Hibbett Sports, Inc. (NASDAQ:HIBB) Q3 2020 Earnings Conference Call - Final Transcript

Nov 22, 2019 • 10:00 am ET

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Hibbett Sports, Inc. (NASDAQ:HIBB) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Scott R. Humphrey

sales. Net sales includes $43.7 million for City Gear. Our e-commerce sales continue to accelerate, representing 10.5% of consolidated sales for the quarter. We also successfully migrated City Gear's online platform to the Hibbett digital platform during the third quarter.

Year-to-date net sales increased 24% to $871.2 million through the first nine months of the year compared to $702.7 million last year during the same period. Year-to-date, comp sales increased 5.4%. City Gear sales account for $145.2 million of this increase.

Gross margin increased 20 basis points in the quarter. The increase was principally attributable to lower occupancy cost as a percent of sales due to the store closures we have completed this year. The occupancy cost reductions more than offset a decrease in product margin percentage, driven by higher e-com sales, which tend to run at a lower product margin percentage than store sales.

SG&A expenses predominantly increased from the addition of City Gear expenses. On a GAAP basis, SG&A as a percent of sales increased approximately 35 basis points versus last quarter. Included in SG&A is a charge from the contingent earnout valuation for the City Gear acquisition of $4.1 million in the quarter, which added a 148 basis points to the calculation.

As we discussed in Note 3 of our 10-K, the City Gear acquisition purchase agreement included two contingent earnout payments based on City Gear's achievement of certain EBITDA thresholds for fiscal 2020 and 2021. The preliminary fair value of the liability was included in other liabilities in the fiscal 2019 year-end consolidated balance sheet. Subsequent changes in the liability are recorded through current period earnings. And based on current forecast for City Gear performance for fiscal 2020 and 2021, the earnout liability was increased $4.1 million as I mentioned previously. We expect some continued volatility in this expense, as we continue to realize the City Gear business opportunities.

Additionally, we incurred a net charge of $0.7 million related to the finalization of the CEO retirement agreement. This amount was not removed from non-GAAP SG&A and represents an additional 25 basis points to SG&A and $0.04 to consolidated EPS in the quarter.

Consolidated earnings per share for the quarter was $0.13 per share compared with $0.08 per share last year. Including non-GAAP adjustments, our normalized consolidated earnings per share was $0.32 in the quarter compared to $0.14 per share last year. On a year-to-date basis, we have delivered fully diluted earnings per share of $1.18 through the first nine months versus a $1.15 for the first three quarters of last year. After non-GAAP adjustments, our normalized diluted earnings per share is $1.82 for the first nine months versus $1.21 for the same period last year.

Turning to the balance sheet, the Company ended the quarter with $77.4 million in cash versus $121.2 million at the end of last year's third quarter. We had borrowings on our revolving credit facilities of $8 million related to the City Gear acquisition, and we continue to expect that to be