Thank you, everyone, for joining Hibbett Sports to review the company’s financial and operating results for the fourth quarter and fiscal year 2019, which ended on February 2, 2019. Before we begin, I would like to remind everyone that management’s comments during this conference call not based on historical facts, including those in response to your questions, are forward-looking statements.

These statements, which reflect the company’s current views with respect to future events and financial performance, are made in reliance on the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements.

Some of the factors that could cause or contribute to such differences have been described in the news release issued earlier this morning, in the company’s Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

Lastly, I would like to point out that management’s remarks during this conference call are based on information and understandings believed accurate as of today’s date, March 22, 2019. Because of the time-sensitive nature of this information, it is the policy of Hibbett Sports to limit the archived replay of this conference call webcast to a period of 30 days.

I’d now like to turn the call over to Scott Bowman, Chief Financial Officer. Please go ahead, Scott.

Thank you, and good morning. Welcome to the Hibbett Sports fourth quarter and full-year earnings call.

Today, we have with us Jeff Rosenthal, President and CEO; Jared Briskin, Senior VP and Chief Merchant; and Cathy Pryor, Senior VP of Store Operations. I will start today’s call with prepared remarks on the fourth quarter and full-year financials, followed by Jared with a review of merchandising and then Jeff with highlights from the fourth quarter, along with the general business update.

Keep in mind that fourth quarter results included 13 weeks versus 14 weeks last year, and full-year results included 52 weeks versus 53 weeks in the prior year. As a reminder, the extra week last year accounted for $13.5 million in additional sales and an additional $0.08 per share in last year’s fourth quarter.

The benefit to the full year last year was slightly lower at $0.07 per share due to a lower average share count. For the fourth quarter, total sales increased 14.7% to $306 million, which included $49.1 million for the City Gear business.

Comp sales increased 3.8%, which did not include City Gear sales. City Gear will be included in comp sales starting in the fourth quarter of fiscal 2020.

By month, comp sales were negative 5.5% in November, positive 6.2% in December and positive 11.2% in January. E-commerce sales increased 60% and represented 10.6% of total sales in the quarter.

Gross profit rate decreased 40 basis points in the quarter. This was mainly due to a $1.9 million expense incurred to amortize an inventory step-up value related to the City Gear acquisition.

Gross profit rate was also negatively impacted by the liquidation of each inventory related to the integration of City Gear. In last year’s fourth quarter, the reserve of $866,000 was taken against inventory due to the sale of our Team Division.

SG&A expenses increased 225 basis points in the quarter, mainly due to $2.8 million of non-recurring expense related to the City Gear acquisition and $300,000 of non-recurring severance costs related to the reduction of 30 positions in the field organization and corporate office. In last year’s fourth quarter, we recognized a $3.1 million gain due to the sale of our Team Division.

Depreciation and amortization increased 38 basis points as a percent of sales, mainly due to the acceleration of depreciation related to store closures. The income tax rate for the quarter was 22.8%, which compared to last year’s rate of 38.5%.

Operating income of $9 million was 2.9% of sales versus 6% last year. Excluding non-recurring costs, operating income was $13.9 million.

Diluted earnings per share was $0.36 per share and $0.57 per share, excluding non-recurring costs. I would also like to report that our e-commerce business was profitable in the fourth quarter and we expect this to continue into fiscal 2020.

The team has done a great job of managing gross margin and expenses, while driving top line growth and adding exciting new capabilities to serve the omni-channel customer. For the full-year, earnings per share was $1.51 and $1.77, excluding non-recurring costs.

From a balance sheet perspective, the company ended the quarter with $62 million in cash versus $74 million last year, with $35 million in borrowings outstanding on our revolving credit facilities. Inventory increased 10.7% from last year, mainly due to the acquisition of City Gear and was 2.7% higher on a per-store basis.

We spent $3.7 million in CapEx for the quarter, as we made further progress on our major initiatives and finished the year at $16.7 million. Also, the company repurchased 776,000 shares for $16.5 million for the year and have approximately $188 million remaining under the existing purchase authorization.

As we turn our focus to fiscal 2020, I would like to provide some highlights related to our guidance. First of all, I would like to provide some details on the effect of City Gear in fiscal 2020.

As we move forward, we will treat City Gear as an extension of the Hibbett business, and results will be reported on a combined basis. This means that it is not our intent to provide specific gross margin, expense or other profitability metrics for the City Gear business in the future.

However, I will provide actual revenue for the City Gear business until it is incorporated into consolidated comp sales starting in the fourth quarter of fiscal 2020. For modeling purposes, I will also provide the following details at this time for fiscal 2020.

For sale seasonality, City Gear is expected to index somewhat higher in the first quarter and somewhat lower in the fourth quarter compared to Hibbett. For gross margin, City Gear’s rate is expected to be lower than Hibbett due to a lower product margin and a somewhat higher percent of sales related to logistics and store occupancy expense.

We see opportunity for improvement in this area as we work through the integration process, but expect the rate to be lower for fiscal 2020. For SG&A expense, City Gear is expected to be lower as a percent of sales compared to Hibbett.

For depreciation, City Gear is expected to be similar to Hibbett as a percent of sale. And for operating margin, City Gear is expected to be similar to Hibbett as a percent of sales.

Turning to the full-year consolidated guidance, we expect comparable store sales to be in the range of negative 1% to positive 1%. Additionally, we will continue our plan to improve the productivity of our store base and estimate we will close approximately 95 underperforming stores and open 10 to 15 new stores.

For gross margin, we expect our overall rate to decrease in the range of 25 to 45 basis points. Excluding non-recurring costs for both years, non-GAAP gross margin is expected to decline in the 35 to 55 basis point range.

With respect to SG&A, we expect an increase in the range of 15 to 25 basis points. Excluding non-recurring costs for both years, we expect SG&A to be approximately flat as a percent of sales.

Depreciation is expected to decline in the range of 10 to 20 basis points, and we expect our tax rate to be approximately 24.5%, which compared to last year’s rate of 24.3%. Finally, we expect earnings per share to be in the range of $1.50 to $1.70, which includes $0.25 to $0.35 per share for non-recurring costs associated with the integration of City Gear and costs associated with store closures.

Excluding non-recurring costs, non-GAAP earnings per share is expected to be in the range of $1.80 to $2. Turning to capital allocation, we expect to continue our share buyback program in fiscal 2020 and expect to repurchase $10 million to $15 million in stock for the year.

For capital expenditures, we expect to spend $18 million to $22 million. Finally, we plan on the full repayment of our $35 million in debt outstanding by the end of the fiscal year.

With that review, I will now turn over the call to Jared.

Thank you, Scott. Good morning.

As a reminder in my prepared remarks, reflective of comparable sales trends, this will not include City Gear stores until the fourth quarter. During the fourth quarter, our footwear business increased double digits posting our six consecutive quarter of comp sales gains.

Both men’s and women’s footwear were up double digits and kids was up mid-single digits. Growth drivers were Max Air and Air Force franchises from Nike, retro and retro-inspired products from Jordan, and Yeezy and Goose platforms from Adidas.

Significant growth was also seen across other brand partners, including New Balance, Brooks, PUMA, Vans, and Champion. Our apparel business was down low-single digits for the quarter.

Apparel with strong connectivity to our footwear business performed exceptionally well, along with our investment in plus sizes and big and tall. Our trend in performance products that have been improving turned significantly negative during the gift-giving peak between Thanksgiving and Christmas.

The declines in performance products, socks, and licensed products turned the category as a whole negative. Team sports business was down mid-single digits.

Cleated business was slightly negative for the quarter, with gains in baseball, soccer, and volleyball, offset by football. Equipment was weak overall with significant declines coming from inflatables, which historically has a strong gift category.

We exited the quarter clean with inventory position to take advantage of growth categories and we’re limiting our exposure to weak categories. I’ll now turn the call over to Jeff Rosenthal.

Thanks, Jared. Our e-commerce business continues to grow, achieving a 60% comp in the fourth quarter.

This growth was driven by healthy increases in traffic, conversion and average order value. Footwear sales were particularly strong online in Q4 Increased scale, a healthy product mix and operating efficiencies have led to the profitability of our e-commerce business, which now contributes positively to company EBIT.

In Q4, we saw the impact of the omni-channel initiatives we have been working on throughout the year. There were four larger initiatives that helped increase our store traffic and sales.

Our BOPIS/ROPIS program, replatforming and redesigning our e-mail program, our new mobile apps, the growth of our digital marketing programs, these four things were either not available in the prior year or in the infancy versus the full maturity in Q4 this year. I also would like to add, our BOPIS program is highly featured and gives customers the flexibility to either buy online and pickup in store or reserve online and buy in store.

During the holidays, we saw increased usage of this program, which drove store traffic and sales. Earlier this year, we moved our e-mail program to a new platform and focused on segmenting our e-mails.

About 90% of our purchases – 90% of purchases from e-mails are made in store, and we saw e-mail traffic increase substantially year-over-year because of the improvements we made. In May, we launched our new mobile apps.

Besides e-commerce, the primary purpose of these apps was digitized our legacy and store raffle process, buckets no less. The convenience and ease of a new process resulted in increased participation, which drove store traffic and sales.

Lastly, our focus on digital marketing drove significant growth in online traffic. Most notably, the store locator sections of our websites saw the largest increases.

Because of our omni-channel initiatives, more customers than ever are aware of what we sell, as well as where and how they can shop with us. On a personal note, I would like to let all of you know that I have made incredibly difficult decision to move from my position as CEO of Hibbett.

When I first came to Hibbett 20 years ago, we had 110 stores and about 1,000 employees, doing approximately $100 million in sales, and believe it or not, using dial-up for credit card transactions. Today, thanks to the efforts and leadership of our incredible team, I’m proud to say, we are over $1 billion company.

We have with over 1,100 stores and a digital presence equal or greater than any in retail today. It has been an awesome ride and I’m proud to be part of it.

There are so many people who helped me – who helped make this portion of my professional life meaningful. I want to thank all of the Hibbett employees who have worked tirelessly to grow the business and each of our vendor partners who have supported us tremendously through the years.

We would not be where we are today without all of you. Finally, I’d like to remind you all of a lesson I learned as a 21-year old when I got my first job in the industry, making $5 an hour, that it can be very simple if you always remember at the end of the day, it’s just T-shirts and tennis shoes.

Thank you very much, Jeff. That idea will live on.

Frank, we are now ready for questions.

Thank you. Good morning, and Jeff, all the best to you and your retirement.

Thank you.

I wanted to ask you guys – you guys had a great performance in the quarter. I wanted to ask about your apparel initiatives.

Some interesting comments there on the performance piece that Jared made. If you could just give a little more detail on that, that would be great?

And also, as you think about the stronger part of the apparel assortment, the branded assortment, if you can give us a little bit more color on how that unfolded in the [ph] quarter? And if you feel that there were any pockets or brands, inventory shortage issues that you had to overcome?

And if you did, when do you expect to get back into stocking those particular brands?

Yes. Good morning, it’s Jared.

Really from an apparel perspective, our business prior to Thanksgiving and our business post-Christmas was actually very solid. The peak week in that six-week period, that’s typically very promotional and usually very driven by a lot of commodity products, it was very difficult for us.

We made a significant investment and continue to make investments in our branded apparel business that closely aligns with our sneaker business where we’ve been able to provide that connectivity from an apparel perspective, we’ve been very successful. Our men’s business was actually very strong for the quarter.

We did have some of those connectivity issues in women’s and kids, which historically were a little bit more driven by some of that promotional commodity business that we continue to look for other opportunities in.

And so, if I’m understanding correctly to the performance piece that you had been talking about that before in a year had seemed to have stabilized, that took another leg down, is that [Multiple Speakers]?

It is.

Okay.

Yes, you’re understanding that correctly.

And if that’s the case, do you – did that alter how you’re viewing your plans for 2019 for that type of product?

We are, we have been, and we continue to transition more towards the sportswear and connectivity pieces of our business. Again, that six-week period was a little bit of a surprise just based off the trend that we had been seeing prior to that, but we continue to believe that we need to continue to evolve our apparel business and have it as closely aligned to our sneaker business as possible.

Got it. And then, moving on to footwear, would you give some highlights in terms of what you’re seeing from the innovation pipeline, not only as it pertains to the quarter, but also what’s coming forward?

And what are the things that you’re excited about? And within that context, now that you’ve got City Gear under the umbrella, are you able to leverage the buying power, such that Hibbett stores are also benefiting from an increased allocation assortment?

Yes. I think, obviously, our footwear business, we’ve been strong for a long time.

Fourth quarter was a significantly improved trend. The team worked really tirelessly to ensure that we were positioned well for the fourth quarter and going forward.

Our brand partners have been absolutely fantastic and working with us, really providing opportunities to scale our footwear business to more of our locations. So we’ll continue that trend.

We absolutely see City Gear as an extension of our fashion stores, and believe certainly that the combined entity does have some additional leverage and buying power working closely together.

Got it, great. And then my final question, Jeff, if I could ask, somewhat of a surprising announcement, you’ve done a lot to reposition the business with this omni-channel initiative that you’ve been tasked to undertake for the last three or four years.

I guess, within that context, as the process unfolds with searching out a new CEO, any sense of timing, any sense of the candidate that you’d be looking for, and how that process will unfold? Just trying to get a sense of what kind of urgency is there to find a replacement and when we would [audio disturbance] sort of happening?

Yes. I mean, this could take six to eight months or even possibly longer.

And at the end of the day, I’m a sneaker dude and I’m going to continue to be that, and I’m going to be on the Board of Hibbett. And I pulled a lot into Hibbett, and I want this business to succeed.

And I feel really awesome that over the last three or four years, it’s difficult as it may have been, and we’ve got so much accomplished and so much to be proud off. We have really transitioned this company from being way behind to be now a leader, and I have felt the last three or four years, I’ve been playing defense.

I got this team and this team got me to be able to play offense, and we should be very proud of what we’ve been able to do. And you know what, at the end of the day, I own this business, and we’re going to continue to make Hibbett own it.

Got it. Thank you, and all the best.

Thank you.

Hey, guys, thank you, and Jeff, best of luck. I’m sure we’re going to still be in touch with you here, it sounds like, which is good.

My first question is around e-commerce profitability, you mentioned that in the fourth quarter. Scott, maybe help walk us through the P&L buildup as we think about e-commerce on an annual basis.

What’s kind of the latest view here in terms of what’s required to be profitable on an annual basis? And how kind of the gross margin and EBIT margins compare to what you see in the stores or just to a consolidated number?

Thanks.

Sure. Yes, first off, a credit to the team.

They have just done a phenomenal job of growing the e-comm business and striking the balance between investing for growth in the profitability side. And so, we’re pretty much on track.

As I said on previous calls, we did overspend a little bit on advertising, trying out some things, and it turns out that, that has paid some dividends, and it did in fourth quarter as we’re able to use those dollars more efficiently. So that along with a little bit better margin as we’re selling a little bit less clearance and some other things really spells a pretty good picture for the e-commerce business this year from a profitability standpoint.

As you kind of look at the business, I’ve said all along that it is a business that we have some fixed cost or semi fixed cost where the volume does drop to the bottom line pretty nicely. And so, we finished this year close to $90 million in sales.

The run rate in fourth quarter was positive. So, obviously, we will have an increase next year as well.

So $90 million to $100 million business will prove to be profitable for us. And that does include all the investments we’ve been making on the capability and functionality side, so as those expenses and costs drop down a bit, that will fall to the bottom line as well.

Okay, that’s helpful. Thanks, guys.

And then as we think about the stores in 2019 and trying to improve the performance there, obviously, it got better in the fourth quarter. What would you call out as maybe the biggest drivers that you guys see to kind of moderating the decline in comps in stores in 2019?

Are there any specific initiatives we could – we should be focused on?

It’s kind of what we talked about. It’s really the connectivity of making it a full omni-channel.

We continue to work on that in the connectivity, the amount of people that we’re adding to our loyalty program, the amount of connectivity through our digital presence, the connectivity through social media. I mean, just yesterday, we were on Sneaker News.

We were getting lots of customers really liking the new assortments that we’ve been able to get down throughout our chain, and now people actually know where and how to get it. So it’s really just really enhancing that even to a higher level that – than we did this year.

And I think part of the increased better sales in the fourth quarter really have to do with all of that, it’s all coming together. For example, the BOPIS and ROPIS, your three days before Christmas and people can’t get things, what a great way to drive traffic to your stores, because they know exactly what store to go and when to get it.

That will be able – we’ll be able to use that, all that and really continue to work on customer experience and store service. And for example, also like on BOPIS, we average less than 50 minutes on getting back to a customer, that’s pretty unheard of.

I know personally, I’ve gone out shopping many times and tried to use BOPIS and ROPIS and sometimes it’s four and five hours, but we’re averaging less than 50 minutes. And those type of things we executed very well.

We’ve built over $100 million e-commerce business. And I know, even from the investment community and others, they’ve had – they had doubts that we were 17 years late to this.

And to build up over $100 million business in 18 months, should give this team some credit.

That’s great. Now, thank you for that.

And then, I guess, my last question, kind of back to Jared. Just a little more on footwear as we think about 2019, obviously, the momentum terrific right now.

But what mile – what guidepost should we be thinking about or initiatives or product or what have you that, that can help you guys sustain this momentum in 2019? How are you thinking about footwear in particular?

And what are the drivers going to be in 2019? That’s my last question.

Thank you.

Yes. I think, first of all, without getting terribly specific about brands, I mean, we absolutely believe that the pipeline is very full.

We’re really excited about what’s coming out for the balance of the year and where we’ve been positioned with regard to those products that are coming out. One of our largest initiatives is really to scale a lot of those franchises and products to more of our stores, and we believe that’s a significant differentiator for our store business.

So that from an initiatives perspective, that’s our biggest initiative. We have without question garnered better access, without question garnered better allocations.

And now we’re looking to really attack the sneaker business in more of our locations.

Okay, that’s great. All right.

Well, good luck, guys. Thank you.

Thank you.

Good morning. I have few questions.

Number one, with your digital – of the digital revenue, how much of that is coming from mobile now?

For mobile, I think it’s a 15% to 20%, Sam.

And this – and I mean, have you – how has that accelerated or not accelerated since you launched the mobile app?

Yes. So it’s increased a bit.

And I think, looking forward, it will get even better. The raffle functionality continues to attract a lot of new members.

And I think, some people are just finding out about that functionality. So I think that will help and then just the continued enhancements.

So, Bill Quinn and his team has done a great job of improving just the functionality of the app and we’ll continue to do so.

Thank you. And then secondly, I would like to know about the store closures.

And can you walk through the store types and what you’re closing? And sort of how this decision is structured and how it will help the overall business or what it will do to the overall business?

Yes. The vast majority of the stores that we’re closing are those stores that are more sporting goods-oriented in smaller towns.

And it’s a case where a lot of that is commodity-type items and sometimes those stores in the small markets, it’s just too small for those stores anymore. And so it’s kind about taking a hard look at those stores and pairing off those stores.

And then on the other end where we’re having really good momentum on more of the fashion doors, we – we’ll feel those stores and with City Gear that will make that side of the business even stronger. So, all in kind of the mindset of improving the productivity of our store base.

But I would say that going forward, that will probably hold true, where a lot of the stores we’re closing are more in smaller towns and more sporting goods-oriented.

And those small – those sporting goods-oriented stores by definition margin structure is different than – the mixed structure makes the margins different than it would it a fashion store or a stuff like specialty store?

Yes. It’s not going to really cause a big difference and there is not a big enough difference to really move the needle.

And if you think about the stores that we’re closing, they typically run about half the volume of an average store. So from a volume standpoint, it’s a smaller impact.

Gotcha. And then, Jared, you didn’t want to be brand-specific, but I’ll try to force the issue.

With Nike, you are one of the five or so key Nike accounts in the United States, is that correct?

That is correct.

And what does that – what is that giving you? And with the addition of City Gear, what are you anticipating there?

Well, I think, obviously, our companies have always had a great relationship. Being included in their focus group has certainly helped us.

The relationship is stronger. Our access points are better.

Our allocations are certainly improving, and we believe we can certainly do more to leverage the Nike brand than more of our locations through sneakers. Without question, we know we’ve got a sneaker-obsessed kid in a lot of our markets, and we are certainly partnering with them to really get after that kid.

And then lastly, on the apparel side of things, the more fashion apparels are performing performance apparel, I believe, as you said – and on men’s, it’s better. Is – are – how are you evolving the more fashion apparel on the women’s side, or do you sell that more opportunities on the men’s side there?

No, there’s a big opportunity on the women’s side, where we’re very focused. And as I mentioned in the fourth quarter, we were double-digit in sneakers.

Our apparel business that connects with sneakers was a lower percentage of our mix during the year last year. We believe as we go through this year, that connectivity within women’s apparel to our current sneaker business will be very significant and very enhanced.

I think, if you reference some of the imagery that we have through our social channels and through the digital platforms, we’re telling a great story. But it’s also a story we haven’t told in stores in a long time.

So we do think it’s going to take some time. But where we have had a really strong connectivity, really premium-driven sportswear products, our women’s business has excelled.

I mean, so can we assume that brands that focus on more fashion, be it Fila, Champion, Nike, I guess, Adidas, to some degree would do – would be more first top of mind than when I’m leaving out?

They absolutely are.

Thank you very much. Have a good success.

Thanks, Sam. Thanks.

And, Jeff, we’re going to miss you.

I miss you guys, too.

Thank you very much for being on the call, and we look forward to talking to you, not very much longer in May, and look forward to talking with you then. Thank you for listening today.