HIBBETT INC - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year
ended: January
31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from: __________________________ to
__________________________
Commission file
number: 000-20969
HIBBETT
SPORTS, INC.
(Exact
name of registrant as specified in its charter)
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DELAWARE
(State
or other jurisdiction of
incorporation
or organization)
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20-8159608
(I.R.S.
Employer
Identification
No.)
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451 Industrial Lane,
Birmingham, Alabama 35211
(Address
of principal executive offices, including zip code)
205-942-4292
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Common
Stock, $0.01 Par Value Per Share
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NASDAQ
Stock Market, LLC
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Title
of Class
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Name
of each exchange on which
registered
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Securities
registered pursuant to section 12(g) of the Act:
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NONE
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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Yes
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X
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No
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the
Act.
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Yes
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No
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X
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
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Yes
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X
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No
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form
10-K. ____
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer
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X
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
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Yes
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No
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X
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The
aggregate market value of the voting stock held by non-affiliates of the
Registrant (assuming for purposes of this calculation that all executive
officers and directors are “affiliates”) was $591,176,198 on August 2, 2008,
based on the closing sale price of $20.77 at August 2, 2008 for
the common stock on such date on the NASDAQ Global Select Market.
The
number of shares outstanding of the Registrant’s common stock, as of March 27,
2009 was 28,560,404.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant's Proxy Statement for the 2009 Annual Meeting of Stockholders
to be held May 28, 2009 are incorporated by reference into Part III of this
Annual Report on Form 10-K. Registrant’s definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before
April 27, 2009.
HIBBETT
SPORTS, INC.
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A
warning about Forward-Looking Statements
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. They include statements preceded by, followed by or including words
such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “target” or
“estimate.” For example, our forward-looking statements include
statements regarding:
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our
anticipated sales, including comparable store net sales changes, net sales
growth and earnings;
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our
growth, including our plans to add, expand or relocate stores and square
footage growth, our markets’ ability to support such growth and the
suitability of our distribution
facilities;
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the
possible effect of pending legal actions and other
contingencies;
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our
cash needs, including our ability to fund our future capital expenditures
and working capital requirements;
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our
ability and plans to renew or increase our revolving credit
facilities;
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our
seasonal sales patterns and assumptions concerning customer buying
behavior;
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our
expectations regarding competition;
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our
ability to renew or replace store leases
satisfactorily;
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our
estimates and assumptions as they relate to preferable tax and financial
accounting methods, accruals, inventory valuations, dividends, carrying
amount and liquidity of financial instruments and fair value of options
and other stock-based compensation as well as our estimates of economic
and useful lives of depreciable assets and
leases;
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our
expectations concerning future stock-based award
types;
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our
expectations concerning employee stock option exercise
behavior;
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the
possible effect of inflation, market decline and other economic changes on
our costs and profitability, including the impact of changes in fuel costs
and a downturn in the retail industry or changes in levels of store
traffic;
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the
possible effects of continued volatility and further deterioration of the
capital markets, the commercial and consumer credit environment and the
continuation of lowered levels of consumer spending resulting from the
global economic downturn, lowered levels of consumer confidence and higher
levels of unemployment;
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our
analyses of trends as related to earnings
performance;
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our
target market presence and its expected impact on our sales
growth;
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our
expectations concerning vendor level purchases and related
discounts;
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our
estimates and assumptions related to income tax liabilities and uncertain
tax positions;
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the
future reliability of, and cost associated with, our sources of supply,
particularly imported goods; and
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the
possible effect of recent accounting
pronouncements.
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You should assume that the information
appearing in this report is accurate only as of the date it was
issued. Our business, 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 review the “Risk Factors”
described beginning on page 9, as well as “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” beginning
on page 18.
Our forward-looking statements could be
wrong in light of these and other risks, uncertainties and assumptions. The
future events, developments or results described in this report could turn out
to be materially different. We have no obligation to publicly update or revise
our forward-looking statements after the date of this annual report and you
should not expect us to do so.
Investors should also be aware that
while we do, from time to time, communicate with securities analysts and others,
we do not, by policy, selectively disclose to them any material non-public
information with any statement or report issued by any analyst regardless of the
content of the statement or report. We do not, by policy, confirm
forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
Introductory
Note
Unless specifically indicated
otherwise, any reference to “2010” or “Fiscal 2010” relates to our year ending
January 30, 2010. Any reference to “2009” or “Fiscal 2009” relates to
our year ended January 31, 2009. Any reference to “2008” or “Fiscal 2008”
relates to our year ended February 2, 2008. Any reference to “2007”
or “Fiscal 2007” relates to our year ended February 3, 2007.
Our
Company
Our Company was originally organized in
1945 under the name Dixie Supply Company in Florence, Alabama, in the marine and
small aircraft business. In 1951, the Company started targeting school athletic
programs in North Alabama and by the end of the 1950’s had developed a
profitable team sales business. In 1960, we sold the marine portion of our
business and have been solely in the sporting goods business since that time. In
1965, we opened Dyess & Hibbett Sporting Goods in Huntsville, Alabama, and
hired Mickey Newsome, our current Chief Executive Officer and Chairman of the
Board. The next year, we opened another sporting goods store in Birmingham and
by the end of 1980, we had 12 stores in central and northwest Alabama with a
distribution center located in Birmingham and our central accounting office in
Florence. We went public in October 1996 when we had 79 stores and were
incorporated under the laws of the State of Delaware as Hibbett Sporting Goods,
Inc. We incorporated under the laws of the State of Delaware as
Hibbett Sports, Inc. in January 2007 and on February 10, 2007, Hibbett Sports,
Inc. became the successor holding company for Hibbett Sporting Goods, Inc.,
which is now our operating subsidiary.
Today, we are a rapidly-growing
operator of sporting goods stores in small to mid-sized markets predominantly in
the Southeast, Southwest, Mid-Atlantic and lower Midwest regions of the United
States. As of January 31, 2009, we operated 723 Hibbett Sports stores
as well as 18 smaller-format Sports Additions athletic shoe stores and 4
larger-format Sports & Co. superstores in 24 states. Over the past two
fiscal years, we have increased the number of stores from 613 stores to 745
stores, an increase in store base of approximately 22%. Our primary retail
format and growth vehicle is Hibbett Sports, a 5,000 square foot store located
primarily in strip centers which are usually influenced by a Wal-Mart store and
in enclosed malls.
Although competitors in some markets
may carry similar product lines and national brands as our stores, we believe
that our stores are typically the primary sporting goods retailers in their
markets due to the extensive selection of quality branded merchandise and high
level of customer service. Hibbett’s merchandise assortment emphasizes team
sports complemented by localized apparel and accessories designed to appeal to a
wide range of customers within each individual market.
Available
Information
The Company maintains an Internet
website at the following address: www.hibbett.com.
We make available free of charge on or
through our website under the heading “Investor Information,” certain reports
that we file with or furnish to the Securities and Exchange Commission (SEC) in
accordance with the Securities Exchange Act of 1934. These include our annual
reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports
on Form 8-K. We make this information available on our website as soon as
reasonably practicable after we electronically file the information with or
furnish it to the SEC. In addition to accessing copies of our reports
online, you may request a copy of our Annual Report on Form 10-K for the fiscal
year ended January 31, 2009, at no charge, by writing to: Investor
Relations, Hibbett Sports, Inc., 451 Industrial Lane, Birmingham, Alabama
35211.
Reports filed with or furnished to the
SEC are also available free of charge upon request by contacting our corporate
office at (205) 942-4292.
The public may also read or copy any
materials filed by us with the SEC at the SEC’s Public Reference Room at 100F
Street, N.E., Washington, DC 20549. Information may be obtained on the operation
of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also
maintains a website that contains reports, proxy and information statements, and
other information regarding issuers that file electronically at www.sec.gov.
Our
Business Strategy
We target markets with county
populations that range from 30,000 to 100,000. By targeting these smaller
markets, we believe that we achieve important strategic advantages, including
many expansion opportunities, comparatively low operating costs and a more
limited competitive environment than generally faced in larger markets. In
addition, we establish greater customer and vendor recognition as the leading
sporting goods retailer in these local communities.
We believe our ability to merchandise
to local sporting and community interests differentiates us from our national
competitors. This strong regional focus also enables us to achieve significant
cost benefits including lower corporate expenses, reduced distribution costs and
increased economies of scale from marketing activities. Additionally, we also
use sophisticated information systems to maintain tight controls over inventory
and operating costs and continually search for ways to improve efficiencies
through information system upgrades.
We strive to hire enthusiastic sales
people with an interest in sports. Our extensive training program focuses on
product knowledge and selling skills and is conducted through the use of
in-store clinics, videos, self-study courses, interactive group discussions and
“Hibbett University” designed specifically for store management.
5
Our
Store Concepts
Hibbett
Sports
Our primary retail format is Hibbett
Sports, a 5,000 square foot store located primarily in strip centers which are
usually influenced by a Wal-Mart store or in enclosed malls. In considering
locations for our Hibbett Sports stores, we take into account the size,
demographics and competitive conditions of each market. Of these stores, 524
Hibbett Sports stores are located in strip centers with the remaining 199 stores
located in enclosed malls, the majority of which are the only enclosed malls in
the county.
Hibbett Sports stores offer a core
selection of quality, brand name merchandise with an emphasis on team sports.
This merchandise mix is complemented by a selection of localized apparel and
accessories designed to appeal to a wide range of customers within each market.
We strive to respond quickly to major sporting events of local interest. Such
events in Fiscal 2009 included the Florida Gator’s victory in the Bowl
Championship Series (BCS) national championship game as well as the successful
seasons of the Tennessee Titans and the University of Alabama.
Sports
Additions
Our 18 Sports Additions stores are
small, mall-based stores, averaging 2,500 square feet with approximately 90% of
merchandise consisting of athletic footwear and the remainder consisting of caps
and a limited assortment of apparel. Sports Additions stores offer a broader
assortment of athletic footwear, with a greater emphasis on fashion than the
athletic footwear assortment offered by our Hibbett Sports stores. All but 4 Sports Additions
stores are currently located in malls in which Hibbett Sports stores are also
present.
Sports
& Co.
We opened 4 Sports & Co.
superstores between March 1995 and September 1996. Sports & Co. superstores
average 25,000 square feet and offer a broader assortment of athletic footwear,
apparel and equipment than our Hibbett Sports stores. Athletic equipment and
apparel represent a higher percentage of the overall merchandise mix at Sports
& Co. superstores than they do at Hibbett Sports stores. Sports & Co.
superstores are designed to project the same in-store atmosphere as our Hibbett
Sports stores but on a larger scale. We have no plans to open any
superstores in the future.
Team
Sales
Hibbett Team Sales, Inc. (Team Sales),
a wholly-owned subsidiary of the Company, is a leading supplier of customized
athletic apparel, equipment and footwear to school, athletic and youth programs
primarily in Alabama. Team Sales sells its merchandise directly to educational
institutions and youth associations. The operations of Team Sales are
independent of the operations of our retail stores. Team Sales does not meet the
quantitative or qualitative reporting requirements of the Financial Accounting
Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures About
Segments of an Enterprise and Related Information.
Our
Expansion Strategy
In Fiscal 1994, we began to accelerate
our rate of new store openings to take advantage of the growth opportunities in
our target markets. We have currently identified over 350 potential markets for
future Hibbett Sports stores generally within the states in which we operate.
Our clustered expansion program, which calls for opening new stores within a
two-hour driving distance of an existing Hibbett location, allows us to take
advantage of efficiencies in distribution, marketing and regional management. We
believe our current distribution center can support over 1,200
stores.
In Fiscal 2010, we plan to open 65 to
70 new stores and close 20 to 25 stores while we will also expand approximately
20 stores we feel have significant additional sales potential. This
growth plan represents a decline over our historical store opening
rates. While we expect to continue to expand, we have found it more
difficult in the current economic environment and particularly in the commercial
real estate market, to get our stores open at our historical rate of
growth.
In evaluating potential markets, we
consider population, economic conditions, local competitive dynamics,
availability of suitable real estate and proximity to existing Hibbett stores.
Our continued growth largely depends on our ability to open new stores in a
timely manner, to operate them profitably and to manage them effectively.
Additionally, successful expansion is subject to various contingencies, many of
which are beyond our control. See “Risk
Factors.”
Our
Distribution
We maintain a single 220,000 square
foot distribution center in Birmingham, Alabama, which services our existing
stores. The distribution process is centrally managed from our corporate
headquarters, which is located in the same building as the distribution center.
We believe strong distribution support for our stores is a critical element of
our expansion strategy and is central to our ability to maintain a low cost
operating structure.
6
In addition, we have secured additional
warehousing space in Birmingham for new store merchandise accumulation and have
made an additional investment in our current distribution center that we believe
will support our anticipated growth over the next few years primarily in the
states we currently operate. Because of the additional warehousing
space and investment in our current distribution center coupled with improved
technology and vendor assistance with cross-docking, we believe we can service
over 1,200 stores with our current infrastructure in Birmingham.
We receive substantially all of our
merchandise at our distribution center. For key products, we maintain backstock
at the distribution center that is allocated and distributed to stores through
an automatic replenishment program based on items that are sold. Merchandise is
typically delivered to stores weekly via Company-operated vehicles.
Our
Merchandising Strategy
Our merchandising strategy
is to provide a broad assortment of quality brand name footwear, athletic
equipment, and apparel at competitive prices in a full service environment.
Historically, as well as for Fiscal 2009, our most popular consumer item is
athletic footwear, followed by performance and fashion apparel and team sports
equipment, ranked according to sales.
We believe that the breadth and depth
of our brand name merchandise selection generally exceeds the merchandise
selection carried by local independent competitors. Many of these branded
products are highly technical and require considerable sales assistance. We
coordinate with our vendors to educate the sales staff at the store level on new
products and trends.
Although the core merchandise
assortment tends to be similar for each Hibbett Sports store, important local or
regional differences frequently exist. Accordingly, our stores regularly offer
products that reflect preferences for particular sporting activities in each
community and local interests in college and professional sports teams. Our
knowledge of these interests, combined with access to leading vendors, enables
our stores to react quickly to emerging trends or special events, such as
college or professional championships.
Our merchandising staff, operations
staff and management analyze current sporting goods trends primarily through the
gathering and analyzing of daily sales activity available through point-of-sale
terminals located in the stores. Other strategic measures we utilize
to recognize trends or changes in our industry include:
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studying
other retailers for best practices in
merchandising;
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attending
various trade shows, both in our industry and outside as well as reviewing
industry trade publications;
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staying
active in industry associations such as the National Sporting Goods
Association (NSGA);
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visiting
competitor store locations;
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monitoring
product selection at competing
stores;
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maintaining
close relationships with vendors and other retailers;
and
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communicating
with our regional vice presidents, district managers and store
managers.
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The merchandising staff works closely
with store personnel to meet the requirements of individual stores for
appropriate merchandise in sufficient quantities.
Our success depends in part on our
ability to anticipate and respond to changing merchandise trends and consumer
demand on a store level in a timely manner. See “Risk
Factors.”
Our
Vendor Relationships
The sporting goods retail business is
very brand name driven. Accordingly, we maintain relationships with a number of
well-known sporting goods vendors to satisfy customer demand. We believe that
our stores are among the primary retail distribution avenues for brand name
vendors that seek to penetrate our target markets. As a result, we are able to
attract considerable vendor interest and establish long-term partnerships with
vendors. As our vendors expand their product lines and grow in popularity, we
expand sales and promotions of these products within our stores. In addition, as
we continue to increase our store base and enter new markets, our vendors
increase their brand presence within these regions. We also emphasize and work
with our vendors to establish favorable pricing and to receive cooperative
marketing funds. We believe that we maintain good working relationships with our
vendors. For the fiscal year ended January 31, 2009, Nike, our
largest vendor, represented approximately 51.4% of our total purchases while our
next largest vendor represented approximately 8.4% of our total
purchases. For the fiscal year ended February 2, 2008, Nike, our
largest vendor, represented approximately 48.5% of our total purchases while our
next largest vendor represented approximately 9.3% of our total
purchases.
The loss of key vendor support could be
detrimental to our business, financial condition and results of operations. We
believe that we have long-standing and strong relationships with our vendors and
that we have adequate sources of brand name merchandise on competitive terms;
however, we cannot guarantee that we will be able to acquire such merchandise at
competitive prices or on competitive terms in the future. In this regard,
certain merchandise that is high profile and in high demand may be allocated by
vendors based upon the vendors’ internal criterion, which is beyond our control.
See “Risk
Factors.”
7
Our
Advertising and Promotion
We target special advertising
opportunities in our markets to increase the effectiveness of our advertising
budget. In particular, we prefer advertising in local media as a way to further
differentiate Hibbett from national chain competitors. Substantially all of our
advertising and promotional spending is centrally directed. Print advertising,
including direct mail catalogs and postcards to customers, serves as the
foundation of our promotional program and accounted for the majority of our
total advertising costs in Fiscal 2009.
Other advertising means, such as
television commercials, outdoor billboards, Hibbett trucks, our MVP loyalty
program and the Hibbett website, are used to reinforce Hibbett’s name
recognition and brand awareness in the community. Our internet
marketing program, featuring our MVP loyalty program, has provided an expanded
customer database that helps us target the specific needs of our
customers. By allowing us to reach and interact with our customers on
a regular basis through e-mail, this marketing effort is quickly becoming the
most efficient, timely and targeted segment of our marketing
program.
Our
Competition
The business in which we are engaged is
highly competitive. Many of the items we offer in our stores are also sold by
local sporting goods stores, athletic footwear and other specialty athletic
stores, traditional shoe stores and national and regional sporting goods stores.
The marketplace for sporting goods remains highly fragmented as many different
retailers compete for market share by utilizing a variety of store formats and
merchandising strategies. However, we believe the competitive environment
for sporting goods remains different in smaller markets where retail demand may
not support larger format stores. In such markets as those targeted by Hibbett,
national chains compete by focusing on a specialty category like athletic
footwear.
Our stores compete with national
chains that focus on athletic footwear, local sporting goods stores, department
and discount stores, traditional shoe stores and mass merchandisers. On a
limited basis, we have competition from national sporting goods chains in some
of our mid-sized markets. Although we face competition from a
variety of competitors, including on-line competitors, we believe that our
stores are able to compete effectively by being distinguished as sporting
goods stores emphasizing team sports and fitness merchandise complemented by a
selection of localized apparel and accessories. Our competitors may carry
similar product lines and national brands, but we believe the principal
competitive factors for all of our stores are service, breadth of merchandise
offered, availability of brand names and availability of local merchandise. We
believe we compete favorably with respect to these factors in the smaller
markets predominantly in the Southeast, Southwest, Mid-Atlantic and lower
Midwest regions of the United States. However, we cannot guarantee that we will
be able to continue to compete successfully against existing or future
competitors. Expansion into markets served by our competitors, entry of new
competitors or expansion of existing competitors into our markets, could be
detrimental to our business, financial condition and results of operations. See
“Risk
Factors.”
Our
Trademarks
Our Company, by and through
subsidiaries, is the owner or licensee of trademarks that are very important to
our business. For the most part, trademarks are valid as long as they are in use
and/or their registrations are properly maintained. Registrations of trademarks
can generally be renewed indefinitely as long as the trademarks are in
use.
Following
is a list of active trademarks registered and owned by the Company:
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Hibbett
Sports, Registration No. 2717584
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Sports
Additions, Registration No. 1767761
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Hibbett,
Registration No. 3275037
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Our Employees
As of January 31, 2009, we employed
approximately 2,000 full-time and approximately 3,500 part-time employees, none
of whom are represented by a labor union. The number of part-time employees
fluctuates depending on seasonal needs. We cannot guarantee that our employees
will not, in the future, elect to be represented by a union. We consider our
relationship with our employees to be good and have not experienced significant
interruptions of operations due to labor disagreements.
Employee Development. We
develop our training programs in a continuing effort to service the needs of our
customers and employees. These programs are designed to increase employee
knowledge and include video training in all stores for the latest in technical
detail of new products and new operational and service techniques. Because we
primarily promote or relocate current employees to serve as managers for new
stores, training and assessment of our employees is essential to our sustained
growth.
We have implemented programs in our
stores and corporate offices to ensure that we hire and promote the most
qualified employees in a non-discriminatory way. One of the most significant
programs we have is Hibbett University or “Hibbett U” which is an intensive,
four-day training session held at our corporate offices and designed
specifically for store management.
8
Seasonality
We experience seasonal fluctuations in
our net sales and results of operations. Customer buying patterns
around the spring sales period and the holiday season historically result in
higher first and fourth quarter net sales. In addition, our quarterly
results of operations may fluctuate significantly as a result of a variety of
factors, including the timing of new store openings, the amount and timing of
net sales contributed by new stores, merchandise mix and demand for apparel and
accessories driven by local interest in sporting events.
You
should carefully consider the following risks, as well as the other information
contained in this report, before investing in shares of our common stock. If any
of the following risks actually occur, our business could be harmed. In that
case, the trading price of our common stock could decline, and you might lose
all or part of your investment.
An
extended downturn in the economy could affect consumer purchases of
discretionary items, which could reduce our net sales.
In general, our sales represent
discretionary spending by our customers. A further slowdown in the
U.S. economy or other economic conditions affecting disposable consumer income,
such as employment levels, inflation, business conditions, fuel and energy
costs, consumer debt levels, lack of available credit, interest rates and tax
rates may adversely affect our business. A reduction in overall
consumer spending which causes customers to shift their spending to products
other than those sold by us or to products sold by us that are less profitable
could result in lower net sales, decreases in inventory turnover or a reduction
in profitability due to lower margins.
Increasing volatility in financial
markets or additional governmental regulations could cause a greater frequency
or higher magnitude of change in many of the factors listed. At this
time, we are unable to determine the impact on our customers and our business,
if any, of programs adopted by the U.S. government to stabilize and support the
economy.
We
may be unable to achieve our expansion plans for future growth.
We have grown rapidly primarily through
opening new stores, growing from 67 stores at the beginning of Fiscal 1997 to
745 stores at January 31, 2009. We plan to increase our store base by opening 65 to 70 new
Hibbett Sports stores while closing 20 to 25 stores in Fiscal 2010. Our
continued growth depends, in large part, upon our ability to open new stores in
a timely manner and to operate them profitably. Successful expansion
is subject to various contingencies, many of which are beyond our control. In
order to open and operate new stores successfully, we must secure leases on
suitable sites with acceptable terms, build-out and equip the stores with
furnishings and appropriate merchandise, hire and train personnel and integrate
the stores into our operations.
In addition, our expansion strategy may
be subject to rising real estate and construction costs, available credit to
landlords and developers and landlord bankruptcies that could inhibit our
ability to sustain our rate of growth. We may also face new
competitive, distribution and merchandising challenges different from those we
currently face. We cannot give any assurances that we will be able to
continue our expansion plans successfully; that we will be able to achieve
results similar to those achieved with prior locations; or that we will be able
to continue to manage our growth effectively. Our failure to achieve our
expansion plans could materially and adversely affect our business, financial
condition and results of operations. In addition, our operating margins may be
impacted in periods in which incremental expenses are incurred as a result of
new store openings.
The
slower pace of our retail store expansion may negatively impact our net sales
growth and operating income.
The opening of new retail stores has
contributed significantly to our growth in net sales. In light of the
challenging economic environment facing retailers and developers, we have made
the strategic decision to slow down the pace of our retail store
expansion. We expect to increase our overall store base by
approximately 6% in Fiscal 2010 compared to 8% in Fiscal 2009 and 12% in Fiscal
2008. The slower pace of our retail store expansion may negatively
impact our net sales growth and operating income.
Our
estimates concerning long-lived assets and store closures may
accelerate.
Our long-term success depends, in part,
on our ability to operate stores in a manner that achieves appropriate returns
on capital invested. This is particularly challenging in the current
economic environment. We will only continue to operate existing
stores if they meet required sales or profit levels. In the current
macroeconomic environment, the results of our existing stores are impacted not
only by a reduced sales environment, but by a number of things that are outside
our control, such as the loss of traffic resulting from store closures by
significant other retailers in our stores’ immediate vicinity.
The recession, coupled with the
volatility in the capital markets, all affect our business and macroeconomic
environment and, ultimately, the revenue and profitability of our
business. To the extent our estimates for net sales, gross profit and
store expenses are not realized, future assessments of recoverability could
result in impairment charges. In addition, if we were to close
stores, we could be subject to costs and impairment charges that may adversely
affect our financial results.
9
Our
stores are concentrated within the Southeast, Southwest, Mid-Atlantic and lower
Midwest regions of the United States, which could subject us to regional
risks.
Because our stores are located
primarily in a concentrated area of the United States, we are subject to
regional risks, such as the regional economy, weather conditions and natural
disasters such as floods, droughts, tornadoes and hurricanes, increasing costs
of electricity, oil and natural gas, as well as, government regulations specific
in the states and localities within which we operate. We sell a
significant amount of team sports merchandise which can be adversely affected by
significant weather events that postpone the start of or shorten sports seasons
or that limit participation of fans and sports enthusiasts.
Changes
in federal, state or local law, or our failure to comply with such laws, could
increase our expenses and expose us to legal risks.
Our business is subject to a wide array
of laws and regulations. Significant legislative changes that impact
our relationship with our workforce (none of which are represented by unions as
of the end of Fiscal 2009) could increase our expenses and adversely affect our
operations. Changes in other regulatory areas, such as consumer
credit, privacy and information security or product safety, among others, could
cause our expenses to increase. In addition, if we fail to comply
with applicable laws and regulations, particularly wage and hour laws, we could
be subject to legal risk, including government enforcement action and class
action civil litigation, which could adversely affect our results of
operations. Changes in tax laws, the interpretation of existing laws,
or our failure to sustain our reporting positions on examination could adversely
affect our effective tax rate.
From time to time, we are involved in
lawsuits, including class action lawsuits brought against us for alleged
violations of the Fair Labor Standards Act. Due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome
of any such proceedings. We may incur losses relating to these claims
and, in addition, these proceedings could cause us to incur costs and may
require us to devote resources to defend against these claims which could
adversely affect our results of operations. For a description of
current legal proceedings, see “Part I, Item 3, Legal Proceedings”.
Unauthorized
disclosure of sensitive or confidential information that could harm our business
and reputation with our consumers.
The protection of Company, customer and
employee data is critical to us. We rely on third-party systems,
software and monitoring tools to provide security for processing, transmission
and storage of confidential customer and employee information such as payment
card and personal information. Despite the security measures we and
our third-party providers have in place, our data may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data,
programming and/or human errors, theft or other similar events. Any
security breach involving the misappropriation, loss or other unauthorized
disclosure of confidential information, whether by the Company or its providers,
could damage our reputation, expose us to risk of litigation and liability and
harm our business.
Our
inability to identify, and anticipate changes in consumer demands and
preferences and our inability to respond to such consumer demands in a timely
manner could reduce our sales.
Our products appeal to a broad range of
consumers whose preferences cannot be predicted with certainty and are subject
to rapid change. Our success depends on our ability to identify product trends
as well as to anticipate and respond to changing merchandise trends and consumer
demand in a timely manner. We cannot assure you that we will be able to continue
to offer assortments of products that appeal to our customers or that we will
satisfy changing consumer demands in the future. Accordingly, our business,
financial condition and results of operations could be materially and adversely
affected if:
|
|
·
|
we
are unable to identify and respond to emerging trends, including shifts in
the popularity of certain products;
|
|
|
·
|
we
miscalculate either the market for the merchandise in our stores or our
customers’ purchasing habits; or
|
|
|
·
|
consumer
demand unexpectedly shifts away from athletic footwear or our more
profitable apparel lines.
|
In addition, we may be faced with
significant excess inventory of some products and missed opportunities for other
products, which could decrease our profitability.
If
we lose any of our key vendors or any of our key vendors fail to supply us with
merchandise, we may not be able to meet the demand of our customers and our net
sales could decline.
Our business is dependent to a
significant degree upon close relationships with vendors and our ability to
purchase brand name merchandise at competitive prices. In addition, many of our
vendors provide us with incentives, such as return privileges, volume purchasing
allowances and cooperative advertising. The loss of key vendor
support or decline or discontinuation of vendor incentives could have a material
adverse effect on our business, financial condition and results of operations.
We cannot guarantee that we will be able to acquire such merchandise at
competitive prices or on competitive terms in the future. In this regard,
certain merchandise that is in high demand may be allocated by vendors based
upon the vendors’ internal criterion which is beyond our control.
10
A
disruption in the flow of imported merchandise or an increase in the cost of
those goods may significantly decrease our net sales and operating
income.
We believe many of our largest vendors
source a substantial majority of their products from China and other foreign
countries. Imported goods are generally less expensive than domestic goods and
indirectly contribute significantly to our favorable profit
margins. We may experience a disruption or increase in the cost of
imported vendor products at any time for reasons beyond our control. If imported
merchandise becomes more expensive or unavailable, the transition to alternative
sources by our vendors may not occur in time to meet our demands or the demands
of our customers. Products from alternative sources may also be more expensive
than those our vendors currently import. Risks associated with reliance on
imported goods include:
|
|
·
|
disruptions
in the flow of imported goods because of factors such
as:
|
|
|
·
|
raw
material shortages, work stoppages, strikes and political
unrest;
|
|
|
·
|
problems
with oceanic shipping, including blockages at U.S. or foreign
ports;
|
|
|
·
|
economic
crises and international disputes;
and
|
|
|
·
|
increases
in the cost of purchasing or shipping foreign merchandise resulting
from:
|
|
|
·
|
foreign
government regulations;
|
|
|
·
|
changes
in currency exchange rates or policies and local economic conditions;
and
|
|
|
·
|
trade
restrictions, including import duties, import quotas or loss of “most
favored nation” status with the United
States.
|
In addition, to the extent that any
foreign manufacturer from whom our vendors are associated may directly or
indirectly utilize labor practices that are not commonly accepted in the United
States, we could be affected by any resulting negative publicity. Our net sales
and operating income could decline if vendors are unable to promptly replace
sources providing equally appealing products at a similar cost.
Problems
with our information system software could disrupt our operations and negatively
impact our financial results and materially adversely affect our business
operations.
The efficient operation of our business
is dependent on the successful integration and operation of our information
systems. In particular, we rely on our information systems to manage effectively
our sales, distribution, merchandise planning and replenishment, to process
financial information and sales transactions and to optimize our overall
inventory levels. Most of our information systems are centrally located at our
headquarters, with offsite backup at other locations. Our systems, if
not functioning properly, could disrupt our ability to track, record and analyze
sales and inventory movement and could cause disruptions of operations,
including, among other things, our ability to process and ship inventory,
process financial information including credit card transactions, process
payrolls or vendor payments or engage in other similar normal business
activities. Any material disruption, malfunction or any other similar
problem in or with our information systems could negatively impact our financial
results and materially adversely affect our business operations.
Pressure
from our competitors may force us to reduce our prices or increase our spending,
which would lower our net sales and operating income.
The business in which we are engaged is
highly competitive. The marketplace for sporting goods remains highly fragmented
as many different retailers compete for market share by utilizing a variety of
store formats and merchandising strategies. We compete with national chains that
focus on athletic footwear, local sporting goods stores, department and discount
stores, traditional shoe stores and mass merchandisers and, on a limited basis,
national sporting goods stores. Many of our competitors have greater financial
resources than we do. In addition, many of our competitors employ price
discounting policies that, if intensified, may make it difficult for us to reach
our sales goals without reducing our prices. As a result of this competition, we
may also need to spend more on advertising and promotion than we anticipate. We
cannot guarantee that we will continue to be able to compete successfully
against existing or future competitors. Expansion into markets served by our
competitors, entry of new competitors or expansion of existing competitors into
our markets could be detrimental to our business, financial condition and
results of operations.
Our
operating results are subject to seasonal and quarterly fluctuations, which
could cause the market price of our common stock to decline.
We have historically experienced and
expect to continue to experience seasonal fluctuations in our net sales,
operating income and net income. Our net sales, operating income and net income
are typically higher in the spring, back-to-school and Christmas holiday
seasons. An economic downturn during these periods could adversely affect us to
a greater extent than if a downturn occurred at other times of the
year.
Our highest sales and operating income
historically occur during the fourth fiscal quarter, due mostly to the holiday
selling season. Any decrease in our fourth quarter sales, whether
because of a slow holiday selling season, unseasonable weather conditions,
slowing economic conditions, or otherwise, could have a material adverse effect
on our business, financial condition and operating results for the entire fiscal
year.
11
Our
quarterly operating results, including comparable store net sales, will
fluctuate and may not be a meaningful indicator of future performance and such
fluctuations could adversely affect the market price of our common
stock.
Our net sales and quarterly results of
operations have fluctuated in the past and vary from quarter to
quarter. A number of factors, many outside our control, can cause
variations in our quarterly results, including changes in product demand that we
offer in our stores which may be influenced by the retirement or demise of
sports superstars key to certain product promotions or strikes or lockouts
involving professional sports teams.
We cannot assure you that comparable
store net sales will trend at the rates achieved in prior periods or that rates
will not decline. Comparable store net sales vary from quarter to
quarter, and an unanticipated decline in comparable store net sales may cause
the price of our common stock to fluctuate significantly. Factors which
have historically affected, and will continue to affect our comparable store net
sales results, include:
|
|
·
|
shifts
in consumer tastes and fashion
trends;
|
|
|
·
|
calendar
shifts of holiday or seasonal
periods;
|
|
|
·
|
the
timing of new store openings and the relative proportion of new stores to
mature stores;
|
|
|
·
|
the
level of pre-opening expenses associated with new
stores;
|
|
|
·
|
the
amount and timing of net sales contributed by new
stores;
|
|
|
·
|
changes
in the other tenants in the shopping centers in which we are
located;
|
|
|
·
|
pricing,
promotions or other actions taken by us or our existing or possible new
competitors; and
|
|
|
·
|
unseasonable
weather conditions or natural
disasters.
|
The market price of our common stock,
like the stock market in general, is likely to be highly
volatile. Factors that could cause fluctuation in our common stock
price may include, among other things:
|
|
·
|
actual
or anticipated variations in quarterly operating
results;
|
|
|
·
|
changes
in financial estimates by investment analysts and our inability to meet or
exceed those estimates;
|
|
|
·
|
additions
or departures of key personnel;
|
|
|
·
|
market
rumors or announcements by us or by our competitors of significant
acquisitions, divestitures or joint ventures, strategic partnerships,
large capital commitments or other strategic initiatives;
and
|
|
|
·
|
sales
of our common stock by key personnel or large institutional
holders.
|
Many of these factors are beyond our
control and may cause the market price of our common stock to decline,
regardless of our operating performance.
We
would be materially and adversely affected if our single distribution center
were shut down.
We currently operate a single
centralized distribution center in Birmingham, Alabama. We receive and ship
substantially all of our merchandise at our distribution center. Any natural
disaster or other serious disruption to this facility due to fire, tornado or
any other cause would damage a portion of our inventory and could impair our
ability to adequately stock our stores and process returns of products to
vendors and could adversely affect our sales and profitability. In addition, we
could incur significantly higher costs and longer lead times associated with
distributing our products to our stores during the time it takes for us to
reopen or replace the center.
We
depend on key personnel.
We have benefited from the leadership
and performance of our senior management, especially Michael J. Newsome, our
Chairman and Chief Executive Officer. If we lose the services of any
of our principal executive officers, including Mr. Newsome, we may not be able
to run our business effectively and operating results could
suffer. In particular, Mr. Newsome has been instrumental in
directing our business strategy and maintaining long-term relationships with our
key vendors. The loss of principal executive officers could affect
our ability to run our business effectively and our ability to successfully
expand our operations.
On March 9, 2005, we entered into a
Retention Agreement (the Agreement) with Mr. Newsome. The purpose of the
Agreement is to secure the continued employment of Mr. Newsome as an
advisor to us following his future retirement from the duties of Chief Executive
Officer of our Company. Such retirement is not currently planned.
12
Provisions
in our charter documents and Delaware law might deter acquisition bids for
us.
Certain provisions of our certificate
of incorporation and bylaws may be deemed to have anti-takeover effects and may
discourage, delay or prevent a takeover attempt that a stockholder might
consider in its best interest. These provisions, among other
things:
|
|
·
|
classify
our Board of Directors into three classes, each of which serves for
different three-year periods;
|
|
|
·
|
provide
that a director may be removed by stockholders only for cause by a vote of
the holders of not less than two-thirds of our shares entitled to
vote;
|
|
|
·
|
provide
that all vacancies on our Board of Directors, including any vacancies
resulting from an increase in the number of directors, may be filled by a
majority of the remaining directors, even if the number is less than a
quorum;
|
|
|
·
|
provide
that special meetings of the stockholders may only be called by the
Chairman of the Board of Directors, a majority of the Board of Directors
or upon the demand of the holders of a majority of the shares entitled to
vote at any such special meeting;
and
|
|
|
·
|
call
for a vote of the holders of not less than two-thirds of the shares
entitled to vote in order to amend the foregoing provisions and certain
other provisions of our certificate of incorporation and
bylaws.
|
In addition, our Board of Directors,
without further action of the stockholders, is permitted to issue and fix the
terms of preferred stock which may have rights senior to those of common stock.
We are also subject to the Delaware business combination statute, which may
render a change in control of us more difficult. Section 203 of the Delaware
General Corporation Laws would be expected to have an anti-takeover effect with
respect to transactions not approved in advance by the Board of Directors,
including discouraging takeover attempts that might result in a premium over the
market price for the shares of common stock held by stockholders.
None.
We currently lease all of our existing
745 store locations and expect that our policy of leasing rather than owning
will continue as we continue to expand. Our leases typically provide for terms
of five to ten years with options on our part to extend. Most leases also
contain a kick-out clause if projected sales levels are not met and an early
termination/remedy option if co-tenancy and exclusivity provisions are violated.
We believe this leasing strategy enhances our flexibility to pursue various
expansion opportunities resulting from changing market conditions and to
periodically re-evaluate store locations. Our ability to open new stores is
contingent upon locating satisfactory sites, negotiating favorable leases,
recruiting and training qualified management personnel and the availability of
market relevant inventory.
As current leases expire, we believe we
will either be able to obtain lease renewals for present store locations or to
obtain leases for equivalent or better locations in the same general
area. Historically, we have not experienced any significant
difficulty in either renewing leases for existing locations or securing leases
for suitable locations for new stores. However, we are beginning to
experience some difficulty in securing leases for new stores related to new
construction due to the economic issues facing the commercial real estate
market and landlords, thus reducing our ability to open stores at our historical
rates. Based primarily on our belief that we maintain good relations
with our landlords, that most of our leases are at approximate market rents and
that generally we have been able to secure leases for suitable locations, we
believe our lease strategy will not be detrimental to our business, financial
condition or results of operations.
Our corporate offices and our retail
distribution center are leased under an operating lease. We own the Team Sales’
facility located in Birmingham, Alabama that warehouses inventory for
educational institutions and youth associations. We believe our current
distribution center is suitable and adequate to support our immediate needs in
the next few years.
13
Store
Locations
As of January 31, 2009, we currently
operate 745 stores in 24 contiguous states, opening our first store in Wisconsin
in the third quarter of Fiscal 2009. Of these stores, 218 are located in malls
and 527 are located in strip-shopping centers which are typically influenced by
a Wal-Mart store. The following shows the number of locations by state as of March 27,
2009:
|
Alabama
|
79
|
Illinois
|
17
|
Mississippi
|
53
|
South
Carolina
|
32
|
|||
|
Arizona
|
7
|
Indiana
|
18
|
Nebraska
|
5
|
Tennessee
|
50
|
|||
|
Arkansas
|
36
|
Kansas
|
18
|
New
Mexico
|
9
|
Texas
|
75
|
|||
|
Florida
|
36
|
Kentucky
|
35
|
North
Carolina
|
43
|
Virginia
|
20
|
|||
|
Georgia
|
85
|
Louisiana
|
41
|
Ohio
|
20
|
West
Virginia
|
8
|
|||
|
Iowa
|
6
|
Missouri
|
23
|
Oklahoma
|
31
|
Wisconsin
|
1
|
|||
|
TOTAL
|
748
|
We are a party to various legal
proceedings incidental to our business. We do not believe that any of
these matters will, individually or in the aggregate, have a material adverse
effect on our business or financial condition. We cannot give
assurance, however, that one or more of these lawsuits will not have a material
adverse effect on our results of operations for the period in which they are
resolved. At January 31, 2009, we estimate that the liability related
to these matters is approximately $47,000 and accordingly, have accrued $47,000
as a current liability on our consolidated balance sheet. As of
February 2, 2008, we had accrued $0.8 million as it related to our estimated
liability for legal proceedings which primarily consisted of an amount accrued
for a pending lawsuit that has since been settled.
The estimates of our liability for
pending and unasserted potential claims do not include litigation
costs. It is our policy to accrue legal fees when it is probable that
we will have to defend against known claims or allegations and we can reasonably
estimate the amount of the anticipated expense.
From time to time, we enter into
certain types of agreements that require us to indemnify parties against third
party claims under certain circumstances. Generally, these agreements
relate to: (a) agreements with vendors and suppliers under which we may provide
customary indemnification to our vendors and suppliers in respect to actions
they take at our request or otherwise on our behalf; (b) agreements to indemnify
vendors against trademark and copyright infringement claims concerning
merchandise manufactured specifically for or on behalf of the Company; (c) real
estate leases, under which we may agree to indemnify the lessors from claims
arising from our use of the property; and (d) agreements with our directors,
officers and employees, under which we may agree to indemnify such persons for
liabilities arising out of their relationship with us. We have
director and officer liability insurance, which, subject to the policy’s
conditions, provides coverage for indemnification amounts payable by us with
respect to our directors and officers up to specified limits and subject to
certain deductibles.
If the Company believes that a loss is
both probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of SFAS No. 5, Accounting for
Contingencies. With respect to any matter, the Company could
change its belief as to whether a loss is probable or estimable, or its estimate
of loss, at any time. Even though the Company may not believe a loss
is probable or estimable, it is reasonably possible that the Company could
suffer a loss with respect to that matter in the future.
No matters were submitted to a vote of
our stockholders during the fourth quarter of Fiscal 2009.
14
Our common stock is traded on the
NASDAQ Global Select Market (NASDAQ/GS) under the symbol HIBB. The following
table sets forth, for the periods indicated, the high and low sales prices of
shares of our Common Stock as reported by NASDAQ.
|
High
|
Low
|
|||||||
|
Fiscal
2009:
|
||||||||
|
First
Quarter ended May 3, 2008
|
$ | 19.42 | $ | 13.59 | ||||
|
Second
Quarter ended August 2, 2008
|
$ | 23.31 | $ | 16.97 | ||||
|
Third
Quarter ended November 1, 2008
|
$ | 25.15 | $ | 13.41 | ||||
|
Fourth
Quarter ended January 31, 2009
|
$ | 17.69 | $ | 11.74 | ||||
|
Fiscal
2008:
|
||||||||
|
First
Quarter ended May 5, 2007
|
$ | 32.97 | $ | 27.26 | ||||
|
Second
Quarter ended August 4, 2007
|
$ | 30.62 | $ | 23.70 | ||||
|
Third
Quarter ended November 3, 2007
|
$ | 28.74 | $ | 21.09 | ||||
|
Fourth
Quarter ended February 2, 2008
|
$ | 23.65 | $ | 12.30 | ||||
On March 27, 2009, the last reported
sale price for our common stock as quoted by NASDAQ was $18.81 per
share. As of March 27, 2009, we had 42
stockholders of record.
15
The Stock Price Performance Graph below
compares the percentage change in our cumulative total stockholder return on its
common stock against a cumulative total return of the NASDAQ Composite Index and
the NASDAQ Retail Trade Index. The graph below outlines returns for
the period beginning on January 31, 2004 to January 31, 2009. We have
not paid any dividends. Total stockholder return for prior periods is
not necessarily an indication of future performance.
Dividend
Policy. We have never declared or paid any dividends on our
common stock. We currently intend to retain our future earnings to finance the
growth and development of our business and for our stock repurchase program, and
therefore do not anticipate declaring or paying cash dividends on our common
stock for the foreseeable future. Any future decision to declare or pay
dividends will be at the discretion of our Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements and such other factors as our Board of Directors deems
relevant.
Equity
Compensation Plans. For information on securities
authorized for issuance under our equity compensation plans, see “Part III, Item
12, Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.”
16
The following selected consolidated
financial data has been derived from the consolidated financial statements of
the Company. The data set forth below should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our
Consolidated Financial Statements and Notes to Financial
Statements thereto.
|
(In
thousands, except per share amounts and Selected Operating
Data)
|
||||||||||||||||||||
|
Fiscal
Year Ended
|
||||||||||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
January
28,
|
January
29,
|
||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(52
weeks)
|
(52
weeks)
|
(53
weeks)
|
(52
weeks)
|
(52
weeks)
|
||||||||||||||||
|
Income Statement
Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 564,188 | $ | 520,720 | $ | 512,094 | $ | 440,269 | $ | 377,534 | ||||||||||
|
Cost
of goods sold, including distribution center and store occupancy
costs
|
378,817 | 351,876 | 338,963 | 293,368 | 255,250 | |||||||||||||||
|
Gross
profit
|
185,371 | 168,844 | 173,131 | 146,901 | 122,284 | |||||||||||||||
|
Store
operating, selling and administrative expenses
|
123,075 | 108,463 | 100,461 | 85,060 | 72,923 | |||||||||||||||
|
Depreciation
and amortization
|
14,324 | 12,154 | 10,932 | 10,119 | 9,939 | |||||||||||||||
|
Operating
income
|
47,972 | 48,227 | 61,738 | 51,722 | 39,422 | |||||||||||||||
|
Interest
income
|
41 | 582 | 906 | 1,170 | 517 | |||||||||||||||
|
Interest
expense
|
(660 | ) | (151 | ) | (30 | ) | (24 | ) | (42 | ) | ||||||||||
|
Interest
(expense) income, net
|
(619 | ) | 431 | 876 | 1,146 | 475 | ||||||||||||||
|
Income
before provision for income taxes
|
47,353 | 48,658 | 62,614 | 52,868 | 39,897 | |||||||||||||||
|
Provision
for income taxes
|
17,905 | 18,329 | 24,541 | 19,244 | 14,750 | |||||||||||||||
|
Net
income
|
$ | 29,448 | $ | 30,329 | $ | 38,073 | $ | 33,624 | $ | 25,147 | ||||||||||
|
Earnings
per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 1.03 | $ | 0.98 | $ | 1.19 | $ | 1.00 | $ | 0.72 | ||||||||||
|
Diluted
|
$ | 1.02 | $ | 0.96 | $ | 1.17 | $ | 0.98 | $ | 0.70 | ||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||||||
|
Basic
|
28,547 | 31,049 | 32,094 | 33,606 | 34,856 | |||||||||||||||
|
Diluted
|
28,954 | 31,525 | 32,620 | 34,393 | 35,690 | |||||||||||||||
|
Balance Sheet
Data:
|
||||||||||||||||||||
|
Working
capital
|
$ | 107,055 | $ | 89,383 | $ | 106,428 | $ | 98,623 | $ | 106,012 | ||||||||||
|
Total
assets
|
235,087 | 216,734 | 212,853 | 195,829 | 202,105 | |||||||||||||||
|
Long-term
debt
|
- | - | - | - | - | |||||||||||||||
|
Stockholders'
investment
|
136,575 | 119,055 | 136,641 | 124,773 | 130,039 | |||||||||||||||
|
Selected Operating
Data:
|
||||||||||||||||||||
|
Number
of stores open at end of period:
|
||||||||||||||||||||
|
Hibbett
Sports
|
723 | 666 | 593 | 527 | 461 | |||||||||||||||
|
Sports
& Co.
|
4 | 4 | 4 | 4 | 4 | |||||||||||||||
|
Sports
Additions
|
18 | 18 | 16 | 18 | 17 | |||||||||||||||
|
Total
|
745 | 688 | 613 | 549 | 482 | |||||||||||||||
Note: No
dividends have been declared or paid.
17
Overview
Hibbett Sports, Inc. operates sporting
goods stores in small to mid-sized markets, predominantly in the Southeast,
Southwest, Mid-Atlantic and lower Midwest regions of the United States. Our
stores offer a broad assortment of quality athletic equipment, footwear and
apparel with a high level of customer service. As of January 31, 2009, we
operated a total of 745 retail stores composed of 723 Hibbett Sports stores, 18
Sports Additions athletic shoe stores and 4 Sports & Co. superstores in 24
states.
Our primary retail format and growth
vehicle is Hibbett Sports, a 5,000-square-foot store located primarily in strip
centers which are usually influenced by a Wal-Mart store or in enclosed malls.
Over the last several years, we have concentrated and expect to continue our
store base growth in strip centers versus enclosed malls. We believe
Hibbett Sports stores are typically the primary sporting goods retailers in
their markets due to the extensive selection of quality branded merchandise and
a high level of customer service. We do not expect that the average size of our
stores opening in Fiscal 2010 will vary significantly from the average size of
stores opened in Fiscal 2009.
The deteriorating global economic
conditions experienced in Fiscal 2009 had an adverse effect on us. We
experienced a slight decline in net income in Fiscal 2009 and an overall decline
in net sales of equipment and licensed apparel. The impact of
these decreases was offset by net sales increases in footwear and accessories
and our continued successful implementation of our growth
strategy. As a result, our gross profit increased in Fiscal 2009
compared to Fiscal 2008.
We historically have increases in
comparable store net sales in the low to mid-single digit range. We
plan to increase total company-wide square footage by approximately 6% in Fiscal
2010, which is less than our increases over the last several years of between 8%
and 14%. We believe total sales percentage growth will be low to mid single
digits in Fiscal 2010. Over the past several years,
we have increased our product margin due to improved vendor discounts, fewer
retail reductions and increased efficiencies in logistics. We have
also experienced favorable leveraging of store occupancy costs. We expect a
slight improvement in product margin rate in Fiscal 2010 attributable primarily
to increased efficiencies from our previous investment in systems.
Although the macroeconomic environment
will provide many challenges in the short-term, our management believes that our
business fundamentals remain strong and that we are well-positioned for the
future. We are a leader in the markets in which we compete and we
will continue to benefit from our comparatively low operating costs compared to
the costs of our competitors. We intend to manage our costs and
inventories prudently as dictated by the current economic
environment. Although at a slower pace than in prior years, we intend
to continue to invest in initiatives to prepare for long-term
growth.
Our management expects that the
unfavorable global economic conditions experienced in the second half of Fiscal
2009 will continue. The economy is expected to have a negative impact
on customer discretionary spending, which may negatively impact our net sales in
Fiscal 2010.
Due to our increased net sales, we have
historically leveraged our store operating, selling and administrative expenses.
Based on projected net sales, we expect operating, selling and administrative
rates to increase somewhat in Fiscal 2010, primarily due to lower than normal
historical sales growth and increases in the statutory minimum wage. We also
expect to continue to generate sufficient cash to enable us to expand and
remodel our store base and to provide capital expenditures for both distribution
center and technology upgrade projects.
Hibbett maintains a merchandise
management system that allows us to identify and monitor
trends. However, this system does not produce U.S. generally accepted
accounting principle (GAAP) financial information by product
category. Therefore, it is impracticable to provide GAAP net sales by
product category.
Hibbett operates on a 52- or 53-week
fiscal year ending on the Saturday nearest to January 31 of each year. The
consolidated statements of operations for fiscal years ended January 31, 2009
and February 2, 2008 includes 52 weeks of operations. The
consolidated statement of operations for fiscal year ended February 3, 2007
includes 53 weeks of operations. We have operated as a public company
and have been incorporated under the laws of the State of Delaware since October
6, 1996.
18
Results
of Operations
The
following table sets forth the percentage relationship to net sales of certain
items included in our consolidated statements of operations for the periods
indicated.
|
Fiscal
Year Ended
|
|||||||||||
|
January
31,
|
February
2,
|
February
3,
|
|||||||||
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | |||||
|
Costs
of goods sold, including distribution and store occupancy
costs
|
67.1 | 67.6 | 66.2 | ||||||||
|
Gross
profit
|
32.9 | 32.4 | 33.8 | ||||||||
|
Store
operating, selling and administrative expenses
|
21.8 | 20.8 | 19.6 | ||||||||
|
Depreciation
and amortization
|
2.5 | 2.3 | 2.1 | ||||||||
|
Operating
income
|
8.5 | 9.3 | 12.1 | ||||||||
|
Interest
income
|
- | 0.1 | 0.2 | ||||||||
|
Interest
expense
|
(0.1 | ) | - | - | |||||||
|
Interest
(expense) income, net
|
(0.1 | ) | 0.1 | 0.2 | |||||||
|
Income
before provision for income taxes
|
8.4 | 9.3 | 12.2 | ||||||||
|
Provision
for income taxes
|
3.2 | 3.5 | 4.8 | ||||||||
|
Net
income
|
5.2 | % | 5.8 | % | 7.4 | % | |||||
Note: Columns
may not sum due to rounding.
Fiscal
2009 Compared to Fiscal 2008
Net sales. Net sales
increased $43.5 million, or 8.4%, to $564.2 million for the 52 weeks ended
January 31, 2009, from $520.7 million for the 52 weeks ended February 2, 2008.
We attribute this increase to the following factors:
|
|
·
|
We
opened 69 Hibbett Sports stores while closing 12 Hibbett Sports stores for
net stores opened of 57 stores in the 52 weeks ended January 31, 2009. New
stores and stores not in the comparable store net sales calculation
accounted for $41.0 million of the increase in net sales. Store
openings and closings are reported net of
relocations.
|
|
|
·
|
We
experienced a 0.5% increase in comparable store net sales for the 52 weeks
ended January 31, 2009 compared to the 52 weeks ended February 2,
2008. Higher comparable store net sales contributed $2.5
million to the increase in net
sales.
|
|
|
·
|
Although
we saw a decrease in store traffic, items per sales transaction improved
by 2.8%.
|
The slight increase in comparable store
net sales was primarily attributable to an increase in the number of items per
transaction and improved efficiencies in systems that enhanced our ability to
offer the right product in the right store. We also believe that the
close proximity of our stores, coupled with branded merchandise selection and
the higher average fuel costs for most of the year, encouraged the customer in
our smaller markets to shop closer to home.
We experienced the following trends in
Fiscal 2009:
|
|
·
|
Children’s
footwear performed well, while women’s footwear weakened. Men’s
marquee product performed well.
|
|
|
·
|
The
decline in the urban apparel business was offset by increases in Mixed
Martial Arts apparel and equipment.
|
|
|
·
|
Our
strip center stores outperformed our enclosed mall
stores.
|
Comparable store net sales data for the
period reflects sales for our traditional format Hibbett Sports and Sports
Additions stores open throughout the period and the corresponding period of the
prior fiscal year. If a store remodel or relocation results in the
store being closed for a significant period of time, its sales are removed from
the comparable store base until it has been open a full 12
months. During the 52 weeks ended January 31, 2009, 581 stores were
included in the comparable store net sales comparison. Our four
Sports & Co. stores are not and have never been included in the comparable
store net sales comparison because we have not opened a superstore since
September 1996 nor do we plan to open additional superstores in the
future.
19
Gross profit. Cost of goods
sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $185.4
million, or 32.9% of net sales, in the 52 weeks ended January 31, 2009, compared
with $168.8 million, or 32.4% of net sales, in the 52 week period of the prior
fiscal year. We attribute this increase in gross profit to
improvement in shrinkage and markdowns. Store occupancy experienced
its largest decrease in rent expense due to favorable lease terms resulting from
co-tenancy violations and from renegotiating certain leases, while utility
expenses increased as a percent to net sales. Distribution expenses
experienced decreases in data processing costs while fuel costs
increased.
Store operating, selling and
administrative expenses. Store operating, selling and administrative
expenses were $123.1 million, or 21.8% of net sales, for the 52 weeks ended
January 31, 2009, compared with $108.5 million, or 20.8% of net sales, for the
52 weeks ended February 2, 2008. Expenses contributing to this increase
included:
|
|
·
|
Salary
and benefit costs in our stores increased by 57 basis points resulting
primarily from increased incentive sales pay and increases in the minimum
wage. These expenses increased by 60 basis points at the
administrative level primarily as the result of increased bonus
accruals.
|
|
|
·
|
Legal
fees decreased by 9 basis points due to the settlement of employment
litigation early in the year. Inventory counting expenses
decreased by 8 basis points as the result of taking fewer second store
inventories compared to a year ago. Data processing costs
decreased by 7 basis points as we passed the anniversary of our
implementation of our new merchandising system. Freight and
shipping expenses increased overall by 6 basis points, but have been
decreasing with lower fuel costs in the last half of our fiscal
year.
|
|
|
·
|
Stock-based
compensation accounted for a decrease of 7 basis points primarily due to
lower stock prices in Fiscal 2009 compared to Fiscal
2008.
|
Depreciation and amortization.
Depreciation and amortization as a percentage of net sales was 2.5% in
the 52 weeks ended January 31, 2009, and 2.3% in the 52 weeks ended February 2,
2008. The average lease term of new store leases added in Fiscal 2009
compared to those added in Fiscal 2008 decreased in lease terms to 6.65 years
compared to 6.71 years, respectively. We attribute the slight
increase in depreciation expense as a percent to net sales primarily due to a
change in estimate of the economic useful life of leasehold improvements in
certain underperforming stores.
Provision for income
taxes. Provision for income taxes as a percentage of net sales
was 3.2% in the 52 weeks ended January 31, 2009, compared to 3.5% for the 52
weeks ended February 2, 2008. The combined federal, state and local
effective income tax rate as a percentage of pre-tax income was 37.8% for Fiscal
2009 and 37.7% for Fiscal 2008.
Fiscal
2008 Compared to Fiscal 2007
Net sales. Net sales
increased $8.6 million, or 1.7%, to $520.7 million for the 52 weeks ended
February 2, 2008, from $512.1 million for the 53 weeks ended February 3, 2007.
We attribute this slight increase to the following factors:
|
|
·
|
We
opened 82 Hibbett Sports and 2 Sports Additions stores while closing 9
Hibbett Sports stores for net stores opened of 75 stores in the 52 weeks
ended February 2, 2008. New stores and stores not in the comparable store
net sales calculation accounted for $22.6 million of the increase in net
sales. Store openings and closings are reported net of
relocations.
|
|
|
·
|
We
experienced a 3.1% decrease in comparable store net sales for the 52 weeks
ended February 2, 2008 compared to the 52 weeks ended January 27, 2007
primarily as the result of a decrease in store traffic resulting from a
difficult economic environment in our
industry.
|
|
|
·
|
Net
sales increased 4.1% for the 52 weeks ended February 2, 2008 compared to
the 52 weeks ended January 27,
2007.
|
|
|
·
|
Net
sales from the 53rd
week of Fiscal 2007 accounted for approximately $11.8 million or
approximately 2.4%.
|
We believe the decrease in comparable
store net sales is attributable to overall economic pressures on our consumers
resulting from the housing slump, rising fuel prices and anxiety over the
economy in general. Additionally, our results were impacted by a
weakening in our urban markets as we believe those fashion dollars historically
used for high-priced athletic shoes and fashion items shifted to high-priced
electronics. We experienced the following trends in Fiscal
2008:
|
|
·
|
We
experienced an overall decline in footwear and equipment
sales.
|
|
|
·
|
Pro-licensed
apparel continued its slow down, especially in NBA licensed
product.
|
|
|
·
|
We
saw a negative shift in our urban fashion apparel and
footwear.
|
20
Comparable store net sales data for the
period reflects sales for our traditional format Hibbett Sports and Sports
Additions stores open throughout the period and the corresponding period of the
prior fiscal year. If a store remodel or relocation results in the
store being closed for a significant period of time, its sales are removed from
the comparable store base until it has been open a full 12
months. During the 52 weeks ended February 2, 2008, 524 stores were
included in the comparable store net sales comparison. Our four
Sports & Co. stores are not and have never been included in the comparable
store net sales comparison because we have not opened a superstore since
September 1996 nor do we plan to open additional superstores in the
future.
Gross profit. Cost of goods
sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $168.8
million, or 32.4% of net sales, in the 52 weeks ended February 2, 2008, compared
with $173.1 million, or 33.8% of net sales, in the 53 week period of the prior
fiscal year. We attribute this decrease in gross profit to a slight
decrease in product margins and the deleveraging of store occupancy costs and
distribution expenses. Store occupancy experienced its largest
increases in rent expense and utilities expenses as a percent to net
sales. Distribution expenses were impacted primarily in data
processing costs resulting from contract labor costs to support information
technology upgrades and projects.
Store operating, selling and
administrative expenses. Store operating, selling and administrative
expenses were $108.5 million, or 20.8% of net sales, for the 52 weeks ended
February 2, 2008, compared with $100.5 million, or 19.6% of net sales, for the
53 weeks ended February 3, 2007. Expenses contributing to this increase
included:
|
|
·
|
Salary
and benefit costs in our stores increased by 81 basis points while
decreasing 29 basis points at the administrative level. Store
costs were impacted by the lower than expected sales growth and larger
than normal fourth quarter store openings, while administrative salaries
decreased as a result of lost
bonuses.
|
|
|
·
|
Net
advertising expenses increased 18 basis points due to the increased
advertising efforts for new and low performing
stores.
|
|
|
·
|
Stock-based
compensation accounted for 15 basis points. The expense
associated with the movement of certain grant dates into the first quarter
as compared to a year ago was somewhat offset by a higher than normal
forfeiture of awards resulting from employee turnover and loss of
performance-based awards.
|
Depreciation and amortization.
Depreciation and amortization as a percentage of net sales was 2.3% in
the 52 weeks ended February 2, 2008, and 2.1% in the 53 weeks ended February 3,
2007. The average lease term of new store leases added in Fiscal 2008
compared to those added in Fiscal 2007 decreased in lease terms to 6.71 years
compared to 7.62 years, respectively. We attribute the increase in
depreciation expense as a percent to net sales to the shorter lease terms, as
well as, the information systems placed in service as of February 4,
2007.
Provision for income
taxes. Provision for income taxes as a percentage of net sales
was 3.5% in the 52 weeks ended February 2, 2008, compared to 4.8% for the 53
weeks ended February 3, 2007. The combined federal, state and local
effective income tax rate as a percentage of pre-tax income was 37.7% for Fiscal
2008 and 39.2% for Fiscal 2007. The decrease in rate over last year
is primarily the result of the favorable resolution of certain state tax issues,
lower than historical stock option exercise behavior, and higher than historical
equity forfeitures offset somewhat by the permanent differences related to
incentive stock options.
Liquidity
and Capital Resources
Our capital requirements relate
primarily to new store openings, stock repurchases and working capital
requirements. Our working capital requirements are somewhat seasonal in nature
and typically reach their peak near the end of the third and the beginning of
the fourth quarters of our fiscal year. Historically, we have funded our cash
requirements primarily through our cash flow from operations and occasionally
from borrowings under our revolving credit facilities.
Our consolidated statements of cash
flows are summarized as follows (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
cash provided by operating activities:
|
$ | 38,997 | $ | 48,022 | $ | 36,462 | ||||||
|
Net
cash used in investing activities:
|
(13,781 | ) | (16,549 | ) | (2,997 | ) | ||||||
|
Net
cash used in financing activities:
|
(15,308 | ) | (51,098 | ) | (29,042 | ) | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
$ | 9,908 | $ | (19,625 | ) | $ | 4,423 | |||||
21
Operating
Activities.
Cash flow from operations is seasonal
in our business. Typically, we use cash flow from operations to
increase inventory in advance of peak selling seasons, such as pre-Christmas and
back-to-school. Inventory levels are reduced in connection with
higher sales during the peak selling seasons and this inventory reduction,
combined with proportionately higher net income, typically produces a positive
cash flow. In recent periods, we have experienced a trend of
increasing free rent provisions in lieu of cash construction allowances in our
leases. We believe this is primarily the result of the tightening of
commercial credit on our landlords. Because of this, the non-cash
portion of landlord allowances has also experienced increases.
Net cash provided by operating
activities was $39.0 million for the 52 weeks ended January 31, 2009 compared
with net cash provided by operating activities of $48.0 million and $36.5
million in the 52 weeks ended February 2, 2008 and the 53 weeks ended February
3, 2007, respectively.
Inventory levels have continued to
increase year over year as the number of stores have increased, although the
inventory per store is trending slightly down to flat. The increase
in inventory used cash of $10.4 million, $16.0 million and $16.4 million during
Fiscal 2009, 2008, and 2007, respectively, while the accounts payable increase
provided cash of $0.3 million and $22.1 million during Fiscal 2009 and Fiscal
2008, respectively, as we managed cash while protecting vendor
discounts. During Fiscal 2007, the accounts payable decrease used
cash of $3.9 million. Net income provided cash of $29.4 million,
$30.3 million and $38.1 million during Fiscal 2009, 2008 and 2007,
respectively. Also offsetting uses of cash were non-cash charges,
including depreciation and amortization expense of $14.3 million, $12.2 million
and $10.9 million during Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively,
and stock-based compensation expense of $3.6 million, $3.7 million and $2.8
million during Fiscal 2009, 2008 and 2007, respectively.
Investing
Activities.
Cash used in investing activities in
the fiscal periods ended January 31, 2009, February 2, 2008 and February 3, 2007
totaled $13.8 million, $16.5 million and $3.0 million,
respectively. Net purchases of investments were $0.1 million and $0.2
million during Fiscal 2009 and Fiscal 2008, respectively, compared to net
redemptions of short-term investments of $13.2 million during Fiscal
2007. Gross capital expenditures used $13.7 million, $16.4 million
and $16.3 million during Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively.
We use cash in investing activities to
build new stores and remodel or relocate existing
stores. Furthermore, net cash used in investing activities includes
purchases of information technology assets and expenditures for our distribution
facility and corporate headquarters.
We opened 69 new stores and relocated
and/or remodeled 19 existing stores during the 52 weeks ended January 31,
2009. We opened 81 new stores and relocated and/or remodeled 16
existing stores during the 52 weeks ended February 2, 2008. We opened
73 new stores and relocated and/or remodeled 8 existing stores during the 53
weeks ended February 3, 2007.
We estimate the cash outlay for capital
expenditures in the fiscal year ended January 30, 2010 will be approximately
$18.3 million, which relates to the opening of approximately 70 new stores,
remodeling of selected existing stores, information system upgrades and various
improvements at our headquarters and distribution center. Of the
total budgeted dollars for capital expenditures for Fiscal 2010, we anticipate
that approximately 66% will be related to the opening of new stores and
remodeling and or relocating existing stores. Approximately 22% will
be related to information systems with the remaining 12% related primarily to
office expansion, distribution center improvement and security equipment for our
stores.
As of January 31, 2009, we had an
approximate $0.2 million outlay remaining on enhancements to our merchandising
system relating to inventory planning. We anticipate these upgrades
will be implemented in the first half of Fiscal 2010 and believe these
enhancements will enable us to analyze and generally improve sales across all
markets and merchandise by allowing us to better analyze inventory at the store
level.
Financing
Activities.
Net cash used in financing activities
was $15.3 million in the 52 weeks ended January 31, 2009 compared to $51.1
million and $29.0 million in the 52 weeks ended February 2, 2008 and the 53
weeks ended February 3, 2007, respectively. The cash fluctuation as
compared to prior fiscal years was primarily the result of the repurchase of our
common stock. We expended $16.9 million, $52.7 million and $33.0
million on repurchases of our common stock during Fiscal 2009, Fiscal 2008 and
Fiscal 2007, respectively.
Financing activities also consisted of
proceeds from transactions in our common stock and the excess tax benefit from
the exercise of incentive stock options. As stock options are
exercised, we will continue to receive proceeds and expect a tax deduction;
however, the amounts and timing cannot be predicted.
22
At January 31, 2009, we had two
unsecured revolving credit facilities that allow borrowings up to $30.0 million
and $50.0 million, respectively, and which renew in August 2009 and December
2009, respectively. The facilities do not require a commitment or agency fee nor
are there any covenant restrictions. We plan to renew these facilities as they
expire and do not anticipate any problems in doing so; however, no assurance can
be given that we will be granted a renewal or terms which are acceptable to
us.
At February 2, 2008, we had a revolving
credit facility that allowed borrowings up to $30.0 million and which renewed in
August 2008. The facility did not require a commitment or agency fee
and there were no covenant restrictions associated with the facility.
At
February 3, 2007, we had a revolving credit facility that allowed borrowings up
to $15.0 million and renewed annually in November. The facility did
not require a commitment or agency fee and there were no covenant restrictions
associated with the facility.
As of January 31, 2009, February 2,
2008 and February 3, 2007, we had no debt outstanding
under any of our facilities. Based on our current operating and store opening
plans and plans for the repurchase of our common stock, we believe we can fund
our cash needs for the foreseeable future through cash generated from operations
and, if necessary, through periodic future borrowings against our credit
facilities.
The following table lists the aggregate
maturities of various classes of obligations and expiration amounts of various
classes of commitments related to Hibbett Sports, Inc. at January 31,
2009:
|
Payment
due by period (in thousands)
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1
- 3 years
|
3
- 5 years
|
More
than 5 years
|
|||||||||||||||
|
Long-term
Debt Obligations (1)
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Capital
Lease Obligations (2)
|
- | - | - | - | - | |||||||||||||||
|
Operating
Lease Obligations (3)
|
178,161 | 42,496 | 66,804 | 41,404 | 27,457 | |||||||||||||||
|
Purchase
Obligations (4)
|
- | - | - | - | - | |||||||||||||||
|
Other
Long-Term Liabilities (5)
|
908 | 698 | 93 | - | 117 | |||||||||||||||
|
Total
|
$ | 179,069 | $ | 43,194 | $ | 66,897 | $ | 41,404 | $ | 27,574 | ||||||||||
|
(1)
|
See
“Part II, Item 8, Consolidated Financial Statement Note 5 –
Debt.”
|
|
(2)
|
As
of January 31, 2009, we do not have any capital lease
obligations.
|
|
(3)
|
See
“Part II, Item 8, Consolidated Financial Statements Note 9 – Lease
Commitments.”
|
|
(4)
|
Purchase
obligations would include any commitment to purchase goods or services of
either a fixed or minimum quantity that are enforceable and legally
binding on us and (1) that are non-cancelable, (2) that we would incur a
penalty or termination fee if the agreement was cancelled or (3) that we
must make specified minimum payments even if we do not take delivery of
the contracted products or services. At January 31, 2009, we
were not subject to any material obligation, either individually or in the
aggregate, whereby we could not cancel without due notice and without
penalty or termination fee.
|
|
(5)
|
Other
long-term liabilities on our consolidated balance sheet primarily consists
of deferred rent, long-term deferred income taxes and liabilities under
our Supplemental 401(k) Plan. These liabilities have been
excluded from the above table as the timing and/or amount of any cash
payment is uncertain. See “Part II, Item 8, Consolidated
Financial Statement Note 1 – Deferred Rent” for a discussion on our
deferred rent liabilities. See “Part II, Item 8, Consolidated
Financial Statements Note 8 – Income Taxes” for a discussion of our
deferred income tax positions and accruals for uncertain tax
positions. See “Part II, Item 8, Consolidated Financial
Statements Note 6 – Defined Contribution Plans” for a discussion regarding
our employee benefit plans. The table above includes stand-by
letters of credit in conjunction with our self-insured worker’s
compensation and general liability coverages and amounts accrued for
director deferred compensation in cash payable upon retirement of the
director.
|
Excluded from this table are
approximately $2.5 million of unrecognized tax benefits which have been recorded
as liabilities in accordance with FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, as the timing of such
payments cannot be reasonably determined.
Off-Balance
Sheet Arrangements
We have not provided any financial
guarantees as of January 31, 2009. We have not created, and are not
party to, any special-purpose or off-balance sheet entities for the purpose of
raising capital, incurring debt or operating our business. We do not have any
arrangements or relationships with entities that are not consolidated into the
financial statements.
23
Inflation
and Other Economic Factors
Our ability to provide quality
merchandise on a profitable basis may be subject to economic factors and
influences that we cannot control. National or international events, including
uncertainties in the financial markets, policies of the newly elected
administration and unrest in the Middle East, could lead to disruptions in
economies in the United States or in foreign countries where a significant
portion of our merchandise is manufactured. These and other factors could
increase our merchandise costs and other costs that are critical to our
operations. Consumer spending could also continue to decline because of economic
pressures.
Merchandise Costs. Based on
current economic conditions, we expect that any increase in merchandise costs
per unit will be offset by improved vendor discounts and increased retail prices
in Fiscal 2010.
Freight Costs. We experienced
higher fuel costs during most of Fiscal 2009 that increased our overall freight
costs for the year. At the end of Fiscal 2009, freight costs had
dropped significantly and somewhat leveraged, and we expect fuel costs to remain
stable or rise slightly in Fiscal 2010. We do not expect any
volatility in freight costs to have a material effect on our results of
operations as we have historically leveraged the costs associated with inbound
freight against the cost of outbound freight.
Minimum Wage. Recent
increases in the mandated minimum wage have impacted our payroll costs. Congress
approved federal minimum wage increases over a three-year period with the
first increase of 13.6% taking place during Fiscal 2008 and the second increase
of 12.0% taking place during Fiscal 2009. By July 2009, the federal
minimum wage will increase an additional 9.7%. All of the states we
operate in have either passed legislation to raise the minimum wage or their
minimum wage is increasing in conjunction with the federal minimum
wage. Some of the states have automatic provision for future increase
based on the Consumer Price Index or on inflation. We expect wage
increases to have a slight affect on our store operating, selling and
administrative expenses.
Insurance
Costs. In Fiscal 2009, general business insurance premiums
were lower but we experienced an increase in the self-insured portion of
workers’ compensation and general liability claims and increased our accrual for
such claims. In Fiscal 2008, we experienced a decrease in general
business insurance that began in Fiscal 2007, when we changed to a partially
self-insured program for our workers’ compensation and general liability. During
all three fiscal periods, we have experienced an increase in our average monthly
health insurance claims. In Fiscal 2010, we expect that both general
business insurance costs and health insurance costs will increase slightly, but
do not expect these increases to have a significant impact on our consolidated
financial statements.
Recent
Accounting Pronouncements
In May 2008, the FASB issued SFAS No.
162, The Hierarchy of
Generally Accepted Accounting Principles. This statement
identifies the sources for U.S. generally accepted accounting principles (GAAP)
and lists the categories in descending order. An entity should follow
the highest category of GAAP applicable for each of its accounting
transactions. SFAS No. 162 is effective 60 days following SEC
approval of the Public Company Accounting Oversight Board (PCAOB) amendments to
remove the hierarchy of generally accepted accounting principles from auditing
standards. The SEC approved the PCAOB amendments on September 16,
2008, making SFAS No. 162 effective on November 15, 2008. The
adoption of SFAS No. 162 did not have a material impact on our consolidated
financial statements.
In March 2008, the FASB issued SFAS No.
161, Disclosures about
Derivative Instruments and Hedging Activities. This statement
requires companies to provide enhanced disclosures about (a) how and why they
use derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations and
(c) how derivative instruments and related hedged items affect a company’s
financial position, financial performance and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We do not expect the
adoption of SFAS No. 161 to have a material impact on our consolidated financial
statements.
In December 2007, the FASB issued SFAS
No. 141(R), Business
Combinations. SFAS No. 141(R) requires an acquirer to
recognize the assets acquired, the liabilities assumed and any noncontrolling
interest in purchased entities, measured at their fair values at the date of
acquisition based upon the definition of fair value outlined in SFAS No. 157,
Fair Value
Measurements. For us, SFAS No. 141(R) is effective for
acquisitions beginning on and after February 1, 2010. We do not
expect the adoption of SFAS No. 141(R) to have a material impact on our
consolidated financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement 115. This statement permits companies to elect to
measure certain assets and liabilities at fair value. At each
reporting date subsequent to adoption, unrealized gains and losses on items for
which the fair value option has been elected must be reported in
earnings. On February 3, 2008, we adopted SFAS No. 159 and elected
not to use fair value measurement on any assets or liabilities under this
statement.
24
In September 2006, the FASB issued SFAS
No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and requires enhanced disclosures about fair
value measurements. SFAS No. 157 requires companies to disclose the
fair value of their financial instruments according to a fair value hierarchy,
as defined. SFAS No. 157 may require companies to provide additional
disclosures based on that hierarchy. This statement was to be
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. In
February 2008, FSP FAS No. 157-2, Effective Date of FASB Statement No.
157, was issued which delayed the applicability of SFAS No. 157’s fair
value measurements to certain nonfinancial assets and liabilities to those
fiscal years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). The adoption of the provisions of SFAS No. 157 did not
have a material impact on our consolidated financial
statements.
Our
Critical Accounting Policies
Our critical accounting policies
reflected in the consolidated financial statements are detailed
below.
Revenue
Recognition. We
recognize revenue, including gift card and layaway sales, in accordance with the
SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, as amended by SAB No. 104, Revenue
Recognition.
Retail merchandise sales occur on-site
in our retail stores. Customers have the option of paying the full purchase
price of the merchandise upon sale or paying a down payment and placing the
merchandise on layaway. The customer may make further payments in installments,
but the entire purchase price for merchandise placed on layaway must be received
by us within 30 days. The down payment and any installments are recorded by us
as short-term deferred revenue until the customer pays the entire purchase price
for the merchandise. We recognize revenue at the time the customer takes
possession of the merchandise. Retail sales are recorded net of
returns and discounts and exclude sales taxes.
In Fiscal
2009, we began a customer loyalty program, the MVP Rewards program, whereby
customers enroll in the program and receive points in a variety of ways that are
automatically converted into reward certificates based on program parameters
that are subject to change. An estimate of the obligation related to
the program, based on estimated redemption rates, is recorded as a current
liability and a reduction of net retail sales in the period earned by the
customer. The current liability is reduced, and a corresponding
amount is recognized in net retail sales, in the amount of and at the time of
redemption of the reward certificate. At January 31, 2009, the amount
recorded in current liabilities for reward certificates issued was
inconsequential.
The cost
of coupon sales incentives is recognized at the time the related revenue is
recognized. Proceeds received from the issuance of gift cards are initially
recorded as deferred revenue. Revenue is subsequently recognized at
the time the customer redeems the gift cards and takes possession of the
merchandise. Unredeemed gift cards are recorded as a current
liability.
It is not our policy to take unclaimed
layaway deposits and unredeemed gift cards into income. As of January
31, 2009, February 2, 2008 and February 3, 2007, there was no breakage revenue
recorded in income. The deferred revenue liability for layaway
deposits and unredeemed gift cards was $2.4 million and $2.1 million at January
31, 2009 and February 2, 2008, respectively. Any unrecognized
breakage revenue is immaterial. We escheat unredeemed gift
cards.
Inventory
Valuation.
Lower of Cost or
Market: Inventories are valued using the lower of weighted
average cost or market method. Market is determined based on
estimated net realizable value. We regularly review inventories to
determine if the carrying value exceeds realizable value, and we record an
accrual to reduce the carrying value to net realizable value as
necessary. We account for obsolescence as part of our lower of cost
or market accrual based on historical trends and specific
identification. As of January 31, 2009 and February 2, 2008, the
accrual was $2.0 million and $1.5 million, respectively. A
determination of net realizable value requires significant judgment and
estimates.
Shrink
Reserves: We accrue for inventory shrinkage based on the
actual historical results of our most recent physical inventories. These
estimates are compared to actual results as physical inventory counts are
performed and reconciled to the general ledger. Store counts are typically
performed on a cyclical basis and the distribution center’s counts are performed
mid-year and in late December or early January every year. In Fiscal
2009, the distribution center’s counts were performed quarterly. As
of January 31, 2009 and February 2, 2008, the accrual was $1.4 million and $0.9
million, respectively.
Inventory Purchase
Concentration: Our
business is dependent to a significant degree upon close relationships with our
vendors. Our largest vendor, Nike, represented approximately 51.4%
and 48.5% of our purchases for Fiscal 2009 and Fiscal 2008,
respectively. Our second largest vendor represented approximately
8.4% and 6.6% of our purchases while our third largest vendor represented
approximately 7.9% and 9.3% of our purchases for Fiscal 2009 and Fiscal 2008,
respectively.
25
Accrued
Expenses. On a monthly
basis, we estimate certain significant expenses in an effort to record those
expenses in the period incurred. Our most significant estimates relate to
payroll and payroll tax expenses, property taxes, insurance-related expenses and
utility expenses. Estimates are primarily based on current activity and
historical results and are adjusted as our estimates
change. Determination of estimates and assumptions for accrued
expenses requires significant judgment.
Income
Taxes. We estimate the
annual tax rate based on projected taxable income for the full year and record a
quarterly income tax provision in accordance with the anticipated annual
rate. As the year progresses, we refine the estimates of the year’s
taxable income as new information becomes available, including year-to-date
financial results. This continual estimation process often results in
a change to our expected effective tax rate for the year. When this
occurs, we adjust the income tax provision during the quarter in which the
change in estimate occurs so that the year-to-date provision reflects the
expected annual tax rate. Significant judgment is required in
determining our effective tax rate and in evaluating our tax position and
changes in estimates could materially impact our results of operations and
financial position.
Uncertain
Tax Positions: We account for
uncertain tax positions in accordance with FASB Interpretation No. 48 (FIN No.
48), Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No.
109. The application of income tax law is inherently
complex. Laws and regulations in this area are voluminous and are
often ambiguous. As such, we are required to make many subjective
assumptions and judgments regarding our income tax
exposures. Interpretations of and guidance surrounding income tax
laws and regulations change over time. As such, changes in our
subjective assumptions and judgments can materially affect amounts recognized in
the consolidated balance sheets and statements of operations. See
“Part II, Item 8, Consolidated Financial Statements Note 8 – Income Taxes” for
additional detail on our uncertain tax positions.
Litigation
Accruals. Estimated
amounts for claims that are probable and can be reasonably estimated are
recorded as liabilities in the consolidated balance sheets. The likelihood of a
material change in these estimated accruals would be dependent on new claims as
they may arise and the favorable or unfavorable outcome of a particular
litigation. As additional information becomes available, we assess the potential
liability related to pending litigation and revise estimates as appropriate.
Such revisions in estimates of the potential liability could materially impact
our results of operations and financial position.
Impairment
of Long-Lived Assets. We continually
evaluate whether events and circumstances have occurred that indicate the
remaining balance of long-lived assets may be impaired and not recoverable. Our
policy is to recognize any impairment loss on long-lived assets as a charge to
current income when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. Impairment is
assessed considering the estimated undiscounted cash flows over the asset’s
remaining life. If estimated cash flows are insufficient to recover the
investment, an impairment loss is recognized based on a comparison of the cost
of the asset to fair value less any costs of disposition. Evaluation
of asset impairment requires significant judgment and estimates.
Stock-Based
Compensation. We use the
Black-Scholes option-pricing model to estimate the fair value at the date of
grant of stock options granted under our stock option plans and stock purchase
rights associated with the Employee Stock Purchase Plan. Volatility is estimated
as of the date of grant or purchase date based on management’s estimate of the
time period that captures the relative volatility of our
stock. Beginning with the second quarter of Fiscal 2008, we base the
risk-free interest rate on the annual continuously compounded risk-free rate
with a term equal to the option’s expected term. Previously, we used
the risk free interest rate on the date of grant or purchase date based on the
U.S. Treasury rate with maturities approximating the expected lives of our
options. The effects on net income and earnings per share (EPS) of stock-based
compensation expense, net of tax, calculated using the fair value of stock
options and stock purchase rights in accordance with the Black-Scholes
options-pricing model are not necessarily representative of the effects of our
results of operations in the future. In addition, the compensation expense
utilizes an option-pricing model developed for traded options with relatively
short lives. Our stock option grants have a life of up to ten years and are not
transferable. Therefore, the actual fair value of a stock option grant may be
different from our estimates. We believe that our estimates incorporate all
relevant information and represent a reasonable approximation in light of the
difficulties involved in valuing non-traded stock options. All
estimates and assumptions are regularly evaluated and updated when
applicable.
Insurance
Accruals. We use a
combination of insurance and self-insurance for a number of risks including
employee-related health benefits, a portion of which is paid by our employees,
workers’ compensation and general liability. The estimates and accruals for the
liabilities associated with these risks are regularly evaluated for adequacy
based on the most current available information, including historical claims
experience and expected future claims costs.
Operating
Leases. We lease our
retail stores and distribution center under operating leases. Many lease
agreements contain rent holidays, rent escalation clauses and/or contingent rent
provisions. We recognize rent expense on a straight-line basis over the expected
lease term, including cancelable option periods where failure to exercise such
options would result in an economic penalty. We use a time period for our
straight-line rent expense calculation that equals or exceeds the time period
used for depreciation. In addition, the commencement date of the lease term is
the earlier of the date when we become legally obligated for the rent payments
or the date when we take possession of the building for initial setup of
fixtures and merchandise.
26
Dividend
Policy
We have never declared or paid any
dividends on our common stock. We currently intend to retain our future earnings
to finance the growth and development of our business and for our stock
repurchase program, and therefore do not anticipate declaring or paying cash
dividends on our common stock for the foreseeable future. Any future decision to
declare or pay dividends will be at the discretion of our Board of Directors and
will be dependent upon our financial condition, results of operations, capital
requirements and such other factors as our Board of Directors deems
relevant.
Controls
and Procedures
We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer (see “Part II, Item 9A,
Controls and Procedures”).
Quarterly
and Seasonal Fluctuations
We experience seasonal fluctuations in
our net sales and results of operations. Customer buying patterns
around the spring sales period and the holiday season historically result in
higher first and fourth quarter net sales. In addition, our quarterly
results of operations may fluctuate significantly as a result of a variety of
factors, including the timing of new store openings, the amount and timing of
net sales contributed by new stores, merchandise mix and demand for apparel and
accessories driven by local interest in sporting events.
Although our operations are influenced
by general economic conditions, we do not believe that, historically, inflation
has had a material impact on our results of operations as we are generally able
to pass along inflationary increases in costs to our
customers. However, in recent periods, we have experienced an impact
on overall sales due to a consumer spending slowdown attributable to volatile
fuel prices, higher unemployment, falling equity and real estate values and the
limited availability of credit.
Our financial condition, results of
operations and cash flows are subject to market risk from interest rate
fluctuations on our credit facilities, which bear an interest at rate that
varies with LIBOR, prime or fixed rates. We have cash and cash
equivalents at financial institutions that are in excess of federally insured
limits per institution. With the current financial environment and
the instability of financial institutions, we cannot be assured that we will not
experience losses on our deposits.
At the end of Fiscal 2009, Fiscal 2008
and Fiscal 2007, we had no borrowings outstanding under any credit facility.
There were 348 days during the fifty-two weeks ended January 31, 2009, where we
incurred borrowings against our credit facilities for an average borrowing of
$23.2 million. During Fiscal 2009, the maximum amount outstanding
against these agreements was $47.1 million and the weighted average interest
rate was 2.85%.
There were 106 days during the
fifty-two weeks ended February 2, 2008, where we incurred borrowings against our
credit facility for an average and maximum borrowing of $7.8 million and $18.4
million, respectively, and an average interest rate of 5.64%. There
were twenty-four days during the fifty-three weeks ended February 3, 2007, where
we incurred borrowings against our credit facilities for an average and maximum
borrowing of $2.5 million and $5.1 million, respectively, and an average
interest rate of 6.12%.
A 10% increase or decrease in market
interest rates would not have a material impact on our financial condition,
results of operations or cash flows.
27
The following consolidated financial
statements and supplementary data of our Company are included in response to
this item:
All other
schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto.
28
The Board
of Directors and Stockholders
Hibbett
Sports, Inc.:
We have
audited the accompanying consolidated balance sheets of
Hibbett Sports, Inc. and subsidiaries (the Company) as of January 31, 2009 and
February 2, 2008, and the related consolidated statements of operations,
stockholders’ investment, and cash flows for each of the years in the three-year
period ended January 31, 2009. We also have audited the Company’s internal
control over financial reporting as of January 31, 2009, based on the criteria
established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting
(Item 9A(b)). Our responsibility is to express an opinion on these consolidated
financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Effective
February 4, 2007, as discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for inventories
and, as discussed in Note 8 to the consolidated financial statements, adopted
FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hibbett Sports, Inc. and
subsidiaries as of January 31, 2009 and February 2, 2008, and the results
of their operations and their cash flows for each of the years in the three-year
period ended January 31, 2009, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, Hibbett Sports, Inc. and
subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of January 31, 2009, based on the criteria
established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/ KPMG
LLP
Birmingham,
Alabama
March 31,
2009
29
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share and per share information)
|
ASSETS
|
January
31, 2009
|
February
2, 2008
|
||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 20,650 | $ | 10,742 | ||||
|
Short-term
investments
|
191 | 191 | ||||||
|
Trade
receivables, net
|
2,624 | 1,899 | ||||||
|
Accounts
receivable, other
|
2,764 | 3,676 | ||||||
|
Inventories
|
151,776 | 141,406 | ||||||
|
Prepaid
expenses and other
|
3,822 | 5,348 | ||||||
|
Deferred
income taxes, net
|
3,938 | 2,725 | ||||||
|
Total
current assets
|
185,765 | 165,987 | ||||||
|
Property
and Equipment:
|
||||||||
|
Land
and building
|
245 | 245 | ||||||
|
Equipment
|
44,171 | 40,338 | ||||||
|
Furniture
and fixtures
|
23,280 | 20,991 | ||||||
|
Leasehold
improvements
|
61,152 | 57,599 | ||||||
|
Construction
in progress
|
2,776 | 2,564 | ||||||
| 131,624 | 121,737 | |||||||
|
Less
accumulated depreciation and amortization
|
86,315 | 75,232 | ||||||
|
Net
property and equipment
|
45,309 | 46,505 | ||||||
|
Deferred
income taxes
|
3,481 | 3,780 | ||||||
|
Other
assets, net
|
532 | 462 | ||||||
|
Total
Assets
|
$ | 235,087 | $ | 216,734 | ||||
|
LIABILITIES
AND STOCKHOLDERS' INVESTMENT
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 64,460 | $ | 64,125 | ||||
|
Accrued
income taxes
|
- | 688 | ||||||
|
Accrued
payroll expenses
|
7,149 | 4,432 | ||||||
|
Deferred
rent
|
4,445 | 4,379 | ||||||
|
Other
accrued expenses
|
2,656 | 2,980 | ||||||
|
Total
current liabilities
|
78,710 | 76,604 | ||||||
|
Deferred
rent
|
16,543 | 18,012 | ||||||
|
Deferred
income taxes
|
2,957 | 2,968 | ||||||
|
Other
liabilities, net
|
302 | 95 | ||||||
|
Total
liabilities
|
98,512 | 97,679 | ||||||
|
Stockholders'
Investment:
|
||||||||
|
Preferred
stock, $.01 par value, 1,000,000 shares authorized,
|
||||||||
|
no
shares issued
|
- | - | ||||||
|
Common
stock, $.01 par value, 80,000,000 shares authorized,
|
||||||||
|
36,304,735 and 36,162,201
shares issued at January 31, 2009
|
||||||||
|
and
February 2, 2008, respectively
|
363 | 362 | ||||||
|
Paid-in
capital
|
92,153 | 87,142 | ||||||
|
Retained
earnings
|
211,003 | 181,555 | ||||||
|
Treasury
stock, at cost; 7,761,813 and 6,723,113 shares repurchased
|
||||||||
|
at
January 31, 2009 and February 2, 2008, respectively
|
(166,944 | ) | (150,004 | ) | ||||
|
Total
stockholders' investment
|
136,575 | 119,055 | ||||||
|
Total
Liabilities and Stockholders' Investment
|
$ | 235,087 | $ | 216,734 | ||||
See
accompanying notes to consolidated financial statements.
30
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share and per share information)
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
2009
(52
weeks)
|
February
2,
2008
(52
weeks)
|
February
3,
2007
(53
weeks)
|
||||||||||
|
Net
sales
|
$ | 564,188 | $ | 520,720 | $ | 512,094 | ||||||
|
Cost
of goods sold, including distribution
|
||||||||||||
|
center
and store occupancy costs
|
378,817 | 351,876 | 338,963 | |||||||||
|
Gross
profit
|
185,371 | 168,844 | 173,131 | |||||||||
|
Store
operating, selling and administrative
|
||||||||||||
|
expenses
|
123,075 | 108,463 | 100,461 | |||||||||
|
Depreciation
and amortization
|
14,324 | 12,154 | 10,932 | |||||||||
|
Operating
income
|
47,972 | 48,227 | 61,738 | |||||||||
|
Interest
income
|
41 | 582 | 906 | |||||||||
|
Interest
expense
|
(660 | ) | (151 | ) | (30 | ) | ||||||
|
Interest
(expense) income, net
|
(619 | ) | 431 | 876 | ||||||||
|
Income
before provision for income taxes
|
47,353 | 48,658 | 62,614 | |||||||||
|
Provision
for income taxes
|
17,905 | 18,329 | 24,541 | |||||||||
|
Net
income
|
$ | 29,448 | $ | 30,329 | $ | 38,073 | ||||||
|
Basic
earnings per share
|
$ | 1.03 | $ | 0.98 | $ | 1.19 | ||||||
|
Diluted
earnings per share
|
$ | 1.02 | $ | 0.96 | $ | 1.17 | ||||||
|
Weighted average
shares outstanding:
|
||||||||||||
|
Basic
|
28,547,435 | 31,049,058 | 32,094,127 | |||||||||
|
Diluted
|
28,953,696 | 31,525,050 | 32,619,839 | |||||||||
See
accompanying notes to consolidated financial statements.
31
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share information)
|
Fiscal
Year Ended
|
||||||||||||
|
January
31, 2009
|
February
2, 2008
|
February
3, 2007
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
income
|
$ | 29,448 | $ | 30,329 | $ | 38,073 | ||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
14,324 | 12,154 | 10,932 | |||||||||
|
Deferred
income tax (benefit) expense, net
|
(925 | ) | 673 | (1,073 | ) | |||||||
|
Excess
tax benefit from stock option exercises
|
(388 | ) | (520 | ) | (1,232 | ) | ||||||
|
Loss
on disposal and write-down of assets, net
|
513 | 230 | 370 | |||||||||
|
Stock-based
compensation
|
3,556 | 3,677 | 2,837 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Trade
receivables, net
|
(724 | ) | (314 | ) | (55 | ) | ||||||
|
Accounts
receivable, other
|
912 | (610 | ) | 149 | ||||||||
|
Inventories
|
(10,369 | ) | (16,022 | ) | (16,378 | ) | ||||||
|
Prepaid
expenses and other current assets
|
1,525 | (326 | ) | (3,530 | ) | |||||||
|
Accrued
income taxes
|
(476 | ) | (4,154 | ) | 6,005 | |||||||
|
Other
assets, non-current
|
71 | (288 | ) | (19 | ) | |||||||
|
Accounts
payable
|
336 | 22,109 | (3,913 | ) | ||||||||
|
Deferred
rent, non-current
|
(1,469 | ) | 2,296 | 1,513 | ||||||||
|
Accrued
expenses and other
|
2,663 | (1,212 | ) | 2,783 | ||||||||
|
Net
cash provided by operating activities
|
38,997 | 48,022 | 36,462 | |||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||
|
(Purchase)
sale of investments, net
|
(141 | ) | (191 | ) | 13,227 | |||||||
|
Capital
expenditures
|
(13,697 | ) | (16,376 | ) | (16,278 | ) | ||||||
|
Proceeds
from sale of property and equipment
|
57 | 18 | 54 | |||||||||
|
Net
cash used in investing activities
|
(13,781 | ) | (16,549 | ) | (2,997 | ) | ||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Cash
used for stock repurchases
|
(16,940 | ) | (52,672 | ) | (32,958 | ) | ||||||
|
Excess
tax benefit from stock option exercises
|
388 | 520 | 1,232 | |||||||||
|
Proceeds
from options exercised and purchase of
|
||||||||||||
|
shares
under the employee stock purchase plan
|
1,244 | 1,054 | 2,684 | |||||||||
|
Net
cash used in financing activities
|
(15,308 | ) | (51,098 | ) | (29,042 | ) | ||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
9,908 | (19,625 | ) | 4,423 | ||||||||
|
Cash
and Cash Equivalents, Beginning of Year
|
10,742 | 30,367 | 25,944 | |||||||||
|
Cash
and Cash Equivalents, End of Year
|
$ | 20,650 | $ | 10,742 | $ | 30,367 | ||||||
|
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | 659 | $ | 151 | $ | 30 | ||||||
|
Income
taxes, net of refunds
|
$ | 21,162 | $ | 22,031 | $ | 19,608 | ||||||
|
Supplemental
Schedule of Non-Cash Financing Activities:
|
||||||||||||
|
Deferred
board compensation
|
$ | 10 | $ | 33 | $ | 31 | ||||||
|
Shares
awarded to satisfy deferred board compensation
|
664 | 1,306 | 1,142 | |||||||||
See
accompanying notes to consolidated financial statements.
32
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share information)
|
Common
Stock
|
Treasury
Stock
|
||||||||||||||||||||||||
|
Number
of Shares
|
Amount
|
Paid-In
Capital
|
Retained
Earnings
|
Number
of Shares
|
Amount
|
Total
Stockholders' Investment
|
|||||||||||||||||||
|
Balance-January
28, 2006
|
35,734,752 | $ | 357 | $ | 75,166 | $ | 113,624 | 3,127,700 | $ | (64,374 | ) | $ | 124,773 | ||||||||||||
|
Net
income
|
38,073 | 38,073 | |||||||||||||||||||||||
|
Issuance
of shares from the employee stock purchase plan and the exercise of stock
options, including tax benefit of $2,539
|
312,980 | 3 | 5,220 | 5,223 | |||||||||||||||||||||
| Adjustment to income tax benefit from exercises of employee stock options | (1,307 | ) | (1,307 | ) | |||||||||||||||||||||
| Purchase of shares under the stock repurchase program | 1,178,713 | (32,958 | ) | (32,958 | ) | ||||||||||||||||||||
|
Stock-based
compensation
|
2,837 | 2,837 | |||||||||||||||||||||||
|
Balance-February
3, 2007
|
36,047,732 | 360 | 81,916 | 151,697 | 4,306,413 | (97,332 | ) | 136,641 | |||||||||||||||||
|
Net
income
|
30,329 | 30,329 | |||||||||||||||||||||||
| Cumulative effect of adopting FIN No. 48 | (554 | ) | (554 | ) | |||||||||||||||||||||
| Cumulative effect of change in accounting principle, net | 83 | 83 | |||||||||||||||||||||||
|
Issuance
of shares from the employee stock purchase plan and the exercise of stock
options, including tax benefit of $275
|
114,469 | 2 | 1,549 | 1,551 | |||||||||||||||||||||
| Purchase of shares under the stock repurchase program | 2,416,700 | (52,672 | ) | (52,672 | ) | ||||||||||||||||||||
|
Stock-based
compensation
|
3,677 | 3,677 | |||||||||||||||||||||||
|
Balance-February
2, 2008
|
36,162,201 | 362 | 87,142 | 181,555 | 6,723,113 | (150,004 | ) | 119,055 | |||||||||||||||||
|
Net
income
|
29,448 | 29,448 | |||||||||||||||||||||||
|
Issuance
of shares from the employee stock purchase plan and the exercise of stock
options, including tax benefit of $212
|
142,534 | 1 | 1,425 | 1,426 | |||||||||||||||||||||
| Tax shortfall on release of restricted stock and option exercises | (176 | ) | (176 | ) | |||||||||||||||||||||
| Adjustment to income tax benefit from exercises of employee stock options | 206 | 206 | |||||||||||||||||||||||
| Purchase of shares under the stock repurchase program | 1,037,700 | (16,940 | ) | (16,940 | ) | ||||||||||||||||||||
|
Stock-based
compensation
|
3,556 | 3,556 | |||||||||||||||||||||||
|
Balance-January
31, 2009
|
36,304,735 | $ | 363 | $ | 92,153 | $ | 211,003 | 7,761,813 | $ | (166,944 | ) | $ | 136,575 | ||||||||||||
See
accompanying notes to consolidated financial statements.
33
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
NOTE
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
Hibbett Sports, Inc. is an operator of
sporting goods retail stores in small to mid-sized markets predominately in the
Southeast, Southwest, Mid-Atlantic and lower Midwest regions of the United
States. Our fiscal year ends on the Saturday closest to January 31 of each year.
The consolidated statements of operations for fiscal years ended January 31,
2009 and February 2, 2008, include 52 weeks of operations. The consolidated
statement of operations for fiscal year ended February 3, 2007 includes 53 weeks
of operations. Our merchandise assortment features a core selection of brand
name merchandise emphasizing team sports equipment, athletic and fashion apparel
and footwear related accessories. We complement this core assortment
with a selection of localized apparel and accessories designed to appeal to a
wide range of customers within each market.
Accounting
Change
On the first day of Fiscal 2008, we
changed our inventory valuation method. Previously, inventories were
principally valued at the lower of cost or market using the retail
method. Commencing in Fiscal 2008, inventories are principally valued
at the lower of cost or market using the weighted average cost
method.
SFAS No. 154, Accounting Changes and Error
Corrections – A Replacement of APB Opinion No. 20 and FASB Statement No.
3, requires a retrospective application of changes in accounting
principles. However, the effect of this change in accounting
principle for periods prior to Fiscal 2008 is not determinable, as the period
specific information required to value inventory using the weighted average cost
method is not available for periods prior to Fiscal 2008. This change
was recognized as a net increase of $143,000 to inventory, an increase of
$60,000 to deferred income tax liabilities and a cumulative effect to retained
earnings of $83,000. This change in valuation method did not have a
material impact on net income or diluted earnings per share.
We believe the new accounting method of
weighted average cost is preferable to the retail method of inventory valuation
because it will produce more accurate inventory amounts reported in the balance
sheet and, in turn, more accurate cost of sales in the income
statement. The new merchandising system, implemented in Fiscal 2008,
has facilitated our ability to value our inventory on the weighted average cost
method.
Principles
of Consolidation
The consolidated financial statements
of our Company include its accounts and the accounts of all wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Occasionally, certain reclassifications are made to
conform previously reported data to the current presentation. Such
reclassifications had no impact on total assets, net income or stockholders’
investment.
Use
of Estimates in the Preparation of Consolidated Financial
Statements
The preparation of consolidated
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that
affect:
|
|
·
|
the
reported amounts of certain assets, including inventories and property and
equipment;
|
|
|
·
|
the
reported amounts of certain liabilities, including legal and other
accruals; and
|
|
|
·
|
the
reported amounts of certain revenues and expenses during the reporting
period.
|
The assumptions used by management in
future estimates could change significantly due to changes in circumstances and
actual results could differ from those estimates.
Reportable
Segments
Given the economic characteristics of
the store formats, the similar nature of products offered for sale, the type of
customers, the methods of distribution and how our Company is managed, our
operations constitute only one reportable segment. Revenues from
external customers by product category are impractical for us to
report.
34
Customers
No customer accounted for more than
5.0% of our net sales during the fiscal years ended January 31, 2009, February
2, 2008 and February 3, 2007.
Vendor
Arrangements
We enter into arrangements with some of
our vendors that entitle us to a partial refund of the cost of merchandise
purchased during the year or reimbursement of certain costs we incur to
advertise or otherwise promote their product. The volume based rebates,
supported by vendor agreements, are estimated throughout the year and reduce the
cost of inventory and cost of goods sold during the year. This estimate is
regularly monitored and adjusted for current or anticipated changes in purchase
levels and for sales activity.
We also receive consideration from
vendors through a variety of other programs, including markdown reimbursements,
vendor compliance charges and defective merchandise and return-to-vendor
credits. If the payment is a reimbursement for costs incurred, it is
recognized as an offset against those related costs; otherwise, it is treated as
a reduction to the cost of merchandise. Markdown reimbursements
related to merchandise that has been sold are negotiated by our merchandising
teams and are credited directly to cost of goods sold in the period
received. If vendor funds are received prior to merchandise being
sold, they are recorded as a reduction of merchandise cost.
Cost
of Goods Sold
We include inbound freight charges,
merchandise purchases, store occupancy costs and a portion of our distribution
costs related to our retail business in cost of goods sold. Outbound freight
charges associated with moving merchandise to and between stores are included in
store operating, selling and administrative expenses.
Advertising
We expense advertising costs when
incurred. We participate in various advertising and marketing cooperative
programs with our vendors, who, under these programs, reimburse us for certain
costs incurred. A receivable for cooperative advertising to be reimbursed is
recorded as a decrease to expense as advertisements are run.
The following table presents the
components of our advertising expense (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Gross
advertising costs
|
$ | 6,145 | $ | 6,519 | $ | 5,194 | ||||||
|
Advertising
reimbursements
|
(3,054 | ) | (3,609 | ) | (3,225 | ) | ||||||
|
Net
advertising costs
|
$ | 3,091 | $ | 2,910 | $ | 1,969 | ||||||
Stock
Repurchase Program
In August 2004, our Board of Directors
(the Board) authorized a plan to repurchase our common stock. The Board has
subsequently authorized increases to this plan with a current authorization
effective November 2007 of $250.0 million. Stock repurchases may be
made in the open market or in negotiated transactions until January 30, 2010,
with the amount and timing of repurchases dependent on market conditions and at
the discretion of our management.
We repurchased 1,038,700, 2,416,700 and
1,178,713 shares of our common stock during years ended January 31, 2009,
February 2, 2008 and February 3, 2007, respectively, at a cost of approximately
$16.9 million, $52.7 million and $33.0 million, respectively. As of January 31,
2009, we had repurchased a total of 7,761,813 shares of our common stock at an
approximate cost of $166.9 million. We have approximately $83.1 million
available for stock repurchase as of January 31, 2009. We do not have
plans to repurchase any of our common stock in the near future.
Cash
and Cash Equivalents
We consider all short-term, highly
liquid investments with original maturities of 90 days or less, including
commercial paper and money market funds, to be cash equivalents. We
place our cash equivalents in high credit quality financial
institutions. We are exposed to credit risk in the event of default
by these institutions to the extent the amount recorded on the consolidated
balance sheet exceeds the FDIC insurance limits per
institution. Amounts due from third party credit card processors for
the settlement of debit and credit card transactions are included as cash
equivalents as they are generally collected within three business
days. Cash equivalents related to credit and debit card transactions
at January 31, 2009 and February 2, 2008 were $2.7 million and $2.4 million,
respectively.
35
Investments
All investments with original
maturities of greater than 90 days are accounted for in accordance with SFAS No.
115, Accounting for Certain
Investments in Debt and Equity Securities. We determine the
appropriate classification at the time of purchase. We held approximately $0.2
million of short-term investments in securities at January 31, 2009 and February
2, 2008.
Our
short-term investments in securities consisted of municipal bonds classified as
available-for-sale. Investments in these securities are recorded at cost, which
approximates fair value. Despite the long-term nature of their stated
contractual maturities, we believe there is a ready liquid market for these
securities. As a result, there are no cumulative gross unrealized holding gains
(losses) or gross realized gains (losses) from our short-term investments. All
income generated from these securities is recorded as interest
income. We continually evaluate our short-term investments for other
than temporary impairment.
We also hold investments in trust for
the Hibbett Sports, Inc. Supplemental 401(k) Plan (Supplemental Plan) which are
trading securities and are classified as a long-term asset on the consolidated
balance sheet included in other assets, net. At January 31, 2009, we
had approximately $0.1 million of investments included in other assets,
net. We did not hold any such investments at February 2,
2008. Unrealized holding gains or losses are
inconsequential.
Trade
and Other Accounts Receivable
Trade accounts receivable consists
primarily of amounts due to us from sales to educational institutions and youth
associations. We do not require collateral and we maintain an allowance for
potential uncollectible accounts based on an analysis of the aging of accounts
receivable at the date of the financial statements, historical losses and
existing economic conditions, when relevant. The allowance for doubtful accounts
at January 31, 2009 and February 2, 2008 was $50,000 and $46,000,
respectively.
Other accounts receivable consisted
primarily of tenant allowances due from landlords and cooperative advertising
due from vendors, all of which are deemed to be collectible.
Inventories
and Valuation
Lower of Cost or
Market: Inventories are valued using the lower of weighted
average cost or market method. Market is determined based on
estimated net realizable value. We regularly review inventories to
determine if the carrying value exceeds realizable value, and we record an
accrual to reduce the carrying value to net realizable value as
necessary. We account for obsolescence as part of our lower of cost
or market accrual based on historical trends and specific
identification. As of January 31, 2009 and February 2, 2008, the
accrual was $2.0 million and $1.5 million, respectively. A
determination of net realizable value requires significant judgment and
estimates.
Shrinkage: We
accrue for inventory shrinkage based on the actual historical results of our
most recent physical inventories. These estimates are compared to
actual results as physical inventory counts are performed and reconciled to the
general ledger. Store counts are typically performed on a cyclical
basis and the distribution center’s counts are performed mid-year and in late
December or early January every year. In Fiscal 2009, the
distribution center’s counts were performed quarterly. As of January
31, 2009 and February 2, 2008, the accrual was $1.4 million and $0.9 million,
respectively.
Inventory Purchase
Concentration: Our business is dependent to a significant
degree upon close relationships with our vendors. Our largest vendor,
Nike, represented approximately 51.4%, 48.5% and 47.3% of our purchases in
Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively. Our next
largest vendor in Fiscal 2009 represented approximately 8.4%, 6.6% and 4.8% of
our purchases in Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively. Our third largest vendor in Fiscal 2009 represented
approximately 7.9%, 9.3% and 9.4% of our purchases in Fiscal 2009, Fiscal 2008
and Fiscal 2007, respectively.
Property
and Equipment
Property and equipment are recorded at
cost. Depreciation on assets is principally provided using the straight-line
method over their estimated service lives (3 to 5 years for equipment, 7 years
for furniture and fixtures and 39 years for buildings) or, in the case of
leasehold improvements, the shorter of the initial term of the underlying leases
or the estimated economic lives of the improvements (typically 3 to 10
years). We continually reassess the remaining useful life of
leasehold improvements in light of store closing plans.
Construction in progress is comprised
primarily of property and equipment related to unopened stores and costs
associated with technology upgrades at period end. At fiscal year
ended January 31, 2009, construction in progress was comprised mostly of a
conveyor project in our distribution center and technology
projects.
Maintenance and repairs are charged to
expense as incurred. The cost and accumulated depreciation of assets sold,
retired or otherwise disposed of are removed from property and equipment and the
related gain or loss is credited or charged to income.
36
Deferred
Rent
Deferred rent primarily consists of
step rent and allowances from landlords related to our leased properties. Step
rent represents the difference between actual operating lease payments due and
straight-line rent expense, which is recorded by the Company over the term of
the lease, including the build-out period. This amount is recorded as deferred
rent in the early years of the lease, when cash payments are generally lower
than straight-line rent expense, and reduced in the later years of the lease
when payments begin to exceed the straight-line rent expense. Landlord
allowances are generally comprised of amounts received and/or promised to us by
landlords and may be received in the form of cash or free rent. We record a
receivable from the landlord and a deferred rent liability when the allowances
are earned. This deferred rent is amortized into income (through lower rent
expense) over the term (including the pre-opening build-out period) of the
applicable lease, and the receivable is reduced as amounts are received from the
landlord.
On our consolidated statements of cash
flows, the current and long-term portions of landlord allowances are included as
changes in cash flows from operations. The current portion is
included as a change in accrued expenses and the long-term portion is included
as a change in deferred rent, non-current. The liability for the
current portion of unamortized landlord allowances was $4.0 million and $3.9
million at January 31, 2009 and February 2, 2008, respectively. The
liability for the long-term portion of unamortized landlord allowances was $13.1
million and $14.6 million at January 31, 2009 and February 2, 2008,
respectively. We estimate the non-cash portion of landlord allowances
was $0.8 million and $0.5 million in Fiscal 2009 and Fiscal 2008,
respectively.
Revenue
Recognition
We recognize revenue, including gift
card and layaway sales, in accordance with the SEC Staff Accounting Bulletin
(SAB) No. 101, Revenue
Recognition in Financial Statements, as amended by SAB No. 104, Revenue
Recognition.
Retail merchandise sales occur on-site
in our retail stores. Customers have the option of paying the full purchase
price of the merchandise upon sale or paying a down payment and placing the
merchandise on layaway. The customer may make further payments in installments,
but the entire purchase price for merchandise placed on layaway must be received
by us within 30 days. The down payment and any installments are recorded by us
as short-term deferred revenue until the customer pays the entire purchase price
for the merchandise. We recognize revenue at the time the customer takes
possession of the merchandise. Retail sales are recorded net of
returns and discounts and exclude sales taxes.
In Fiscal
2009, we began a customer loyalty program, the MVP Rewards Program (Program),
whereby customers enroll in the Program and receive points in a variety of ways
that are automatically converted into reward certificates based on Program
parameters that are subject to change. An estimate of the obligation
related to the Program, based on estimated redemption rates, is recorded as a
current liability and a reduction of net retail sales in the period earned by
the customer. The current liability is reduced, and a corresponding
amount is recognized in net retail sales, in the amount of and at the time of
redemption of the reward certificate. At January 31, 2009, the amount
recorded in current liabilities for reward certificates issued was
inconsequential.
The cost
of coupon sales incentives is recognized at the time the related revenue is
recognized. Proceeds received from the issuance of gift cards are initially
recorded as deferred revenue. Revenue is subsequently recognized at
the time the customer redeems the gift cards and takes possession of the
merchandise. Unredeemed gift cards are recorded as a current
liability.
It is not our policy to take unclaimed
layaway deposits and unredeemed gift cards into income. For the years
ended January 31, 2009, February 2, 2008 and February 3, 2007, there was no
breakage revenue recorded in income. The deferred revenue liability
for layaway deposits and unredeemed gift cards was $2.4 million and $2.1 million
at January 31, 2009 and February 2, 2008, respectively. Any
unrecognized breakage revenue is immaterial. We escheat unredeemed
gift cards.
Store
Opening and Closing Costs
New store opening costs, including
pre-opening costs, are charged to expense as incurred. Store opening costs
primarily include payroll expenses, training costs and straight-line rent
expenses. All pre-opening costs are included in store operating, selling and
administrative expenses as a part of operating expenses.
We consider individual store closings
to be a normal part of operations and regularly review store performance against
expectations. Costs associated with store closings are recognized at the time of
closing or when a liability has been incurred.
37
Accounting
for the Impairment of Long-Lived Assets
We continually evaluate whether events
and circumstances have occurred that indicate the remaining balance of
long-lived assets may be impaired and not recoverable. Our policy is to
recognize any impairment loss on long-lived assets as a charge to current income
when certain events or changes in circumstances indicate that the carrying value
of the assets may not be recoverable. Impairment is assessed
considering the estimated undiscounted cash flows over the asset’s remaining
life. If estimated cash flows are insufficient to recover the investment, an
impairment loss is recognized based on a comparison of the cost of the asset to
fair value less any costs of disposition. Evaluation of asset
impairment requires significant judgment and estimates.
Insurance
Accrual
We are self-insured for a significant
portion of our health insurance. Liabilities associated with the risks that are
retained by us are estimated, in part, by considering our historical claims. The
estimated accruals for these liabilities could be affected if future occurrences
and claims differ from our assumptions. To minimize our potential exposure, we
carry stop-loss insurance which reimburses us for losses over $0.1 million per
covered person per year or $2.0 million per year in the aggregate. As
of January 31, 2009 and February 2, 2008, the accrual for these liabilities was
$0.6 million and $0.5 million, respectively, and was included in accrued
expenses in the consolidated balance sheets.
We are also self-insured for our
workers’ compensation and general liability insurance up to an established
deductible with a cumulative stop loss. As of January 31, 2009 and
February 2, 2008, the accrual for these liabilities (which is not discounted)
was $0.3 million and $0.2 million, respectively, and was included in accrued
expenses in the consolidated balance sheets.
Sales
Returns, net
Net sales returns were $19.6 million
for Fiscal 2009, $18.3 million for Fiscal 2008 and $14.2 million for Fiscal
2007. The accrual for the effect of estimated returns on pre-tax income was $0.3
million and $0.2 million as of January 31, 2009 and February 2, 2008, and was
included in accrued expenses in the consolidated balance
sheets. Determination of the accrual for estimated returns requires
significant judgment and estimates.
Fair
Value of Financial Instruments
Effective February 3, 2008, we adopted
SFAS No. 157, Fair Value
Measurements, which defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date. The
adoption of SFAS No. 157 did not have a material impact on our consolidated
financial statements.
SFAS No. 157 establishes a three-level
fair value hierarchy that prioritizes the inputs used to measure fair
value. This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs. The
three levels of inputs used to measure fair value are as follows:
|
|
·
|
Level
I – Quoted prices in active markets for identical assets or
liabilities.
|
|
|
·
|
Level
II – Observable inputs other than quoted prices included in Level I, such
as quoted prices for markets that are not active; or other inputs that are
observable or can be corroborated by observable market
data.
|
|
|
·
|
Level
III – Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted
cash flow methodologies and similar techniques that use significant
unobservable inputs.
|
The table below segregates all
financial assets and liabilities that are measured at fair value on a recurring
basis (at least annually) into the most appropriate level within the fair value
hierarchy based on the inputs used to determine the fair value as of January 31,
2009 (in thousands):
|
Level
I
|
Level
II
|
Level
III
|
Total
|
|||||||||||||
|
Short-term
investments
|
$ | 191 | $ | - | $ | - | $ | 191 | ||||||||
|
Long-term
investments
|
141 | - | - | 141 | ||||||||||||
|
Total
investments
|
$ | 332 | $ | - | $ | - | $ | 332 | ||||||||
In October 2008, The FASB issued FSP
Financial Accounting Standard (FAS) No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active, which
clarifies the application of SFAS No. 157 in determining the fair value of
assets and liabilities for which there is no active market or the principal
market for such asset or liability is not active. This FSP was
effective upon issuance and did not have a material impact on our consolidated
financial statements.
38
NOTE
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No.
162, The Hierarchy of
Generally Accepted Accounting Principles. This statement
identifies the sources for U.S. generally accepted accounting principles (GAAP)
and lists the categories in descending order. An entity should follow
the highest category of GAAP applicable for each of its accounting
transactions. SFAS No. 162 is effective 60 days following SEC
approval of the Public Company Accounting Oversight Board (PCAOB) amendments to
remove the hierarchy of generally accepted accounting principles from auditing
standards. The SEC approved the PCAOB amendments on September 16,
2008, making SFAS No. 162 effective on November 15, 2008. The
adoption of SFAS No. 162 did not have a material impact on our consolidated
financial statements.
In March 2008, the FASB issued SFAS No.
161, Disclosures about
Derivative Instruments and Hedging Activities. This statement
requires companies to provide enhanced disclosures about (a) how and why they
use derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations and
(c) how derivative instruments and related hedged items affect a company’s
financial position, financial performance and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We do not expect the
adoption of SFAS No. 161 to have a material impact on our consolidated financial
statements.
In December 2007, the FASB issued SFAS
No. 141(R), Business
Combinations. SFAS No. 141(R) requires an acquirer to
recognize the assets acquired, the liabilities assumed and any noncontrolling
interest in purchased entities, measured at their fair values at the date of
acquisition based upon the definition of fair value outlined in SFAS No. 157,
Fair Value
Measurements. For us, SFAS No. 141(R) is effective for
acquisitions beginning on and after February 1, 2010. We do not
expect the adoption of SFAS No. 141(R) to have a material impact on our
consolidated financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement 115. This statement permits companies to elect to
measure certain assets and liabilities at fair value. At each
reporting date subsequent to adoption, unrealized gains and losses on items for
which the fair value option has been elected must be reported in
earnings. On February 3, 2008, we adopted SFAS No. 159 and elected
not to use fair value measurement on any assets or liabilities under this
statement.
In September 2006, the FASB issued SFAS
No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and requires enhanced disclosures about fair
value measurements. SFAS No. 157 requires companies to disclose the
fair value of their financial instruments according to a fair value hierarchy,
as defined. SFAS No. 157 may require companies to provide additional
disclosures based on that hierarchy. This statement was to be
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. In
February 2008, FSP FAS No. 157-2, Effective Date of FASB Statement No.
157, was issued which delayed the applicability of SFAS No. 157’s fair
value measurements to certain nonfinancial assets and liabilities to those
fiscal years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). The adoption of the provisions of SFAS No. 157 did not
have a material impact on our consolidated financial statements.
NOTE
3. STOCK-BASED COMPENSATION
At January 31, 2009, we had four
stock-based compensation plans:
|
|
(a)
|
The
Amended 2005 Equity Incentive Plan (Incentive Plan) provides that the
Board of Directors may grant equity awards to certain employees of the
Company at its discretion. The Incentive Plan was adopted
effective July 1, 2005 and authorizes grants of equity awards of up to
1,233,159 authorized but unissued shares of common stock. At
January 31, 2009, there were 803,440 shares available for grant under the
Incentive Plan.
|
| (b) | The Amended 2005 Employee Stock Purchase Plan (ESPP) allows for qualified employees to participate in the purchase of up to 204,794 shares of our common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. The ESPP was adopted effective July 1, 2005. At January 31, 2009, there were 134,265 shares available for purchase under the ESPP. | |
| (c) | The Amended 2005 Director Deferred Compensation Plan (Deferred Plan) allows non-employee directors an election to defer all or a portion of their fees into stock units or stock options. The Deferred Plan was adopted effective July 1, 2005 and authorizes grants of stock up to 112,500 authorized but unissued shares of common stock. At January 31, 2009, there were 83,185 shares available for grant under the Deferred Plan. | |
| (d) | The Amended 2006 Non-Employee Director Equity Plan (DEP) provides for grants of equity awards to non-employee directors. The DEP was adopted effective June 1, 2006 and authorizes grants of equity awards of up to 672,975 authorized but unissued shares of common stock. At January 31, 2009, there were 609,891 shares available for grant under the DEP. |
39
Our plans allow for a variety of equity
awards including stock options, restricted stock awards, stock appreciation
rights and performance awards. As of January 31, 2009, the Company
had only granted awards in the form of stock options, restricted stock units
(RSUs) and performance-based awards (PSAs). RSUs and options to
purchase our common stock have been granted to officers, directors and key
employees. Beginning with the adoption of the Incentive Plan, a
greater proportion of the awards granted to employees, including executive
employees, have been RSUs as opposed to stock options when compared to grants
made in prior years. The annual grant made for Fiscal 2009 and Fiscal
2008 to employees consisted solely of RSUs. We have also awarded PSAs
to our Named Executive Officers (NEOs) and expect the Compensation Committee of
the Board will continue to grant PSAs to our NEOs in the future. The
terms and vesting schedules for stock-based awards vary by type of grant and
generally vest upon time-based conditions. Upon exercise, stock-based
compensation awards are settled with authorized but unissued company
stock. On May 30, 2008, the Compensation Committee of the Board
awarded a grant of 19,900 non-qualified stock options to our Chief Executive
Officer that vest equally over four years and have an eight year
life.
The compensation cost that has been
charged against income for these plans was as follows for the fiscal years ended
January 31, 2009, February 2, 2008 and February 3, 2007 (in
thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Stock-based
compensation expense by type:
|
||||||||||||
|
Stock
options
|
$ | 1,968 | $ | 2,068 | $ | 2,104 | ||||||
|
Restricted
stock awards
|
1,482 | 1,479 | 603 | |||||||||
|
Employee
stock purchase
|
96 | 97 | 99 | |||||||||
|
Director
deferred compensation
|
10 | 33 | 31 | |||||||||
|
Total
stock-based compensation expense
|
3,556 | 3,677 | 2,837 | |||||||||
|
Income
tax benefit recognized
|
941 | 894 | 549 | |||||||||
|
Stock-based
compensation expense, net of income tax
|
$ | 2,615 | $ | 2,783 | $ | 2,288 | ||||||
Share-based and deferred stock
compensation expenses are included in store operating, selling and
administrative expenses. There is no capitalized stock-based
compensation cost.
The income tax benefit recognized in
our consolidated financial statements, as disclosed above, is based on the
amount of compensation expense recorded for book purposes. The actual
income tax benefit realized in our income tax return is based on the intrinsic
value, or the excess of the market value over the exercise or purchase price, of
stock options exercised and restricted stock awards vested during the
period. The actual income tax benefit realized for the deductions
considered on our income tax returns for the fiscal year ended January 31, 2009,
was from option exercises, deferred stock releases and restricted stock releases
and totaled $0.6 million. The actual income tax benefit realized for
the deductions considered on our income tax returns for the fiscal years ended
February 2, 2008 and February 3, 2007, was from option exercises and totaled
$0.6 million and $2.7 million, respectively.
Stock
Options
Stock options are granted with an
exercise price equal to the closing market price of our common stock on the date
of grant. Vesting and expiration provisions vary between equity
plans, but typically vest over a four or five year period in equal installments
beginning on the first anniversary of the grant date and typically expire on the
eighth or tenth anniversary of the date of grant. Grants awarded to
outside directors under both the DEP and Deferred Plan vest immediately upon
grant and expire on the tenth anniversary of the date of grant.
Following is the weighted average fair
value of each option granted during the fiscal year ended January 31,
2009. The fair value was estimated on the date of grant using the
Black-Scholes pricing model with the following weighted average assumptions for
each period:
|
Quarter
Ended
|
|||||||||||||
|
May
3,
|
August
2,
|
November
1,
|
January
31,
|
||||||||||
|
2008
|
2008
|
2008
|
2009
|
||||||||||
|
Grant
date
|
March
14
|
March
18
|
March
31
|
May
30
|
June
30
|
September
30
|
December
31
|
||||||
|
Weighted
average fair value at date of grant
|
$5.92
|
$6.36
|
$6.67
|
$10.03
|
$9.18
|
$9.24
|
$8.76
|
||||||
|
Expected
option life (years)
|
4.20
|
4.20
|
4.20
|
5.07
|
4.20
|
4.76
|
4.76
|
||||||
|
Expected
volatility
|
50.61%
|
50.89%
|
51.68%
|
50.18%
|
50.38%
|
51.54%
|
68.07%
|
||||||
|
Risk-free
interest rate
|
2.12%
|
2.19%
|
2.27%
|
3.39%
|
3.14%
|
2.60%
|
1.40%
|
||||||
|
Dividend
yield
|
None
|
None
|
None
|
None
|
None
|
None
|
None
|
||||||
40
We calculate the expected term for our
stock options based on historical employee exercise
behavior. Historically, an increase in our stock price has led to a
pattern of earlier exercise by employees. We also expected the
reduction of the contractual term from 10 years to 8 years to facilitate a
pattern of earlier exercise by employees and to contribute to a gradual decline
in the average expected term in future periods. With the absence of
substantial new option grants, the expected term may increase slightly because
it will be affected to a greater extent by director options which have a longer
contractual life.
The volatility used to value stock
options is based on historical volatility. We calculate historical
volatility using an average calculation methodology based on daily price
intervals as measured over the expected term of the option. We have
consistently applied this methodology since our adoption of the original
disclosure provisions of SFAS No. 123, Accounting for Share-Based
Compensation.
Beginning with awards granted in the
second quarter of Fiscal 2008, we base the risk-free interest rate on the annual
continuously compounded risk-free rate with a term equal to the option’s
expected term. Previously, we used the market yield on U.S. Treasury
securities. While the difference between the two rates is minimal and
has only a slight effect on the fair value calculation, we believe using the
annual continuously compounded risk-free rate is more compliant with SFAS No.
123R, Share-Based
Payments. The dividend yield is assumed to be zero since we
have no current plan to declare dividends.
Activity for our option plans during
the fiscal year ended January 31, 2009 was as follows:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term (Years)
|
Aggregate
Intrinsic Value ($000's)
|
|||||||||||||
|
Options
outstanding at February 2, 2008
|
1,283,758 | $ | 15.89 | 5.77 | $ | 7,559 | ||||||||||
|
Granted
|
71,361 | 16.63 | ||||||||||||||
|
Exercised
|
(89,041 | ) | 7.72 | |||||||||||||
|
Forfeited,
cancelled or expired
|
(5,910 | ) | 24.85 | |||||||||||||
|
Options
outstanding at January 31, 2009
|
1,260,168 | $ | 16.46 | 5.06 | $ | 3,001 | ||||||||||
|
Exercisable
at January 31, 2009
|
1,014,458 | $ | 14.84 | 4.89 | $ | 3,001 | ||||||||||
The weighted average grant fair value
of options granted during the fiscal years ended January 31, 2009, February 2,
2008 and February 3, 2007 was $7.43, $10.39 and $12.83,
respectively. The compensation expense included in store operating,
selling and administrative expenses and recognized during the fiscal years ended
January 31, 2009, February 2, 2008 and February 3, 2007 was $2.0 million, $2.1
million and $2.1 million, respectively, before the recognized income tax benefit
of $0.4 million, $0.3 million and $0.3 million, respectively.
The total intrinsic value of stock
options exercised during the fiscal years ended January 31, 2009, February 2,
2008 and February 3, 2007 was $1.2 million, $1.9 million and $7.1 million,
respectively. The total cash received from these stock option
exercises during Fiscal 2009, 2008 and 2007 was $0.7 million, $0.9 million and
$2.3 million, respectively. Excess income tax proceeds from stock
option exercises are included in cash flows from financing activities as
required by SFAS No. 123R. As of January 31, 2009, there was $1.3
million of unrecognized compensation cost related to nonvested stock
options. This cost is expected to be recognized over a weighted
average period of 1.2 years.
Restricted
Stock and Performance-Based Awards
Restricted stock and performance-based
awards are granted with a fair value equal to the closing market price of our
common stock on the date of grant. All PSAs have been awarded in the
form of restricted stock units. Compensation expense is recorded
straight-line over the vesting period and, in the case of PSAs, at the estimated
percent of achievement. Restricted stock awards generally cliff vest
in four to five years from the date of grant for those awards that are not
performance-based. PSAs cliff vest in one to five years from the date
of grant after achievement of stated performance criterion and upon meeting
stated service conditions.
41
The following table summarizes the
restricted stock awards activity under all of our plans during the fiscal year
ended January 31, 2009:
|
Number
of Awards
|
Weighted
Average Grant Date Fair Value
|
|||||||
|
Restricted
stock awards outstanding at February 2, 2008
|
143,046 | $ | 29.28 | |||||
|
Granted
|
231,255 | 15.12 | ||||||
|
Vested
|
(24,900 | ) | 32.37 | |||||
|
Forfeited,
cancelled or expired
|
(37,483 | ) | 17.53 | |||||
|
Restricted
stock awards outstanding at January 31, 2009
|
311,918 | $ | 19.95 | |||||
The weighted average grant date fair
value of our RSUs granted was $15.12, $28.30 and $31.55 for the fiscal years
ended January 31, 2009, February 2, 2008 and February 3, 2007,
respectively. There were 231,255, 124,325 and 60,510 RSUs granted
during Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively. The compensation
expense included in store operating, selling and administrative expenses and
recognized during Fiscal 2009, Fiscal 2008 and Fiscal 2007 was $1.5 million,
$1.5 million and $0.6 million, respectively, before the recognized income tax
benefit of $0.6 million, $0.6 million and $0.2 million,
respectively.
As of January 31, 2009, one restricted
stock award of 24,900 units had vested with an intrinsic value of $0.4
million. The total intrinsic value of our restricted stock awards
outstanding and unvested at January 31, 2009, February 2, 2008 and February 3,
2007 was $4.2 million, $2.7 million and $2.8 million,
respectively. As of January 31, 2009, there was approximately $3.6
million of total unamortized unrecognized compensation cost related to
restricted stock awards. This cost is expected to be recognized over
a weighted average period of 2.7 years.
Employee
Stock Purchase Plan
The Company’s ESPP allows eligible
employees the right to purchase shares of our common stock, subject to certain
limitations, at 85% of the lesser of the market value at the end of each
calendar quarter (purchase date) or the beginning of each calendar
quarter. Our employees purchased 25,263 shares of common stock at an
average price of $14.11 per share through the ESPP for the fiscal year ended
January 31, 2009. Our employees purchased 18,462 shares of common
stock at an average price of $21.25 per share during the fiscal year ended
February 2, 2008. During the fiscal year ended February 3, 2007, our
employees purchased 17,992 shares of common stock at an average price of $22.02
per share through the ESPP.
The assumptions used in the option
pricing model for the fiscal years ended January 31, 2009, February 2, 2008 and
February 3, 2007 were as follows:
|
Fiscal
Year Ended
|
|||||
|
January
31,
|
February
2,
|
February
3,
|
|||
|
2009
|
2008
|
2007
|
|||
|
Weighted
average fair value at date of grant
|
$4.35
|
$5.90
|
$5.93
|
||
|
Expected
life (years)
|
0.25
|
0.25
|
0.25
|
||
|
Expected
volatility
|
48.0%
- 51.5%
|
36.3%
- 41.8%
|
40.7%
- 41.0%
|
||
|
Risk-free
interest rate
|
1.14%
- 3.06%
|
3.99%
- 5.08%
|
3.98%
- 4.93%
|
||
|
Dividend
yield
|
None
|
None
|
None
|
||
The expense related to the ESPP was
determined using the Black-Scholes option pricing model and the provisions of
FASB Technical Bulletin (FTB) No. 97-1, Accounting under Statement 123 for
Certain Employee Stock Purchase Plans with a Look-Back Option, as amended
by SFAS No. 123R. The compensation expense included in store
operating, selling and administrative expenses and recognized during the fiscal
years ended January 31, 2009, February 2, 2008 and February 3, 2007 was $0.1
million in all three years.
42
Director
Deferred Compensation
Under the Deferred Plan, non-employee
directors can elect to defer all or a portion of their Board and Board committee
fees into cash, stock options or deferred stock units. Those fees
deferred into stock options are subject to the same provisions as provided for
in the DEP and are expensed and accounted for accordingly. Director
fees deferred into our common stock are calculated and expensed each calendar
quarter by taking total fees earned during the calendar quarter and dividing by
the closing price on the last day of the calendar quarter, rounded to the
nearest whole share. The total annual retainer, Board and Board
committee fees for non-employee directors that are not deferred into stock
options, but which includes amounts deferred into stock units under the Deferred
Plan, are expensed as incurred in all periods presented. A total of
664, 1,306 and 1,142 stock units were deferred under this plan in Fiscal 2009,
Fiscal 2008 and Fiscal 2007, respectively. Currently, no director is
deferring compensation into stock units.
The compensation expense included in
store operating, selling and administrative expenses and recognized during
Fiscal 2009, Fiscal 2008 and Fiscal 2007 was $10,000, $33,000 and $31,000,
respectively before the recognized income tax benefit of $4,000, $12,000 and
$12,000, respectively.
NOTE
4. EARNINGS PER SHARE
The computation of basic earnings per
share (EPS) is based on the number of weighted average common shares outstanding
during the period. The computation of diluted EPS is based on the
weighted average number of shares outstanding plus the incremental shares that
would be outstanding assuming exercise of dilutive stock options and issuance of
restricted stock. The number of incremental shares is calculated by
applying the treasury stock method. The following table sets forth
the computation of basic and diluted earnings per share:
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
income, in thousands
|
$ | 29,448 | $ | 30,329 | $ | 38,073 | ||||||
|
Weighted
average number of common shares outstanding
|
28,547,435 | 31,049,058 | 32,094,127 | |||||||||
|
Dilutive
stock options
|
406,261 | 427,822 | 500,478 | |||||||||
|
Dilutive
restricted stock
|
- | 48,170 | 25,234 | |||||||||
|
Weighted
average number of common shares outstanding and dilutive
shares
|
28,953,696 | 31,525,050 | 32,619,839 | |||||||||
|
Basic
earnings per share
|
$ | 1.03 | $ | 0.98 | $ | 1.19 | ||||||
|
Diluted
earnings per share
|
$ | 1.02 | $ | 0.96 | $ | 1.17 | ||||||
In calculating diluted earnings per
share for the fifty-two weeks ended January 31, 2009, options to purchase
603,330 shares of common stock were outstanding as of the end of the period, but
were not included in the computations of diluted earnings per share due to their
anti-dilutive effect. In calculating diluted earnings per share for
the fifty-two weeks ended February 2, 2008, options to purchase 455,598 shares
of common stock were outstanding as of the end of the period, but were not
included in the computations of diluted earnings per share due to their
anti-dilutive effect. In calculating diluted earnings per share for
the fifty-three weeks ended February 3, 2007, options to purchase 135,706 shares
of common stock were outstanding as of the end of the period, but were not
included in the computation of diluted earnings per share due to their
anti-dilutive effect.
NOTE
5. DEBT
At January 31, 2009, we had two
unsecured credit facilities, which are renewable in August and December 2009.
The facilities allow for borrowings up to $30.0 million and $50.0 million,
respectively, at a fixed rate, a rate based on prime or LIBOR plus 0.375%, at
our election. Under the provisions of both facilities, we do not pay
commitment fees and are not subject to covenant requirements. There
were 348 days during the fifty-two weeks ended January 31, 2009, where we
incurred borrowings against our credit facilities for an average and maximum
borrowing of $23.2 million and $47.1 million, respectively, at an average
interest rate of 2.85%. At January 31, 2009, a total of $80.0 million
was available to us from these facilities.
43
At February 2, 2008, we had one
facility that allowed borrowings up to $30.0 million. There were 106 days during
the fifty-two weeks ended February 2, 2008, where we incurred borrowings against
this credit facility for an average and maximum borrowing of $7.8 million and
$18.4 million, respectively, at an average interest rate of 5.64%. At
February 2, 2008, $30.0 million was available to us from this
facility.
At February 3, 2007, we had one
facility that allowed borrowings up to $15.0 million. There were twenty-four
days during the fifty-three weeks ended February 3, 2007, where we incurred
borrowings against this credit facility for an average and maximum borrowing of
$2.5 million and $5.1 million, respectively, at an average interest rate of
6.12%. At February 3, 2007, $15.0 million was available to us from
this facility.
NOTE
6. DEFINED CONTRIBUTION PLANS
We maintain the Hibbett Sports, Inc.
401(k) Plan (401(k) Plan) for the benefit of our employees. The
401(k) Plan covers all employees who have completed one year of service and who
are at least 21 years of age. Participants of the 401(k) Plan may voluntarily
contribute from 1% to 100% of their compensation subject to certain yearly
dollar limitations as allowed by law. These elective contributions are made
under the provisions of Section 401(k) of the Internal Revenue Code which allows
deferral of income taxes on the amount contributed to the 401(k) Plan. The
Company’s contribution to the 401(k) Plan equals (1) an amount determined at the
discretion of the Board of Directors plus (2) a matching contribution equal to a
discretionary percentage of up to 6% of a participant’s compensation. For each
of Fiscal 2009, Fiscal 2008 and Fiscal 2007, we matched $0.75 for each dollar of
compensation deferred by the employees up to 6.0% of
compensation. Contribution expense incurred under the 401(k) Plan for
Fiscal 2009, 2008 and 2007 was $0.5 million, $0.4 million and $0.5 million,
respectively.
In November 2007, our Board of
Directors adopted the Hibbett Sports, Inc. Supplemental 401(k) Plan
(Supplemental Plan) for the purpose of supplementing the employer matching
contribution and salary deferral opportunity available to highly compensated
employees whose ability to receive Company matching contributions and defer
salary under our existing 401(k) Plan has been limited because of certain
restrictions applicable to qualified plans. The non-qualified
deferred compensation Supplemental Plan allows participants to defer up to 40%
of their compensation and receive an employer matching contribution equal to
$0.75 for each dollar of compensation deferred, subject to a maximum of 4.5% of
compensation and subject to Board discretion. The matching
contribution for Fiscal 2010 has also been set by the Board as $0.75 for each
dollar of compensation deferred up to 4.5% of
compensation. Contribution expense amounts under the Supplemental
Plan for Fiscal 2009 was $0.1 million. There was not any contribution
expense incurred for the Supplemental Plan for Fiscal 2008 or Fiscal
2007.
NOTE
7. RELATED-PARTY TRANSACTIONS
The Company leases one store under a
sublease arrangement from Books-A-Million, Inc., (BAMM) of which one of our
Directors, Terrance G. Finley is an executive officer and stockholder and
another Director, Albert C. Johnson, is a Director and
stockholder. The sublease agreement expired in June 2008, but was
renewed under a five-year term to expire in June 2013. Minimum lease payments
were $191,000 in Fiscal 2009, Fiscal 2008 and Fiscal 2007. Future
minimum lease payments under this non-cancelable sublease aggregate
approximately $0.8 million.
NOTE
8. INCOME TAXES
Our effective tax rate is based on our
income, statutory tax rates and tax planning opportunities available in the
various jurisdictions in which we operate. Significant judgment is
required in determining our effective tax rate and in evaluating our tax
positions.
A summary of the components of the
provision (benefit) for income taxes is as follows (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Federal:
|
||||||||||||
|
Current
|
$ | 17,122 | $ | 18,077 | $ | 22,761 | ||||||
|
Deferred
|
(827 | ) | (1,298 | ) | (769 | ) | ||||||
| 16,295 | 16,779 | 21,992 | ||||||||||
|
State:
|
||||||||||||
|
Current
|
1,698 | 1,577 | 2,853 | |||||||||
|
Deferred
|
(88 | ) | (27 | ) | (304 | ) | ||||||
| 1,610 | 1,550 | 2,549 | ||||||||||
| $ | 17,905 | $ | 18,329 | $ | 24,541 | |||||||
44
A reconciliation of the statutory
federal income tax rate as a percentage of income before provision for income
taxes follows:
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Tax
provision computed at the federal statutory rate
|
35.00 | % | 35.00 | % | 35.00 | % | ||||||
|
Effect
of state income taxes, net of federal benefits
|
1.99 | 2.36 | 2.65 | |||||||||
|
Other,
net
|
0.82 | 0.31 | 1.54 | |||||||||
| 37.81 | % | 37.67 | % | 39.19 | % | |||||||
In accordance with SFAS No. 109,
deferred income taxes on the consolidated balance sheet result from temporary
differences between the amount of assets and liabilities recognized for
financial reporting and income tax purposes. The components of the deferred
income tax assets (liabilities) are as follows (in thousands):
|
January
31, 2009
|
February
2, 2008
|
|||||||||||||||
|
Current
|
Non-current
|
Current
|
Non-current
|
|||||||||||||
|
Deferred
rent
|
$ | 1,782 | $ | 6,630 | $ | 1,765 | $ | 7,257 | ||||||||
|
Accumulated
depreciation and amortization
|
- | (5,804 | ) | - | (4,994 | ) | ||||||||||
|
Inventories
|
2,209 | - | 1,149 | - | ||||||||||||
|
Prepaid
expenses
|
(704 | ) | (85 | ) | (717 | ) | - | |||||||||
|
Accruals
|
854 | 737 | 238 | 650 | ||||||||||||
|
Stock-based
compensation
|
40 | 2,003 | 506 | 867 | ||||||||||||
|
Other
|
(243 | ) | - | (216 | ) | - | ||||||||||
|
Deferred
income taxes
|
$ | 3,938 | $ | 3,481 | $ | 2,725 | $ | 3,780 | ||||||||
Deferred income tax assets represent
items to be used as a tax deduction or credit in future tax returns for which we
have already properly recorded the tax benefit in the consolidated statements of
operations. At least quarterly, we assess the likelihood that the
deferred income tax assets balance will be recovered. We take into
account such factors as prior earnings history, expected future earnings,
carryback and carryforward periods and tax strategies that could potentially
enhance the likelihood of a realization of a deferred income tax
asset. To the extent recovery is not more likely than not, a
valuation allowance is established against the deferred income tax asset,
increasing our income tax expense in the year such determination is
made. We have determined that no such allowance is
required.
On February 4, 2007, we adopted the
provisions of FASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109. As a
result of implementing FIN No. 48, we increased the liability for unrecognized
tax benefits by $3.8 million, increased deferred tax assets by $3.2 million and
reduced retained earnings as of February 4, 2007, by $0.6
million. Our total liability for unrecognized tax benefits as of
February 4, 2007 amounted to $5.7 million.
In accordance with FIN No. 48, we
recognize a tax benefit associated with an uncertain tax position when, in our
judgment, it is more likely than not that the position will be sustained upon
examination by a taxing authority. For a tax position that meets the
more-likely-than-not recognition threshold, we initially and subsequently
measure the tax benefit as the largest amount that we judge to have a greater
than 50% likelihood of being realized upon ultimate settlement with a taxing
authority. Our liability associated with unrecognized tax benefits is
adjusted periodically due to changing circumstances, such as the progress of tax
audits, case law developments and new or emerging legislation. Such
adjustments are recognized entirely in the period in which they are
identified. Our effective tax rate includes the net impact of changes
in the liability for unrecognized tax benefits and subsequent adjustments as
considered appropriate by management.
A number of years may elapse before a
particular matter for which we have recorded a liability related to an
unrecognized tax benefit is audited and finally resolved. The number
of years with open tax audits varies by jurisdiction. While it is
often difficult to predict the final outcome or the timing of resolution of any
particular tax matter, we believe our liability for unrecognized tax benefits is
adequate. Favorable settlement of an unrecognized tax benefit could
be recognized as a reduction in our effective tax rate in the period of
resolution. Unfavorable settlement of an unrecognized tax benefit
could increase the effective tax rate and may require the use of cash in the
period of resolution. Our liability for unrecognized tax benefits is
generally presented as non-current. However, if we anticipate paying
cash within one year to settle an uncertain tax position, the liability is
presented as current.
45
A reconciliation of the unrecognized
tax benefit under FIN No. 48 during Fiscal 2009 and Fiscal 2008 follows (in
thousands):
|
Fiscal
Year Ended
|
||||||||
|
January
31, 2009
|
February
2, 2008
|
|||||||
|
Unrecognized
tax benefit - beginning of year
|
$ | 2,623 | $ | 5,117 | ||||
|
Gross
increases - tax positions in prior period
|
- | 836 | ||||||
|
Gross
decreases - tax positions in prior period
|
(100 | ) | (3,259 | ) | ||||
|
Gross
increases - tax positions in current period
|
241 | - | ||||||
|
Settlements
|
- | (29 | ) | |||||
|
Lapse
of statute of limitations
|
(263 | ) | (42 | ) | ||||
|
Unrecognized
tax benefit - end of year
|
$ | 2,501 | $ | 2,623 | ||||
We expect a decrease in our FIN No. 48
liability of approximately $0.7 million in the next 12 months due to the
expiration of certain statutes of limitations. We classify interest
and penalties recognized on the liability for unrecognized tax benefits as
income tax expense. As of January 31, 2009 and February 2, 2008, we
have accrued interest and penalties in the amount of $0.5 million and $0.3
million, respectively.
Of the unrecognized tax benefits as of
January 31, 2009 and February 2, 2008, $1.1 million and $1.0 million,
respectively, if recognized, would affect our effective income tax
rate.
We file income tax returns in the U.S.
federal and various state jurisdictions. Generally, we are not
subject to changes in income taxes by the U.S. federal taxing jurisdiction for
years prior to Fiscal 2006 or by most state taxing jurisdictions for years prior
to Fiscal 2003.
NOTE
9. COMMITMENTS AND CONTINGENCIES
We lease the premises for our retail
sporting goods stores under non-cancelable operating leases having initial or
remaining terms of more than one year. The leases typically provide for terms of
five to ten years with options to extend at our discretion. Many of our leases
contain scheduled increases in annual rent payments and the majority of our
leases also require us to pay maintenance, insurance and real estate taxes.
Additionally, many of the lease agreements contain tenant improvement
allowances, rent holidays and/or rent escalation clauses (contingent
rentals). For purposes of recognizing incentives and minimum rental
expenses on a straight-line basis over the terms of the leases, we use the date
of initial possession to begin amortization, which is generally when we enter
the space and begin to make improvements in preparation of our intended
use. Contingent rental payments are based on net sales for the
location.
We also lease certain computer
hardware, office equipment and transportation equipment under non-cancelable
operating leases having initial or remaining terms of more than one
year.
In February 1996, we entered into a
sale-leaseback transaction to finance our distribution center and office
facilities. In December 1999, the related operating lease was amended to include
the Fiscal 2000 expansion of these facilities. The amended lease rate is $0.9
million per year and can increase annually with the Consumer Price
Index. This lease will expire in December 2014. Future
minimum lease payments under this non-cancelable lease aggregate approximately
$5.2 million. The transaction is also subject to quarterly financial
covenants based on certain ratios. We have never been in violation of
any financial covenant requirement.
During the fiscal year ended January
31, 2009, we increased our lease commitments by a net of 57 retail stores, each
having initial lease termination dates between February 2013 and May 2019 as
well as various office and transportation equipment. At January 31,
2009, the future minimum lease payments, excluding maintenance, insurance and
real estate taxes, for our current operating leases and including the net 57
operating leases added during Fiscal 2009 were as follows (in
thousands):
|
Fiscal
2010
|
$ | 42,496 | ||
|
Fiscal
2011
|
36,621 | |||
|
Fiscal
2012
|
30,183 | |||
|
Fiscal
2013
|
24,209 | |||
|
Fiscal
2014
|
17,195 | |||
|
Thereafter
|
27,457 | |||
|
TOTAL
|
$ | 178,161 |
46
Rental expense for all operating leases
consisted of the following (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
31,
|
February
2,
|
February
3,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Minimum
rentals
|
$ | 34,283 | $ | 32,693 | $ | 30,291 | ||||||
|
Contingent
rentals
|
2,689 | 2,342 | 2,339 | |||||||||
| $ | 36,972 | $ | 35,035 | $ | 32,630 | |||||||
Most of our retail store leases contain
provisions that allow for early termination of the lease by either party if
certain pre-determined annual sales levels are not met. Generally, these
provisions allow the lease to be terminated between the third and fifth year of
the lease. Should the lease be terminated under these provisions, in some cases,
the unamortized portion of any landlord allowances related to that property
would be payable to the landlord.
Annual
Bonuses and Equity Incentive Awards
Specified officers and corporate
employees of our Company are entitled to annual bonuses, primarily based on
measures of Company operating performance. At January 31, 2009,
February 2, 2008 and February 3, 2007, there was $2.9 million, $0.6 million and
$2.1 million, respectively, of annual bonus related expense included in accrued
expenses.
In addition, starting in March 2006,
the Compensation Committee (Committee) of the Board of Directors of the Company
began placing performance criteria on awards of RSUs (PSAs) to our NEOs under
the Incentive Plan. The performance criteria are tied to performance
targets with respect to future sales and operating income over a specified
period of time. These PSAs are expensed under the provisions of SFAS
No. 123R and are evaluated each quarter to determine the probability that the
performance conditions set within will be met. We expect the
Committee to continue to place performance criteria on awards of RSUs to our
NEOs in the future.
Legal
Proceedings and other Contingencies
We are a party to various legal
proceedings incidental to our business. We do not believe that any of
these matters will, individually or in the aggregate, have a material adverse
effect on our business or financial condition. We cannot give
assurance, however, that one or more of these lawsuits will not have a material
adverse effect on our results of operations for the period in which they are
resolved. At January 31, 2009, we estimate that the liability related
to these matters is approximately $47,000 and accordingly, have accrued $47,000
as a current liability on our consolidated balance sheet. As of
February 2, 2008, we had accrued $0.8 million as it related to our estimated
liability for legal proceedings which primarily consisted of an amount accrued
for a pending lawsuit that has since been settled.
The estimates of our liability for
pending and unasserted potential claims do not include litigation
costs. It is our policy to accrue legal fees when it is probable that
we will have to defend against known claims or allegations and we can reasonably
estimate the amount of the anticipated expense.
From time to time, we enter into
certain types of agreements that require us to indemnify parties against third
party claims under certain circumstances. Generally, these agreements
relate to: (a) agreements with vendors and suppliers under which we may provide
customary indemnification to our vendors and suppliers in respect to actions
they take at our request or otherwise on our behalf; (b) agreements to indemnify
vendors against trademark and copyright infringement claims concerning
merchandise manufactured specifically for or on behalf of the Company; (c) real
estate leases, under which we may agree to indemnify the lessors from claims
arising from our use of the property; and (d) agreements with our directors,
officers and employees, under which we may agree to indemnify such persons for
liabilities arising out of their relationship with us. We have
director and officer liability insurance, which, subject to the policy’s
conditions, provides coverage for indemnification amounts payable by us with
respect to our directors and officers up to specified limits and subject to
certain deductibles.
If the Company believes that a loss is
both probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of SFAS No. 5, Accounting for
Contingencies. With respect to any matter, the Company could
change its belief as to whether a loss is probable or estimable, or its estimate
of loss, at any time. Even though the Company may not believe a loss
is probable or estimable, it is reasonably possible that the Company could
suffer a loss with respect to that matter in the future.
47
NOTE
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain
unaudited consolidated financial data for the thirteen-week quarters indicated
(dollar amounts in thousands, except per share amounts):
|
Fiscal
Year Ended January 31, 2009
|
||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||
|
Net
sales
|
$ | 145,825 | $ | 130,289 | $ | 140,148 | $ | 147,926 | ||||
|
Gross
profit
|
47,812 | 42,266 | 46,692 | 48,601 | ||||||||
|
Operating
income
|
15,434 | 7,811 | 12,032 | 12,695 | ||||||||
|
Net
income
|
9,372 | 4,792 | 7,652 | 7,633 | ||||||||
|
Basic
earnings per share
|
$ | 0.33 | $ | 0.17 | $ | 0.27 | $ | 0.27 | ||||
|
Diluted
earnings per share
|
$ | 0.32 | $ | 0.17 | $ | 0.26 | $ | 0.26 | ||||
|
Fiscal
Year Ended February 2, 2008
|
||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||
|
Net
sales
|
$ | 133,842 | $ | 114,404 | $ | 129,628 | $ | 142,847 | ||||
|
Gross
profit
|
45,053 | 37,476 | 42,474 | 43,841 | ||||||||
|
Operating
income
|
16,102 | 7,797 | 12,553 | 11,775 | ||||||||
|
Net
income
|
10,227 | 4,681 | 7,815 | 7,606 | ||||||||
|
Basic
earnings per share
|
$ | 0.32 | $ | 0.15 | $ | 0.25 | $ | 0.26 | ||||
|
Diluted
earnings per share
|
$ | 0.32 | $ | 0.15 | $ | 0.25 | $ | 0.25 | ||||
In the opinion of our management, this
unaudited information has been prepared on the same basis as the audited
information presented elsewhere herein and includes all adjustments necessary to
present fairly the information set forth herein. The operating results from any
quarter are not necessarily indicative of the results to be expected for any
future period.
The Fiscal 2008 unaudited consolidated
statement of operations for the second quarter presented above includes a $1.2
million pretax benefit related to our accounting for inventory in-transit and
shrinkage results. The total pretax benefit of $1.2 million was
corrected in the fourth quarter of Fiscal 2008. We reviewed the
accounting error utilizing SAB No. 99, Materiality and SAB No. 108,
Effects of Prior Year
Misstatements on Current Year Financial Statements, and determined the
impact of the error to be immaterial to any period presented.
Not applicable.
(a) Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of January 31, 2009.
(b) Management’s
Report on Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of January 31,
2009, based on the Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our evaluation under
the framework in Internal
Control – Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of January 31,
2009.
48
KPMG LLP, our independent registered
public accounting firm, has issued an attestation report on the Company’s
internal control over financial reporting as of January 31, 2009 included in
Item 8 herein.
(c) Changes
in Internal Control Over Financial Reporting
There has been no change in our
internal control over financial reporting during the fourth quarter of Fiscal
2009 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
None.
49
We have adopted a Code of Business
Conduct and Ethics (Code) for all Company employees, including our Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer and
Controller. The Code is posted on our website, www.hibbett.com under
“Investor Information.” We intend to make all required disclosures
regarding any amendment to, or a waiver of, a provision of the Code for Senior
Executive and Financial Officers by posting such information on our
website.
The information appearing in the Proxy
Statement for the Annual Meeting of Stockholders (Proxy Statement) to be held on
May 28, 2009, relating to the members of the Audit Committee and the Audit
Committee financial expert under the caption “Board and Committees of the Board”
as well as the information appearing in the Proxy Statement under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance” is hereby incorporated
by reference.
The balance of the information required
in this item is incorporated by reference from the sections entitled “Directors
and Executive Officers”, “The Board of Directors”, “Annual Compensation of
Executive Officers” and “Related Person Transactions” in the Proxy
Statement.
The information required in this item
is incorporated by reference from the section entitled “Annual Compensation of
Executive Officers”, “Compensation Committee Report” and “Compensation Committee
Interlocks and Insider Participation” in the Proxy Statement.
The information required in this item
is incorporated by reference from the sections entitled “Security
Ownership
of
Certain Beneficial Owners”, “Compensation of Non-Employee Directors”, “Annual
Compensation of Executive Officers” and “Directors and Executive Officers” in
the Proxy Statement.
Equity
Compensation Plan Information (1)
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights (2)
|
Weighted
average exercise price of outstanding options
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(3)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
1,572,086 | $ | 16.46 | 1,630,797 | ||||||||
|
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
|
TOTAL
|
1,572,086 | $ | 16.46 | 1,630,797 | ||||||||
|
|
(1)
|
Information
presented as of January 31, 2009.
|
|
|
(2)
|
Includes
238,918 RSUs and 73,000 PSAs that may be awarded if specified targets
and/or service periods are met. The weighted average exercise
price of outstanding options does not include these
awards.
|
|
|
(3)
|
Includes
134,265 shares remaining under our ESPP and 83,185 shares remaining under
our DEP of which approximately 3,000 shares were subject to purchase in
the purchasing period ending March 31,
2009.
|
The information required in this item
is incorporated by reference from the section entitled “Related Person
Transactions” and “Governance Information” in the Proxy Statement.
The information required in this item
is incorporated by reference from the section entitled “Independent Registered
Public Accounting Firm” and “Proposal Number 2 – Ratification of the Appointment
by the Audit Committee of the Board of Directors of KPMG LLP as the Company’s
Independent Registered Public Accounting Firm” in the Proxy
Statement.
50
|
(a)
|
Documents
filed as part of this report:
|
|||
|
1.
|
Financial
Statements.
|
Page
|
||
|
The
following Financial Statements and Supplementary Data of the Registrant
and Independent Registered Public Accounting Firm’s Report on such
Financial Statements are incorporated by reference from the Company’s 2009
Annual Report to Stockholders, in Part II, Item 8:
|
||||
|
29
|
||||
|
Consolidated Balance
Sheets as of January 31, 2009 and February 2,
2008
|
30
|
|||
|
Consolidated
Statements of Operations for the fiscal years ended January 31,
2009, February 2, 2008 and February 3, 2007
|
31
|
|||
|
Consolidated Statements
of Cash Flows for the fiscal years ended January 31, 2009,
February 2, 2008 and February 3, 2007
|
32
|
|||
|
Consolidated
Statements of Stockholders’ Investment for the fiscal years
ended January 31, 2009, February 2, 2008 and February 3,
2007
|
33
|
|||
|
34
|
||||
|
2.
|
Financial
Statement Schedules.
|
|||
|
All
schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are not applicable, and therefore have
been omitted.
|
||||
|
3.
|
Exhibits.
|
|||
|
The
Exhibits listed below are the exhibits of Hibbett Sports, Inc. and its
wholly owned subsidiaries and are filed as part of, or incorporated by
reference into, this report.
|
||||
|
Number
|
Description
|
|||
|
Certificates of
Incorporation and By-Laws
|
||||
|
3.1
|
Certificate
of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.1 of the Company’s Form 8-K filed with the Securities and
Exchange Commission on February 15, 2007.)
|
|||
|
3.2
|
By-laws
of the Company (incorporated herein by reference to Exhibit 3.2 of the
Company’s Form 8-K filed with the Securities and Exchange Commission on
February 15, 2007.)
|
|||
|
Material
Contracts
|
||||
| 10.1 |
Credit
Agreement between the Company and Bank of America, N.A., dated as of
February 4, 2008; incorporated by reference as Exhibit 10.1 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on
February 5, 2008.
|
|||
| 10.2 |
Sub-Sub-Sublease
Agreement between Hibbett Sporting Goods, Inc. and Books-A-Million, dated
April 23, 1996; incorporated by reference as Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on September 7, 2006.
|
|||
| 10.3 |
Hibbett
Sports, Inc. equity plan amendments approved by the Board of Directors,
dated June 2, 2008; incorporated by reference as Exhibits 10.1, 10.2 and
10.3 to the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on June 6, 2008.
|
|||
| 10.4 |
Credit
Agreement between the Company and Regions Bank, effective August 28, 2008;
incorporated as exhibit 10.1 to the Registrant’s Form 8-K filed with the
Securities and Exchange Commission on August 21, 2008.
|
|||
51
|
10.5
|
Credit
Agreement between the Company and Bank of America, N.A., dated as of
November 20, 2008; incorporated by reference as Exhibit 10.1 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on
November 20, 2008.
|
||
|
10.6
|
Hibbett
Sports, Inc. equity plan amendments approved by the Board of Directors,
dated November 20, 2008; incorporated by reference as Exhibits 10.2, 10.3
and 10.4 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on November 20, 2008.
|
||
|
10.7
|
Hibbett
Sports, Inc. Executive Officer Cash Bonus Plan amendment approved by the
Board of Directors, dated November 20, 2008; incorporated by reference as
Exhibit 10.5 to the Registrant’s Form 8-K with the Securities and Exchange
Commission on November 20, 2008.
|
||
|
10.8
|
Hibbett
Sports, Inc. Executive Restricted Stock Unit Agreement, adopted by the
Compensation Committee of the Board of Directors on March 11, 2009 (filed
herewith).
|
54
|
|
|
Annual Report to
Security Holders
|
|||
|
13.1
|
Fiscal
2009 Annual Report to Stockholders.
|
||
|
Subsidiaries of the
Registrant
|
|||
|
21
|
List
of Company’s Subsidiaries:
1)Hibbett
Sporting Goods, Inc.
2)Hibbett
Team Sales, Inc.
3)Sports
Wholesale, Inc.
4)Hibbett
Capital Management, Inc.
5)Sports
Holding, Inc.
|
||
|
6)Gift
Card Services, LLC
7)Hibbett.com,
Inc.
|
|||
|
Consents of Experts
and Counsel
|
|||
|
23.1
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith)
|
58
|
|
|
Certifications
|
|||
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed
herewith)
|
59
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed
herewith)
|
60
|
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer and Chief Financial Officer
(filed herewith)
|
61
|
|
52
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
HIBBETT
SPORTS, INC.
|
||
|
Date: March 31,
2009
|
By:
|
/s/
Gary A. Smith
|
|
Gary
A. Smith
Chief
Financial Officer (Principal Financial Officer
and Principal Accounting
Officer)
|
||
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/ Michael
J. Newsome
|
Chief
Executive Officer and Chairman of the Board (Principal Executive
Officer)
|
March 31,
2009
|
|
Michael J.
Newsome
|
||
|
/s/ Gary
A. Smith
|
Vice
President and Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
|
March 31,
2009
|
|
Gary A. Smith
|
||
|
/s/ Terrance
G. Finley
|
Director
|
March 31,
2009
|
|
Terrance
G. Finley
|
||
|
/s/ Albert
C. Johnson
|
Director
|
March 31,
2009
|
|
Albert
C. Johnson
|
||
|
/s/ Carl
Kirkland
|
Director
|
March 31,
2009
|
|
Carl Kirkland
|
||
|
/s/ Ralph
T. Parks
|
Director
|
March 31,
2009
|
|
Ralph T. Parks
|
||
|
/s/ Thomas
A. Saunders, III
|
Director
|
March 31,
2009
|
|
Thomas A. Saunders,
III
|
||
|
/s/ Alton
E. Yother
|
Lead
Director
|
March 31,
2009
|
|
Alton E. Yother
|
||
53