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‘We Like Our Inventory Position,’ Hibbett CEO Says as Analyst Voices Vietnam Concern

Hibbett is projecting confidence in its ability to meet demand early next year—even as some voice concerns that Vietnam’s factory closures this summer will limit supply.

In fact, Mike Longo, the sporting goods retailer’s president and CEO, said the company sees its inventory position as one of its strengths, whether that’s “this quarter, next quarter [or] next year.”

“This is not news to the retailers, it’s been like this for some time,” Longo said Friday, on a call with Wall Street analysts to discuss Hibbett’s third-quarter results. “If you go back into our recent history, when the tariffs were put in place, that was the first big slug of inventory and that bubble of inventory came through the supply chain, that caused disruption. Now, this disruption is bigger, for sure, and has lasted longer, but none of this is news. We’ve been dealing with this and, for two years, we’ve been working on our own supply chain.”

In a Nutshell: This summer produced a uniquely difficult situation for many prominent footwear companies when a Covid-19 outbreak in southern Vietnam forced factories to close for months at a time. In late September—a week before the country would abandon its “zero-Covid” strategy—Nike reported that 80 percent of its footwear factories in Vietnam were closed and that it had lost 10 weeks of production. Wolverine Worldwide has said shutdowns resulted in missed revenue opportunities of at least $25 million at its namesake brand. Puma’s CEO has said factories closed for 10 to 11 weeks. Not all have suffered, however, with companies like Allbirds and Skechers—both of which rely more on factories based further north—reporting a limited impact from closures.

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These supply chain difficulties were one of several reasons that an analyst with BofA Securities downgraded Hibbett’s rating Thursday from “buy” to “neutral.” In a report explaining the decision, the analyst said that Black Friday week channel checks implied “more limited quantities of high heat styles from Nike including Air Force 1 and Air Jordan 1.” With Nike accounting for an outsized portion of Hibbett’s product mix—68 percent of sales, BofA said—the report suggested inventory availability headwinds would worsen sequentially starting this month through the first half of next year.

Hibbett has been on a journey to ramp up its to ramp up its inventory levels since the beginning of the year, when stimulus-driven demand and supply-chain constraints drove inventory down. By Oct. 30, the end of its fiscal third quarter, inventory was up 22.8 percent year over year and 19.4 percent compared to the beginning of the quarter. The company expects to end the fiscal year with year-over-year inventory growth in the mid- to high single digit range.

Longo attributed Hibbett’s improved inventory position to work the company has done on its supply chain to increase capacity and flexibility. According to Jared Briskin, executive vice president, merchandising, Hibbett has increased its capacity by more than 50 percent within its supply chain. Given these efforts, Briskin added, the company actually expects to “have a significant level of increased fresh receipts in the first half of next year compared to where we were” a year earlier.

Another factor driving optimism at Hibbett is the advantageous positioning of many of its stores. Starting in January—when the company expects inventory will dry up at moderate-price department stores that have lost distribution rights this year—it is forecasting that more than half of its stores will have “no competition” within three miles that carry product from its “key brands,” Longo said. Almost 70 percent will have one or less competitors within three miles.

Though Hibbett’s executives remained vague about which brands are leaving which stores, Nike reportedly cut ties with six retailers in March, including DSW and Urban Outfitters. The latest shipments from those partnerships were expected to arrive in October.

Net Sales: Hibbett recorded net sales of $381.7 million in the 13 weeks ended Oct. 30, a 15.2 percent increase from the prior-year period and a 38.6 percent jump versus 2019. Comparable sales rose 13 percent versus 2020 and 37.4 percent on a two-year basis.

Brick-and-mortar comparable sales climbed 11.6 percent year over year and 31.6 percent against 2019. E-commerce sales increased 22.3 percent and 84.2 percent versus last year and the year before, respectively. Hibbett’s e-commerce business represented 14 percent of total net sales in the quarter.

The company attributed its sales growth to increased market share, improved customer engagement and availability of in-demand product. Briskin also noted a “very strong” back-to-school season compared to last year and success across all categories and genders. Women’s footwear and apparel, specifically, drove a comp increase in the mid-20s. On a two-year basis, Hibbett’s women’s business more than doubled, Briskin said.

Net Earnings: Hibbett’s gross margin decreased approximately 200 basis points in the quarter from 38.3 percent of net sales a year ago to 36.3 percent. Bob Volke, senior vice president and chief financial officer, attributed the decrease “primarily” to increased freight transportation costs.

Net income for the 13-week period ended Oct. 30 totaled $25.2 million, or $1.68 per diluted share, compared to $25.3 million, or $1.47 per diluted share, a year earlier.

Diluted earnings per share for the fourth quarter is forecasted to be between $1.85 to $2.05, which would imply a full-year diluted earnings per share of $11.70 and $11.90. This represents an upward revision from a prior outlook of $11 to $11.50. Hibbett also adjusted its comparable sales growth forecast upward to be in the high single digits.

CEO’s Take: “We like our business model,” Longo said as he closed up the call. “We like our inventory position. We like it now. We like it next quarter and we like it next year.”