Hibbett(US:HIBB)2023-08-25 17:20Financial Data and Key Metrics - Total net sales for Q2 FY2024 decreased by 4.6% to $374.9 million compared to $392.8 million in Q2 FY2023 [25] - Comparable sales declined by 7.3% YoY, with brick-and-mortar comp sales down 7.7% and e-commerce sales down 5.2% [25] - Gross margin for Q2 FY2024 was 32.8%, a decline of approximately 160 basis points from 34.4% in Q2 FY2023, primarily due to lower product margins and higher store occupancy costs [26][27] - SG&A expenses increased to 25.3% of net sales in Q2 FY2024, up from 23.3% in Q2 FY2023, driven by wage inflation and higher costs in incentive compensation, medical expenses, and data processing [28] - Diluted earnings per share for Q2 FY2024 were $0.85, compared to $1.86 in Q2 FY2023 [31] - Net inventory at the end of Q2 FY2024 was $430.8 million, a 17.6% increase YoY, largely due to product cost inflation and mix [32] Business Line Performance - Footwear sales declined low-single-digits YoY, with challenges early in the quarter due to secondary brands and an unfavorable launch calendar, but improved later due to back-to-school season [17][18] - Apparel sales were down high-teens YoY, affected by promotional activity and elevated inventory levels in the market [19] - Women's footwear sales were up mid-single digits, while men's and kids' footwear sales were down high-single digits [20] - Running business showed improving trends, driven by new product iterations and focus on performance and lifestyle categories [18][55] Market Performance - E-commerce sales accounted for 15.1% of net sales in Q2 FY2024, slightly down from 15.2% in Q2 FY2023 [25] - New customer sales were down in Q2, but existing customers continued to spend more than the prior year, validating the company's focus on product mix and customer service [38][39] Company Strategy and Industry Competition - The company remains committed to adding 40 to 50 net new stores in FY2024, focusing on underserved markets and enhancing the omnichannel shopping experience [13][14] - Investments are being made in the consumer experience, both in-store and online, as well as in supporting infrastructure to maintain high levels of customer service [13] - The company is focused on reducing inventory levels through promotional efforts and support from key brand partners, with expectations of year-over-year declines in inventory in the second half of FY2024 [21] Management Commentary on Operating Environment and Future Outlook - The company acknowledged the challenging economic environment, with consumers facing higher costs for essential items, leading to reduced discretionary spending [11] - Management reiterated FY2024 guidance, expecting net sales to be flat to up approximately 2%, with comparable sales declining in the low-single-digit range [45][46] - The promotional environment is expected to continue in the near term, with full-year gross margin projected to be between 33.9% and 34.0% [46] - Management expressed confidence in the company's ability to take market share and maintain a strong competitive position in the long term [14] Other Important Information - The company repurchased nearly 300,000 shares in Q2 FY2024 at a total cost of approximately $11 million and paid a quarterly dividend of $0.25 per share [33] - Capital expenditures for Q2 FY2024 were $11.4 million, with 60% allocated to store development projects [33] Q&A Session Summary Question: Impact of Yeezy product on the quarter - Yeezy product launched in Q3, so there was no impact in Q2 [51] Question: Product margin outlook - Promotional pressure is expected to continue through Q3, but the company is confident in its inventory management and product pipeline for the back half of the year [53] Question: Running business improvement - The improvement in the running business is attributed to changes in the assortment and new product iterations, particularly in performance and lifestyle categories [55] Question: Freight and logistics cost favorability - The improvement in freight and logistics costs is a combination of external factors and internal efficiency initiatives [60] Question: Back-to-school sales trend - Back-to-school sales were strong in July, but it is too early to comment on the full impact of the season [61] Question: New store performance - New stores, particularly in markets like Las Vegas and Milwaukee, are performing well, with a focus on underserved areas and operational efficiencies [94][95] Question: Shrink impact - Shrink levels have been elevated but have not materially impacted gross margins, and the company is focused on customer service as a deterrent [106][107] Question: Launch calendar outlook - The company is confident in its product pipeline and brand partnerships, with a focus on launch products and seasonal assortments [115][119] Question: Student loan repayment impact - The company is monitoring the potential impact of student loan repayments, with a small portion of customers expressing high concern [121] Question: Gross margin cadence - Gross margins are expected to improve in Q4 due to higher sales volume and better inventory management [123] Question: E-commerce lift in new markets - E-commerce sales increase as the company expands its store footprint in new markets, with a focus on underserved areas [129] Question: College football season importance - College football and other sports are important to the company, driving sales through events and lifestyle expressions [138][140]