This document contains "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events, developments and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. They include statements preceded by, followed by or including words such as "believe," "anticipate," "expect," "intend," "plan," "forecast," "guidance," "outlook," "estimate" "will," "may," "could," "possible," "potential" or other similar words, phrases or expressions. For example, our forward-looking statements include statements regarding: •the anticipated impact to our business operations consumer demand and supply chain due to the recent global pandemic of a novel strain of the coronavirus (COVID-19); •our cash needs, including our ability to fund our future capital expenditures, working capital requirements and repurchases of Company common stock under our repurchase program; •our relationships with vendors and the loss of key vendor support; •our plans, expectations and estimates concerning the integration of City Gear and related costs; •our ability to retain key personnel at Hibbett and City Gear; •our anticipated net sales, comparable store net sales changes, net sales growth, gross margins, expenses and earnings; •our business strategy, omni-channel platform, logistics structure, target market presence and the expected impact of such factors on our net sales growth; •our store growth, including our plans to add, expand, relocate or close stores, our markets' ability to support such growth, expected changes in total square footage, our ability to secure suitable locations for new stores and the suitability of our wholesale and logistics facility; •our expectations regarding the growth of our online business and the role of technology in supporting such growth; •our policy of leasing rather than owning stores and our ability to renew or replace store leases satisfactorily; •the cost of regulatory compliance, including the costs and possible outcomes of pending legal actions and other contingencies; •our analysis of our risk factors and their possible effect on financial results; •our ability and plans to renew our credit facility; •our expectations regarding our capital expenditures and dividend policy; •our seasonal sales patterns and assumptions concerning customer buying behavior; •our expectations regarding competition; •our estimates and assumptions as they relate to the fair value of assets acquired and liabilities assumed in the purchase of City Gear, preferable tax and financial accounting methods, accruals, inventory valuations, long-live assets, store closure charges, carrying amount and liquidity of financial instruments, fair value of options and other stock-based compensation, economic and useful lives of depreciable assets and leases, income tax liabilities, deferred taxes and uncertain tax positions; •our expectations concerning future stock-based award types and the exercise of outstanding stock options; •the possible effect of inflation, market decline and other economic changes on our costs and profitability; •our assessment of the materiality and impact on our business of recent accounting pronouncements adoption by theFinancial Accounting Standards Board ; •the possible effects of uncertainty within the capital markets, on the commercial credit environment and on levels of consumer confidence; •our analyses of trends as related to marketing, sales and earnings performance; •our ability to receive favorable brand name merchandise and pricing from key vendors; •the future reliability of, and cost associated with, our sources of supply, particularly imported goods, including the actual and potential effect of tariffs on Chinese goods imposed bythe United States and other potential impediments to imports; •the impact of technology on our operations and business, including cyberattacks, cyberliability, or potential liability for breaches of our privacy or information security systems; and •our ability to mitigate the risk of possible business interruptions, including, without limitation, from political or social unrest (including vandalism and looting). A forward-looking statement is neither a prediction nor a guarantee of future results, events or circumstances. You should not place undue reliance on forward-looking statements. Our forward-looking statements are based on currently available operation, financial and business information and speak only as of the date of this report. Our business, financial condition, results of operations, financial condition, results of operations and prospects may have changed since that date. For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully consider the risk factors described from time to time in our other documents and reports, including the factors described under "Risk 16
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Factors" in our Form 10-K for the fiscal year ended
Investor Access to Company Filings
We make available free of charge on our website, www.hibbett.com under the
heading "Investor Relations," copies of our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (Securities Exchange Act) as well as all Forms
3, 4 and 5 filed by our executive officers and directors, as soon as the filings
are made publicly available by the
Adapting to the COVID-19 Business Environment
Throughout this challenging time, the Company was able to navigate a rapidly changing retail landscape by leveraging omni-channel and distribution capabilities, having access to and availability of in-demand products, taking decisive action to protect liquidity and demonstrating the ability to reopen stores quickly when circumstances allowed. A few highlights include: •Total comparable sales were down less than 20% versus the prior year despite having our store fleet open for approximately 60% of the total available selling days in the quarter. •Digital traffic was up over 80% for the quarter compared to the prior year. Over 40% of online sales in the second half of the quarter were new customers. •Inventory allocation systems and distribution infrastructure ramped up to support increased online demand. •The Merchandise team proactively managed the flow of goods in collaboration with our vendor partners, resulting in a decrease in year-over-year inventory and an inventory balance that remained in line with demand. •We worked with merchandise and non-merchandise vendors to extend terms. •We borrowed$50.0 million under our two unsecured, demand lines of credit as a precautionary measure in order to increase our cash position and preserve financial flexibility, and subsequently converted these lines of credit into a single secured line of credit with a one-year term. •Nearly 700 stores were open to the public at the end of the quarter and over 1,000 are open as of the date of this filing with a majority of them reporting significant comparable sales increases upon their reopening. In addition, the Company continues to be proactive in protecting the health and safety of our team members and customers and all locations are subject to the following safety guidelines: •Stores are being extensively cleaned on a daily basis. •The number of customers allowed in stores open to the public is limited and social distancing is being practiced and maintained. •Store employees or customers exhibiting any symptoms are not permitted to enter the store. •Hand sanitizer is readily available to all team members and customers. •Curbside pick-up is available for all Buy Online, Pick-up In-Store orders where allowed. •Contactless payment is available in all stores.
For more information, please visit www.hibbett.com/shop-safely-in-stores.html.
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The COVID-19 pandemic remains a rapidly evolving situation. We continue to actively monitor developments that may cause us to take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our team members, customers, suppliers and stockholders.
While we cannot predict the duration or the severity of the COVID-19 pandemic or the impact it will have on our business, results of operations or liquidity, it is important to share the impact to-date, how our response is progressing, and how our results and financial condition may change going forward. General OverviewHibbett Sports, Inc. is a leading athletic-inspired fashion retailer primarily located in small and mid-sized communities across the country. Founded in 1945, Hibbett has a rich history of convenient locations, personalized customer service and access to coveted footwear, apparel and equipment from top brands like Nike,Jordan , Adidas and Under Armour. Consumers can browse styles, find new releases, shop looks and make purchases online or in their nearest store or by visiting www.hibbett.com or www.citygear.com and can follow us @HibbettSports and @CityGear. We became a public company inOctober 1996 . As ofMay 2, 2020 , we operated a total of 1,078 retail stores in 35 states composed of 908Hibbett Sports stores, 152 City Gear stores and 18 Sports Additions athletic shoe stores. OurHibbett Sports stores average 5,800 square feet and are located primarily in strip centers, which are usually near a major chain retailer such as Wal-Mart. Our City Gear stores average 5,000 square feet and are located primarily in strip centers. As ofMay 2, 2020 , our store base consisted of 798 stores located in strip centers, 31 free-standing stores and 249 enclosed mall locations. Our primary merchandising strategy is to provide a broad assortment of quality brand name footwear, apparel, accessories and team sports equipment at competitive prices in conveniently located full-service environment. InJuly 2017 , we successfully launched our e-commerce website. We continue to grow our online business aggressively, while enhancing our stores to imporve the overall customer experience. We believe that the breadth and depth of our brand name merchandise consistently exceeds the product selection carried by most of our competitors, particularly in our smaller markets. Many of these brand name products are highly technical and require expert sales assistance. We continuously educate our sales staff on new products and trends through coordinated efforts with our vendors. Comparable sales data for the periods presented reflects sales for our retail stores open throughout the entire period and the corresponding period of the prior fiscal year, and e-commerce sales. We consider comparable store sales to be a key indicator of our current performance; measuring the growth in sales and sales productivity of existing stores. Management believes that positive comparable store sales contribute to greater leveraging of operating costs, particularly payroll and occupancy costs, while negative comparable store sales contribute to de-leveraging of costs. Comparable store sales also have a direct impact on our total net sales and the level of cash flow. Inclusion of our City Gear stores began in the fourth quarter of Fiscal 2020. If a store remodel, relocation or expansion results in the store being closed for a significant period of time, its sales are removed from the comparable sales base until it has been open a full 12 months. During the 13-weeks endedMay 2, 2020 , we included 1,047 stores in comparable sales. We did not exclude any stores from the comparable sales base that were temporarily closed due to the COVID-19 pandemic. Executive Summary Net sales for the 13-weeks endedMay 2, 2020 , decreased 21.4% to$269.8 million compared with$343.3 million for the 13-weeks endedMay 4, 2019 . Comparable store sales decreased 19.5% for the 13-weeks endedMay 2, 2020 . E-commerce sales accounted for 22.3% of total sales for the 13-weeks endedMay 2, 2020 compared to 8.3% of total sales for the 13-weeks endedMay 4, 2019 . Gross margin was 27.5% of net sales for the 13-weeks endedMay 2, 2020 , compared with 34.5% for the 13-weeks endedMay 4, 2019 . The decrease in the gross margin percentage was due to the higher concentration of e-commerce sales to brick and mortar sales in addition to a$5.1 million increase in our lower of cost or net realizable value (LCM) inventory reserve. Store operating, selling and administrative (SG&A) expense, including goodwill impairment, was 33.1% of net sales for the 13-weeks endedMay 2, 2020 , compared with 21.6% of net sales for the 13-weeks endedMay 4, 2019 . The main drivers of the SG&A increase were non-cash impairment charges for goodwill of$19.7 million , City Gear tradename of$8.9 million and other asset impairment of$4.1 million , partially offset by a reduction of$11.0 million for the second year earnout liability related to the City Gear acquisition. 18
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During the first quarter of Fiscal 2021, we opened three new stores, rebranded two Hibbett stores to City Gear stores, and closed eight underperforming stores, bringing the store base to 1,078 in 35 states as ofMay 2, 2020 . Store closures include Hibbett stores closed for rebranding. We ended the first quarter of Fiscal 2021 with$106.2 million of available cash and cash equivalents, including outstanding debt of$50.0 million and after stock repurchases during the 13-weeks endedMay 2, 2020 , of$9.7 million . About Non-GAAP Measures This MD&A includes certain non-GAAP financial measures, including adjusted net income, earnings per share, gross margin and SG&A expenses as a percentage of net sales. Management believes these non-GAAP financial measures are useful to investors to facilitate comparisons of our current financial results to historical operations and the financial results of peer companies, as they exclude the effects of items that may not be indicative of, or are unrelated to, our underlying operating results, such as expenses related to the COVID-19 pandemic, the acquisition of City Gear and our accelerated store closure plan in Fiscal 2020. The costs related to the COVID-19 pandemic include impairment charges of goodwill, tradename and other assets, paid-not-worked labor costs net of related tax credits and excess LCM inventory reserve charges. The costs related to the acquisition of City Gear include amortization of inventory step-up value, professional service fees, and legal and accounting fees. The change in valuation of the contingent earnout was included in COVID-19 costs for the 13-weeks endedMay 2, 2020 and in acquisition of City Gear costs for the 13-weeks endedMay 4, 2019 . Costs related to the strategic realignment plan included lease and equipment impairment costs, third party liquidation fees, store exit costs, and residual net lease costs and were specific to Fiscal 2020. While our management uses these non-GAAP financial measures as a tool to enhance their ability to assess certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial statements. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the review of our financial and operational performance. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies. Reconciliations of our unaudited condensed consolidated statements of operations for the 13 weeks endedMay 2, 2020 andMay 4, 2019 , respectively as reported on a GAAP basis, to statements of operations for the same period prepared on a non-GAAP basis, are provided below under the heading "Reconciliations of Non-GAAP Financial Measures." Critical Accounting Policies and Estimates The unaudited condensed consolidated financial statements are prepared in conformity withU.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our critical and significant accounting policies and estimates are described more fully in our Annual Report on Form 10-K for the fiscal year endedFebruary 1, 2020 , as filed onApril 16, 2020 . There have been no changes in our accounting policies in the current period endedMay 2, 2020 , that had a material impact on our unaudited condensed consolidated financial statements. Recent Accounting Pronouncements See Note 2, Recent Accounting Pronouncements, to the unaudited condensed consolidated financial statements included in this Form 10-Q for the period endedMay 2, 2020 , for information regarding recent accounting pronouncements. 19
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