Hibbett Sports F3Q08 (Qtr End 11/3/07) Earnings Call Transcript

Hibbett Sports, Inc. (HIBB)

F3Q08 (Qtr End 11/3/07) Earnings Call

November 20, 2007 5:00 pm ET

Executives

Mickey Newsome - Chairman and CEO

Gary Smith - CFO

Jeff Rosenthal - VP of Merchandise

Analysts

John Shanley - Susquehanna Financial Group

Dan Wewer - Raymond James

Jeff Sonnek - FBR

Anthony Lebiedzinski - Sidoti & Company

Sean McGowan - Needham & Company

Robert Samuels - JP Morgan

Chris Rapalje - SunTrust Robinson Humphrey

Sam Poser - Stern Agee

Mitch Kaiser- Piper Jaffray

Ralph Jean - Wachovia

Jonathan Cramer - Cowen

John Lawrence - Morgan Keegan

Presentation

Operator

Good day everyone and welcome to the Hibbett Sports Incorporated Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Mickey Newsome. Please go ahead sir.

Mickey Newsome

Thank you and good afternoon everyone. This is Mickey Newsome. I have with me also Gary Smith, our Chief Financial Officer, and Jeff Rosenthal, our VP of Merchandise. They will be certainly available for questions. We appreciate all of you being with us today and your interest in Hibbett Sporting Goods.

Before we start, Gary Smith will cover the Safe Harbor language.

Gary Smith

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 in 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 this afternoon, our earnings per diluted share were $0.25. On a calendar basis, overall sales increased 7.8%, and same-store sales increased 1.2%, and that was going against a 7.1% comp store sales increase of one year ago.

On a calendar basis, August was positive mid single-digits, September was flat, and October was negative low single-digits. We think October was negative primarily due to the warm weather, because apparel was the softest piece of the business. On a calendar basis, August, enclosed malls outperformed strip center stores for the first time in more than three years. But in the September-October timeframe, strip center stores again outperformed enclosed malls.

For the quarter, enclosed malls where flat and strip center stores were up 2%. The first 15 days as expected and planned of November by the calendar, comps were down mid single-digits. Now why did we plan it that way? These are the reasons. Days inventory is very much in line with our plan. We choose to take markdowns this year, this week, the week of Thanksgiving, primarily, Friday, Saturday, Sunday. And last year, we took mark downs in the very first week of November. That made a big difference in sales.

Last year also, we had the Alabama ordering game one week early. It was Alabama ordering game this year is this Saturday, a year ago it was last Saturday. This had a big impact on our College license. The reason we took markdowns later this year also, we want to have as big an impact as possible, but three days after Thanksgiving. We think we can do very well.

Each of the last three years, the consumer has waited longer and longer to buy for Christmas. We expect the same thing to happen again this year. We expect the weekend after Thanksgiving to be very strong, the ten days before Christmas to be very strong and the week after. That has been a continuing trend.

New stores. We opened 18 new stores in the third quarter and closed two. We plan to open 42 to 46 new stores in a quarter forward and close two. For the year, we plan to open 86 to 90 new stores and close none. 12 of our fourth quarter stores are planned for the State of Texas in smaller markets as usual. We plan to open 100 new stores next year and close 7 to 10. 95% of our new stores this year and next year will be in strip centers.

Our real estate staff has done a great job; our merchants are doing a great job of putting the right merchandise in the right store based on customer's needs and wants. And our store operation's team has done a great job of hiring, training and developing new managements for all these new stores. We are excited about our future. Now, to tell more about trends in the third quarter, Jeff Rosenthal will speak with you.

Jeff Rosenthal

We have three major areas of business of apparel, footwear and equipment. On a calendar basis, athletic apparel continues to perform very well from Nike and Under Armour. All genders, men's, women's and kid's are up in athletic apparel. We see this trend improving as we approach the holiday business in December and January.

Urban apparel has improved from the first and second quarters. We are optimistic that this would turn positive in the fourth quarter. Licensed apparel was down single-digits. College is slightly down, however we see this business being positive for the fourth quarter. Pro license apparel down single-digits and will continue to be challenging for the fourth quarter.

Footwear performed better than expected for the third quarter up single-digits. Key items for back-to-school have been Nike Shox, the Air Force One's, Jordan's, Asics Technical Running Shoes, New Balance Zips, Adidas Bounce products, DC and Etnies.

Classic footwear has remained tough. Equipment was down single-digits, but accessories were up high single-digits with socks, bags and bag-packs, leading the way from Nike, Under Armour and Adidas. Inventory is in good shape and we are well positioned for the fourth quarter business.

Mickey Newsome

Thank you, Jeff. Gary Smith will now speak with you.

Gary Smith

Due to the shift into the retail calendar, total sales were $129.6 million which was a slight decrease from last year. We had improvement in product margin rate, but this was offset by the deleveraging of store occupancy and warehouse costs.

Selling and administrative costs increased 8.6% over the prior year, but deleveraged as a rate of sale. EPS came in at $0.25 versus last year's $0.31.

For the year, total sales increased 4.7% to $378 million, while fiscal comp store sales declined 2.5%. Again, improvement in product margin rate was offset by the deleveraging of both store and warehouse.

Selling and admin cost increased to 120 basis points from the prior year mainly due to the deleveraging of payroll cost, increased stock option expense and increased spends in both advertising and data processing. EPS for the 39-week period came in at $0.71 versus last year's $0.78.

From a balance sheet perspective, the company ended the quarter with $11 million in cash versus $13 million last year. We spent approximately $5.7 million on the stock buyback from the quarter, $26.4 million this year and $123.8 million since inception.

Inventories increased 13.4% over the previous year, in part due to an additional 20 stores that are planned to open throughout the quarter versus last year's openings and the shift in the retail calendar as it relates to Thanksgiving. We spent $4 million in CapEx for the quarter and a little over $10 million for the year.

Mickey Newsome

Thank you, Gary. Operator, we are now ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we'll go first to John Shanley with Susquehanna Financial Group.

John Shanley - Susquehanna Financial Group

Thank you, and good evening, guys.

Mickey Newsome

Hi, John.

John Shanley - Susquehanna Financial Group

Gary, opening the number of stores that the company is planning in the fourth quarter is substantially larger quantity than what the company had opened in previous fourth quarter. And I wonder if you can give us some insight in terms of what happened in the third quarter. I think there were less stores opened than what you had previously guided us to, and if there are going to be any difficulty in terms of opening. And I think you said 43 stores in the fourth quarter, if that’s correct. That’s a large number in your largest quarter. And I just wonder if you can comment on that.

Gary Smith

John, I’ll be able to comment on it. We had some fallen out of the third quarter into the fourth quarter, and we're going to have heavy openings in the middle of January. We are reasonably confident that we will get what we are saying in the fourth quarter, and there is no reason why we shouldn’t. The leases are complete. And it maybe one or two that's in doubt when we had a range, but we should get our stores in the fourth quarter.

John Shanley - Susquehanna Financial Group

Why weren’t they opened in the third quarter, Mickey, as you recently indicated to us?

Mickey Newsome

Reasons, landlords in some cases. Landlords did not complete the building on time or the parking lot on time or the lease didn’t get finished on time.

John Shanley - Susquehanna Financial Group

Okay. All right. Fair enough. And Mickey, either you or Jeff, one of you: could give us an indication of how your urban focus stores did in the third quarter compared to the rest of the chain? Are we back to a normal sales trend level in those stores or is there still some issues that you still have to overcome?

Mickey Newsome

John, especially going through back-to-school, we saw the trend get a lot better than it was. And we are seeing it both from a footwear and apparel, even though from an apparel side, it was slightly negative, but we see a dramatically different than it was, say, second quarter.

John Shanley - Susquehanna Financial Group

What's driving it, Jeff? Is it some of the apparel categories that you indicated were strong, the Nike product, for example, or some of the other items that seem to be resonating well with that particular consumer segment?

Jeff Rosenthal

We see a lot of it from just a change in direction on some of the apparel that we carry. Most of them are not athletic brands from urban apparel side, but the footwear is definitely being driven by Nike on the urban side.

John Shanley - Susquehanna Financial Group

Okay. Can you give us an indication in terms of the marquee end of your footwear business? Is that as strong as you would like it? And also, can you comment on how the mid-price basketball product line is doing? I think you had indicated in the last call that that was a little bit weaker than you had expected.

Jeff Rosenthal

From a premier standpoint, Nike Shox continues to perform well. Adidas Bounce product continues to perform well. And some of the marquee brands like New Balance Zip. Basketball, from a performance side, is doing much better more from a price point and in the end user. Some of the player shoes besides Jordan's are not performing as well, but Jordan continues to perform at a pretty high rate.

John Shanley - Susquehanna Financial Group

Okay.

Mickey Newsome

John, generally, the apparel piece of the business was a little less than expected and the footwear was little more than expected. And the urban stores performed very well in August, not as good in September and October, but they performed well in August.

John Shanley - Susquehanna Financial Group

Was it due, Mickey, to the late start of the back-to-school season in Texas and Florida or were there other factors that caused that?

Jeff Rosenthal

John, I think that was part of, it was the shift to the tax freeze, but we thought across the board in a lot of states. I think people just waited with a lot of schools starting later, and people are buying our need and I really feel that we'll see the same thing at holiday, that people -- the first two or three weeks of December I think will be a little tough, but I think at the end, people will come.

John Shanley - Susquehanna Financial Group

Let's hope so. That sounds encouraging Jeff. Last question I had is: in your equipment business, it was a little bit soft in the third quarter, that's an important product category in the fourth quarter for you. Are there any TV products or anything else that you think is going to help to stimulate the equipment category for you at this fourth quarter period?

Jeff Rosenthal

There is a couple of small TV items, and John, I don't have them in front of me. I don't remember what they are, but that part of our business is, even though it gets to be a more important part in the fourth quarter, it's such a small part of our business.

John Shanley - Susquehanna Financial Group

Okay. Alright, good enough. I appreciate it. Thank you very much guys.

Gary Smith

Thank you, John.

Operator

We'll go next to Dan Wewer with Raymond James

Dan Wewer - Raymond James

Mickey, opening half of your stores for the year during the holiday season, but creates some type of distraction for management, perhaps you could talk about that, and then also on the '08 openings, the 100 new stores, and would those also be back going into the fourth quarter?

Mickey Newsome

I didn't understand that last question, what was that?

Dan Wewer - Raymond James

In next year, in the 100 new stores you are opening next year, will they also be skewed towards the fourth quarter?

Mickey Newsome

They will be skewed towards the back end of the year, probably not as much as this year. And we don't lack opening as many stores as we are doing in the fourth quarter, but when you are dealing with small markets, you use a dealer with small-time landlords and things happen. We have 130 deals approved this year and lined up with -- around 90 new stores. We have that many fall outs.

So you're just going to have some unexpected things happen to you, when you are dealing with small landlords and smaller markets, your financing falls through or you don't complete something. And we are confident we're going to get our stores in the fourth quarter, and we think we're going have a pretty good opening in the first quarter, probably more than we've ever had before. But I still think we will have more in the third and fourth quarter next year than we will in the first and second quarter.

Dan Wewer - Raymond James

And then operationally, could you talk about what unusual challenges, opening 46 stores during the next quarter will represent?

Mickey Newsome

Well, it's a challenge, but we think we are ready, we think we have the managers ready, and we are very strong operationally, and we think we can get it done.

Dan Wewer - Raymond James

This morning, Dick's was indicating a large number of new stores opening in the Southeast, many in secondary markets that are more like Hibbett-type markets. Could you comment on how your stores are holding up against the new Dick's competition?

Mickey Newsome

Yeah. Typically, Dick's or Big Box won't come to a small market, but they will come to the mid-sized markets and we are in some of those, and if we're in an enclosed mall when they come, we certainly take a hit in year one, and then start coming back typically in year two. Now, if you are in a strip center you will take a little bit bigger hit in year one before you start coming back in year two.

And we think today, probably, around 20% of our stores are within a 15 minute driving distance of a Big Box store, and we think that will stay consistent as we expand going forward into smaller markets where they will never go. They'll open some more in mid-sized markets, but that percent won't go up. So we think we'll be fine.

Dan Wewer - Raymond James

And then as a last question I have is, shifting the timing and formations in November to Black Friday and the following weekend. Is there a chance Mickey, that your stores to get cherry-picked during this high sales volume period? Is that going to adversely impact margins for the quarter?

Jeff Rosenthal

Well, a lot of it is just more driven off to some of the clearance type products. We are really like a lot of our key drivers like full priced Nike shoes and Under Armour apparel; all that is still a full price. So it’s more of the, more from a clearance stand point and just cleaning up, so we feel like we could still hit margins.

Dan Wewer - Raymond James

Did you get more clearance inventory than last year?

Jeff Rosenthal

No.

Mickey Newsome

One reason we are doing this, when people come into your store the Friday after Thanksgiving, or Saturday after Thanksgiving, they want to know what you got, what kind of deal you got, because it is the Friday and Saturday after Thanksgiving, and you need to have a good answer. So we just chose to take some markdowns this week rather than the first week in November, so we’d have a good answer for them.

Dan Wewer - Raymond James

Great. Thanks and good luck.

Mickey Newsome

Thank you.

Operator

We’ll go next to Jeff Sonnek with FBR.

Jeff Sonnek - FBR

Thank you. Can you guys discuss the systems initiatives, kind of where are we at, now that we are kind of down the road a bit further, and as you kind of look into the fourth quarter, I think some of these things start to roll through in terms of the spring purchasing that will be sold through in the fourth quarter? Are we going to see a little bit of leverage there?

Gary Smith

Well, Jeff we have seen some product margin rate improvement this year. With that being said, I think the merchants are getting more accustomed to the systems, we are getting more familiar on how they work and as you recall, we’ve also made the conversion of cost accounting which the company has handled very efficiently on [my ads]. So, I would expect to see rate improvement and turn improvement and all those sorts of things moving into next year.

We'll be moving up on the planning piece from a product standpoint, which going into February, we'll be putting in the replenishment piece, and we may even start the spadework late next year on the price optimization piece. So, full steam ahead for us.

Jeff Sonnek - FBR

So, it sounds like everything is on plan?

Mickey Newsome

Yes.

Jeff Sonnek - FBR

So no complications, I guess, with getting your merchants up to speed here and kind of adopting this?

Mickey Newsome

It's very adaptable. We have done a good job with the system. Anytime you give them the tools, they always do a good job and dig deep and coming away with “apparels of wisdom”.

Jeff Sonnek - FBR

Are there any “apparels of wisdom” you would care to share? Just early learnings, the type of thing that, kind of, might give us a better indication of what to expect next year?

Mickey Newsome

Jeff?

Jeff Rosenthal

What we've been able to do is really break down our businesses in a lot smaller base, so that we can see breakout businesses where we can get to a smaller level of detail. And we've seen really across the apparel footwear and equipment where we've seen like which store sells size 3 soccer ball or which stores sell the size five soccer ball. And so we're able to put inventory in better places to make it work more efficiently.

Jeff Sonnek - FBR

Great. Best of luck. Thanks.

Mickey Newsome

Thank you.

Jeff Rosenthal

Thank you.

Operator

We'll go next to Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski - Sidoti & Company

Good afternoon. This is Anthony Lebiedzinski. Can you give us a breakdown for comp sales for average ticket versus number of transactions, both fiscal and also on the calendar basis?

Mickey Newsome

We can certainly give it to you on a calendar basis, which is when it matches up the best with last year. The number of items was essentially flat, and we got our increase in higher price points.

Anthony Lebiedzinski - Sidoti & Company

Okay. And what would you attribute that increase to as far as the increase in average ticket?

Mickey Newsome

Probably cleaner inventories, sell more products at regular price. And purposely, we want to sell higher-end product, and we're just moving more and more in that direction.

Anthony Lebiedzinski - Sidoti & Company

And as far as your CapEx plans for the year, I think you said year-to-date that you are at about 10 million, right?

Gary Smith

That's correct.

Anthony Lebiedzinski - Sidoti & Company

And as for fourth quarter: what are your plans?

Jeff Rosenthal

Well, the number of stores -- I think in the last Q, we said we'd be in the $18 million range. We'll be 16-18 million, Anthony.

Anthony Lebiedzinski - Sidoti & Company

Okay. It's sort of little bit less. Okay. All right. Well, thanks.

Mickey Newsome

Thanks, Anthony.

Operator

And we go next to Sean McGowan with Needham & Company.

Sean McGowan - Needham & Company

Hi guys. Thank you. I wanted to know if you could talk a little bit more about directions of store openings in calendar 2008? What more do you know now than maybe last time you commented on that?

Mickey Newsome

Well, I know in the first quarter, we have 15-plus already lined up, and we probably have a couple of fallout. We gave a range for the fourth quarter. That will probably fall in into the first quarter. Now, I think thus far if we can get 15 to 20 in the first quarter, it's going to be a lot more than we ever opened before. And then the other quarters, we certainly hope to get more in second quarter this next year than we did previous year.

Sean McGowan - Needham & Company

I was looking for more of a little bit geographic direction.

Mickey Newsome

I'm sorry.

Sean McGowan - Needham & Company

Relative to the DC decision.

Mickey Newsome

Okay. Now, we just continue to be in the same 23 states area that we currently operate in. We are going to do a lot on the Texas, some in Oklahoma, some in Louisiana, but we'll do some in Alabama. We'll do some in all the existing states, but Texas will be the biggest push. If we add a state at all, it's going to be probably Southern Maryland, which kind of matches up with Virginia or maybe Southern Delaware, which is on the same parallel, but primarily it's going to be the same 23 states. There is plenty of opportunity. We have identified well over 400 additional markets that we could put stores in. We just got to get the real state into right price and into right position.

Sean McGowan - Needham & Company

Okay. Thank you.

Mickey Newsome

Thank you.

Operator

And we will go next to Robert Samuels with JP Morgan.

Robert Samuels - JP Morgan

Hi, good evening. When you look out to next year, can you please talk a little bit about what you see as the key product drivers in both footwear and apparel?

Jeff Rosenthal

Yes. We still see significant growth with Under Armour and Nike Apparel. We see our urban apparel to be coming back to normalize where we will be able to start seeing comp store gains. And from a footwear standpoint, we see our technical running such as the A6 growing and Nike and Adidas both gaining market share.

Robert Samuels - JP Morgan

Any new brands?

Jeff Rosenthal

And also, in the second quarter, Under Armour is coming out with cross-training shoes and Nike is coming out with new cross-training shoes. So we believe that there are a lot of good things looking forward to in the next year.

Mickey Newsome

And we also frankly -- Next year is an Olympic year, of course. China should be a big, big deal, and there is going to be some hot trends that might really move the needle in the third and fourth quarter coming out of those Olympics. So generally, it nearly happens.

Robert Samuels - JP Morgan

Great. Thanks very much.

Mickey Newsome

Thank you.

Operator

We will go next to David Magee with Suntrust Robinson Humphrey.

Chris Rapalje - SunTrust Robinson Humphrey

Hi. This is [Chris Rapalje] on the call for David this evening. I just had a question about your guidance. Congratulations on coming in at the high end for third quarter. And just looking at the guidance for the year, I was wondering a little bit what was -- it looks like you went from 107 to 120, down to 107 to 115, and I was just wondering what was driving, if that was a function of some of the store openings going into fourth quarter or if there was any other comment on that?

Gary Smith

Yeah, some of it had to do with the store moving from the third to the fourth quarter. Also it’s just that the environment out there is a little difficult or chancy at this point in time and we are just narrowing the range a bit.

Chris Rapalje - SunTrust Robinson Humphrey

Okay, great thank you very much.

Mickey Newsome

Thank you.

Operator

The next question comes from Sam Poser with Stern Agee.

Sam Poser - Stern Agee

Good evening. Can you talk a little more about the traffic patterns down in your market, because a lot of the other retailers have commented that your neighbor in the south have been quite difficult, and you just sort of hinted at that a little bit, Gary. How are you keeping the traffic in getting those conversions, especially in the Wal-Mart centers where they have commented that their traffic is down and business is pretty tough?

Gary Smith

Well, the traffic is flat. Our transactions in units are flat for the third quarter, and our [comp sport] was up slightly, and that’s when we got our comp store gains. So, our traffic is flat, there is no question. Now strip centers again for the quarter outperformed enclosed malls, but for August only, malls outperformed strip centers. That’s that urban customers, he did well in August. Traffic was flat there is no question.

Sam Poser - Stern Agee

Yeah, I just want to follow-up. I got the impression from most of the other retailers that traffic was down. So flat is better than what was out there. And I sort of think -- what did you do to take more share than Wal-Mart, I guess just being in the parking lot?

Mickey Newsome

Well, I don’t know if we did anything different from a promotion standpoint.

Jeff Rosenthal

And it may have been a little bit more of a flow of product from a promotional or anything like that, we were pretty much the same.

Sam Poser - Stern Agee

And then following up on your inventory, it looks a little higher than you would like, but just eyeballing it, had you been a little bit off -- your sense of vision has been little off the last few quarters, is this sale that's going to occur this weekend, this promotional event, is that going to take care of that or with some of it there for new stores and so and so forth?

Gary Smith

Well, the fact that we're opening 20 to 25 new stores could be anywhere from $3 million plus worth of inventory. Then also with Thanksgiving being a little early and with the retail shift in the calendar, we wanted to make sure that we got stuff into the stores prior to Thanksgiving.

Sam Poser - Stern Agee

So that would make up the entire 10, it would make up that difference basically?

Gary Smith

Yes.

Sam Poser - Stern Agee

That’s 10 points?

Gary Smith

Yeah, I mean we always try to be below store growth or sales growth and improve our turns. If you sort of take those factors that are little different than last year, I think you would come back and see that our inventories are in pretty decent shape.

Mickey Newsome

Sam, another way of saying that. Typically, the first week of a month you bring in a lot of inventory. Well, we had that first week of November in the quarter, and last year it was not in the quarter.

Sam Poser - Stern Agee

Right. I mean, yeah, so you're doing it on a calendar basis?

Mickey Newsome

Right.

Sam Poser - Stern Agee

It's the same week, its just following the different months.

Gary Smith

Correct.

Jeff Rosenthal

Perhaps a big reason too.

Sam Poser - Stern Agee

Okay. Alright, thank you very much.

Mickey Newsome

Thank you.

Operator

We'll go next to Mitch Kaiser with Piper Jaffray.

Mitch Kaiser- Piper Jaffray

Thanks guys, good afternoon. I was hoping, could you comment on your store than the store initiative with Under Armour and Nike, where you're at with that, maybe in terms of number of stores and what that might be for '08?

Jeff Rosenthal

Yeah, we're, kind of, have looked with Under Armour, we're continuing to open more. We, kind of, re-did our Under Armour concepts in our stores and we're continuing to expand it, which will more than double. We do have signage and other fixtures and stuff in a lot of stores, but our new stores of Under Armour, there is about 50, and we are going to do at least another 50 next year. And Nike, we are just doing some re-branding with some of our fixturing that we currently do.

So, both Nike and Under Armour, we continue to expand the shop-in-shop, if you want to call that, but with 5,000 square feet, it's hard to say that it's a shop-in-shop. There is not a lot of square footage devoted just to that.

Mitch Kaiser- Piper Jaffray

Okay, that's fair enough. And then Gary, maybe, could you help us just directionally on gross margin and SG&A, both on a fiscal and calendar basis for fourth quarter?

Gary Smith

On a fiscal basis, we did a benefit in the calendar, but of course we lose a weight, Mitch.

Mitch Kaiser- Piper Jaffray

Right.

Gary Smith

We've seen -- I would expect product margin rates to continue to improve year-over-year. However, with losing that week, I would think we would see some slight deleveraging, but within an occupancy and an SG&A rate. The SG&A rate was a little over 8% for the quarter, and I really don't see that changing that much in the fourth quarter. What we are going to have, we are going to have some more store openings to may be up a tick, but I think at the end of the day, it should be below the run rate of the incremental stores that we put on.

Mitch Kaiser- Piper Jaffray

Okay. So if I look, it looks like it was up about a 160 basis point on a fiscal basis. It would be below that for the fourth quarter then, do you think?

Gary Smith

Well, we added more stores in the fourth quarter.

Mickey Newsome

You see it's not a real good comparison, because last year we had that 14th week.

Mitch Kaiser- Piper Jaffray

All right.

Mickey Newsome

So it's sort of tough, but I would think it would be in the same range.

Mitch Kaiser- Piper Jaffray

Okay. Fair enough. Good luck, guys. Thanks.

Mickey Newsome

Thank you.

Operator

We'll go next to Ralph Jean with Wachovia.

Ralph Jean - Wachovia

Yes, thanks. Mitch just asked one of my questions, but the second question I had was: do you have a hard item for Christmas? A “must-have” item, anything to replace Heelys? Which I think was pretty good last year.

Jeff Rosenthal

Yes. We feel with some of the assortments that we've done and most of that came in kid’s footwear that we still feel very strong about kid’s footwear. We think we have some good product offering. So we feel like we'll comp that. We still feel very good about some of the Cold Gear from Under Armour and some of the fleets from Nike and Under Armour. So we feel like some of those items will be extremely good.

Ralph Jean - Wachovia

Okay. Thank you.

Operator

(Operator Instructions)

We'll go next to Jonathan Cramer with Cowen.

Jonathan Cramer - Cowen

Good evening. Just a quick question on: the competition or the competitive environment in the malls.

Jeff Rosenthal

Well, we still see from a competition with the Foot Locker's and the Finish Lines, I would say pricing is about the same as it was last year. And from a strip center standpoint, most of these markets were in smaller markets that we don't have lot of competition. So I wouldn't say that it's anymore promotional than it was a year ago.

Jonathan Cramer - Cowen

And are they beginning to retrench from some of your markets? And, if so, are you taking share in those markets?

Mickey Newsome

Did you mean: close?

Jonathan Cramer - Cowen

Both, yes.

Mickey Newsome

Yes, we've had some closes, only a handful, but we have had some. And of course, when that happens, we certainly get a lot of insights. We don’t know about -- we don’t have knowledge of those closings in the future, but there will probably be some more.

Jonathan Cramer - Cowen

Okay. Thank you.

Mickey Newsome

Thank you.

Operator

We’ll go next to John Lawrence with Morgan Keegan.

John Lawrence - Morgan Keegan

Good afternoon, guys.

Mickey Newsome

Hi, John.

John Lawrence - Morgan Keegan

Mickey, would you just touch a little bit on some of the real small markets you’ve entered like the West Point, Mississippi. And with a soft economic situation, how do those stores perform?

Mickey Newsome

They are fine. We don't have any bad stores in Mississippi. Now, West Point, Mississippi is fine. The Forest in Mississippi, it's good. Of course, we are in almost every little town in Mississippi, Greenville, and our Mississippi store is good. Waynesboro is good. And certainly, Tupelo and McComb is good. Columbia is good. We don't have any problems in Mississippi.

John Lawrence - Morgan Keegan

Okay. And certainly that urban customer coming back a little bit certainly helps that?

Mickey Newsome

Yes, absolutely.

John Lawrence - Morgan Keegan

Right. Good luck. Thank you.

Mickey Newsome

Thank you.

Operator

And we’ll take a follow up from Sam Poser with Stern Agee.

Sam Poser - Stern Agee

Just a quick follow up. In your guidance how promotional are you, assuming the home-based businesses you might get from your competition?

Jeff Rosenthal

We plan on being at par with last year, and we expect with the change in assortment that we are not going to have to be anymore promotional for the whole fourth quarter, even though we have put some markdowns into Thanksgiving Week. We think overall fourth quarter that we’re going to be at par with last year.

Sam Poser - Stern Agee

Even if Foot Locker or Finish Line do get very aggressive?

Jeff Rosenthal

Yes.

Sam Poser - Stern Agee

Thanks.

Operator

And there appear to be no further questions at this time. I would like to turn the call back to Mr. Newsome for any additional or closing comments.

Mickey Newsome

Okay, thank you. In summary, everybody knows we're in small markets. We are going to continue to be in smaller markets. We can double our store base in the next five to six years. We feel that we have a great future ahead with sporting goods.

Thanks for being on the call today. We look forward to speaking with you on March, the 14th, at 9:00 a.m. Central Standard Time with our fourth quarter results. Thank you.

Operator

Once again, that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.

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