line of Sean McGowan with Needham & Company. Please proceed.

Sean McGowan - Needham & Company

One question Scott follow up, so would you say that the best guess at this point of tax for the full year is still around 38%?

Scott Bowman

Yes 38% should be on the high side and that would be if none of those tax extenders were reinstated.

Sean McGowan - Needham & Company

And if they were all reinstated, would 37 be the bottom end?

Scott Bowman

It’s be a little higher than that 37.5 or so.

Sean McGowan - Needham & Company

That’s a helpful range. And what do you expect the depreciation and amortization to be for the full year now?

Scott Bowman

It should be close to 35 to 40 basis points higher than last year, if you look at the full year effect.

Sean McGowan - Needham & Company

When you say basis points, you mean as percentage of growth or as a percentage of something else?

Scott Bowman

As a percentage of sales.

Sean McGowan - Needham & Company

And finally the CapEx budget for the year, you might have said this earlier but what is that expected to be for the year?

Scott Bowman

It’ll be 25 million to 30 million.

Operator

And Mr. Rosenthal there are no further questions at this time. I will now turn the call back to you, please continue with any closing remarks.

Jeff Rosenthal

Thank you very much for being on the call today. We are in the early innings of growth and we can still be a national retail with over 1,500 stores going forward. We look forward to having you on our call on August 22nd for our second quarter results. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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