Hibbett, Inc. saw second-quarter sales dip 6.3 percent to $392.8 million on net income of $24.7 million.
While both sales and earnings missed Wall Street’s expectations, the retailer raised its full-year sales guidance and maintained its earnings outlook, sending stock up more than 6 percent in Thursday trading.
In a Nutshell: Attributed largely to the impacts of the Covid-19 stimulus package that boosted second quarter numbers in 2021, Hibbett saw all categories decline in this year’s period. Footwear and team sports sales declined in the “low-single digits,” while apparel declined in the high teens.
But the athletic-inspired fashion retailer expects improvement later in 2022 thanks in part to a strong back-to-school season. Previously projecting flat sales in 2022, Hibbett announced full-year guidance projecting net sales increasing in the low-single-digit range.
This implies comparable sales are expected to be in the range of flat-to-positive low-single digits for the full year, as the metric is forecast for “positive low-double digits” growth in the second half. Initial projections called for same-store sales to decline in the low-single digits.
The positive guidance comes amid two fundamental differences for the company compared to pre-pandemic times, according to Bill Quinn, senior vice president, marketing and digital at Hibbett.
Hibbett’s customer file has grown and higher average unit retail (AUR) is driving substantial increases in the average ticket, Quinn said.
“Through recent research, we know that a majority of customers plan to spend more this year on back-to-school, in particular on footwear. Also, a significant portion of customers have shifted the timing of their back-to-school purchases [into Q3] versus last year,” Quinn said. “For back-to-school, digital sales have accelerated versus our Q1 and Q2. Key drivers include strong traffic, robust footwear sales and gains in average unit retail.”
Approximately two-thirds of back-to-school sales have already occurred, according to president and CEO Mike Longo. In the call, Hibbett merchandising executive vice president Jared Briskin said that it does not appear that Hibbett consumers are trading down despite inflationary pressure and an overall pullback in spending.
Full-year brick-and-mortar comparable sales are now expected to be in the flat-to-positive low-single digit range, while full-year e-commerce revenue growth is anticipated to be in the positive high-single digit range.
As a result of product margin headwinds, higher freight and transportation costs, store occupancy deleverage and a higher mix of e-commerce sales, gross margin as a percent of net sales is expected to range between 35.1 percent to 35.3 percent. This is a drop from the initially anticipated 36.6 percent to 36.9 percent gross margin range reported in March.
Net new store growth is expected to be in the range of 30 to 40 stores with units spread relatively evenly throughout the year in line with initial expectations. Operating profit margin and diluted earnings per share (EPS) also remained unchanged in the new guidance, with the latter still ranging between $9.75 and $10.50.
Inventory was $366.2 million across the Hibbett Sports and City Gear banners, a 68.9 percent increase compared to the $216.9 million in the prior-year second quarter. Since the start of 2022, inventory has shot up 65.5 percent from $221.2 million.
The increased inventory levels are largely attributed to a better in-stock position of key franchises in footwear and are “appropriate for the results we are seeing during back-to-school,” Briskin said.
“With the increase in inventory, we’re certainly seeing an increase in AUR; it’s really due to two things,” Briskin said. “There is some price inflation that is driving some AUR increases, then you are not seeing our consumers trade down or not respond to some of those price increases. But more importantly, we’re seeing a very significant shift toward best-in-class premium high-heat footwear. That’s a large component of the current inventory, and will be a significant portion of the back half of the year, along with what we believe to be a very strong and excellent launch calendar, all on the backdrop of really not having near the footwear inventory necessary to satisfy our consumers during the back half of last year, especially in the fourth quarter.”
Gross margin was 34.4 percent of net sales, compared with 39 percent of net sales for the 13-weeks ended July 31, 2021. The approximate 460-basis-point (4.6-percentage-point) decline was driven by lower average product margin of approximately 225 basis points (2.25 percentage points), increased freight and transportation cost of approximately 125 basis points (1.25 percentage points) and deleverage of store occupancy of approximately 110 basis points (1.1 percentage points).
At the end of the quarter, Hibbett had $28.4 million of available cash and cash equivalents on its consolidated balance sheet. The retailer had $88.5 million of debt outstanding, leaving $36.5 million available under the company’s $125 million unsecured credit facility.
In the first half, capital expenditures were $30.5 million compared to $20.8 million in the year-ago period. Capital expenditures were predominantly related to store initiatives including new store openings, relocations, expansions, remodels and technology upgrades.
Net Sales: Net sales for the 13-weeks ended July 30, 2022, decreased 6.3 percent to $392.8 million compared with $419.3 million in the year-ago quarter.
Comparable sales decreased 9.2 percent versus the prior year but increased by 54.4 percent on a three-year basis, which Hibbett called the most relevant comparable period prior to the Covid-19 pandemic. The e-commerce business increased 8.3 percent versus last year.
Brick-and-mortar comparable sales declined 11.9 percent while e-commerce sales increased 8.3 percent on a year-over-year basis. E-commerce represented 15.2 percent of total net sales at the athletic-inspired fashion retailer, compared to 13.1 percent in the 2021 second quarter.
Net Earnings: Net income for the 2022 second quarter was $24.7 million, or $1.86 per diluted share, compared with net income of $46.7 million, or $2.86 per diluted share, for the period last year.
Operating income was $32.8 million in the period, down from $61.5 million in the 2021 second quarter.
CEO’s Take: Longo is also bullish on the third quarter because he feels Hibbett will soon gain shoppers who used to shop three or four times a year at area JCPenney and Stage Stores that have shut down.
“There is always a lag effect between the absence of the inventory and the consumer showing up in our stores and realizing we are the place to get it,” Longo said. “And on top of that, the supply chain difficulties that we all witnessed in the first half of the year and the end of last year meant that some of that inventory straggled in over time, and it took even longer for it to disappear from the shelf. When you combine those two things together and compare and contrast that to what we saw with Stage’s and JCPenney’s pullback, it extended anywhere from three to six months later than we expected and anticipated.”