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Hibbett CEO: Despite Record Q1, Inventory ‘Shortfall Cost Us Sales’

Hibbett Sports saw first-quarter net sales skyrocket to a record $506.9 million, up 87.8 percent from $269.8 million a year ago, and generated earnings of $5 per share, smashing the consensus Wall Street estimates of $2.77.

The athletic-inspired fashion retailer has raised its full-year outlook for comparable sales, diluted earnings per share and gross margin as it continues to attract and retain new customers.

In a Nutshell: The retailer, which operates 1,071 stores across its Hibbett Sports and City Gear banners, saw “triple-digit gains” across all individual apparel categories, including branded apparel, fashion apparel, licensed apparel and accessories, according to Jared Briskin, the company’s senior vice president and chief merchant.

All genders saw “significant growth,” led by the retailer’s women’s business, which grew triple digits. Team sports recovered from the Covid-19 declines, also achieving triple-digit growth.

Footwear sales were up in the “low 70s” with basketball, lifestyle and slides as the standout categories in the quarter, according to Briskin. Women’s footwear was the retailer’s fastest-growing area with “triple-digit” sales gains, while men’s grew in the “low 80s” and kids’ in the “high 60s.”

The company said it will see “double-digit unit store growth” for each brand in 2021, meaning there will be at least 10 net new store openings for both Hibbett Sports and City Gear, as the retailer capitalizes on the current opportunity from closures at nearby J.C. Penney and Stage Stores locations.

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“Stores that did have a [J.C. Penney or Stage] closure in their market are performing better than our average so we’re very pleased with what we’ve seen from that so far,” Briskin said.

Total inventory was $182.4 million, a 24.6 percent decrease compared to the prior-year first quarter total of $242 million. Strong brick-and-mortar demand and ongoing supply chain constraints during the quarter were the main drivers of the inventory reduction.

In the call, Mike Longo, president and CEO of Hibbett Sports, felt the current supply chain conditions held the retailer back despite its successful quarter.

“We estimate our inventory position at the end of the first quarter was approximately $80 million to $100 million below where we wanted it to be in order to support customer demand, and that shortfall cost us sales,” Longo said. “We expect to make progress toward achieving our desired inventory levels in the coming months. When our inventory position improves, we expect that the increased revenue from a higher in-stock position will provide the opportunity to deliver incremental sales, that will help mitigate much of the drag when the benefit of the temporary factors fades.”

Gross margin was 41.4 percent of net sales for the quarter compared with 27.5 percent of net sales in the year-ago period. The approximate 1,390 basis point increase was driven by higher sell-through, a low promotional environment, a shift away from e-commerce sales which carry a lower margin due to incremental fulfillment costs and the leverage of store occupancy expenses.

Average unit retail—the average selling price of an item—and the amount of units per ticket both increased.

Hibbett Sports ended the quarter with $270.9 million of available cash and cash equivalents, up from $106.2 million a year ago. As of May 1, the retailer had no debt outstanding and full availability under its $75 million secured credit facility.

Capital expenditures were $7 million, compared to $4.1 million in last year’s first quarter. The spending was predominantly related to store development activities including store openings, relocations, expansions and remodels. In total, the company expects to spend between $45 million and $50 million in the full year on organic growth opportunities and on various infrastructure projects related to distribution and the back office.

For the full year, which Hibbett Sports identifies as Fiscal 2022, the retailer expects comparable sales to be in a range from “positive high-single digits” to “positive low-double digits,” up from previous guidance of “negative low-single digits” to “positive low-single digits.”

Diluted earnings per share is expected to be in the range of $8.50 to $9, compared to prior estimates of a $5 to $5.50 range.

Gross margin is expected to be lower over the next three quarters in relation to the first quarter, but favorable to last year’s totals on a full year basis. Previously, guidance projected an unfavorable performance against the prior year.

Store operating, selling and administrative (SG&A) is expected to increase as a percent of sales over the next three quarters in comparison to the first quarter of Fiscal 2022, but is still anticipated to decline as a percent of sales on a full-year basis.

Net Sales: Hibbett Sports saw net sales increase 87.8 percent to $506.9 million from $269.8 million in last year’s first quarter.

Comparable sales increased 87.3 percent, with brick-and mortar comparable sales increasing 113.5 percent since stores were open to the public for approximately 60 percent of the available days. Comparable sales increase 51.4 percent on a two-year basis.

E-commerce sales only grew by 1 percent and represented 11.7 percent of total net sales for the first quarter, compared to 22.3 percent in the prior-year first quarter.

Net Earnings: First-quarter net income was $84.8 million, or $5 per diluted share, compared with a net loss of $15.3 million, or 92 cents per share, in the year-ago period.

Operating income for the quarter surpassed $110.1 million, compared to a $22.1 million loss in last year’s first quarter.

CEO’s Take: Longo said that the company has three priorities within its supply chain initiatives: velocity, capacity and efficiency, in that order.

A lot of those initiatives are underway, and they started with frequency of delivery, and speed to market. Those have yielded great results and you see them in the sales line, and in the gross margin line,” Longo said. “We’ve gone from a five-day-a-week operation to a seven-day-a-week operation by judiciously investing in things that increase throughput through the distribution centers as well as in the transportation side.”