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JCP Store Closures Spell Opportunity for Hibbett Sports

Hibbett is once again showing that athleticwear remains a top growth driver amid the year’s devastation, as the Alabama-based athletic-inspired fashion retailer saw third-quarter net sales jump 20.3 percent to $331.4 million on net income of $25.3 million.

In a Nutshell: In line with its recent structural merchandising shakeup, Hibbett Sports is giving itself a brick-and-mortar makeover to double down on the culture within its walls and on its shelves. The company has cooked up a store refresh plan for 1,100 Hibbett and City Gear locations starting in the fourth quarter, expecting to remodel 25 City Gear stores as well as 54 Hibbett stores to a new prototype design by the year’s end.

“We’re seeing exceptional results from the prototype thus far as our ability to highlight and sell toe-to-head looks has elevated,” said Jared Briskin, senior vice president and chief merchant at Hibbett Sports in an earnings call. “Increasing focal points, improved graphics, numerous mannequins and elevated speaker walls are the highlights of this premium new store design.”

The refresh will elevate stores to a level similar to the new prototypes, but at a substantially lower cost than a full remodel. New tables and mannequins, new sneaker walls as well as new wall systems for the balance of the store, which will eliminate the look of dated slatwall, will breathe new life into these spaces.

Briskin said that in the quarter, Hibbett’s mall stores performed very well, but were not as strong as non-mall locations.

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In the call, CEO Mike Longo indicated that local J.C. Penney and Stage Stores closures presents an upside opportunity for both the fashion and athletic categories.

“In order to capitalize on those opportunities, I’ll remind you the merchandising team made specific buys for those stores to handle the additional business we anticipate,” Longo said. “In total, we believe that these changes in the competitive landscape and changes in the consumer behavior will result in approximately $20 million to $40 million in incremental sales opportunity that really has only just begun.”

Women’s footwear and apparel are the main growth drivers for Hibbett at the “low-50s” percentage range of comparable sales growth, while men’s saw a healthy total increase in the “mid-20s” percentage range and kids’ saw a “high-teens” percentage comparable sales growth.

Apparel across all categories is the top seller, with “mid-30s” comp growth, while footwear saw growth in the “low-20s.” Team sports saw a “low-teens” comp decline, due in large part to widespread team sport cancelations for much of the year. The availability of in-demand apparel and footwear is credited alongside new customer retention and the timing of back-to-school spending as key factors driving additional transactions and a higher average ticket across stores as well as online.

Inventory at the end of the third quarter was $210.9 million, a 27 percent decrease compared to the prior year third quarter but a $28 million increase, or nearly 16 percent quarter-over-quarter, representing a focused effort on execution as well as strong vendor relationships. Briskin confirmed that the company was targeting total inventory north of $240 million.

“We’re about 10 points away from where we’d like to be from a year-over-year perspective,” Briskin said in the call. “I think we absolutely believe we can turn our inventory faster. Our ability to keep our inventory clean is part of the reason why our margins are improving. We also feel that our sell through during the quarter was a little bit too fast in certain places and essentially left…opportunity on the table.”

Inventory declines are expected to moderate in the fourth quarter, while aged inventory is approaching historical lows.

Gross margin was 38.3 percent of net sales for the quarter, compared with 32.7 percent of net sales. The approximate 560 basis point (5.6 percent) increase was driven by the higher sell through, a low promotional environment, a reduction in inventory valuation reserves and leverage of store occupancy expenses. These impacts were slightly offset by a higher mix of e-commerce sales, which carries a lower margin due to incremental shipping costs.

Due to the ongoing uncertainty from the recent surge in Covid-19 case counts, Hibbett Sports is providing limited financial guidance. For the fourth quarter, Hibbett’s comparable sales are expected to jump in the high-single digits to low-double digits, with gross margin improvement of approximately 380 to 400 basis points and a diluted earnings per share in the range of $1.00 to $1.10, assuming an effective tax rate of approximately 25 percent and a diluted share count of approximately 17.2 million.

Hibbett Sports ended its third quarter with $177.7 million of available cash and cash equivalents. As of Oct. 31, the retailer had no debt outstanding and full availability under its $75 million secured credit facility.

Net sales: Hibbett Sports saw net sales increase 20.3 percent to $331.4 million compared with $275.5 million for the prior-year quarter. Comparable sales increased 21.2 percent, while brick and mortar comparable sales increased 17.5 percent.

E-commerce sales grew by 50.7 percent and represented 13.2 percent of total net sales for the third quarter compared to 10.5 percent in the third quarter last year.

Net earnings: The sports apparel and footwear retailer generated $25.3 million in net income for the 13-week period, or $1.47 per diluted share, compared with net income of $2.3 million, or $0.13 per diluted share in the year-before period. On an adjusted basis, when excluding Covid-19 costs, net income for the quarter was $24.9 million, or $1.45 per diluted share.

CEO’s Take: Longo lauded Briskin and the newly restructured merchandising team on what he called a “terrific job” on product selection and location.

“Every store has a micro merchandising plan. There is commonality of inventory between stores, but one of the examples that we often give is we have a store on Bullard Ave. in New Orleans and a store on Claiborne Ave. in New Orleans, and they couldn’t be more different,” said Longo. “They’re different in terms of consumer taste, they’re different in terms of the brands that we should carry, and they’re different in terms of sizes that we should put in those stores by style.”