Hibbett Sports' (HIBB) CEO Jeff Rosenthal on Q3 2017 Results - Earnings Call Transcript

| About: Hibbett Sports, (HIBB)

Hibbett Sports, Inc. (NASDAQ:HIBB)

Q3 2017 Results Earnings Conference Call

November 18, 2016, 10:00 AM ET

Executives

Pat Watson - Corporate Communications

Jeff Rosenthal - Chief Executive Officer

Scott Bowman - Senior Vice President and Chief Financial Officer

Jared Briskin - Senior Vice President and Chief Merchant

Cathy Pryor - Senior Vice President of Store Operations

Analysts

Seth Sigman - Credit Suisse

Rafe Jadrosich - Bank of America

Dan Weaver - Raymond James

Camilo Lyon - Canaccord Genuity

Patrick Mckeever - MKM Partners

David Magee - SunTrust

Peter Benedict - Robert Baird

Anthony Lebiedzinski - Fidelity Investments

Jim Duffy - Stifel

Sam Poser - Susquehanna

Rick Nelson - Stephens

Michael Weisberg - Crestwood Capital

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Hibbett Sports Third Quarter Fiscal 2017 Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Friday, November 18, 2016.

I would now like to turn the conference over to Mr. Pat Watson with Corporate Communications. Please go ahead, sir.

Pat Watson

Thank you for joining Hibbett Sports to review the company's financial and operating results for the third quarter of fiscal year 2017, which ended on October 29, 2016. Before we begin, I would like to remind everyone that management's comments during this conference call, not based on historical facts, including those in response to your questions, 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 earlier this morning, in the company's annual report on Form 10-K and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

Lastly, I would like to point out that management's remarks during this conference call are based on information and understandings believed accurate as of today's date, November 18, 2016. Because of the time sensitive nature of this information it is the policy of Hibbett Sports to limit the archived replay of this conference call webcast to a period of 30 days.

I’d now like to turn the call over to Jeff Rosenthal, Chief Executive Officer. Please go ahead, Jeff.

Jeff Rosenthal

Thank you, and good morning, everyone. Welcome to the Hibbett Sports third quarter earnings call. I have with me this morning Scott Bowman, Senior VP and CFO; Jared Briskin, Senior VP and Chief Merchant; and Cathy Pryor, Senior VP of Store Operations.

Net sales for the 13-week period ended October 29, 2016 increased 3.8% to $237 million, compared to $228.3 million for the 13-week period ended October 31, 2015. Comparable store sales increased 0.7%.

We were pleased with our back-to-school sales and continue to see high single-digit comps in our footwear category. Sales softened in September and October as apparel sales became more challenging, primarily in our colder-winter categories.

Gross margin rate declined due to a mix shift to footwear and in seasonal apparel sales. As expected, expenses were higher in the quarter due to the investments in our ongoing omni-channel initiative, but we also experienced higher expenses in other areas against a favorable third quarter last year.

For the quarter, Hibbett opened 13 new stores, expanded two high-performing stores and closed 5 underperforming stores, bringing the store base to 1,067 in 34 states as of October 29, 2016. We are excited to announce that we opened our first store in California during the third quarter and we have opening another one so far in this quarter.

With California and other states, we still have many opportunities to grow in the underserved markets for years to come. Our goal is still to have over 1,500 stores in the future. We have begun a full roll out of our new POS system to all stores, and we are very optimistic with our new capabilities that will help drive revenue.

With this new system we will be able to serve our customers much better. And it is our initial step into becoming a full channel omni retailer. This is just the beginning in helping us drive our business. With our 6 million plus loyalty members and our store base we believe that we can drive additional business that we have not been able to capture both in-store and digitally.

We have made significant progress on our e-commerce initiative and will deliver next year. I would like to thank all our employees for all what they do in stores and at the corporate office in helping us serve our customers better. I will now turn the call over to Jared Briskin, VP Chief Merchant to talk about our merchandised trends.

Jared Briskin

Good morning, thank you Jeff. During the third quarter, we had a very mixed performance. As expected, our back-to-school footwear business was fantastic and led to significant gains earlier in the quarter.

As the back-to-school business waned, sales started to suffer due to category challenges outside of footwear and declined in seasonal categories.

These difficulties prompted a more aggressive stance with markdowns and promotions to drive revenue and keep the inventory as clean as possible. Our apparel business was down low-single digits for the quarter. The continued updates to our assortments in non-seasonal categories had a very positive impact, although performance product continues to struggle.

Seasonal apparels saw significant declines as the challenging weather pattern is prompting our customers to wait as long as possible to buy seasonal apparel. The men's business was up low single digits as investments in denim, athletic bottoms and polos were very solid.

The women’s and kids business was soft down high single digits as performance product and seasonal challenges were not offset. A strong back-to-school for backpacks did not offset declines in socks leading to a low single digit decline in accessories.

The licensed business was down double-digits, decreases in college were broad based across teams and categories. Major league baseball was significantly aided by the clubs and the Indians playoff run, but was offset by weakness from last year’s playoff runs of the Royals and Rangers and general weakness in Braves and Cardinals merchandise. Seasonal merchandise was also a challenge.

Team sports business was down low single digits. Cleated business was positive up low single digits with football and soccer both positive. Equipment was soft across all categories down mid single digits. Fitness continues to have the most significant declines. Footwear was up high single digits as all genders performed consistently at that level. Our merchants did an excellent job of negotiating best-in-class footwear access for more of our locations.

Basketball was led by strong performances from Retro Jordan and Curry 2.5 from Under Armour. Lifestyle had a fantastic back-to-school led by Nike, Rockies Air Force 1,

and Nike's Signature including the LeBron Low and KD IX. Our lifestyle footwear business continued its strong run with a mid-single digit comp. Nike business was very solid in this category with the Rockies, Air Force 1, Roshe [ph] and Juvenate.

We also saw significant increases with Adidas as customers responded to Superstar, ZX Flux and Nomad. Running improved with explosive results from Adidas’s AlphaBounce, strong performances from Under Armour Slingride and Bandit and strength from Nike’s Air Pegasus. We continue to be very encouraged by future growth opportunities in footwear.

From an inventory perspective, we are working diligently to identify opportunities to reduce inventory and improve productivity. Through our store tightening strategy, we have identified numerous store category combinations where inventory is not productive and are ensuring that these combinations are being retracted from future assortments.

These retractions will allow us the opportunity to continue to invest in growth opportunities. We also expect they are receiving the sale and digital initiatives to have a significant impact on our inventory productivity next year. Our expectations for the end of this fourth quarter of inventory levels to be flat to slightly elevated but down on a per store basis.

I will now turn the call over to Scott Bowman to discuss our financial results.

Scott Bowman

Thanks Jared and good morning. For the third quarter total sales increased $8.7 million to $237 million, an increase of 3.8% over the prior year. Comp sales increased 0.7%. By month, comp sales were 4% in August, negative 1.5% in September, and negative 2.9% in October.

Gross profit rate decreased 70 basis points in the quarter. Product margin decreased 55 basis points due a higher mix of footwear sales and markdowns taken to reduce inventory.

Warehouse and store occupancy expenses increased 16 basis points as a percent of sales.

SG&A expenses increased 15.8% in the quarter and increased 243 basis points as a percent of sales. 82 basis points of this increase were due to a $1.9 million favourable legal settlement received last year in the third quarter. 75 basis points of the increase were due to expected investments in our omni-channel initiative and another 70 basis points of the increase was due to higher expenses and employee benefits, credit card fees and store maintenance and repairs. The remainder of the difference was due to deleverage associated with lower comp sales.

Depreciation and amortization increased 16 basis points as a percent of sales in the quarter, mainly due to the capitalization of IT projects and the addition of new stores.

The income tax rate for the quarter was 36.8% which compares to last year's rate of 37.3%. The decline was mainly due to ongoing federal and state tax credits. Operating income of $23.2 million decreased 22.4% from last year and was 9.78% of sales versus 13.08% last year a decrease of 330 basis points. Diluted earnings per share came in at $0.66 per share versus $0.79 last year a decrease of 16.2%.

Adjusted for last year’s favourable legal settlement, earnings per share decreased 10.6% versus last year’s adjusted $0.74 per share.

From a balance sheet perspective the company ended the quarter with $41.2 million in cash versus $45.5 million last year with no borrowings outstanding on our revolving credit facilities. Inventories increased 5.6% over last year and were 2% higher on per store basis.

We spent $6.9 million in CapEx for the quarter. Also for the quarter the company bought back 54,000 shares for a total of $1.9 million. At quarter end we have approximately 269 million remaining under the existing purchase authorization. Based on these results for the third quarter, we are updating our full year guidance as follows: for the year, we expect earnings per share to be in the range of $2.82 to $2.88 from the previously reported range of $2.93 to $3.02.

Additionally, merchandise margin is expected to be relatively flat compared to a previously reported expectation of flat to slightly positive versus the prior year. Also, as a house-keeping note please keep in mind that fiscal 2018 will include a 53-week and we establish annual guidance on our next call on March 10, 2017.

With that update, operator, we are now ready for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] One moment please for the first question. Our first question comes from the line of Seth Sigman with Credit Suisse. Please proceed with your question.

Seth Sigman

Thanks a lot and good morning guys.

Jeff Rosenthal

Good morning, Seth.

Seth Sigman

I wanted to just follow up on how the quarter played out. So it looks like comps slowed a little bit throughout the quarter on a one and two year basis. Was that just a parallel that slowed because of weather or did you see a broader moderation as well?

Jeff Rosenthal

There was definitely the apparel components, the seasonal declines that we mentioned had a pretty negative offset to our total comp, it really hit us for about a point and a half on the total comp line with the majority of that coming during September and certainly October. So it was really the moderation in apparel and that compares to last year from a seasonal perspective.

Seth Sigman

Okay. And did weather, flooding and hurricanes impact the quarter at all particularly in October?

Jeff Rosenthal

I would say Seth that it impacted us a little bit in certain areas but it didn’t have a big impact on the total number.

Seth Sigman

Okay. And then just finally, you know as you think about the improved allocation in certain categories like footwear, can you just give us a sense of how many stores were seeing the incremental improvement in that assortment today and how we should be thinking about the benefits? Thanks.

Jeff Rosenthal

Yes, as we have executed our store tightening strategy, our partnership with our vendors have never been better, but we still see significant opportunity to get more of best-in-class footwear in two additional locations. So we still have some runaway in front of us as we continue to execute that strategy.

Seth Sigman

Thank you.

Operator

Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed.

Rafe Jadrosich

Hi, it’s Rafe. Good morning, thanks for taking my question.

Jeff Rosenthal

Good morning.

Rafe Jadrosich

I might have missed it. Did you give the November date same store sale?

Jeff Rosenthal

No, we don’t do that anymore.

Rafe Jadrosich

Got it. And then as we think about apparel in 3Q, I think last year was pressured as well on whether -- can you kind of help us pass out how much is maybe the assortment you need to continue to shift versus what the weather pressure was and then maybe could you give trends by region. And then did you see the sell through improve in areas maybe where the weather turned colder?

Jeff Rosenthal

Yes, really the overall trends by region from an apparel perspective were pretty similar. The seasonal impacts really impacted all regions. Our non-seasonal business was significantly better and we felt very good about that assortment at the early part of back-to-school and continue to see improvement from it, but the seasonal impact was just too much to overcome. Without question that was a big impact last year and we had hoped that we would start to see a more normalized third quarter from a weather pattern standpoint but that didn’t materialize, it actually seems to be significantly worse than last year.

Rafe Jadrosich

Do you feel we have to make further assortment shifts either by brand or by category?

Jeff Rosenthal

We do. We continue to shift more of our business towards lifestyle, very focussed on the premium lifestyle, so we are certainly not done by any stretch from an assortment shift perspective. And then certainly as we move forward that will continue to evolve based on what the customer is telling us they are interested in.

Rafe Jadrosich

And then the final question, can you just remind us of the timing of the point of sale store to home delivery and the e-commerce? And then maybe just give a little bit of color on the lift you seen in the stores that have already rolled out the point of sale systems, where its already been tested? Thank you.

Jared Briskin

Sure. It’s a little too early to see the lift in the stores that had been rolled out so far, we are in full roll out mode like Jeff mentioned. We anticipate will be about in 200 stores by Christmas. If the feedback from the stores has been excellent and the learning curve is very short with the new software and so from that standpoint its operating as planned with no major issues. And so, as we look into early next year we envision the store to home capability to be rolled out sometime early to mid first half of the year.

So, our initial POS was delayed slightly but you know part of that delay was we did a little bit more work on the store to home functionality and so there’s not that much more to do there, and you know we are pretty confident that we have most of the programming in place. So we look forward to that and then looking forward to the back half of the year with a digital initiative making very good progress there both on the website build and then all the integration work that tied into all of our existing systems. And so, a lot of work in that project but we are on track and we are feeling pretty good about launching in the back half.

Rafe Jadrosich

Great. Thank you.

Operator

Our next question comes from the line of Stephen Tanal with Goldman Sachs. Please proceed.

Unidentified Analyst

Good morning. This is Allison [ph] on for Steve. Thanks for taking our question. First, can you please break out traffic versus ticket?

Jeff Rosenthal

We don't measure traffic specifically. We use transactions as a proxy. But similar trend is what we have seen in prior quarters that the ticket was up mid-single and the transactions were down mid single.

Unidentified Analyst

Great. Thanks, and then we are trying to understand what change with respect to merchandized margin, looks like last quarter it seemed the outlook was improving and inventory had been where it was, is it that apparel was softer and perhaps guidance [Indiscernible] had to continue or is there more to know here on the change in the merchandised margin outlook?

Jeff Rosenthal

Yes, I think the merchandised modular piece during the quarter was really based on two factors, first of all the lack of the seasonal apparel business certainly changed our mix, I mean the mix became more focussed on footwear so that had an impact on the merchandised margins and then certainly the lack of the weather patterns and the lack of what we call high margin, seasonal product sales had a pretty significant impact as well. As I have stated in my comments we did get more promotional during the quarter just to ensure that we do not have a hangover on seasonal product, we want to ensure that we are very clean certainly as we exit Q4 from a seasonal perspective.

Unidentified Analyst

Great, thank you. And one final one from us. Thanks for the color on the e-com roll out. And as it relates to SG&A, do you expect the run rate and expense growth per average foot or average store however you are thinking about it accelerate from here or are we in a more normal pace.

Jeff Rosenthal

I think we’ll still see, I don’t think it will really accelerate much from what we saw in the third quarter. You know third quarter was a little bit of an anomaly, you know if you look at it, it’s kind of a two year history of SG&A increases and you know adjust for that 1.9 million legal settlement. You know the first quarter and second quarter were about 14% higher on a two year basis, third quarter about 15.5% so it does look a little more normal if you look at it that way. You know as we go into the fourth quarter, I would anticipate that we’ll continue to see some pressure, credit card fees and healthcare kind of this an anomaly you know but it should remain a little bit higher. So, I would anticipate as big of an impact as in third quarter but we’ll still some pressure going in the fourth quarter.

Unidentified Analyst

Thank you.

Operator

Our next question comes from the line of Dan Weaver with Raymond James. Please proceed.

Dan Weaver

Thanks. Jeff, you noted that the shipping home capabilities will not be completed until I think that you said the second quarter 2017. And are there any initiatives or strategies that you can pursue to rejuvenate sales prior to that launch taking place?

Jeff Rosenthal

Yes, Dan we’re – the first part of savings sale were actually testing, actually the pilot goes out next peak so that store to store and then we are working you know with the next function of store-to-home to try to get it out in the first quarter but I know as Scott said, the first half really our goal is to get out in the first quarter, the store home piece, but next we can pilot we’ll have store to store and we feel very positive that that functionality is working and stuff so we’re just be on pilot next week and then hopefully get it to all stores through the first quarter.

Dan Weaver

But I guess in addition to you know waiting for that initiative to be rolled out, are there any, are there tools or levers the company can pool to rejuvenate traffic back into the stores?

Jeff Rosenthal

We’ll there is a couple of things that we are doing to help drive sales. We are definitely incentivizing our employees to obviously sell more to the customers that are coming in. So items per sale and retail per sale, so we are running additional incentives for them to do that. We also have the opportunities to touch our loyalty members much more and we have plans in the quarter to do that to help drive sales. And then there is some significant launches in footwear during this fourth quarter that we feel very excited about that we’ll drive additional footsteps to our stores and we believe that that can help our business.

Dan Weaver

And the last question I have now is that with the company moving its assortments away from traditional sporting goods and performance apparel, and into more at lifestyle categories, do you ever think that perhaps the main pivot sports maybe no longer really could base what the merchandise is about and are you ever concerning that perhaps it’s a hindrance?

Jeff Rosenthal

No, because it’s really around the brands that are sports, it’s a lot of times I think people get so stuck in the categories and it's really when it's lifestyle -- lifestyle, like high fashion lifestyle it’s within our brands like Nike, Under Armour and Adidas and they all were saying fashion its really sports inspired fashion. So we’re not really getting out of what we do and it’s really more about the brands that we already do business with and there maybe some others that we do business with, but it’s still no Nike, Under Armour, Adidas, Puma those type brands will continue to drive our business.

Dan Weaver

Okay, thank you.

Operator

Our next question comes from Camilo Lyon with Canaccord Genuity. Please proceed.

Camilo Lyon

Thanks, good morning.

Jared Briskin

Good morning.

Camilo Lyon

Jared, I wanted your thoughts on the apparel piece a little bit more digging into that seasonal part of the business that was a drag on comps. I guess my question is, you know last year we obviously had a very warm winter, I guess I was surprised by your decision to start marking down product, seasonal products so early in like the winter timeframe, you know how did you think about maybe doing that versus old enough until you know the true heart of the winter season in November, December I mean in January as well and maybe not sacrificing a little bit more on the margin side, and kind of waiting for that season to really unfold the four point mark down trigger?

Jared Briskin

Yes, we spent a lot of time you know in discussions on that and we felt like potentially last year we might have waited a little bit too long with that anticipation of the weather coming and I think that’s the big unknown at this point is does fourth quarter operate to historical levels or does it continue to be a very warm pattern and we wanted to ensure that we eliminate you know all risk from a seasonal carryover perspective. We feel pretty confident that you know if the weather does come we are in good inventory position and we have opportunities to get more if we need it, but the bigger risk we felt was to carry similar elementary out of Q4 and into next year and as we know we have opportunities from a productivity perspective and a margin perspective that we like to try and capitalize on.

Camilo Lyon

Okay. And then just with respect to the third quarter merchandised margin impact, could you pass out which was the driving force of that much margin to find, was it the footwear mix or was it the apparel markdowns and how does that unfold in the fourth quarter

Jared Briskin

Yes and it was about half and half that came from the mix and then half of it came from the apparel declines. From a fourth quarter we feel good about where our inventory is, we feel good about some of the drivers that we have, but there is certainly a significant amount of seasonal business that’s done in the fourth quarter and we also have some headwinds on the license product side with Panthers and certainly in Alabama national championship from last year. So, our expectation is that we – the merchandised margins will be flat, but certainly if we do have a very negative weather that could put some pressure on it.

Camilo Lyon

That's flat for the fourth quarter as well?

Jeff Rosenthal

Yes.

Camilo Lyon

Okay, great. And then as you think about how – you talked about the store typing benefits from an allocation perspective. What did you seen in to next year from the trends that are unfolding now, as well as the product pipeline that either gives you insight into the perpetuation of what we're see now or maybe a change in trends unfold. I'd love to get your thoughts on does basketball start to reaccelerate based on improvements in product introduction or do we continue to see the lifestyle business and [Indiscernible] particular really accelerate their share gain?

Jeff Rosenthal

Yes. I think the category question is always an interesting ones because certainly everyone categorizes certain products differently, so that something we certainly spend some time on, but we try to really look at what we think the items are that are going to drive our business and be drivers in the marketplace. And its pretty broad based across categories and we're seeing some very strong product offerings as we get into next year that are really broad across categories.

I do feel like from a basketball perspective specifically the price value on a lot of the product that we're seeing is significantly better. The details in the products are significantly better. So we still feel that there is certainly some strong product there that is very relevant for our assortment. And then certainly on the lifestyle piece and some of the sports retro inspired running product that's out there, comfort products that's out there has a lot of runway as well.

It’s a great thing typically for us when we have multiple vendors that are bringing great innovation and great product. They are all pushing each other and we see still a pretty strong pipeline of products that we're seeing so far.

Camilo Lyon

Great. And just final question on that price value comment on basketball. Is that to suggest that there are further price reductions expected next year on some of the weaker kind of categories like Signature or is it just that the actually process looking better?

Jeff Rosenthal

No. We don't see any further reductions. We see the value in the product being enhanced.

Camilo Lyon

Understood. Thanks guys. Good luck in the fourth quarter.

Jeff Rosenthal

Thank you.

Operator

Our next question comes from the line of Patrick Mckeever with MKM Partners. Please proceed.

Patrick Mckeever

Okay. Thank you. Just a couple of big picture questions, one on the competitive front, I just wanted to get your thoughts on what you're seeing there. Walmart I think saw some of the same weakness in cold weather merchandize that you talked about, but they also called out sporting goods is a strong category in the quarter, so just wanted to get your perspective there, and also just, the impact of direct-to-consumer businesses, how you're thinking about that. And then the second question is just what – how are you feeling about the economic well-being of your core customer?

Jeff Rosenthal

I think there are some good questions there. Obviously, some of the businesses go in to online, that's one of our major initiatives and since we have not $1 in sales, we think that with a huge opportunity for us, we believe over a period of time that it could become 10% of our business, so we're working diligently on getting that up and having that tool which we don't have today to say a number on how much is going there, we're not sure.

There are some categories such as equipment that we do feel that a little bit more that business is going online than in brick-and-motor stores. But with the Walmart and the winter categories, I think its just people wait and wait until they have to get it. And we thought last year it was warm, while this year's prove to be warmer. Now we're in a very good shape from an inventory and that we won't have the carryover that we had last year, so we should be a much inventory shape.

How does the consumer feel? I think it maybe a little bit better, but I think between the election and other things I think it's still kind of early to tell. There are some pressures, rents more expensive and other things out in the marketplace but I would say that it's maybe slightly better but that's a hard question to answer.

Patrick Mckeever

Thank you very much.

Jeff Rosenthal

Thank you.

Operator

Our next question comes from the line of David Magee with SunTrust. Please proceed with your questions.

David Magee

Yes. Hi, good morning.

Jeff Rosenthal

Good morning, David.

David Magee

Jared, what you think is going to take for the license business to come back. I get the sense that a lot of kids are ordering that stuff and store knockoffs the merchandize from overseas sources and things like that. Is that business sort of permanently impaired do you think?

Jared Briskin

I don't know if I would say it's permanently impaired. We certainly have seen declines there for certainly the last few years and certainly don't see it today as a trend with kids, which is some of the challenge. There's certainly a lot of business that's being done. Some of the levers that we currently don't have or impacting some of our ability to get some of that business without question, but the general business and license pressure and certainly with the majority of the license business occurring in the back half of the year, there's a significant portion of that business that is also weather driven and seasonal as well.

So, I think there's a lot of things that are impacting the license business, certainly its part of DNA, we're continue to try and drive as much business there as we can, but at the same time we have to ensure that we've got the right assortment within each store for every customer that we have and today that the license business is definitely pressured.

David Magee

Thank you. And then secondly, maybe Scott, if you could talk a little bit about the infrastructure upgrades and improvement, which I think we had see some green shoots adding to stability up until this past quarter. Maybe talk a little bit about the in stock progress and markdown management things like that that hopefully will continue into next year?

Scott Bowman

Yes. I think just on a general infrastructure question, I mean, we've done a ton of work in the last two or three years, I think that is paying off in terms of stability of our core systems and the talent level we have in our IT group. I think we've made huge strides in that area and I think that really has set itself nicely to deliver on our store to home and digital initiative. So, we feel really good about that and we've done a lot of good work over the last two, three years that isn't readily visible but we're very pleased with that progress.

In some of the systems, the markdown optimization system and some of the upgrades in our merchandizing systems are still working fine, lot of it is just working through some of the anomalies like Jared has been talking about with weather and so forth, it's hard to predict. It basically takes the historical basis, so it's not full proof. So it definitely requires some intervention especially when we need to reduce our inventory levels, and not causing overhang going into the next quarter or next year.

David Magee

Is it a better in stock or better in stocks helping the footwear business which seems to be strong?

Scott Bowman

We definitely think that is the case and using the DC for quick replenishment we think definitely has provided some benefits. We see it in some in stock rates that we look at and we get feedback from the stores that that confirms that. And so we were confident that that has started to happen. The good assortment certainly help, but as we go to store to home capability that's kind of an next step, they're improving that conversion rate and so we're excited to see that on the horizon early next year.

David Magee

Great. Thank you.

Scott Bowman

Sure.

Operator

Our next question comes from the line of Peter Benedict with Robert Baird. Please proceed.

Peter Benedict

Hey, guys. Couple of questions. First just the [Indiscernible] sale and store-to-home capabilities, so looking forward to those in terms of what they can do for sales. What is your thinking about what the impact is on margin? There's an extra step in kind of serving the customer? How do the costs of doing that kind of play into your view of product margins or gross margins as those capabilities rollout?

Scott Bowman

Yes. Peter, its Scott. We definitely think that margin will be impacted somewhat with the freight costs, we're working on ways to mitigate that as much as possible, but it will be some impact and you will have better information as we kind of get rolled out on that functionality. Kind of looking at the other side, we do feel like there is some favourability potentially because with each store kind of operating independently today there is a lot of product that get stuck in individual stores that as you open that up chain-wide and get that visibility, there is better chance of clearing that product.

Okay. And I think the other benefit that we will see over time is that, as we get a better read on true demand for each store, when we convert more sales in each store we'll get a better feel for that demand by store and allocation will adjust accordingly to get those stores more products in the future. So I think over time that will pay some dividend as well.

Peter Benedict

Okay. That makes sense. That's helpful. New store productivity was very strong in the quarter. I think the new allocation is probably helping drive that, can you talk to us about your view there, Scott going forward and kind of your latest thinking on new store openings and the pace of expansions?

Scott Bowman

Sure. Our new store productivity, we are pleased to see that increased, and I think it's really result of the couple of things. Number one will be in a little bit more selective on new stores and I think that's part of it. But the other things is as we open these new stores we're looking at theses new stores in terms of store typing and what type of store that would be appropriate for the demographic in each of these areas. And so, I think as we look at it that way we're getting a little better assortment in matching that two, the demographic and the customer base for those areas. So I think that is resulting in some better productivity as well.

Peter Benedict

Okay. In terms of the pace of growth, I mean, how is ground plan for this year, what do you think longer term?

Jeff Rosenthal

Yes. I think long term, I think what you'll see is we're probably be a little more selective, and it maybe a little bit more aggressive as well on store closures. And so I think you'll continue to see that trend, but I think that is really increase kind of the health of the store base and as we get store-to-home in digital up and running that will offset any shortfalls that we see for additional closures.

Peter Benedict

Okay. That's good. And then last question, just on your buybacks. I think you've done little over 30 million so far this year. I think you were closer to 90 at this point last year. What striving kind of buyback decision here? How should we think about your plans for buyback going forward? Thanks.

Scott Bowman

Yes. I mean, last we started off with a very high cash position so that allowed us to buyback a little more. I think as we look forward into the fourth quarter chances are we'll be a little bit more aggressive, originally I thought with buyback close to 50 million for the year and I still think it will pretty close to that number.

Peter Benedict

Okay. Perfect. Thank you.

Scott Bowman

Thank you.

Jeff Rosenthal

Thanks Peter.

Operator

Our next question comes from the line of Anthony Lebiedzinski with Fidelity Investments. Please proceed with your questions.

Anthony Lebiedzinski

Yes. Good morning. Thank you for taking the questions. So first quick clarifying question if I could. As far as the guidance for the year, Scott, you're still assuming a low single digit comp increase, right?

Scott Bowman

That's correct.

Anthony Lebiedzinski

Okay. All right. And then, Jared, I think you mentioned that the fitness is your most challenged category. Can you give us the sense what percentage of your business that is and is that a category that you would perhaps totally eliminate if this continues?

Jared Briskin

It's getting smaller every year. We continue to retract stores from the program and certainly we have stores where the business is still important to and we'll continue service it there, but it is retracting e without question.

Anthony Lebiedzinski

Got it. Okay. And then as far as the e-commerce launch, I mean, given what you guys said as far as the point of sales system rollout, is it pretty safe to say that e-commerce will not be launch by back-to-school next year?

Jared Briskin

It's too early to say, Anthony.

Anthony Lebiedzinski

Okay. Got it. Okay. And then lastly, Scott you mentioned that next year, 53-week year as far as the impact from that extra week and you think we could say now?

Scott Bowman

Really, all I can tell you now is that the last time we had a 53-week, was in fiscal 2013. The impact at that point was about $0.07 per share, but I'm going to have to do some work on and really identifying the range for this coming year.

Anthony Lebiedzinski

Okay. Thank you.

Scott Bowman

Thank you.

Operator

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Jim Duffy

Thanks. Good morning. A few questions. The first dovetails with your comments on you saw productivity, can you maybe speak in more specifics on the 3Q comp variance, you saw between the different store concept types, fashion specialty, athletic specialty and sports specialty?

Jeff Rosenthal

No. We really don't get into that level of detail by store type.

Jim Duffy

Is it safe to say based on some of your contents, I'm sorry comments including better fitness lagging that specialty and athletic specialty outcome the sports specialty?

Scott Bowman

That's fair.

Jeff Rosenthal

Yes. I think in general that's fair.

Jim Duffy

Okay. And then in terms of your mix of new stores going forward, they biased towards fashion in athletic, any comments you could provide about that mix would be helpful?

Scott Bowman

We'll continue to do analysis around each of that, sometimes it depends on what area the country and there are different factors that we'll put into it, but we definitely what to go where we our successful.

Jim Duffy

Fair enough. Changing directional a little bit, Adidas has been the brand coming on strong in the category, presumably specifically in the context of your fashion especially direction. Is that brand gaining meaningful share in the mix. I know you pleased with the allocations you're getting. Will you be participating in their upcoming launch this fourth quarter?

Jeff Rosenthal

Yes. We're very pleased with the partnership that we have with Adidas and certainly we still see significant opportunity to take that brand to additional locations. And yes, we will be participating in their launch product for the fourth quarter?

Jim Duffy

Okay. And then given some of the comments you made about upward pressure on OpEx, what were the comp leverage point for expenses of occupancy and OpEx, looking out to 2017 and probably this is a 53rd week impact that?

Scott Bowman

Yes. It will be closer to kind of the mid single digit comp range needing to leverage so we'll elevate until we kind of get through this investment cycle, so that's what I would expect. And the 53rd week will help marginally but it won't make thet huge impact.

Jim Duffy

That’s all I have guys. Thank you very much.

Scott Bowman

Thank you.

Operator

Our next question comes from the line of Sam Poser with Susquehanna. Please proceed with your question.

Sam Poser

Thank you for taking my question. Sort of half-half, what was the conversion rate in the quarter in footwear?

Jeff Rosenthal

We don't have a ways to measure that specifically, I mean, a lot of what we look at our in stock rates and just sell-through rates on, some of the products especially in footwear. So we know that it's higher than it has been in the past but we don't have a specific number that we track.

Sam Poser

But I think you said in the last call, you are running about 62%?

Jeff Rosenthal

Yes. That was a 1,000 estimate.

Sam Poser

And so is it better than 62 or you think it probably around that?

Jeff Rosenthal

I think it's gotten a little better since then.

Sam Poser

And then, what are you thinking – I mean, I know you don't guide the quarters, but I mean, could you give us some idea of what you're thinking about of same-store sales for Q4?

Scott Bowman

Yes. We don't give quarterly guidance, I mean; we're still sticking to our low single-digit for the year. We definitely think we have some opportunity based on the other product that we're seeing and everything like that, but it is difficult to tell what's going to change with the cold weather situation or lack there of and then that consumer around the holidays.

Sam Poser

I just have – I have three quick ones. One, your accounts payable was way down versus last year. Just want a little color on that. Number two, you talk about normalized winter, I mean, we haven't had whatever normalized winter is. So when you're thinking Jared about next year how do you, I mean, what you're going to do. Are we just going to say, okay, are you going to be willing to sell out and like rather than setup chase, so you don't get this problem. And the mix issue related to footwear wasn't that increase mix of footwear sales a result of the poor sales and the markdowns that happened in apparel?

Jeff Rosenthal

So, I'll let Jared to answer the last two. I'll address the accounts payable question. That's mainly due to timing of receipts and so, last year we receive a lot more product in the month of October. This year we kind for scale down a receipt as we got towards the end of the quarter and so we didn't have as many of those payable dollars there at the end of the quarter.

Jared Briskin

Sam, I think with regard to your second question, I mean , we're certainly agree and feel like the weather pattern has become so consistent that this is the new norm. We're certainly looking for and we had some success with some transitional way product that we'll continue to make a larger part of our assortment and then we will going forward be very careful on the seasonal product as well and plan to sell out and plan to chase as much as possible.

With regard to the mix, certainly some of it was driven by the lower apparel sales but we also had very significant growth in footwear, so I think it was a combination but more towards the comp line with regard to footwear.

Sam Poser

Just last thing, but I mean, you were disappointed with your apparel, if you would based on what did you miss your apparel sales by? First is what the plan, I mean versus plan how much do you miss by?

Jared Briskin

Yes. I mean, the apparel, again the apparel declines from a seasonal perspective impacted the quarter by about 150 basis points a comp.

Sam Poser

So, if you would had that your gross margins would look significantly better even though?

Jared Briskin

Yes. We feel like the comp would have certainly been better and then certainly the margins would have been better as well. We still would have seen some shift driven declines but the margin certainly would have better if we had captured that seasonal business.

Sam Poser

Thank you. Good luck.

Jared Briskin

Thank you.

Operator

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

Rick Nelson

Thanks. Good morning. I like to ask about regional performance, how your comp in an non-weather affected markets like the Southeast and how you did in the northern markets and maybe oil states?

Scott Bowman

Sure, Rick, unfortunately I think the weather affect did impact most regions if not all but in general we saw the Southeast performed the best, so Alabama, Georgia, Florida, the Carolina did very well. We saw the Midwest softer and the Southwest especially soft belt. So at this point we thought that states like Texas, Okalahoma and those states kind of in that energy sector would be performing better given the low comps that we saw last year in that area, but we're still seeing even lower comps this year. So we haven't seen that turnaround yet. And hopefully we'll see that soon.

Rick Nelson

And Southeast performed [Indiscernible] comps could you generate in those states?

Scott Bowman

Southeast they were up about mid-single.

Rick Nelson

And guidance, what does that assumed about the weather, more of the same or getting colder?

Jeff Rosenthal

In general, Rick, it does assume some improvement, but we do remain cautious because there's lot of unknowns there.

Rick Nelson

Got you. Thanks and good luck.

Jared Briskin

Thanks, Rick.

Operator

And our final question comes from the line of Michael Weisberg with Crestwood Capital. Please proceed with your question.

Michael Weisberg

One question about average ticket, we continues to do great for you guys, is that driven by mix because of the increasing sales of sneakers. And or is it higher pricing on sneakers. And this as a follow-up, is sneakers roughly now 50% of revenues?

Scott Bowman

Yes. We see that average ticket continuing to be up, price mid single-digits and it has lot to do with mix and higher price ticket.

Michael Weisberg

Okay. So, are you getting higher pricing on sneaker side?

Scott Bowman

Yes.

Michael Weisberg

Okay. And is it 50% number roughly right for the sneaker component?

Scott Bowman

That's right.

Michael Weisberg

Thanks a lot.

Scott Bowman

Thank you.

Operator

And now we'll turn the call back to you for your closing remarks.

Jeff Rosenthal

Thank you for listening. Look forward to our fourth quarter earnings call on March 10th. And thank you for participating.

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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