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Hibbett Exec: Customers Reluctant to Stop Spending on ‘Specific Athletic Brands’

A difficult year-over-year comparison and low inventory drove Hibbett’s first-quarter sales down 16.3 percent, the retailer reported Friday.

With the tough year-over-year comparisons from last year’s stimulus now “substantially” behind it and inventory back to historical levels, the sports retailer reiterated the full-year targets it announced three months ago.

In a Nutshell: After seeing a significant boost in sales following the distribution of last year’s stimulus checks, Hibbett was unsurprisingly hard pressed to sustain year-over-year growth in the first quarter. According to president and CEO Mike Longo, the tough comparisons are now over, with the second quarter only seeing such headwinds in its first two weeks.

“We are seeing that our seasonality trends are now back to a much more normal level that looks much more like fiscal ’20,” Longo said on a call with investors Friday. “And so we believe, as a result, that the stimulus impact is substantially behind us now.”

Similarly, headwinds from low inventory levels have since eased. When the company started the quarter, Jared Briskin, executive vice president of merchandising, said inventory levels were “down in the low 20s” versus to the same time three years earlier. By the end of the quarter, they were “up in the low 20s” on a three-year basis, “in line with our order sales growth,” Briskin added.

Overall, Hibbett’s inventory grew 40.7 percent from the beginning of the quarter to $314.9 million. Versus the same time last year, it jumped 72.6 percent. According to Longo, a “significant portion” of the inventory it added arrived “late” in the first quarter.

“The vast majority of the inventory growth that we saw from the end of the year to the end of the first quarter is in high-demand footwear, so [we’re] very confident in our ability to move through that inventory,” Briskin said.

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While others have hinted that the low-promotion environment of last year could be ending, Hibbett’s executives signaled that they are not so worried about the return of discounting. “What we have not seen thus far is a significant retraction back to a very promotional environment that we have seen historically,” Briskin said.

“What drives promotion generally is either… the need to drive traffic or to clear inventory,” Longo said. “Well, traffic’s not an issue, and our inventory is not an issue. We have got very fresh inventory.”

Hibbett also expressed optimism on inflation. According to the company’s own research, its customers are “concerned” about inflation and believe it will have a “general impact” on their discretionary retail spending, Bill Quinn, senior vice president of marketing and digital, said. These respondents, however, reportedly showed a “reluctance” to reduce spending on “specific athletic brands” that make up the majority of Hibbett’s assortment, he noted.

Net Sales: Hibbett’s net sales totaled $424.1 million in the 13 weeks ended April 30, a 16.3 percent decline compared with the $506.9 million it pulled in during the equivalent period last year. Comparable sales dropped slightly further, by 18.9 percent, but increased 22.9 percent against the similar period in 2019.

Brick-and-mortar comparable sales dropped 22 percent year over year, while e-commerce grew 4.1 percent. Compared to three years earlier, they improved 13.6 percent and 116.9 percent, respectively. E-commerce represented 14.6 percent of total net sales in the quarter ended April 30, versus 11.7 percent a year earlier and 8.3 percent three years earlier.

Footwear and apparel both declined in the teens year over year, while team sports and licensed products grew mid-single digits, Briskin said. Compared to three years ago, all merchandise categories improved double digits, except for team sports, which declined. Apparel and accessories grew in the low 30s, with fleece, licensed products, underwear and socks the “primary contributors of growth,” Briskin said. Footwear sales increased in the high teens versus three years earlier.

Women’s footwear and apparel grew in the mid-60s compared to the same period three years ago. Briskin described the segment as “a tremendous opportunity.” Men’s, meanwhile, saw sales increase in the late-20s, while kids grew in the low teens.

Net Earnings: The company’s gross margin declined from 41.4 percent of net sales a year ago to 37 percent in the 13 weeks ended April 30. The 440-basis point decline included approximately 160 basis points from store occupancy deleverage, approximately 150 basis points from higher average product costs and approximately 130 basis points from increased freight and transportation costs.

Store operating, selling and administrative expenses were 22.5 percent of net sales in the first quarter, up from 18.1 percent last year. Senior vice president and chief financial officer Bob Volke said the 440-basis point increase was “primarily” the result of the “significant” year-over-year decline in sales, as well as increased costs from its larger store base and increased e-commerce volume.

Hibbett recorded a net income of $39.3 million, or $2.89 per diluted share, in the 13 weeks ended April 30, compared with $84.8 million, or $5.00 per diluted share, during the equivalent period last year.

CEO’s Take: “Certainly, our consumer is going to be challenged by higher gas prices, higher food prices, higher rents,” Longo said. “I think everyone knows that, and so we should acknowledge that. But again, we think that the factors that overcome that are the fact that their wages have gone up and that employment is very strong. So, the consumer, at least so far, is in a pretty good place.”