Hibbett Sports, Inc., Q4 2007 Earnings Call Transcript

| About: Hibbett Sports, (HIBB)

Hibbett Sports, Inc., (NASDAQ:HIBB)

Q4 2007 Earnings Call

March 14, 2008 10:00 am ET

Executives

Michael J. Newsome - Chairman of the Board, Chief Executive Officer

Gary A. Smith - Chief Financial Officer, Vice President

Jeffrey O. Rosenthal - Vice President of Merchandising

Nissan Joseph - President, Chief Operating Officer

Analysts

Richard Nelson - Stephens

Sam Poser - Sterne Agee

Sean McGowan - Needham & Company

Chris Svezia - Susquehanna Financial Group

Mintz, Jeff - Wedbush Morgan Securities Inc

Anthony Lebiedzinski - Sidoti & Company

Chris Rapalje - SunTrust Robinson Humphrey

Steven O’Brien - Wellington Management

Jim Chartier - Monness, Crespi & Hardt

Steven Martin - Slater Capital

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 morning everyone. With me also is Gary Smith, our CFO, Nissan Joseph, our President and CEO, and Jeff Rosenthal, our VP of Merchandise. We appreciate you being on the call today and your interest in Hibbett Sporting Goods.

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

Gary Smith

Thank you. In order for us to take advantage of Safe Harbor rules, I would like to remind you that any projections or statements made today reflect our current views with respect to future events 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 late yesterday, our fourth quarter earnings per diluted share were $0.26. Sales for the 13 weeks ending February 2nd, 2008 versus the 13 week ending February 3rd, 2007, decreased 5.5%. Comp-store sales on a 13 week calendar basis decreased 7.3%. Comp-store sales on a 13 week fiscal basis decreased 4.7%.

On a calendar basis, November was slightly positive up slightly less than 1% but we were more promotional during Thanksgiving weekend than we were last year. December and January on a calendar basis were both negative 10%. Worst quarter to-date was March 13, with a slightly negative less than 1% so things have improved some.

Some fourth quarter detail on a 13 week was 13 week calendar basis. Non-urban stores outperformed urban stores. Non-urban remain at 5%, urban remains 9%. Strip center stores outperformed enclosed malls stores. Strip centers were minus 6 and the enclosed malls were minus 8.

Now, while we are at the fourth quarter week, we feel that the number one reason was it is the consumer, the consumer is week. We have less traffic in our stores and they purchased slightly lower price points than last year.

Number two, is the lack of hot autumn in our industry, a hot brand or a hot fashion. One year ago we had yields also one year ago we had come with St. Louis Cardinals, | Wedding & Bridal series, which mean a lot to us. A Boston Red Sox did not mean that much to us. One year ago we had the Chicago Bears, and the Indianapolis Colts and the Superbowl, which meant a lot more to us then the New York Giants and the New England Patriots.

Fiscal 2008 new stores, we opened 84 new stores and closed 9 permit, increased our 75 new stores or a 12.3% increase. We opened 40 in the fourth quarter and all of to know, that people like Steve Kowal, our VP of Construction and Property Management did a great job of getting those stores built, all did in one quarter. Cathy Pryor, our VP of Store Operations did a great job of setting the stores, staffing the stores. Jeff Rosenthal, our VP of Merchandize although they did a great job, those did the distribution sales, getting the merchandize to the stores. That group of new stores is outperforming the other new stores, it is far than expectation.

Now, for some final detail, Jeff Rosenthal, our VP of Merchandize will speak to you.

Jeff Rosenthal

Three major areas of business apparel, footwear and equipment. License is broken into college and Pro was down double-digit. Pro license was tough going against Colts, Bears and Cardinals’ comparisons. Youth Lady follow-through was very good.

Activewear was up double-digits led by Under Armour and Nike. Kids, woman’s and men’s activewear were way out. Urban apparel remains soft, however, first quarter and urban apparels have improved. Footwear down single-digits, tough comparisons against Heely’s from a year ago, Fossett footwear would still remain soft, Nike Shox, Air Force Ones, Jordan’s and Asics performed well.

For the first quarter footwear has improved from the fourth quarter trends, Athletic footwear mainly baseball has remained sound. Hard goods has been down double-digits. Inventory from an age standpoint is in good shape. We are still clearing out some winter goods but feel that we are in good inventory position for this spring calendar year.

Michael Newsome

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

Gary Smith

Fourth quarter total sales were $142.8 million would represent a 5.5% decrease from the previous year, which contained an additional selling. Gross profit rate decreased due to increased markdowns, an unfavorable inventory adjustment related to shrinkage and a de-leveraging of store occupancy in warehouse costs.

Selling and administrative cost increased 2.6% over the previous year but de-leveraged 117 basis points as a rate of sale. Those increases were mainly in store pay roll, new store cost due to the backend loading of the 40 stores and an increased advertising spend.

A quarter tax rate at 35% reflects the favorable resolution of certain state tax issues, an EPS scheme in a $0.26 versus revised guidance of 20 to 26. For the year total sales increased 1.7% or $520.7 million, while fiscal comp-store sales declined 3.1. Gross profit rate decreased due to increased markdowns and the de-leveraging of store occupancy and warehouse cost.

Selling and admin costs increased approximately 8% and 120 basis points from the previous year, again the increases were in store pay roll, stock option expense, advertising, and data processing related costs. EPS came in at 98 versus last years of $1.17.

From balance sheet perspective, the company ended the quarter with $11 million in cash versus $30 million last year. We’ve spent $26 million to buyback, 1.4 million shares in the quarter and through the end of the fiscal year we spent a $150 million to repurchase 6.7 million shares.

Inventory to increase 13.5% over the previous year, but marginally on a store by store basis, working capital needs decrease as AP growth outpaced the inventory. We spent approximately $16 million in CapEx for the year and plan to spend $24 million on CapEx in the next fiscal year.

Michael Newsome

Thank you, Gary. Nissan Joseph, our President and Chief Operating Officer will now speak with you.

Nissan Joseph

Thank you Mickey, good morning. Fiscal 2009 have significant challenges ahead for retailers and Hibbett is not unique in that sense. As stated in our release, we filed an opening 87 new stores inline with our proven strategy of going to small markets an estimate closing about 10 stores. We plan on opening 12 stores Q1 followed by 20, 27 and 28 in the subsequent quarters thereby being a little less loaded on the backend as we were last year.

Our comps for fiscal ’09 are estimated to be a breakeven to negative 3% leading to an EPS of $0.88 to $1. We do recognize the economic challenge facing us but are equally focused on the execution of key initiatives we’ve identified to drive sales in ’09. These initiatives include processes in malls, in areas like supply chain, merchandize assortment, and customer segmentation to better serve the markets we exist in.

Hibbett continues to be a profitable company with a sound strategy for organic growth, while predicting an economic upturn at the moment would be responsible, we are ensuring that Hibbett’s will be positioned to capitalize on opportunities in our channel and space.

Operator, now we will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Rich Nelson with Stephens. Please go ahead.

Richard Nelson - Stephens

Thank you and good morning.

Nissan Joseph

Good morning.

Richard Nelson - Stephens

I have got a question about the full year guidance as it relates to the consumer, does it assume continuing tough consumer environment throughout the year or does it assume some improvement later?

Nissan Joseph

It assumes a pretty tough year, Rich.

Richard Nelson - Stephens

Okay, got you. The Under Armour, Nike, some -- how do you see that affecting your footwear sales?

Nissan Joseph

Well Rich, you know, Under Armour is coming out with their cross trained shoes in May 3rd, I mean, cross training is such a small part of the overall footwear business so, its really you know, its not really about market share anything like that. So, you know, we expect the Under Armour shoes to perform well with all the marketing that they are getting behind it, but for this year you know, what really, this such a huge battle frustrating such a small category.

Richard Nelson - Stephens

Got you, thanks for that. And then, question on store openings, store growth I’m calculating 11.1% net of closing sets below the historical growth rate, those are to be conservative or?

Michael Newsome

Rich, we are just being conservative we thought in these economic conditions and times that it might be good to back off slightly and be real picky and choosy about our roll stack selections, we might end up with more over the net, but we think, we should be conservative this year. 11% still gives us additional 77 new stores net of any closings.

Richard Nelson - Stephens

Thanks. And how about on a competitive front are you using any more competition from Dick’s as they open more stores in smaller markets?

Michael Newsome

Yes, we are seeing some of that, now they are opening stores in Dick’s and Academy, they are opening stores in mid size market. So, that’s what we could consider both in Alabama and Montgomery Alabama more mid size markets. So, most of our growth is in the hedge of Kentucky’s of the World and Paris, Texas. So, we are about 20% of our stores are within a 15 mile or 15 minutes driving distance from the Big Box, we don’t expect that to grow, we then open additional stores near us but we’ll open many, many additional stores more isolated demand.

Richard Nelson - Stephens

And then, if you hit your EPS targets for the year, what should free cash flow look like, Gary?

Gary Smith

Probably in the $25 to $30 million range.

Richard Nelson - Stephens

Alright, thank you. Good luck.

Gary Smith

Thank you.

Operator

Our next question comes from Sam Poser with Sterne Agee. Please go ahead.

Sam Poser - Sterne Agee

Good morning. A quick question, what kind of headwind, Jeffrey you are going to be facing with Heely’s. I guess and how are you viewing crocks in the same view for the first half of the year?

Jeff Rosenthal

Heely’s the toughest comparison would be this quarter or it would be first quarter and then as we go through second, third and fourth, it’s not that meaningful. But, first quarter is the biggest comparison and you know, crocks you know, from a basic stand point its mostly defiling and then its more of an item business so not huge numbers that we are going against.

Sam Poser - Sterne Agee

Okay. And then, just a follow up on the last question. As we look at the year end especially as you are on Heely’s I would guess as a material out of sales in the first quarter, could you quantify how much that was last year?

Michael Newsome

Well, we don’t really have that number, we’d be guessing. We’d be afraid to do that off the top of our head.

Jeff Rosenthal

We want to get just from a comparison standpoint the biggest numbers were of course in the fourth quarter and it gets lighter in the first quarter and then second, third and fourth pretty much go over that.

Sam Poser - Sterne Agee

Got you, and then but as we look at the year, can we, I mean, are you looking at it as the comparisons are easier on the back half for the year that the front half of the year will be softer or I mean should we be looking at a negative. I mean should we be looking at worse comps in the front half and then improving towards the less worse towards the back half?

Jeff Rosenthal

It’s really hard to say of, if I would guess it I would say probably yes, the back half should be a little softer and we should, I’m saying we should be bettering the back half.

Sam Poser - Sterne Agee

Okay and then, you mentioned briefly Jeff, that the classics were weak can you give us any more clarity there or any signs of any improvements?

Jeff Rosenthal

We have seen a little bit in the first quarter, some of our Reebok classics have done a little bit better, we are still doing well with more multiple air force one’s and some of the Max-9 in that classic category, we are doing okay. K-Swiss has still been a little bit tough.

Michael Newsome

Sam, one thing we got to going for us in the second half, we got the Olympics that easily means something good for the sporting goods industry, and also no matter who is in the world series or no matter who is in the Super Bowl, we won’t be going against a big number there at all. And we will not be going to against Michael Vick, either which we were this past year where we did the year before, we had a lot of sales in Michael Vick jerseys. So, we got some decent things happening for us this year.

Sam Poser - Sterne Agee

And how have you planned that, I mean then you have incremental opportunity with the Under Armour launch as well in the second quarter. How do you view that or is that due to opening will make up for something else or may be softening after that time?

Jeff Rosenthal

You know, it is not a significant amount of dollars that, you know, we are still being very conservative with their on sales because, you know… right now what the way to the economy and in those type of factors and traffic, so you know if it sells through better hopefully it will help our comps, but we were really been pretty cautious.

Gary Smith

There is also cannibalization in fact, the factor prudentially half, so we are not being necessarily late it about the Under Armour Launch against our comp stands.

Sam Poser - Sterne Agee

Thank you guys very much. Good luck.

Jeff Rosenthal

Thanks, Sam.

Operator

Our next question comes from Sean McGowan with Needham & Company. Please go ahead.

Sean McGowan - Needham & Company

Thank you, guys. Good morning. I was just wondering if you wouldn’t mind just repeating quickly that store growth opening pattern with the 12, 20, 27, 28?

Nissan Joseph

That’s correct, it’s 12, 20, 27, and 28.

Sean McGowan - Needham & Company

Okay, thank you. May be question for Gary look like given your cautious outlook at this point what would you say with the expectations would be on gross margin. I’m assuming if you are going to the year cautiously, it might be less risk of surprises that we do to mark down. So what would be your expectations at this point?

Gary Smith

Well, we are planning aggressive margin right up of the product margin right up and with the slight de-leveraging on the occupancy and the warehouse side.

Sean McGowan - Needham & Company

Okay and what is your expectation for, philosophy and strategy for ads spending?

Gary Smith

We did it out last year and I think will probably pick it up a bit this year, but not significantly.

Sean McGowan - Needham & Company

Okay thanks and then final question, can you give us some idea what we can expect for tax rate in 08?

Gary Smith

385.

Sean McGowan - Needham & Company

385, okay back to normal. Alright, thank you very much.

Gary Smith.

Thank you.

Operator

Our next question comes from Chris Svezia with Susquehanna Financial Group. Please go ahead.

Chris Svezia – Susquehanna Financial Group

Good morning gentlemen. I guess can you may be set some color in terms of the improvement that you are seeing thus far in to the first quarter, I know what sort of the early stages, but is there any particular driver that’s creating an improvement or you are doing something from the promotional perspective or is it teams somewhat for base of the footwear and some elements on the power side, maybe you can add little color in terms of the driver to that?

Jeff Rosenthal

Yes, we have seen in the beginning of February, we have seen a little bit of the urban consumer come back a little bit, we are seeing some of our urban brand and some of that fashion and are they coming back a little bit. So, we feel pretty good about that it’s got a little bit better than what it was.

Chris Svezia – Susquehanna Financial Group

Jeff, are you doing anything differently from the merchandizing perspective, I know the urban site has been some of the evolution for you guys, but you are doing something different in terms and brands of products that you bring in sort of driving an improvement?

Jeff Rosenthal

We do have a few new brands in apparel, and we continue to export that and from a forward standpoint, it’s still a lot of air force one’s, Jordan type products, as they are still doing pretty well. We also think we were aided by somewhat by the deploying and the leveraging of our investment in IT, for the first quarter of this year so, far. Chris.

Chris Svezia – Susquehanna Financial Group

Okay, Okay that’s helpful. But you got to tell me, inventory side you mentioned little bit heavier on some of the…some of the winter product, I guess you are preparing to kind a clear that product out during the first quarter, is there any other areas maybe a little bit heavier on?

Jeff Rosenthal

We feel like we are in a pretty good shape out of inventory especially from an age standpoint so, we are trying to clean up the loss of the winter goods now.

Chris Svezia – Susquehanna Financial Group

Okay, so, if anything is little bit of the merchandise margin hit possibly in the first quarter but proves that you…sort of go through the balance of the year, is that fair?

Jeff Rosenthal

We expect them; we know we improved in our fourth quarter.

Chris Svezia – Susquehanna Financial Group

Okay, Alright, that’s good to hear. And I guess lastly Jeff, for you, when you look at the overall in some of the part that you have seen, pre-launches you have done and there has been talk obviously about Under Armour obviously not, the major I guess impacts your business, in terms of the footwear. But is there thing that you can kind of call out from that you have seen down the pipe in terms of maybe what Nike might be doing, sort of in…sort of stimulate consumer demand for product, obviously traffic is an issue here. But is there anything that you guys are seeing down the pipeline that you are hopeful for that they can certainly drive traffic, people use to get to bags to school?

Jeff Rosenthal

You know, new balance Under Armour and Nike are off spending a lot of money in advertising cost earnings of naturally and hopefully that would bring some traffic to the stores, which will hopefully sell other products. As we get into the Olympics, that brings more excitement to athletics, we feel that hopefully that will help drive some traffic from a products standpoint, there is a new item that from Nike, it’s a shocks with air, which you know is very limited in distribution in the beginning, but that has…may have some legs as we get it later in the year so, but other than that we have not seen anything that much more innovation but the cross trading just the amount of the attention that’s going bring to us at least from a marketing standpoint.

Michael Newsome

Yeah. Another strength in footwear is some high and running shoes of performing pretty good light Asics, and Brooks and Mizuno and Nike, some of the higher price points are doing pretty good.

Chris Svezia – Susquehanna Financial Group

Okay. That’s good to hear. Okay. Thank you gentleman good luck.

Operator

Our next question comes from Mintz, Jeff with Wedbush Morgan. Please go ahead.

Mintz, Jeff - Wedbush Morgan Securities Inc

Thanks very much. Can you talk a little bit I know we have been hearing lot about mall traffic being down, can you talk about a little bit about traffic from comparing your movers as non-mall stores?

Michael Newsome

Yes, definitely malls have less traffic description, we feel description is all our future, 95% of our new stores last year and this year it is going to be strip centers, this seems like malls don’t need any more of what we do, but the description is our building they are new are they are more convenient to we thank convenience is giving to be a very strong in meaningful word to the consumer, we feel like we get into strip center out in the outskirts of a town new or huge growth area that will be in good shape, enclosed mall traffic is definitely down for us.

Mintz, Jeff - Wedbush Morgan Securities Inc

Great, thanks that’s very helpful. Can you just talk little about what the CapEx increase for 2009 is year going from 16 to 24 million on the same number of - things, that can you talk little bit about where they been increases are coming?

Gary Smith

Well, certainly if you recall last year our growth budget was approximately 24 million also we ended up using 16 and really 9 net, when you count from money we got that from landlords, but the big nuts that we had in last year was $4 million for another distributions center. Which we opted to do and the cost of constructing the stores is actually comedown as we move more districts, as supposed to some mobile stores and then talking about this year big increased in Spain, is in IT. That’s only a couple million dollars? I would expect us to be at the end of the year, we always under our CapEx budget I would expect to spend to be of a little bit more from this year, but probably under $20 million at the end of the day.

Mintz, Jeff - Wedbush Morgan Securities Inc

Okay. Great thanks, and then finally on SG&A obviously you guys did a good job controlling SG&A and top environment, how do you see that playing out for 2009 I mean can you continue that the same level of SG&A control that you had this year?

Gary Smith

Well that’s where the dilemma comes, yes it’s a good news, bad news staying part of the SG&A, decrease was the fact that in the year. There was not much of a bonus accrual that was down about a couple million dollars, so from that stand points, I guess we are not proud of the dollar growth but we are planning that to be an issue but normally being low class operators, we keep control and watch every expense going forward, so I would certainly think that we would maintain at least that same rate of discipline over the expenses issue in fact we are probably going to delay brining on some budgeted payroll hence that we would normally put in place just do the store growth.

Mintz, Jeff - Wedbush Morgan Securities Inc

Okay great, thanks very much and good luck.

Gary Smith

Thank you.

Operator

Our next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Anthony Lebiedzinski - Sidoti & Company

Good morning, couple of questions regarding the Q4 comps, can you give us a breakdown of the traffic versus ticket and only what do you saying in terms of the Q1 to date comps again the old traffic versus ticket?

Michael Newsome

At the end of the fourth quarter, ticket was down, our prosper item was down about 3%, the gross traffic was down the bottom side of it, probably in the 4 to 5 range. And in the first quarter, it has gotten a little better on the ticket and the traffic because we are almost, we are a little down less than 1% in the first quarter, so they both come back with somewhat.

Anthony Lebiedzinski - Sidoti & Company

Okay and also as far as the IT system that you have talked about, what’s the plan for further short terms of you know that the timing of the roll out and I know you better talked about price optimization some other things, so can you give us the plan for the issue, what do you plan to do?

Gary Smith

Here we had three major incidents going into this year, Anthony the planning piece was installed at the beginning of March. I was looking for the more robust replenishment piece to be installed in April. And we are working through the price optimization piece and if we decide to go ahead with that that would probably be later in the year.

Anthony Lebiedzinski - Sidoti & Company

Okay, so you are still not sure if you are going to put in price optimization?

Gary Smith

We are working through that right now.

Anthony Lebiedzinski - Sidoti & Company

Okay. And also as far as the new stores that you are targeting for this year, are they mostly backfields are you planning to enter any new markets?

Michael Newsome

Well, there are, all but one are backfills, we are Quincy, Illinois and we are going to go right across the Wisconsin line one little market but we see about ten markets we can probably do in Southwest Wisconsin, but we don’t do one just across the line and, is Quincy [multiple speakers].

Gary Smith

I think it’s Iowa.

Michael Newsome

It’s Iowa, what’s the town? [Multiple speakers] is right across the line from Dubuque, Iowa. But otherwise you got to be in the same 23 stands, we may do one or two in Southern Wisconsin.

Anthony Lebiedzinski - Sidoti & Company

Okay, alright thank you.

Michael Newsome

Thank you.

Operator

Our next question comes from David Magee with SunTrust Robinson Humphrey. Please go ahead…

Chris Rapalje – SunTrust Robinson Humphrey

Hi, this is Chris Rapalje on the call for David. I have a question about your DC plan and you talked about the possibility of putting one in the more Northern region in the territory over the next couple of years and was wondering where you stood with that? Thanks.

Gary Smith

Well, from a distribution standpoint, we decided to, we can increase the footprint here, we made some modifications and changes and we think here with using de consolidators and so forth that we can go well into 1,200 stores, we got some auxiliary space here in Birmingham which is South. So, we really don’t see, see another distribution center out there in the next four, five years.

Nissan Joseph

Yeah, we are also looking into years improvement in supply chains that have come from vendors and just the industry in general to leverage RDC here and take it beyond that point to, we look in at vendor de consolidations in on the East Coast and West Coast, that will further extend the life of RDC to service outsource.

Chris Rapalje – SunTrust Robinson Humphrey

Okay, thank you.

Nissan Joseph

Thank you.

Operator

Our next question comes from Steven O’Brien with Wellington Management. Please go ahead.

Steven O’Brien – Wellington Management

Good morning. Could you kind of go into how you will operate the company a little differently this year given the headwind versus last year. I mean what are the things here I mean is probably some obvious things but, but could you just take us through what changes since things have gotten a little more difficult?

Nissan Joseph

Sure, one of the things we are focusing on is rigorous execution of things we believe drive sales, we are looking at the three space of our merchandize assortment supply chain initiatives and customer segmentation. We are using systems to be able to give it a better granularity on stores and where they are headed, thereby maximizing our investment both on the real estate side and also on the inventory side.

We also season upside operationally as we change and improve behaviors on the sales flow with our staff, we have always invested heavily in training. We will continue that by adding and also add dimensions to it, we were also looking at relationship, relational marketing initiatives that create a relationship with our consumers that drive them into stores, so there is a lot of different initiatives that we can do internally but retail at the end of day is all about rigorous execution and that’s where we will keep our focus as we continue to face the headwinds.

Michael Newsome

Steve, there are couple of other things, we are going to be very careful in hiring additional people and we got to hire all the people we need in systems, we have got to be the best of systems and were getting good and we are not the best, we want be the best. So, we want to be very careful there but you know we install JDA the last year we don’t really concentrate on gaining some benefits from this year, and we will issue again.

Steven O’Brien – Wellington Management

Okay. And, you had been rising your price point so over the last 2 years, is that – are you still going to try and continue to do that this year?

Michael Newsome

Steve, we will try to do it but, our price points have gone down for about the last 6 years including last year, but they fell off in the fourth quarter for the first time. So, you know, we are not sure, I think a lot of that raised price point came from cleaner inventory, setting more inventory at regular price rather than a discounted price and but we are going certainly try to get it back.

Nissan Joseph

These two things are noted, our athletic footwear and our apparel has maintained their ASPs and also we forecast that ASPs will rise in the future given the fact that a lot of our vendors are facing price increases from their sourcing in China, we are hearing that from all sources and as a retailer we would plan on passing those increases on to consumers. So, that would have a natural lift on ASPC.

Steven O’Brien – Wellington Management

Okay. Is it fair to say to say that the gross margins … you may feel more gross margin pressure in the first relative to last year, in the first half of this year versus the second half or how do you see that going?

Nissan Joseph

I don’t believe so, we feel that we can increase it on all four quarters you know, hopefully we will be as have to take as many more counts in the fourth quarter next year. So, we are planning on increasing our margins.

Steven O’Brien – Wellington Management

Okay. And do you have a target for SG&A and what that could look like for the entire year as a percent of sales?

Nissan Joseph

Steve I don’t have here in front of me.

Steven O’Brien – Wellington Management

Okay. One last question, what’s all the turmoil taking place in financial markets and mortgages etcetera., is it … do you find it more difficult to find the store sites or I mean you did a great job in getting a lot of stores built in the fourth quarter, but do you find a little tougher to get the store sites and then to try and get them built?

Michael Newsome

Not really, it’s almost the opposite. We are seeing some softening and process of rent occupancy, we think we are on the front end of the softening, we think as we go through the year, we will see more and more, now there is some projects not being built, but going to small markets a lot of times we go into existing centers, and we are seeing some softening on prices.

Nissan Joseph

And we think what driving that also is the exiting by undercapitalized retailers that are going out of business in this market place. Obviously, we will have some centers not come to occlusion. But, I must reiterate that given these new stores numbers that we posted out there, we feel very confident about being able to hit new store projection given the head winds down the tail winds in real estate market.

Steven O’Brien – Wellington Management

Okay, now for really my last question, if you felt the impact yet higher prices from vendors I mean everybody knows it Chinese currency has been revaluing and wages they are going upper. Have they been trying to get price from new yet?

Jeff Rosenthal

Yeah, lot of our Nike footwear for the spring are at a higher retail, so in Nike is probably on the forefront on already raising prices but we are seeing economy down the pipe that other vendors are doing it also.

Steven O’Brien – Wellington Management

Okay, thank you.

Jeff Rosenthal

Thank you, Steve.

Operator:

Our next question comes from Jim Chartier with Monness, Crespi & Hardt. Please go ahead.

Jim Chartier - Monness, Crespi & Hardt

Good morning, just curious what’s your inventory plan for the year, do you plan inventory down given here the guidance for comps should be down?

Jeff Rosenthal

It will be down.

Jim Chartier - Monness, Crespi & Hardt

Okay, and then for Mr. Joseph last week at a conference you mentioned some expense is already found in the company just curious if you gives us some sense of now having looked to the company for low been more what a opportunity as far as cost cutting about expense savings are you seeing?

Nissan Joseph

Jim, there is a lot of opportunity for cost saving in some manners we want to make sure that those are truly savings and not cost avoidance because on times like this it is important that we stay focus on building habit and making in it a stronger company to take a advantage of opportunity thus as retail turns. There is always ways to do business. The most significant available will be in our supply chain we have already continue to, we continue to find opportunity to reduce cost. But the biggest driver to retail is going to be increasing top line revenues. So equally we want to make sure we don’t cut in areas they can affect our ability the capture top line revenues, Jim.

Jim Chartier - Monness, Crespi & Hardt

Okay and you bought that lot of stock in fourth quarter I’m curious if you would be willing to take on debt buy back additional stock?

Gary Smith

Well, as you may or may not know we issued an 8-K few weeks ago, that we increased our credit line with bank America by $50 million, so we have $30 million with regions and $50 million with Bank of America with that the execs we have the capacity to do that whether or not we thinks it’s prudent thing to do we you know we have decide that on an ongoing basis.

Jim Chartier - Monness, Crespi & Hardt

Okay, and as part of full lockers announcement that they are going to start carrying Under Armour parallel in the store stores and you know you only over lapping 30% your store basis, but what you have thought there?

Gary Smith

Well, you know, we will watch enormous as they expand distribution, a lot of work we do was unreplenishable, so as sales slow down or they, do we can adjust, so we will be watching it you know as well as our as distribution expense.

Michael Newsome

Yeah one thing, I would like to bring out to, we’re going to have more phase in 50 markets beginning in July, so we’re going to have something in the second half, we didn’t have last year, but it could be a positive point.

Jim Chartier - Monness, Crespi & Hardt

Alright and then on that effecting that had a pretty big impact on your fourth quarter gross margin and some serious effects. We’re going to have a similar impact in first quarter or if you have been doing something to mitigate that impact?

Gary Smith

No, that really won’t have an impact from the margin standpoint in the first quarter, it was adjusted … this has already been adjusted.

Jim Chartier - Monness, Crespi & Hardt

And then as far as your guidance, have you included any boost from tax rebates in the second and third quarter of the year?

Gary Smith

We have not.

Jim Chartier - Monness, Crespi & Hardt

Great thank you.

Operator:

Our next question comes from Steven Martin with Slater Capital. Please go ahead.

Steven Martin - Slater Capital

Hey guys.

Michael Newsome

Hey.

Steven Martin - Slater Capital

You did a long discussion of systems and upgrading systems and driving customers into the stores, I know I have asked you this a number of times, have you reconsidered given all that you know what to do about E-commerce and you now making our website more of you know shopping proposition?

Michael Newsome

Steven absolutely, we have looked at the web platform as a way to increase our presence in the market place. We equally do not want to get into … embark into any operations that truly does not add value to the organization from a profit standpoint, having said that we have identified key vendors that we can roll out the web platform with a very little incremental cost it and seamless to the consumer and leverage our brick and mortar strategy with a click and mortar strategy, so that’s number one. We are also look at the web to increase our relational marketing efforts with consumer to shop our source, so we’re looking at…the web port and the port of that it offered in a holistic manner rather than limiting just an e-commerce place.

Steven Martin - Slater Capital

When you say what specific values are you talking about mostly drop ship?

Nissan Joseph

Correct.

Steven Martin - Slater Capital

Okay, thanks a lot.

Nissan Joseph

Thank you.

Operator

Our next question is a follow up from Sam Poser. Please go ahead.

Sam Poser – Stern Agee

Yeah, I just wanted to follow up on the inventory levels just to understand, you said that they were a sort of …they wanted you about in a store by store basis, is that the timing impact when you open the stores in Q4 because it looks significantly heavier than it has relative to how that has been in the past?

Gary Smith

Well, you know certainly we’ll have inventory and no store facility, number of them opened up in later part of January, so its inventory on the books have really hasn’t been productive yet.

Sam Poser – Stern Agee

How many of those stores of the 40 opened in the latter part of January?

Gary Smith

20 plus.

Sam Poser – Stern Agee

Okay, And if you take out those stores can you, could you break can you tell us where you are on inventory taking those out or could you give us a value of inventories at least 20 plus stores?

Gary Smith

So, in sort of…

Sam Poser – Stern Agee

In apples to apples basis?

Gary Smith

The comp doors would probably, would be down about 1.

Jeff Rosenthal

It is close to being flattish.

Sam Poser – Stern Agee

So, that’s still a big swing to negative 7. Negative 7, 3 or would negative 4 even on a fiscal basis for the quarter. What is that the differential inventory Jeffery, you have been you said you have talked pretty good about it, but there was some how much holiday carryover was there?

Jeff Rosenthal

Well, we clean up most of a in that quarter and a lot of was spring deliveries and spring goods, is that we feel like we are in pretty good position there is not a lot a issues on from an age standpoint, Sam.

Sam Poser - Stern Agee

Okay. And then, I would expect that inventories at the end of Q1 will be slightly on the high side primarily because you got a lock and vote the Under Armour stuff which will launch till like the first day of the month?

Gary Smith

It really won’t have that bigger impact, we have that already planned, planned in our numbers. So, we should see, we shouldn’t see this kind of swing at the end of the next two quarters of outscore.

Sam Poser – Stern Agee

Okay, thank you very much.

Gary Smith

Thank You, Sam.

Operator

Our next question is a follow up from Sean McGowan, please go ahead.

Sean McGowan - Needham & Company

Yes, I just want to know if you are aware at the present of any changes in the tax holiday plans for the states where you have stores.

Jeff Rosenthal

Haven’t heard of any yet; [inaudible] sports are little early, usually it comes, we usually get that probably while close to May, June time period before they all decide.

Sean McGowan - Needham & Company

Okay, Thank You.

Operator

And there are going to be no additional questions Mr. Newsome please continue with your presentation.

Mickey Newsome

Thank you. In summary, we find we are conservative with our fiscal ’09 guidance. The consumer’s week, it is uncertain when you will return to normal. We do believe it will return to normal. Our aim is hot items, hot brands that could change with the China Olympics. We are going to generally stay in this sun belt where the population growth is huge. We are confident we can have 1,200 stores in six years and over 1,500 [inaudible]. The consumer will return.

Thanks for being on the call today. We look forward to speaking with you on May 22nd at 9:00 am Eastern Standard Time with our first quarter results. Thanks for being with us.

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

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

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