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
30, 2010
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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||||
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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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||||||
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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 whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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Yes
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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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||
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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 $527,232,465 on July 31, 2009,
based on the closing sale price of $18.41 at July 31, 2009 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 22,
2010 was 28,745,777.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s Proxy Statement for the 2010 Annual Meeting of Stockholders
to be held on May 27, 2010 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 26, 2010.
HIBBETT
SPORTS, INC.
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Page
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5
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Item
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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
facility;
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the
cost of regulatory compliance, including those directed at climate change
and its effects and the costs and possible outcomes 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 19.
Our forward-looking statements could be
wrong in light of these 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 “2011” or “Fiscal 2011” relates to our year ending
January 29, 2011. Any reference to “2010” or “Fiscal 2010” relates to
our year ended 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.
Our
Company
Our Company was originally organized in
1945 under the name Dixie Supply Company in Florence, Alabama, specializing
primarily 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 Executive 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 operate sporting goods stores
in small to mid-sized markets predominantly in the Southeast, Southwest,
Mid-Atlantic and the lower Midwest. As of January 30, 2010, we
operated 747 Hibbett Sports stores as well as 16 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 688 stores to 767 stores, an increase in store base of
approximately 11%. 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. Approximately 75%
of our Hibbett Sports store base is located in strip centers, while
approximately 25% of our Hibbett Sports store base is located 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 these
markets due to the extensive selection of quality brand-name merchandise, a high
level of customer service and prime real estate locations. Our
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 30, 2010, 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 expansion opportunities, comparatively low operating costs and a more
limited competitive environment than generally faced in larger
markets. In addition, we establish greater customer, vendor and
landlord 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.
5
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.
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. In considering locations for
our Hibbett Sports stores, we take into account the size, demographics, quality
of real estate and competitive conditions of each market. Of these
stores, 556 Hibbett Sports stores are located in strip centers with the
remaining 191 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 2010
included the Alabama Crimson Tide’s historic season and ultimate victory in the
Bowl Championship Series (BCS) National Championship game as well as the
successful seasons of the New Orleans Saints professional football team and the
University of Kentucky basketball program.
Sports
Additions
Our 16 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 two Sports Additions
stores are currently located in malls in which Hibbett Sports stores are also
present.
Sports
& Co.
We opened four 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 and North Georgia. 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 Accounting Standards
Codification (ASC) Topic 280, Segment
Reporting.
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 350 to 375 potential
markets for future Hibbett Sports stores 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. It also allows us to build on our understanding
of merchandise selection for that area. We believe our current
distribution center can support over 1,200 stores.
In Fiscal 2011, we expect our net store
openings will be similar to Fiscal 2010. We have identified potential
markets but have experienced increasing difficulty in securing suitable real
estate or leases within the targeted market. While we expect overall
new store growth, we anticipate that the current economic environment,
particularly in the commercial real estate market, will continue to make it
harder to open our stores at our historical rate of growth. Because
of the new store opening slowdown, we have turned our focus somewhat on
expanding high performing stores and have seen successful results from this
strategy.
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.”
6
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. In addition, we
have made investments in our current distribution center and have also begun to
use third party logistics providers to gain efficiencies in the cost of
distribution to approximately 15% of our outlying stores, which also saves space
in our distribution center. We believe our current distribution
infrastructure, which includes the use of third party logistics providers,
improved technology and vendor assistance with cross-docking, can service over
1,200 stores.
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 or third party logistics providers.
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 2010, our most
popular consumer item was 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
brand name 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 positive
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 30,
2010, Nike, our largest vendor, represented 49.9% of our total purchases while
our next largest vendor represented 9.0% of our total purchases. For
the fiscal year ended January 31, 2009, Nike, our largest vendor, represented
51.4% of our total purchases while our next largest vendor represented 8.4% of
our total purchases.
7
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.”
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 2010.
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 30, 2010, we employed
approximately 2,100 full-time and approximately 3,800 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.
8
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.
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.
Risks
Related to Our Business and Industry.
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. The failure of U.S.
government programs to bolster the economy, 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. 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.
The
slower pace of our new store openings may negatively impact our net sales growth
and operating income and we may be unable to achieve our expansion plans for
future growth.
The opening of new retail stores has
contributed significantly to our growth in net sales. In light of the
challenging economic environment that has faced retailers and real estate
developers over the past two years, we have slowed down the pace of our new
store openings. We expect that this pressure on the commercial market
and developers will continue throughout Fiscal 2011 and that we will only be
able to increase our overall store base by approximately 2% in Fiscal 2011
compared to 3% in Fiscal 2010 and 8% in Fiscal 2009. The slower pace
of our new store openings may negatively impact our net sales growth and
operating income.
We have grown rapidly, primarily
through opening new stores, growing from 67 stores at the beginning of Fiscal
1997 to 767 stores at January 30, 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. Furthermore, our
operating margins may be impacted in periods in which incremental expenses are
incurred as a result of new store openings.
9
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 uncertainty of the economy, coupled
with the volatility in the capital markets, affects our business and,
ultimately, our revenue and profitability. 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 charges that may adversely affect our financial
results.
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.
The
occurrence of severe weather events, catastrophic health events or natural
disasters could significantly damage or destroy our retail locations, could
prohibit consumers from traveling to our retail locations or could prevent us
from resupplying our stores or distribution center, especially during peak
shopping seasons.
Unforeseen events, including public
health issues, such as the H1N1 flu pandemic, and natural disasters such as
earthquakes, hurricanes, snow storms, floods and heavy rains, could disrupt
our operations or the operations of our suppliers, as well as the behavior of
our consumer. We believe that we take reasonable precautions to
prepare particularly for weather-related events, however, our precautions may
not be adequate to deal with such events in the future. As these
events occur in the future, if they should impact areas in which we have our
distribution center or a concentration of retail stores, such events could have
a material adverse effect on our business, financial condition and results of
operations, particularly if they occur during peak shopping
seasons.
Unauthorized
disclosure of sensitive or confidential information 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 us or our 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 net 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.
10
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.
We are a reseller of manufacturers’
branded items and are thereby dependent on the availability of key products and
brands. Our business is dependent to a significant degree upon close
relationships with vendors and our ability to purchase brand name merchandise at
competitive prices. As a reseller, we cannot control the supply,
design, function or cost of many of the products we offer for
sale. 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.
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 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:
|
|
·
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disruptions
in the flow of imported goods because of factors such
as:
|
|
|
·
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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.
11
Our
operating results are subject to seasonal and quarterly
fluctuations. Furthermore, our quarterly operating results, including
comparable store net sales, will fluctuate and may not be a meaningful indicator
of future performance.
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.
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, many
outside our control, including the timing of new store openings, the amount and
timing of net sales contributed by new stores, merchandise mix, demand for
apparel and accessories driven by local interest in sporting events, the demise
of sports superstars key to certain product promotions or strikes or lockouts
involving professional sports teams. Any of these events,
particularly in the fourth quarter, could have a material adverse effect on our
business, financial condition and operating results for the entire fiscal
year.
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:
|
|
·
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shifts
in consumer tastes and fashion
trends;
|
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|
·
|
calendar
shifts of holiday or seasonal
periods;
|
|
|
·
|
the
timing of new store openings and the relative proportion of new stores to
mature stores;
|
|
|
·
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the
level of pre-opening expenses associated with new
stores;
|
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·
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the
amount and timing of net sales contributed by new
stores;
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·
|
changes
in the other tenants in the shopping centers in which we are
located;
|
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·
|
pricing,
promotions or other actions taken by us or our existing or possible new
competitors; and
|
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·
|
unseasonable
weather conditions or natural
disasters.
|
We cannot assure you that comparable
store net sales will trend at the rates achieved in prior periods or that rates
will not decline.
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 Executive Chairman and former 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.
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. Although, Mr. Newsome stepped down as Chief Executive
Officer, effective March 15, 2010, he is actively involved in the daily
operations of our Company and his 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:
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·
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classify
our Board of Directors into three classes, each of which serves for
different three-year periods;
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·
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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;
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·
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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;
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·
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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
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·
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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.
Increases
in transportation costs due to rising fuel costs, climate change regulation and
other factors may negatively impact our operating results.
We rely upon various means of
transportation, including sea and truck, to deliver products from vendors to our
distribution center and from our distribution center to our
stores. Consequently, our results can vary depending upon the price
of fuel. The price of oil has fluctuated drastically over the last
few years, and may rapidly increase again, which would sharply increase our fuel
costs. In addition, efforts to combat climate change through
reduction of greenhouse gases may result in higher fuel costs through taxation
or other means. Any such future increases in fuel costs would
increase our transportation costs for delivery of product to our distribution
center and distribution to our stores, as well as our vendors’ transportation
costs, which could decrease our operating results.
In addition, labor shortages in the
transportation industry could negatively affect transportation costs and our
ability to supply our stores in a timely manner. In particular, our
business is highly dependent on the trucking industry to deliver products to our
distribution center and our stores. Our operating results may be
adversely affected if we or our vendors are unable to secure adequate trucking
resources at competitive prices to fulfill our delivery schedules to our
distribution center or our stores.
Our
costs may change as a result of currency exchange rate
fluctuations.
We source goods from various countries,
including China, and thus changes in the value of the U.S. dollar compared to
other currencies may affect the costs of goods that we purchase.
Risks
Related to Ownership of Our Common Stock.
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:
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actual
or anticipated variations in quarterly operating
results;
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·
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changes
in financial estimates by investment analysts and our inability to meet or
exceed those estimates;
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additions
or departures of key personnel;
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·
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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
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·
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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.
13
Risks
Related to Regulatory, Legislative and Legal Matters.
We
operate in a number of jurisdictions. It can be cumbersome to fill
needed positions and comply with labor laws and regulations, many of which vary
from jurisdiction to jurisdiction.
We are heavily dependent upon our labor
force. We attempt to attract and retain an appropriate level of
personnel in both field operations and corporate functions. Our
compensation packages are designed to provide benefits commensurate with our
level of expected service. However, within our retail operations, we
face the challenge of filling many positions at wage scales that are appropriate
to the industry and competitive factors. We operate in a number of
jurisdictions which can make it cumbersome to comply with labor laws and
regulations, many of which vary from jurisdiction to jurisdiction. As
a result of these and other factors, we face many external risks and internal
factors in meeting our labor needs, including competition for qualified
personnel, overall unemployment levels, prevailing wage rates, as well as rising
employee benefit costs, including insurance costs and compensation
programs. We also engage third parties in some of our process such as
delivery and transaction processing and these providers may face similar
issues. Changes in any of these factors, including a shortage of
available workforce in areas in which we operate, could interfere with our
ability to adequately service our customers or to open suitable locations and
could result in increasing labor costs.
We
cannot be assured that we will not experience pressure from labor unions or
become the target of labor union campaigns.
While we believe we maintain good
relations with our employees, we cannot be assured that we will not experience
pressure from labor unions or become the target of labor union
campaigns. The potential for unionization could increase in the
United States if Congress passes federal legislation that would facilitate labor
organization. The unionization of a significant portion of our
workforce could increase our overall costs at the affected locations and
adversely affect our flexibility to run our business in the most efficient
manner to remain competitive or acquire new business. In addition,
significant union representation would require us to negotiate wages, salaries,
benefits and other terms with many of our employees collectively and could
adversely affect our results of operations by increasing our labor costs or
otherwise restricting our ability to maximize the efficiency of our
operations.
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.
While businesses are subject to
regulatory matters relating to the conduct of their business, including consumer
protection laws, consumer credit privacy acts, product safety regulations,
advertising regulations, zoning and land use regulations, sales and use tax
laws, wage and hour regulations, environmental laws (including measures related
to climate change, greenhouse gas emissions, soil and groundwater contamination
and disposal of waste and hazardous materials) and the like, certain
jurisdictions have taken a particularly aggressive stance with respect to such
matters and have stepped up enforcement, including fines and other
sanctions. An increasing regulatory environment could expose us to a
challenging enforcement environment or to third party liability (such as
monetary recoveries and recoveries of attorneys fees) and could have a material
adverse affect on our business and results of operations, including the added
cost of increased preventative measures that we may determine to be necessary to
conduct our business in certain locales.
We believe that we are in substantial
compliance with applicable environment and other laws and regulations and,
although no assurance can be given, we do not foresee the need for any
significant expenditures in this area in the near future.
Changes
in rules related to accounting for income taxes, changes in tax laws in any of
the jurisdictions in which we operate or adverse outcomes from audits by taxing
authorities could result in an unfavorable change in our effective tax
rate.
We operate our business in several
jurisdictions. As a result, our effective tax rate is derived from a
combination of the federal rate and applicable tax rates in the various states
in which we operate. Our effective tax rate may be lower or higher
than our tax rates have been in the past due to numerous factors, including the
sources of our income and the tax filing positions we take. We base
our estimate of an effective tax rate at any given point in time upon a
calculated mix of the tax rates applicable to our Company and to estimates of
the amount of business likely to be done in any given
jurisdiction. Changes in rules related to accounting for income
taxes, changes in tax laws in any of the jurisdictions in which we operate or
adverse outcomes from tax audits that we may be subject to in any of the
jurisdictions in which we operate could result in an unfavorable change in our
effective tax rate.
Litigation
may adversely affect our business, financial condition and results of
operations.
Our business is subject to the risk of
litigation by employees, consumers, suppliers, competitors, stockholders,
government agencies or others through private actions, class actions,
administrative proceedings, regulatory actions or other
litigation. The outcome of litigation, particularly class action
lawsuits and regulatory actions, is difficult to assess or
quantify. 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.”
None.
14
We currently lease all of our existing
767 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 experienced
difficulty in securing leases for new stores related to new construction in
Fiscal 2010 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. Nonetheless, we do expect
continued difficulty in securing leases for new stores throughout Fiscal
2011.
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.
Store
Locations
As of January 30, 2010, we currently
operate 767 stores in 24 contiguous states. Of these stores, 209 are
located in malls and 558 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 January 30,
2010:
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Alabama
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79
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Illinois
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18
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Mississippi
|
54
|
South
Carolina
|
31
|
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|
Arizona
|
7
|
Indiana
|
19
|
Nebraska
|
5
|
Tennessee
|
52
|
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|
Arkansas
|
39
|
Kansas
|
18
|
New
Mexico
|
9
|
Texas
|
78
|
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|
Florida
|
36
|
Kentucky
|
37
|
North
Carolina
|
45
|
Virginia
|
20
|
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|
Georgia
|
85
|
Louisiana
|
43
|
Ohio
|
20
|
West
Virginia
|
8
|
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|
Iowa
|
6
|
Missouri
|
24
|
Oklahoma
|
32
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Wisconsin
|
2
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|
TOTAL
|
767
|
As of March 22, 2010, we operated 767
stores in 24 states.
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 30, 2010, we estimate that the liability related
to these matters is approximately $0.3 million and accordingly, have accrued
$0.3 million as a current liability on our consolidated balance
sheet. As of January 31, 2009, we had accrued $47,000 as it related
to our estimated liability for legal proceedings.
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.
15
If we believe that a loss is both
probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of ASC Topic 450, Contingencies. With
respect to any matter, we could change our belief as to whether a loss is
probable or estimable, or its estimate of loss, at any time. Even
though we may not believe a loss is probable or estimable, it is reasonably
possible that we could suffer a loss with respect to that matter in the
future.
Item
4. Removed
and Reserved.
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
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 2010:
|
||||||||
|
First
Quarter ended May 2, 2009
|
$ | 22.39 | $ | 12.82 | ||||
|
Second
Quarter ended August 1, 2009
|
$ | 21.62 | $ | 16.08 | ||||
|
Third
Quarter ended October 31, 2009
|
$ | 21.17 | $ | 16.00 | ||||
|
Fourth
Quarter ended January 30, 2010
|
$ | 23.61 | $ | 18.24 | ||||
|
Fiscal 2009:
|
||||||||
|
First
Quarter ended May 3, 2008
|
$ | 19.74 | $ | 13.06 | ||||
|
Second
Quarter ended August 2, 2008
|
$ | 23.85 | $ | 16.50 | ||||
|
Third
Quarter ended November 1, 2008
|
$ | 25.75 | $ | 12.43 | ||||
|
Fourth
Quarter ended January 31, 2009
|
$ | 18.28 | $ | 10.06 | ||||
On March 22, 2010, the last reported
sale price for our common stock as quoted by NASDAQ was $26.51 per
share. As of March 22, 2010, we had 23 stockholders of
record.
16
The Stock Price Performance Graph below
compares the percentage change in our cumulative total stockholder return on our
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, 2005 to January 31, 2010. 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.”
17
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 Supplementary Data” and “Notes to
Consolidated Financial Statements” thereto.
|
(In
thousands, except per share amounts and Selected Operating
Data)
|
||||||||||||||||||||
|
Fiscal
Year Ended
|
||||||||||||||||||||
|
January
30,
|
January
31,
|
February
2,
|
February
3,
|
January
28,
|
||||||||||||||||
|
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
|
(52
weeks)
|
(52
weeks)
|
(52
weeks)
|
(53
weeks)
|
(52
weeks)
|
||||||||||||||||
|
Income Statement
Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 593,492 | $ | 564,188 | $ | 520,720 | $ | 512,094 | $ | 440,269 | ||||||||||
|
Cost
of goods sold, including distribution center and store occupancy
costs
|
397,292 | 378,817 | 351,876 | 338,963 | 293,368 | |||||||||||||||
|
Gross
profit
|
196,200 | 185,371 | 168,844 | 173,131 | 146,901 | |||||||||||||||
|
Store
operating, selling and administrative expenses
|
129,888 | 123,075 | 108,463 | 100,461 | 85,060 | |||||||||||||||
|
Depreciation
and amortization
|
13,905 | 14,324 | 12,154 | 10,932 | 10,119 | |||||||||||||||
|
Operating
income
|
52,407 | 47,972 | 48,227 | 61,738 | 51,722 | |||||||||||||||
|
Interest
income
|
60 | 41 | 582 | 906 | 1,170 | |||||||||||||||
|
Interest
expense
|
(117 | ) | (660 | ) | (151 | ) | (30 | ) | (24 | ) | ||||||||||
|
Interest
(expense) income, net
|
(57 | ) | (619 | ) | 431 | 876 | 1,146 | |||||||||||||
|
Income
before provision for income taxes
|
52,350 | 47,353 | 48,658 | 62,614 | 52,868 | |||||||||||||||
|
Provision
for income taxes
|
19,801 | 17,905 | 18,329 | 24,541 | 19,244 | |||||||||||||||
|
Net
income
|
$ | 32,549 | $ | 29,448 | $ | 30,329 | $ | 38,073 | $ | 33,624 | ||||||||||
|
Earnings
per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 1.14 | $ | 1.03 | $ | 0.98 | $ | 1.19 | $ | 1.00 | ||||||||||
|
Diluted
|
$ | 1.12 | $ | 1.02 | $ | 0.96 | $ | 1.17 | $ | 0.98 | ||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||||||
|
Basic
|
28,629 | 28,547 | 31,049 | 32,094 | 33,606 | |||||||||||||||
|
Diluted
|
29,089 | 28,954 | 31,525 | 32,620 | 34,393 | |||||||||||||||
|
Balance Sheet
Data:
|
||||||||||||||||||||
|
Working
capital
|
$ | 147,583 | $ | 107,055 | $ | 89,383 | $ | 106,428 | $ | 98,623 | ||||||||||
|
Total
assets
|
276,704 | 235,087 | 216,734 | 212,853 | 195,829 | |||||||||||||||
|
Long-term
debt and obligations under capital lease
|
152 | - | - | - | - | |||||||||||||||
|
Stockholders'
investment
|
175,079 | 136,575 | 119,055 | 136,641 | 124,773 | |||||||||||||||
|
Selected Operating
Data:
|
||||||||||||||||||||
|
Number
of stores open at end of period:
|
||||||||||||||||||||
|
Hibbett
Sports
|
747 | 723 | 666 | 593 | 527 | |||||||||||||||
|
Sports
& Co.
|
4 | 4 | 4 | 4 | 4 | |||||||||||||||
|
Sports
Additions
|
16 | 18 | 18 | 16 | 18 | |||||||||||||||
|
Total
|
767 | 745 | 688 | 613 | 549 | |||||||||||||||
Note: No
dividends have been declared or paid.
18
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 30, 2010, we operated a total of 767 retail
stores composed of 747 Hibbett Sports stores, 16 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. Approximately 75% of our Hibbett Sports store base is located
in strip centers, while approximately 25% of our Hibbett Sports store base is
located 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 brand name merchandise and a high level of customer
service. We do not expect that the average size of our stores opening
in Fiscal 2011 will vary significantly from the average size of stores opened in
Fiscal 2010.
The deteriorating global economic
conditions experienced in Fiscal 2009 improved slightly in Fiscal 2010 and we
were able to increase net income through effective management of
expenses. Although footwear experienced an overall decline during the
fiscal year, we saw improvement in all our other areas of merchandise which
generally have a higher product margin.
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 over 3% in Fiscal 2011,
which is at the lower end of our historical range of 3% to 12%. To
somewhat offset the current slowing of new store openings, we have increased our
rate of expanding and relocating high performing stores, increasing the square
footage in 19 existing stores in Fiscal 2010. We expect to expand an
additional 20 stores in Fiscal 2011. Total sales percentage growth is
expected to be in the low to mid-single digits in Fiscal
2011. Over the past several years,
we have increased our product margin through improved vendor discounts, fewer
retail reductions and increased efficiencies in logistics. We expect
a slight improvement in product margin rate in Fiscal 2011 as we continue to
benefit from increased efficiencies from our previous investment in
systems.
Although the macroeconomic environment
has presented many challenges in the last two years, 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 our infrastructure for long-term
growth.
Our management expects that the
uncertainty of global economic conditions experienced over the last two years
will continue. Any negative impact on customer discretionary spending
could negatively impact our net sales and level of profitability in Fiscal
2011.
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 decrease slightly in Fiscal 2011, primarily due to a
return of comparable store sales growth. 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.
We maintain 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 30, 2010, January 31, 2009 and February 2, 2008 includes 52 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.
Comparable store net sales data for the
periods presented 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. 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 and we do not have plans to open additional
superstores in the future.
19
Executive
Summary
Net sales for the fiscal year ended
January 30, 2010, increased to $593.5 million compared with $564.2 million and
$520.7 million for the fiscal years ended January 31, 2009 and February 2, 2008,
respectively. Operating income was 8.8% of net sales for Fiscal 2010
compared to 8.5% for Fiscal 2009 and 9.3% for Fiscal 2008. Comparable
store sales increased 0.7% in Fiscal 2010, compared to a comparable store sales
increase of 0.5% in Fiscal 2009 and a comparable store sales decrease of 2.9% in
Fiscal 2008. Net income in Fiscal 2010 increased 10.5% to $32.5
million compared with $29.4 million in Fiscal 2009. Earnings per
diluted share increased to $1.12 compared with $1.02 for Fiscal 2009 and $0.96
for Fiscal 2008.
During the fiscal year, Hibbett opened
forty-two new stores and closed twenty stores, bringing the store base to 767 in
24 states as of January 30, 2010. Inventory on a per store basis at
January 30, 2010 increased by 8.4% compared to January 31, 2009, as we made a
concerted effort to increase levels in advance of the spring sports
season. Hibbett ended the fiscal year with $49.7 million of available
cash and cash equivalents on the consolidated balance sheet and full
availability under its $80.0 million unsecured credit facilities.
Recent
Accounting Pronouncements
See Note 2 of Item 8 of this Annual
Report on Form 10-K for the fiscal year ended January 30, 2010, for information
regarding recent accounting pronouncements.
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
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Costs
of goods sold, including distribution and store occupancy
costs
|
66.9 | 67.1 | 67.6 | |||||||||
|
Gross
profit
|
33.1 | 32.9 | 32.4 | |||||||||
|
Store
operating, selling and administrative expenses
|
21.9 | 21.8 | 20.8 | |||||||||
|
Depreciation
and amortization
|
2.3 | 2.5 | 2.3 | |||||||||
|
Operating
income
|
8.8 | 8.5 | 9.3 | |||||||||
|
Interest
income
|
- | - | 0.1 | |||||||||
|
Interest
expense
|
- | (0.1 | ) | - | ||||||||
|
Interest
(expense) income, net
|
- | (0.1 | ) | 0.1 | ||||||||
|
Income
before provision for income taxes
|
8.8 | 8.4 | 9.3 | |||||||||
|
Provision
for income taxes
|
3.3 | 3.2 | 3.5 | |||||||||
|
Net
income
|
5.5 | % | 5.2 | % | 5.8 | % | ||||||
Note: Columns
may not sum due to rounding.
Fiscal
2010 Compared to Fiscal 2009
Net sales. Net
sales increased $29.3 million, or 5.2%, to $593.5 million for the 52 weeks ended
January 30, 2010, from $564.2 million for the 52 weeks ended January 31,
2009. Furthermore:
|
|
·
|
We
opened 42 Hibbett Sports stores while closing 20 Hibbett Sports stores for
net stores opened of 22 stores in the 52 weeks ended January 30,
2010. Nineteen high performing stores were
expanded. New stores and stores not in the comparable store net
sales calculation accounted for $25.5 million of the increase in net
sales. Store openings and closings are reported net of
relocations.
|
|
|
·
|
We
experienced a 0.7% increase in comparable store net sales for the 52 weeks
ended January 30, 2010 compared to the 52 weeks ended January 31,
2009. Higher comparable store net sales contributed $3.8
million to the increase in net
sales.
|
|
|
·
|
Items
per sales transaction improved by 3.3% compared to last
year.
|
20
During Fiscal 2010, 646
stores were included in the comparable store sales comparison. 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 brand name merchandise selection and successful college and
professional sports seasons within our markets in the fourth quarter contributed
to our increase in comparable store net sales. With the exception of
footwear, we experienced an overall increase in comparable store sales across
our merchandise categories. Accessories made the largest comparable
stores sales gains in the high teens and twenties while footwear, excluding
cleats, declined mid-single digits. We believe the gains in accessory
sales is the direct result of concentrated efforts of our Operations and
Marketing teams to increase items per transaction by offering accessories as
add-ons at the point of sale.
We believe that the decline in footwear
sales resulted from the lack of economic stimulus checks that were in the market
one year ago and also from the tougher macroeconomic environment which has
affected discretionary spending. All other categories of merchandise
performed within the levels we expected. Strip center locations
continue to outperform enclosed mall stores. Strip center locations
now comprise approximately 75% of our total store base.
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 $196.2 million, or 33.1% of net sales, in the 52 weeks ended January
30, 2010, compared with $185.4 million, or 32.9% of net sales, in the 52 week
period of the prior fiscal year. We attribute this increase in gross
profit to increased markups, improved vendor contributions and reduced freight
costs. Of the store occupancy related costs, rent expense had the
greatest increase due to the 3% increase in our store base and fewer
construction allowance dollars to offset rent as landlords are delivering more
complete stores. Utility expenses and real estate taxes also
increased as a percent to net sales. Distribution expense decreases
contributed the most to our increase in gross profit percent to net
sales. The most significant decreases were in data processing costs
and fuel costs as we move towards delivery by third-party logistics providers to
our outlying stores, increasing the efficiency of the Hibbett
fleet.
Store operating, selling and
administrative expenses. Store operating, selling and
administrative expenses were $129.9 million, or 21.9% of net sales, for the 52
weeks ended January 30, 2010, compared with $123.1 million, or 21.8% of net
sales, for the 52 weeks ended January 31, 2009. Expense trends we
experienced included:
|
|
·
|
Salary
and benefit costs in our stores increased by 24 basis points, resulting
primarily from increased incentive sales pay and increases in the minimum
wage. Administrative salary and benefit costs decreased
slightly, although stock-based compensation increased 7 basis points as
the result of the achievement of performance-based awards and a higher
stock price at the date of grant as compared to last
year.
|
|
|
·
|
As
a result of fewer store openings compared to last year, new store costs
decreased 14 basis points and store training costs associated primarily
with the training of new store managers decreased 5 basis
points.
|
|
|
·
|
Credit
and debit card fees increased as a percent to net sales due to higher
exchange rates.
|
Depreciation and
amortization. Depreciation and amortization as a percentage of
net sales was 2.3% in the 52 weeks ended January 30, 2010, and 2.5% in the 52
weeks ended January 31, 2009. The average lease term of new store
leases added in Fiscal 2010 compared to those added in Fiscal 2009 decreased to
6.38 years compared to 6.65 years, respectively. We attribute the
decrease in depreciation expense as a percent of net sales to the lower number
of new stores added in the last two years and a lower investment in leasehold
improvements for each new location as landlords are moving toward delivering
more occupant-ready stores and moving away from construction allowances and
tenant-completed units.
Provision for income
taxes. Provision for income taxes as a percentage of net sales
was 3.3% in the 52 weeks ended January 30, 2010, compared to 3.2% for the 52
weeks ended January 31, 2009. The combined federal, state and local
effective income tax rate as a percentage of pre-tax income was 37.8% for Fiscal
2010 and Fiscal 2009.
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 attributed 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%.
|
21
During the 52 weeks ended January 31,
2009, 581 stores were included in the comparable store net sales
comparison. 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.
|
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 attributed 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 to
6.65 years compared to 6.71 years, respectively. We attributed 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.
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
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Net
cash provided by operating activities:
|
$ | 36,914 | $ | 38,997 | $ | 48,022 | ||||||
|
Net
cash used in investing activities:
|
(9,603 | ) | (13,781 | ) | (16,549 | ) | ||||||
|
Net
cash provided by (used in) financing activities:
|
1,730 | (15,308 | ) | (51,098 | ) | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
$ | 29,041 | $ | 9,908 | $ | (19,625 | ) | |||||
22
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 winter holidays
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 $36.9 million for the 52 weeks ended January 30, 2010 compared
with net cash provided by operating activities of $39.0 million and $48.0
million in the 52 weeks ended January 31, 2009 and February 2, 2008,
respectively.
Inventory levels have continued to
increase year over year as the number of stores have increased, although the
inventory per store has historically trended slightly down to
flat. Ending inventory at January 30, 2010 was up 11.6% compared to
January 31, 2009 as the result of management’s decision to bring in certain
merchandise in advance of the spring sports seasons. The increase in
inventory used cash of $17.6 million, $10.4 million and $16.0 million during
Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively. The accounts
payable increase provided cash of $0.5 million, $0.3 million and $22.1 million
during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively, as we managed
cash while protecting vendor discounts. Offsetting uses of cash was
net income which provided cash of $32.5 million, $29.4 million and $30.3 million
during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively. Also
contributing to the offset of uses of cash were non-cash charges, including
depreciation and amortization expense of $13.9 million, $14.3 million and $12.2
million during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively, and
stock-based compensation expense of $4.2 million, $3.6 million and $3.7 million
during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively.
Investing
Activities.
Cash used in investing activities in
the fiscal periods ended January 30, 2010, January 31, 2009 and February 2, 2008
totaled $9.6 million, $13.8 million and $16.5 million,
respectively. Gross capital expenditures used $9.6 million, $13.7
million and $16.4 million during Fiscal 2010, Fiscal 2009 and Fiscal 2008,
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 42 new stores and relocated
and/or remodeled 21 existing stores during the 52 weeks ended January 30,
2010. 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 estimate the cash outlay for capital
expenditures in the fiscal year ended January 29, 2011 will be approximately
$10.3 million, which relates to the opening of approximately 30 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 2011, we anticipate
that approximately 63% 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 15% related primarily to
office expansion, distribution center improvement and security equipment for our
stores.
As of January 30, 2010, 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 quarter of Fiscal 2011 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 provided by financing
activities was $1.7 million in the 52 weeks ended January 30, 2010 compared to
net cash used of $15.3 and $51.1 million in the 52 weeks ended January 31, 2009
and February 2, 2008, respectively. The cash fluctuation as compared
to prior fiscal years was primarily the result of the repurchase of our common
stock. We did not repurchase any of our common stock during Fiscal
2010. We expended $16.9 million and $52.7 million on repurchases of
our common stock during Fiscal 2009 and Fiscal 2008, 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.
23
At January 30, 2010, 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 2010 and November
2010, 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. As of January 30, 2010, we did not have
any debt outstanding under either of these facilities.
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 renewed in August 2009 and December
2009, respectively. At February 2, 2008, we had a revolving credit
facility that allowed borrowings up to $30.0 million and which renewed in August
2008. None of our credit facilities in any year presented required a
commitment or agency fee nor were there any covenant restrictions.
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 30, 2010 (in
thousands):
|
Payment
due by period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Less
than 1 year
|
1
- 3 years
|
3
- 5 years
|
More
than 5 years
|
Total
|
|||||||||||||||
|
Long-term
debt obligations (1)
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Capital
lease obligations (1)
|
117 | 152 | - | - | 269 | |||||||||||||||
|
Interest
on capital lease obligations (1)
|
57 | 22 | - | - | 79 | |||||||||||||||
|
Operating
lease obligations (2)
|
40,528 | 63,933 | 36,047 | 19,511 | 160,019 | |||||||||||||||
|
Purchase
obligations (3)
|
1,840 | 736 | 8 | - | 2,584 | |||||||||||||||
|
Other
long-term liabilities (4)
|
- | - | - | 518 | 518 | |||||||||||||||
|
Total
|
$ | 42,542 | $ | 64,843 | $ | 36,055 | $ | 20,029 | $ | 163,469 | ||||||||||
|
|
(1)
|
See
“Part II, Item 8, Consolidated Financial Statements Note 5 – Debt and
Capital Lease Obligations.”
|
|
|
(2)
|
See
“Part II, Item 8, Consolidated Financial Statements Note 9 – Lease
Commitments.”
|
|
|
(3)
|
Purchase
obligations include all material legally binding contracts such as
software license commitments and service contracts. The table
above also includes stand-by letters of credit in conjunction with our
self-insured worker’s compensation and general liability insurance
coverages. Contractual obligations, including purchase orders
for inventory, that are not binding agreements are excluded from the table
above. Utility contracts (excluding waste disposal contracts
that are binding agreements) and contracts which are binding (but have no
minimum fee or purchase requirements) are also
excluded.
|
|
|
(4)
|
Other
long-term liabilities on our consolidated balance sheet primarily consists
of deferred rent and deferred income taxes. 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 Statements 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. The table above includes amounts accrued for various
deferred compensation arrangements on our consolidated balance
sheets. See “Part II, Item 8, Consolidated Financial Statements
Note 6 – Defined Contribution Benefit Plans” for a discussion regarding
our employee benefit plans.
|
Excluded from this table are
approximately $2.4 million of unrecognized tax benefits which have been recorded
as liabilities in accordance with ASC Topic 740, Income Taxes, as the timing
of such payments cannot be reasonably determined.
Off-Balance
Sheet Arrangements
We have not provided any financial
guarantees as of January 30, 2010. 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.
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 2011.
24
Freight Costs. We
experienced lower fuel costs during most of Fiscal 2010 that decreased our
overall freight costs for the year. At the end of Fiscal 2010,
freight costs had somewhat stabilized, and we expect fuel costs to remain stable
or rise slightly in Fiscal 2011. We do not expect 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, the second increase of 12.0% taking place during Fiscal 2009
and the third increase of 10.7% taking place in Fiscal
2010. Currently, no new increases to minimum wage have been
proposed. 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 2010 and Fiscal 2009, we experienced a
decrease in general business insurance, while seeing an increase in the
retention portion of workers’ compensation and general liability
claims. We are primarily self-insured for health claims, and during
all three fiscal periods, have experienced an increase in our average monthly
health insurance claims. In Fiscal 2011, 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 September 2009, the Financial
Accounting Standards Board (FASB) issued ASC Topic 605-25, Multiple-Element
Arrangements. ASC Topic 605-25 addresses the determination of
when the individual deliverables included in a multiple arrangement may be
treated as separate units of accounting. ASC Topic 605-25 also
modified the manner in which the transaction consideration is allocated across
separately identified deliverables and establishes definitions for determining
fair value of elements in an arrangement. This guidance must be
adopted by us no later than January 1, 2011 with earlier adoption
permitted. We do not expect the adoption of this guidance to have any
impact on our consolidated financial statements.
In June 2009, the FASB issued ASC Topic
105, Generally Accepted
Accounting Principles, effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The ASC is an aggregation of previously issued U.S. GAAP
pronouncements in one comprehensive set of guidance organized by subject
area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent
revisions to U.S. GAAP will be incorporated into the ASC through Accounting
Standards Updates (ASU).
In June 2009, the FASB issued ASC Topic
810, Consolidation,
which amends the consolidation guidance applicable to variable interest
entities. This guidance is effective for annual periods beginning
after November 15, 2009, or our Fiscal 2011. The adoption of ASC
Topic 810 is not expected to have a material effect 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 ASC Topic
605, 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 30, 2010 and 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 by us. 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.
25
Beginning in Fiscal 2010, to the extent
not required to be remitted to jurisdictions as unclaimed property, gift card
breakage revenue is recognized based upon historical redemption patterns and
represents the balance of gift cards for which we believe the likelihood of
redemption by the customer is remote. Prior to Fiscal 2010, gift card
breakage revenue was not recognized due to the absence of reliable historical
data. For Fiscal 2010, $0.3 million of breakage revenue was recorded
in income as other income and is included in the accompanying consolidated
statements of operations as a reduction to store operating, selling and
administrative expense. For Fiscal 2009 and Fiscal 2008, there was no
breakage revenue recorded in our consolidated statements of
operations. The net deferred revenue liability at January 30, 2010
and January 31, 2009 was $2.5 million and $2.4 million,
respectively. Prior to Fiscal 2010, we escheated 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 30, 2010 and January 31, 2009, the
accrual was $2.0 million. 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 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 quarterly. As of January 30, 2010 and January 31, 2009,
the accrual was $1.8 million and $1.4 million, respectively.
Inventory Purchase
Concentration: Our
business is dependent to a significant degree upon close relationships with our
vendors. Our largest vendor, Nike, represented 49.9% and 51.4% of our
purchases for Fiscal 2010 and Fiscal 2009, respectively. Our second
largest vendor represented 9.0% and 8.4% of our purchases while our third
largest vendor represented 6.4% and 7.9% of our purchases for Fiscal 2010 and
Fiscal 2009, respectively.
Consignment
Inventories: Beginning in Fiscal 2010, we expanded our
business model to include consignment merchandise. Consignment
inventories, which are owned by the vendor but located in our stores, are
properly segregated and controlled and are not reported as our inventory until
title is transferred to us or our purchase obligation is
determined. At January 30, 2010, vendor-owned inventories held at our
locations and not reported as our inventory was $0.3 million. There
were no vendor-owned inventories held at our locations and not reported as our
inventory prior to Fiscal 2010.
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 ASC Topic 740, Income Taxes. 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 is 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.
26
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 adjust the remaining useful life of
depreciable assets and 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. 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. Prior to Fiscal 2008, 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
workers’ compensation, general liability and employee-related health benefits, a
portion of which is paid by our employees. 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 on
leasehold improvements. 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.
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 higher
unemployment, falling equity and real estate values and the limited availability
of credit.
27
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 a rate that
varies with LIBOR, prime or federal funds 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 2010, Fiscal 2009
and Fiscal 2008, we had no borrowings outstanding under any credit
facility. There were 110 days during the 52 weeks ended January 30,
2010, where we incurred borrowings against our credit facilities for an average
borrowing of $7.3 million. During Fiscal 2010, the maximum amount
outstanding against these agreements was $13.9 million and the weighted average
interest rate was 1.82%.
There were 348 days during the 52 weeks
ended January 31, 2009, where we incurred borrowings against our credit facility
for an average and maximum borrowing of $23.2 million and $47.1 million,
respectively, and an average interest rate of 2.85%. There were 106
days during the 52 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%.
A 10.0% increase or decrease in market
interest rates would not have a material impact on our financial condition,
results of operations or cash flows.
28
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.
29
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 30, 2010 and January 31, 2009, and the
related consolidated statements of operations, stockholders’ investment, and
cash flows for each of the years in the three-year period ended January 30,
2010. We also have audited the Company’s internal control over financial
reporting as of January 30, 2010, 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, the Company
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, included in ASC Subtopic 740-10, Income Taxes –
Overall.
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 30, 2010 and January 31, 2009, and the results of their operations
and their cash flows for each of the years in the three-year period ended
January 30, 2010, 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 30, 2010, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ KPMG LLP
Birmingham,
Alabama
March 26,
2010
30
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share and per share information)
|
ASSETS
|
January
30, 2010
|
January
31, 2009
|
||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 49,691 | $ | 20,650 | ||||
|
Short-term
investments
|
- | 191 | ||||||
|
Trade
receivables, net
|
2,693 | 2,624 | ||||||
|
Accounts
receivable, other
|
1,936 | 2,764 | ||||||
|
Inventories,
net
|
169,394 | 151,776 | ||||||
|
Prepaid
expenses and other
|
1,643 | 3,822 | ||||||
|
Deferred
income taxes, net
|
6,163 | 3,938 | ||||||
|
Total
current assets
|
231,520 | 185,765 | ||||||
|
Property
and Equipment:
|
||||||||
|
Land
and building
|
245 | 245 | ||||||
|
Equipment
|
48,715 | 44,171 | ||||||
|
Equipment
under capital lease
|
345 | - | ||||||
|
Furniture
and fixtures
|
24,352 | 23,280 | ||||||
|
Leasehold
improvements
|
61,908 | 61,152 | ||||||
|
Construction
in progress
|
691 | 2,776 | ||||||
| 136,256 | 131,624 | |||||||
|
Less
accumulated depreciation and amortization
|
95,172 | 86,315 | ||||||
|
Net
property and equipment
|
41,084 | 45,309 | ||||||
|
Deferred
income taxes, net
|
3,507 | 3,481 | ||||||
|
Other
assets, net
|
593 | 532 | ||||||
|
Total
Assets
|
$ | 276,704 | $ | 235,087 | ||||
|
LIABILITIES
AND STOCKHOLDERS' INVESTMENT
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 64,949 | $ | 64,460 | ||||
|
Short-term
debt and capital lease obligations
|
117 | - | ||||||
|
Accrued
income taxes
|
2,459 | - | ||||||
|
Accrued
payroll expenses
|
8,012 | 7,149 | ||||||
|
Deferred
rent
|
4,915 | 4,445 | ||||||
|
Other
accrued expenses
|
3,485 | 2,656 | ||||||
|
Total
current liabilities
|
83,937 | 78,710 | ||||||
|
Obligations
under capital leases
|
152 | - | ||||||
|
Deferred
rent
|
14,224 | 16,543 | ||||||
|
Deferred
income taxes
|
2,775 | 2,957 | ||||||
|
Other
liabilities, net
|
537 | 302 | ||||||
|
Total
liabilities
|
101,625 | 98,512 | ||||||
|
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,
|
||||||||
|
36,436,503 and 36,304,735
shares issued at January 30, 2010
|
||||||||
|
and
January 31, 2009, respectively
|
364 | 363 | ||||||
|
Paid-in
capital
|
98,107 | 92,153 | ||||||
|
Retained
earnings
|
243,552 | 211,003 | ||||||
|
Treasury
stock, at cost; 7,761,813 shares repurchased
|
||||||||
|
at
January 30, 2010 and January 31, 2009
|
(166,944 | ) | (166,944 | ) | ||||
|
Total
stockholders' investment
|
175,079 | 136,575 | ||||||
|
Total
Liabilities and Stockholders' Investment
|
$ | 276,704 | $ | 235,087 | ||||
See
accompanying notes to consolidated financial statements.
31
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except per share information)
|
Fiscal
Year Ended
|
||||||||||||
|
January
30, 2010 (52 weeks)
|
January
31, 2009 (52 weeks)
|
February
2, 2008 (52 weeks)
|
||||||||||
|
Net
sales
|
$ | 593,492 | $ | 564,188 | $ | 520,720 | ||||||
|
Cost
of goods sold, including distribution
|
||||||||||||
|
center
and store occupancy costs
|
397,292 | 378,817 | 351,876 | |||||||||
|
Gross
profit
|
196,200 | 185,371 | 168,844 | |||||||||
|
Store
operating, selling and administrative
|
||||||||||||
|
expenses
|
129,888 | 123,075 | 108,463 | |||||||||
|
Depreciation
and amortization
|
13,905 | 14,324 | 12,154 | |||||||||
|
Operating
income
|
52,407 | 47,972 | 48,227 | |||||||||
|
Interest
income
|
60 | 41 | 582 | |||||||||
|
Interest
expense
|
(117 | ) | (660 | ) | (151 | ) | ||||||
|
Interest
(expense) income, net
|
(57 | ) | (619 | ) | 431 | |||||||
|
Income
before provision for income taxes
|
52,350 | 47,353 | 48,658 | |||||||||
|
Provision
for income taxes
|
19,801 | 17,905 | 18,329 | |||||||||
|
Net
income
|
$ | 32,549 | $ | 29,448 | $ | 30,329 | ||||||
|
Basic
earnings per share
|
$ | 1.14 | $ | 1.03 | $ | 0.98 | ||||||
|
Diluted
earnings per share
|
$ | 1.12 | $ | 1.02 | $ | 0.96 | ||||||
|
Weighted average shares
outstanding:
|
||||||||||||
|
Basic
|
28,629 | 28,547 | 31,049 | |||||||||
|
Diluted
|
29,089 | 28,954 | 31,525 | |||||||||
See
accompanying notes to consolidated financial statements.
32
HIBBETT
SPORTS, INC. AND SUBSIDIARIES
(in
thousands, except share information)
|
Fiscal
Year Ended
|
||||||||||||
|
January
30, 2010
|
January
31, 2009
|
February
2, 2008
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
income
|
$ | 32,549 | $ | 29,448 | $ | 30,329 | ||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
13,905 | 14,324 | 12,154 | |||||||||
|
Deferred
income tax (benefit) expense, net
|
(2,433 | ) | (925 | ) | 673 | |||||||
|
Excess
tax benefit from stock option exercises
|
(781 | ) | (388 | ) | (520 | ) | ||||||
|
Loss
on disposal and write-down of assets, net
|
232 | 513 | 230 | |||||||||
|
Stock-based
compensation
|
4,157 | 3,556 | 3,677 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Trade
receivables, net
|
(70 | ) | (724 | ) | (314 | ) | ||||||
|
Accounts
receivable, other
|
829 | 912 | (610 | ) | ||||||||
|
Inventories
|
(17,618 | ) | (10,369 | ) | (16,022 | ) | ||||||
|
Prepaid
expenses and other current assets
|
2,177 | 1,525 | (326 | ) | ||||||||
|
Accrued
income taxes
|
3,232 | (476 | ) | (4,154 | ) | |||||||
|
Other
assets, non-current
|
169 | 71 | (288 | ) | ||||||||
|
Accounts
payable
|
489 | 336 | 22,109 | |||||||||
|
Deferred
rent, non-current
|
(2,319 | ) | (1,469 | ) | 2,296 | |||||||
|
Accrued
expenses and other
|
2,396 | 2,663 | (1,212 | ) | ||||||||
|
Net
cash provided by operating activities
|
36,914 | 38,997 | 48,022 | |||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||
|
Purchase
of investments, net
|
(39 | ) | (141 | ) | (191 | ) | ||||||
|
Capital
expenditures
|
(9,605 | ) | (13,697 | ) | (16,376 | ) | ||||||
|
Proceeds
from sale of property and equipment
|
41 | 57 | 18 | |||||||||
|
Net
cash used in investing activities
|
(9,603 | ) | (13,781 | ) | (16,549 | ) | ||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Cash
used for stock repurchases
|
- | (16,940 | ) | (52,672 | ) | |||||||
|
Net
payments on revolving credit facility and
|
||||||||||||
|
capital
lease obligations
|
(77 | ) | - | - | ||||||||
|
Excess
tax benefit from stock option exercises
|
781 | 388 | 520 | |||||||||
|
Proceeds
from options exercised and purchase of
|
||||||||||||
|
shares
under the employee stock purchase plan
|
1,026 | 1,244 | 1,054 | |||||||||
|
Net
cash provided by (used in) financing activities
|
1,730 | (15,308 | ) | (51,098 | ) | |||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
29,041 | 9,908 | (19,625 | ) | ||||||||
|
Cash
and Cash Equivalents, Beginning of Year
|
20,650 | 10,742 | 30,367 | |||||||||
|
Cash
and Cash Equivalents, End of Year
|
$ | 49,691 | $ | 20,650 | $ | 10,742 | ||||||
|
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | 117 | $ | 659 | $ | 151 | ||||||
|
Income
taxes, net of refunds
|
$ | 16,955 | $ | 21,162 | $ | 22,031 | ||||||
|
Supplemental
Schedule of Non-Cash Financing Activities:
|
||||||||||||
|
Deferred
board compensation
|
$ | - | $ | 10 | $ | 33 | ||||||
|
Shares
awarded to satisfy deferred board compensation
|
- | 664 | 1,306 | |||||||||
|
Capital
leases
|
$ | 345 | $ | - | $ | - | ||||||
|
See
accompanying notes to consolidated financial
statements.
|
33
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-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 uncertain tax positions
|
- | - | - | (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
|
- | - | - | - | 1,038,700 | (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 | ||||||||||||||||||||
|
Net
income
|
- | - | - | 32,549 | - | - | 32,549 | |||||||||||||||||||||
|
Issuance
of shares from the employee stock purchase plan and the exercise of stock
options, including tax benefit of $781
|
131,768 | 1 | 1,430 | - | - | - | 1,431 | |||||||||||||||||||||
|
Tax
shortfall on release of restricted stock and option
exercises
|
- | - | (6 | ) | - | - | - | (6 | ) | |||||||||||||||||||
|
Adjustment
to income tax benefit from exercises of employee stock
options
|
- | - | 373 | - | - | - | 373 | |||||||||||||||||||||
|
Stock-based
compensation
|
- | - | 4,157 | - | - | - | 4,157 | |||||||||||||||||||||
|
Balance-January
30, 2010
|
36,436,503 | $ | 364 | $ | 98,107 | $ | 243,552 | 7,761,813 | $ | (166,944 | ) | $ | 175,079 | |||||||||||||||
See
accompanying notes to consolidated financial statements.
34
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 30, 2010, January 31, 2009 and February 2, 2008, include 52 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.
Subsequent
Events
In accordance with ASC Topic 855, Subsequent Events, we
performed an evaluation of subsequent events for the accompanying consolidated
financial statements through March 26, 2010, the date these consolidated
financial statements were issued. We have concluded that no
subsequent events have occurred that would require recognition or disclosure in
the consolidated financial statements other than Mr. Newsome being named the
Company’s Executive Chairman of the Board and stepping down as Chief Executive
Officer and Mr. Rosenthal’s promotion to Chief Executive Officer as described in
Form 8-K filed on March 16, 2010.
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.
ASC Topic 250, Accounting Changes and Error
Corrections, 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 adopted 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. Our 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.
35
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.
Customers
No customer accounted for more than
5.0% of our net sales during the fiscal years ended January 30, 2010, January
31, 2009 and February 2, 2008.
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
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Gross
advertising costs
|
$ | 5,572 | $ | 6,145 | $ | 6,519 | ||||||
|
Advertising
reimbursements
|
(2,268 | ) | (3,054 | ) | (3,609 | ) | ||||||
|
Net
advertising costs
|
$ | 3,304 | $ | 3,091 | $ | 2,910 | ||||||
Stock
Repurchase Program
In November 2009, the Board of
Directors (Board) authorized a new Stock Repurchase Program (Program) of $250.0
million to repurchase our common stock through February 2, 2013. The
Program replaced our existing plan that was adopted in August
2004. Stock repurchases may be made in the open market or in
negotiated transactions, with the amount and timing of repurchases dependent on
market conditions and at the discretion of our management. We have
not made any purchases of our common stock under the Program and have the full
$250.0 million available for stock repurchase as of January 30,
2010.
Under the old authorization, we
repurchased 1,038,700 and 2,416,700 shares of our common stock during the years
ended January 31, 2009 and February 2, 2008, respectively, at a cost of
approximately $16.9 million and $52.7 million, respectively. As of
January 30, 2010, we had repurchased a total of 7,761,813 shares of our common
stock at an approximate cost of $166.9 million in total under the
authorizations. We do not have plans to make any significant
repurchases of our common stock in the near future.
36
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 30, 2010 and January 31, 2009 were $2.8 million and $2.7 million,
respectively.
Investments
All investments with original
maturities of greater than 90 days are accounted for in accordance with ASC
Topic 320, Investments – Debt
and Equity Securities. We determine the appropriate
classification at the time of purchase. We did not hold any
short-term investments in securities at January 30, 2010. We held
approximately $0.2 million of short-term investments in securities at January
31, 2009.
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 30, 2010 and
January 31, 2009, we had approximately $0.4 million and $0.1 million,
respectively, of investments included in other assets,
net. 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 30, 2010 and January 31, 2009 was $46,000 and
$50,000, 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 30, 2010 and January 31, 2009, the
accrual was $2.0 million. 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
quarterly. As of January 30, 2010 and January 31, 2009, the accrual
was $1.8 million and $1.4 million, respectively.
Inventory Purchase
Concentration: Our business is dependent to a significant
degree upon close relationships with our vendors. Our largest vendor,
Nike, represented 49.9%, 51.4% and 48.5% of our purchases in Fiscal 2010, Fiscal
2009 and Fiscal 2008, respectively. Our next largest vendor in Fiscal
2010 represented 9.0%, 8.4% and 6.6% of our purchases in Fiscal 2010, Fiscal
2009 and Fiscal 2008, respectively. Our third largest vendor in
Fiscal 2010 represented 6.4%, 7.9% and 9.3% of our purchases in Fiscal 2010,
Fiscal 2009 and Fiscal 2008, respectively.
Consignment
Inventories: Beginning in Fiscal 2010, we expanded our
business model to include consignment merchandise. Consignment
inventories, which are owned by the vendor but located in our stores, are
properly segregated and controlled and are not reported as our inventory until
title is transferred to us or our purchase obligation is
determined. At January 30, 2010, vendor-owned inventories held at our
locations and not reported as our inventory was $0.3 million. There
were no vendor-owned inventories held at our locations and not reported as our
inventory prior to Fiscal 2010.
37
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 has
historically been comprised primarily of property and equipment related to
unopened stores and costs associated with technology upgrades at period
end. At fiscal year ended January 30, 2010, over 73.0% of the
construction in progress balance was comprised of costs associated with
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.
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 we record
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 $4.4 million and $4.0
million at January 30, 2010 and January 31, 2009, respectively. The
liability for the long-term portion of unamortized landlord allowances was $10.8
million and $13.1 million at January 30, 2010 and January 31, 2009,
respectively. We estimate the non-cash portion of landlord allowances
was $0.9 million and $0.8 million in Fiscal 2010 and Fiscal 2009,
respectively.
Revenue
Recognition
We recognize revenue, including gift
card and layaway sales, in accordance with the ASC Topic 605, 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 30, 2010 and 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 by us. 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.
38
Beginning in Fiscal 2010, to the
extent not required to be remitted to jurisdictions as unclaimed property, gift
card breakage revenue is recognized based upon historical redemption patterns
and represents the balance of gift cards for which we believe the likelihood of
redemption by the customer is remote. Prior to Fiscal 2010, gift card
breakage revenue was not recognized due to the absence of reliable historical
data. For Fiscal 2010, $0.3 million of breakage revenue was recorded
in income as other income and is included in the accompanying consolidated
statements of operations as a reduction to store operating, selling and
administrative expense. For Fiscal 2009 and Fiscal 2008, there was no
breakage revenue recorded in our consolidated statements of
operations. The net deferred revenue liability at January 30, 2010
and January 31, 2009, was $2.5 million and $2.4 million,
respectively. Prior to Fiscal 2010, we escheated 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.
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 30, 2010 and January 31, 2009, the accrual for these liabilities was
$0.7 million and $0.6 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 30, 2010 and
January 31, 2009, the accrual for these liabilities (which is not discounted)
was $0.6 million and $0.3 million, respectively, and was included in accrued
expenses in the consolidated balance sheets.
Sales
Returns, Net
Net sales returns were $20.3 million
for Fiscal 2010, $19.6 million for Fiscal 2009 and $18.3 million for Fiscal
2008. The accrual for the effect of estimated returns on pre-tax
income was $0.4 million and $0.3 million as of January 30, 2010 and January 31,
2009, and was included in accrued expenses in the consolidated balance
sheets. Determination of the accrual for estimated returns requires
significant judgment and estimates.
NOTE
2. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2009, the Financial
Accounting Standards Board (FASB) issued ASC Topic 605-25, Multiple-Element
Arrangements. ASC Topic 605-25 addresses the determination of
when the individual deliverables included in a multiple arrangement may be
treated as separate units of accounting. ASC Topic 605-25 also
modified the manner in which the transaction consideration is allocated across
separately identified deliverables and establishes definitions for determining
fair value of elements in an arrangement. This guidance must be
adopted by us no later than January 1, 2011 with earlier adoption
permitted. We do not expect the adoption of this guidance to have any
impact on our consolidated financial statements.
39
In June 2009, the FASB issued ASC Topic
105, Generally Accepted
Accounting Principles, effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The ASC
is an aggregation of previously issued U.S. GAAP pronouncements in one
comprehensive set of guidance organized by subject area. In
accordance with the ASC, references to previously issued accounting standards
have been replaced by ASC references. Subsequent revisions to U.S.
GAAP will be incorporated into the ASC through Accounting Standards Updates
(ASU).
In June 2009, the FASB issued ASC Topic
810, Consolidation,
which amends the consolidation guidance applicable to variable interest
entities. This guidance is effective for annual periods beginning
after November 15, 2009, or our Fiscal 2011. The adoption of ASC
Topic 810 is not expected to have a material effect on our consolidated
financial statements.
At January 30, 2010, 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 30, 2010, there were 529,430 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 30, 2010, there were 115,114 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 30, 2010, there were 74,169 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 30, 2010, there were 580,989 shares available for grant under the
DEP.
|
Our plans allow for a variety of equity
awards including stock options, restricted stock awards, stock appreciation
rights and performance awards. As of January 30, 2010, we 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 2010, 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 March 17,
2009, the Compensation Committee of the Board awarded a grant of 46,800
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 30, 2010, January 31, 2009 and February 2, 2008 (in
thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Stock-based
compensation expense by type:
|
||||||||||||
|
Stock
options
|
$ | 1,799 | $ | 1,968 | $ | 2,068 | ||||||
|
Restricted
stock awards
|
2,278 | 1,482 | 1,479 | |||||||||
|
Employee
stock purchase
|
80 | 96 | 97 | |||||||||
|
Director
deferred compensation
|
- | 10 | 33 | |||||||||
|
Total
stock-based compensation expense
|
4,157 | 3,556 | 3,677 | |||||||||
|
Income
tax benefit recognized
|
1,277 | 941 | 894 | |||||||||
|
Stock-based
compensation expense, net of income tax
|
$ | 2,880 | $ | 2,615 | $ | 2,783 | ||||||
40
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 30, 2010,
was from option exercises, deferred stock releases and restricted stock releases
and totaled $0.5 million. The actual income tax benefit realized for
the deductions considered on our income tax returns for the fiscal years ended
January 31, 2009 and February 2, 2008, was from option exercises and totaled
$0.6 million and $0.6 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 30,
2010. 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
2,
|
August
1,
|
October
31,
|
January
30,
|
|||||||
|
2009
|
2009
|
2009
|
2010
|
|||||||
|
Grant
date
|
Mar
17
|
Mar
31
|
Jun
30
|
Sep
30
|
Dec
31
|
|||||
|
Exercise
price
|
$18.00
|
$19.22
|
$18.00
|
$18.23
|
$21.99
|
|||||
|
Weighted
average fair value at date of grant
|
$9.22
- $9.81
|
$9.57
|
$8.33
|
$7.69
|
$9.08
|
|||||
|
Expected
option life (years)
|
4.76
- 5.51
|
4.76
|
4.76
|
4.63
|
4.63
|
|||||
|
Expected
volatility
|
59.85%
- 60.25%
|
58.64%
|
52.10%
|
47.54%
|
45.86%
|
|||||
|
Risk-free
interest rate
|
1.91%
- 2.09%
|
1.64%
|
2.40%
|
2.17%
|
2.40%
|
|||||
|
Dividend
yield
|
None
|
None
|
None
|
None
|
None
|
|||||
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 ASC Topic 718, Stock
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 ASC Topic
718. The dividend yield is assumed to be zero since we have no
current plan to declare dividends.
41
Activity for our option plans during
the fiscal year ended January 30, 2010 was as follows:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term (Years)
|
Aggregate
Intrinsic Value ($000's)
|
|||||||||||||
|
Options
outstanding at January 31, 2009
|
1,260,168 | $ | 16.46 | 5.06 | $ | 3,001 | ||||||||||
|
Granted
|
84,718 | 18.13 | ||||||||||||||
|
Exercised
|
(99,753 | ) | 7.54 | |||||||||||||
|
Forfeited,
cancelled or expired
|
(3,919 | ) | 23.65 | |||||||||||||
|
Options
outstanding at January 30, 2010
|
1,241,214 | $ | 17.27 | 4.47 | $ | 7,331 | ||||||||||
|
Exercisable
at January 30, 2010
|
1,100,315 | $ | 16.55 | 4.31 | $ | 7,176 | ||||||||||
The weighted average grant fair value
of options granted during the fiscal years ended January 30, 2010, January 31,
2009 and February 2, 2008 was $9.48, $7.43 and $10.39,
respectively. The compensation expense included in store operating,
selling and administrative expenses and recognized during the fiscal years ended
January 30, 2010, January 31, 2009 and February 2, 2008 was $1.8 million, $2.0
million and $2.1 million, respectively, before the recognized income tax benefit
of $0.4 million, $0.4 million and $0.3 million, respectively.
The total intrinsic value of stock
options exercised during the fiscal years ended January 30, 2010, January 31,
2009 and February 2, 2008 was $1.3 million, $1.2 million and $1.9 million,
respectively. The total cash received from these stock option
exercises during Fiscal 2010, Fiscal 2009 and Fiscal 2008 was $0.8 million, $0.7
million and $0.9 million, respectively. Excess income tax proceeds
from stock option exercises are included in cash flows from financing activities
as required by ASC Topic 230, Statement of Cash
Flows. As of January 30, 2010, there was $0.3 million of
unrecognized compensation cost related to nonvested stock
options. This cost is expected to be recognized over a weighted
average period of 0.3 years.
Restricted
Stock and Performance-Based Awards
Restricted stock and performance-based
awards (RSUs and PSAs) 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.
The following table summarizes the
restricted stock awards activity under all of our plans during the fiscal year
ended January 30, 2010:
|
Number
of Awards
|
Weighted
Average Grant Date Fair Value
|
|||||||
|
Restricted
stock awards outstanding at January 31, 2009
|
311,918 | $ | 19.95 | |||||
|
Granted
|
238,607 | 18.06 | ||||||
|
Vested
|
(13,167 | ) | 18.51 | |||||
|
Forfeited,
cancelled or expired
|
(7,174 | ) | 18.90 | |||||
|
Restricted
stock awards outstanding at January 30, 2010
|
530,184 | $ | 19.23 | |||||
The weighted average grant date fair
value of our RSUs granted was $18.06, $15.12 and $28.30 for the fiscal years
ended January 30, 2010, January 31, 2009 and February 2, 2008,
respectively. There were 238,607, 231,255 and 124,325 RSUs granted
during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively. The
compensation expense included in store operating, selling and administrative
expenses and recognized during Fiscal 2010, Fiscal 2009 and Fiscal 2008 was $2.3
million, $1.5 million and $1.5 million, respectively, before the recognized
income tax benefit of $0.9 million, $0.6 million and $0.6 million,
respectively.
42
During the fiscal year ended January
30, 2010, restricted stock awards of 13,167 units, including 12,165 awards that
were PSAs, vested with an intrinsic value of $0.2 million. The total
intrinsic value of our restricted stock awards outstanding and unvested at
January 30, 2010, January 31, 2009 and February 2, 2008 was $11.3 million, $4.2
million and $2.7 million, respectively. As of January 30, 2010, there
was approximately $5.2 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 2.5 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 19,152 shares of common stock at an
average price of $14.34 per share through the ESPP for the fiscal year ended
January 30, 2010. 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.
The assumptions used in the option
pricing model for the fiscal years ended January 30, 2010, January 31, 2009 and
February 2, 2008 were as follows:
|
Fiscal
Year Ended
|
|||||
|
January
30,
|
January
31,
|
February
2,
|
|||
|
2010
|
2009
|
2008
|
|||
|
Weighted
average fair value at date of grant
|
$4.27
|
$4.35
|
$5.90
|
||
|
Expected
life (years)
|
0.25
|
0.25
|
0.25
|
||
|
Expected
volatility
|
47.5%
- 68.0%
|
48.0%
- 51.5%
|
36.3%
- 41.8%
|
||
|
Risk-free
interest rate
|
0.03%
- 0.22%
|
1.14%
- 3.06%
|
3.99%
- 5.08%
|
||
|
Dividend
yield
|
None
|
None
|
None
|
||
The expense related to the ESPP was
determined using the Black-Scholes option pricing model and the provisions of
ASC Topic 718 as it relates to accounting for certain employee stock purchase
plans with a look-back option. The compensation expense included in
store operating, selling and administrative expenses and recognized during the
fiscal years ended January 30, 2010, January 31, 2009 and February 2, 2008 was
$0.1 million in all three years.
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. No stock
units were deferred under this plan in Fiscal 2010. A total of 664
and 1,306 stock units were deferred under this plan in Fiscal 2009 and Fiscal
2008, respectively. Currently, no director is deferring compensation
into stock units.
There was no compensation expense
related to director deferred compensation included in store operating, selling
and administrative expenses during Fiscal 2010. The compensation
expense included in store operating, selling and administrative expenses and
recognized during Fiscal 2009 and Fiscal 2008 was $10,000 and $33,000,
respectively, before the recognized income tax benefit of $4,000 and $12,000,
respectively.
43
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
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Net
income, in thousands
|
$ | 32,549 | $ | 29,448 | $ | 30,329 | ||||||
|
Weighted
average number of common shares outstanding
|
28,629,023 | 28,547,435 | 31,049,058 | |||||||||
|
Dilutive
stock options
|
281,213 | 312,537 | 427,822 | |||||||||
|
Dilutive
restricted stock
|
178,510 | 93,724 | 48,170 | |||||||||
|
Weighted
average number of common shares outstanding and dilutive
shares
|
29,088,746 | 28,953,696 | 31,525,050 | |||||||||
|
Basic
earnings per share
|
$ | 1.14 | $ | 1.03 | $ | 0.98 | ||||||
|
Diluted
earnings per share
|
$ | 1.12 | $ | 1.02 | $ | 0.96 | ||||||
In calculating diluted earnings per
share for the 52 weeks ended January 30, 2010, options to purchase 304,361
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 52 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 52 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.
At January 30, 2010, we had two
unsecured credit facilities, which are renewable in August and November
2010. The August facility allows for borrowings up to $30.0 million
at a rate equal to the higher of prime rate, the federal funds rate plus 0.5% or
LIBOR. The November facility allows for borrowings up to $50.0
million at a rate of prime plus 2%. Under the provisions of both
facilities, we do not pay commitment fees and are not subject to covenant
requirements. There were 110 days during the 52 weeks ended January
30, 2010, where we incurred borrowings against our credit facilities for an
average and maximum borrowing of $7.3 million and $13.9 million, respectively,
at an average interest rate of 1.82%. At January 30, 2010, a total of
$80.0 million was available to us from these facilities.
We entered into a capital lease in
March 2009 for certain technology hardware. At January 30, 2010, the
total capital lease obligation was $0.3 million, of which $0.1 million was
classified as a short-term liability and included in other accrued expenses and
$0.2 million was classified as a long-term liability and included in other
liabilities on our consolidated balance sheet. At January 31, 2009,
we did not have any capital lease obligations.
44
Future minimum lease payments under
capital leases and the present value of such payments as of January 30, 2010 are
as follows (in thousands):
|
Fiscal
2011
|
$ | 174 | ||
|
Fiscal
2012
|
174 | |||
|
Fiscal
2013
|
- | |||
|
Fiscal
2014
|
- | |||
|
Fiscal
2015
|
- | |||
|
Thereafter
|
- | |||
|
Total
minimum lease payments
|
348 | |||
|
Less
amount representing interest
|
79 | |||
|
Present
value of total minimum lease payments
|
$ | 269 |
At January 31, 2009, we had two
unsecured credit facilities, which were renewable in August and December
2009. The facilities allowed 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. There were 348 days during the 52 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.
At February 2, 2008, we had one
facility that allowed borrowings up to $30.0 million. There were 106
days during the 52 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.
NOTE
6. DEFINED CONTRIBUTION BENEFIT 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, worked
1,000 hours 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 6.0% of a participant’s compensation. For each of Fiscal
2010, Fiscal 2009 and Fiscal 2008, 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 2010, Fiscal 2009 and Fiscal 2008 was $0.4 million, $0.5 million and $0.4
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 2011 has also been set by the Board as $0.75 for each
dollar of compensation deferred up to 4.5% of
compensation. Contribution expense incurred under the Supplemental
Plan for Fiscal 2010 and Fiscal 2009 was $0.1 million for each
year. No contribution expense was incurred for the Supplemental Plan
for Fiscal 2008.
In November 2009, the Board adopted the
Hibbett Sports, Inc. Executive Voluntary Deferral Plan (Voluntary Plan) which
provides key executives of the Company an opportunity to defer, on a pre-tax
basis, up to 50% of their base salary and up to 100% of any bonus
earned. Participants, at election, determine the date payout is to be
made with payout options as either a lump-sum payout or installment payments
over two to five years. The Voluntary Plan is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA) and was effective
February 1, 2010. The Voluntary Plan is also intended to comply with
the requirements of Section 409A of the Internal Revenue Code of 1986, as
amended.
In January 2010, we introduced a
Flexible Spending Account Plan (FSA) that allows employees to set aside pre-tax
amounts for out-of-pocket health care and dependent care
expenses. The health care FSA is subject to ERISA, whereby the
dependent care FSA is not. Employees are eligible to participate in
the FSA upon meeting eligibility requirements or upon a defined “qualifying
event,” and may enroll annually during an open enrollment
period. Plan amounts are determined annually by the employee in
advance and are subject to IRS dollar limitations. Employee
elections, in general, cannot be increased, decreased or discontinued during the
election period. Unused amounts at the end of the plan year are
subject to forfeiture and such forfeitures can be used to offset administrative
expenses related to any benefit plan. The first withholdings began in
February 2010.
45
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 2010, Fiscal 2009 and Fiscal
2008. Future minimum lease payments under this non-cancelable
sublease aggregate approximately $0.7 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
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Federal:
|
||||||||||||
|
Current
|
$ | 19,686 | $ | 17,122 | $ | 18,077 | ||||||
|
Deferred
|
(1,741 | ) | (827 | ) | (1,298 | ) | ||||||
| 17,945 | 16,295 | 16,779 | ||||||||||
|
State:
|
||||||||||||
|
Current
|
2,366 | 1,698 | 1,577 | |||||||||
|
Deferred
|
(510 | ) | (88 | ) | (27 | ) | ||||||
| 1,856 | 1,610 | 1,550 | ||||||||||
| $ | 19,801 | $ | 17,905 | $ | 18,329 | |||||||
A reconciliation of the statutory
federal income tax rate as a percentage of income before provision for income
taxes follows:
|
Fiscal
Year Ended
|
||||||||||||
|
January
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Tax
provision computed at the federal statutory rate
|
35.00 | % | 35.00 | % | 35.00 | % | ||||||
|
Effect
of state income taxes, net of federal benefits
|
2.31 | 1.99 | 2.36 | |||||||||
|
Other,
net
|
0.52 | 0.82 | 0.31 | |||||||||
| 37.83 | % | 37.81 | % | 37.67 | % | |||||||
In accordance with ASC Topic 740, Income Taxes, 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 asset, net, are
as follows (in thousands):
|
January
30, 2010
|
January
31, 2009
|
|||||||||||||||
|
Current
|
Non-current
|
Current
|
Non-current
|
|||||||||||||
|
Deferred
rent
|
$ | 1,972 | $ | 5,712 | $ | 1,782 | $ | 6,630 | ||||||||
|
Accumulated
depreciation and amortization
|
- | (5,906 | ) | - | (5,775 | ) | ||||||||||
|
Inventories
|
3,169 | - | 2,209 | - | ||||||||||||
|
Prepaid
expenses
|
(640 | ) | (13 | ) | (704 | ) | (85 | ) | ||||||||
|
Accruals
|
1,647 | 942 | 854 | 769 | ||||||||||||
|
Stock-based
compensation
|
297 | 2,902 | 40 | 1,942 | ||||||||||||
|
Other
|
(282 | ) | (130 | ) | (243 | ) | - | |||||||||
|
Deferred
income taxes
|
$ | 6,163 | $ | 3,507 | $ | 3,938 | $ | 3,481 | ||||||||
46
Deferred income tax assets represent
items which will be used as a tax deduction or credit in future tax returns or
are items of income which have not been recognized for financial statement
purposes but were included in the current or prior 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, codified primarily in
ASC Topic 740. In
accordance with ASC Topic 740, 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.
A reconciliation of the unrecognized
tax benefit under ASC Topic 740 during Fiscal 2010, Fiscal 2009 and Fiscal 2008
follows (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
30, 2010
|
January
31, 2009
|
February
2, 2008
|
||||||||||
|
Unrecognized
tax benefit - beginning of year
|
$ | 2,501 | $ | 2,623 | $ | 5,117 | ||||||
|
Gross
increases - tax positions in prior period
|
105 | - | 836 | |||||||||
|
Gross
decreases - tax positions in prior period
|
- | (100 | ) | (3,259 | ) | |||||||
|
Gross
increases - tax positions in current period
|
259 | 241 | - | |||||||||
|
Settlements
|
- | - | (29 | ) | ||||||||
|
Lapse
of statute of limitations
|
(514 | ) | (263 | ) | (42 | ) | ||||||
|
Unrecognized
tax benefit - end of year
|
$ | 2,351 | $ | 2,501 | $ | 2,623 | ||||||
Due to a lapse of the statute of
limitations, we expect a decrease in our unrecognized tax benefit liability in
the next 12 months of approximately $0.9 million related to compensation
deductions claimed on prior income tax returns. We classify interest
and penalties recognized on unrecognized tax benefits as income tax
expense. As of January 30, 2010, January 31, 2009 and February 2,
2008, we have accrued interest and penalties in the amount of $0.4 million, $0.5
million and $0.3 million, respectively.
Of the unrecognized tax benefits as of
January 30, 2010, January 31, 2009 and February 2, 2008, $1.3 million, $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 2007 or by most state taxing jurisdictions for years prior
to Fiscal 2006.
47
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 $4.3 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
30, 2010, we increased our lease commitments by a net of 22 retail stores, each
having initial lease termination dates between April 2012 and February 2020 as
well as various office and transportation equipment. At January 30,
2010, the future minimum lease payments, excluding maintenance, insurance and
real estate taxes, for our current operating leases and including the net 22
operating leases added during Fiscal 2010 were as follows (in
thousands):
|
Fiscal
2011
|
$ | 40,528 | ||
|
Fiscal
2012
|
35,225 | |||
|
Fiscal
2013
|
28,708 | |||
|
Fiscal
2014
|
21,272 | |||
|
Fiscal
2015
|
14,775 | |||
|
Thereafter
|
19,511 | |||
|
TOTAL
|
$ | 160,019 |
Rental expense for all operating leases
consisted of the following (in thousands):
|
Fiscal
Year Ended
|
||||||||||||
|
January
30,
|
January
31,
|
February
2,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Minimum
rentals
|
$ | 35,455 | $ | 34,283 | $ | 32,693 | ||||||
|
Contingent
rentals
|
4,165 | 2,689 | 2,342 | |||||||||
| $ | 39,620 | $ | 36,972 | $ | 35,035 | |||||||
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 30, 2010 and
January 31, 2009, there was $3.3 million and $2.9 million, respectively, of
annual bonus related expense included in accrued expenses.
In addition, the Compensation Committee
(Committee) of the Board of Directors places performance criteria on awards of
RSUs (PSAs) to our Named Executive Officers (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 ASC Topic 718
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.
48
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 30, 2010, we estimate that the liability
related to these matters is approximately $0.3 million and accordingly, have
accrued $0.3 million as a current liability on our consolidated balance
sheet. As of January 31, 2009, we had accrued $47,000 as it related
to our estimated liability for legal proceedings.
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 we believe that a loss is both
probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of ASC Topic 450, Contingencies. With
respect to any matter, we could change our belief as to whether a loss is
probable or estimable, or its estimate of loss, at any time. Even
though we may not believe a loss is probable or estimable, it is reasonably
possible that we could suffer a loss with respect to that matter in the
future.
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 30, 2010
|
||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
Net
sales
|
$ | 157,700 | $ | 123,118 | $ | 145,855 | $ | 166,819 | ||||||||
|
Gross
profit
|
52,696 | 36,788 | 49,637 | 57,079 | ||||||||||||
|
Operating
income
|
17,558 | 1,938 | 13,944 | 18,966 | ||||||||||||
|
Net
income
|
10,912 | 1,109 | 8,775 | 11,752 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.38 | $ | 0.04 | $ | 0.31 | $ | 0.41 | ||||||||
|
Diluted
earnings per share
|
$ | 0.38 | $ | 0.04 | $ | 0.30 | $ | 0.40 | ||||||||
|
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 | ||||||||
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.
49
NOTE
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820, Fair Value Measurements and
Disclosures, establishes a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. 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.
|
|
|
·
|
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.
|
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 at January 30,
2010 and January 31, 2009 (in thousands):
|
January
30, 2010
|
January
31, 2009
|
|||||||||||||||||||||||
|
Level
I
|
Level
II
|
Level
III
|
Level
I
|
Level
II
|
Level
III
|
|||||||||||||||||||
|
Short-term
investments
|
$ | - | $ | - | $ | - | $ | 191 | $ | - | $ | - | ||||||||||||
|
Long-term
investments
|
372 | - | - | 141 | - | - | ||||||||||||||||||
|
Total
investments
|
$ | 372 | $ | - | $ | - | $ | 332 | $ | - | $ | - | ||||||||||||
Long-term investments are reported in
other assets on our consolidated balance sheets.
Not applicable.
(a) Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of January 30,
2010. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
designed and functioning effectively to provide reasonable assurance that the
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
(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 30, 2010, 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 30,
2010.
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 30, 2010 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
2010 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
None.
50
We have adopted a Code of Business
Conduct and Ethics (Code) for all Company employees, including our Named
Executive Officers as determined for our Proxy Statement for the Annual Meeting
of Stockholders (Proxy Statement). 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 to be held on May 27, 2010, 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.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
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
|
1,771,398 | $ | 17.27 | 1,299,702 | ||||||||
|
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
|
TOTAL
|
1,771,398 | $ | 17.27 | 1,299,702 | ||||||||
|
|
(1)
|
Information
presented as of January 30, 2010.
|
|
|
(2)
|
Includes
373,249 RSUs and 156,935 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
115,114 shares remaining under our ESPP and 74,169 shares remaining under
our DEP of which approximately 4,000 shares were subject to purchase in
the purchasing period ending March 31,
2010.
|
The information required in this item
is incorporated by reference from the section entitled “Related Person
Transactions” and “Governance Information” in the Proxy Statement.
51
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.
|
(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 Registrant's
2010 Annual Report to Stockholders, in Part II, Item 8:
|
||||
|
30
|
||||
|
Consolidated Balance Sheets as of
January 30, 2010 and January 31, 2009
|
31
|
|||
|
Consolidated Statements of Operations
for the fiscal years ended January 30, 2010, January 31, 2009
and February 2, 2008
|
32
|
|||
|
Consolidated Statements of Cash Flows
for the fiscal years ended January 30, 2010, January 31, 2009
and February 2, 2008
|
33
|
|||
|
Consolidated Statements of Stockholders’
Investment for the fiscal years ended January 30, 2010, January
31, 2009 and February 2, 2008
|
34
|
|||
|
35
|
||||
|
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 Registrant (incorporated herein by reference to
Exhibit 3.1 of the Registrant's Form 8-K filed with the Securities and
Exchange Commission on February 15, 2007.)
|
|||
|
3.2
|
Bylaws
of the Registrant, as amended; incorporated herein by reference to Exhibit
3.2 of the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on June 1, 2009.
|
|||
| Form of Stock Certificate | ||||
| 4.1 | Form of Common Stock Certificate; attached as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on September 26, 2007. | |||
|
Material Contracts
|
||||
|
10.1
|
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.
|
|||
|
10.2
|
Amendment
to 2006 Non-Employee Director Equity Plan Agreement for Non-Qualified
Stock Options; incorporated by reference as Exhibit 10.1 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on
February 17, 2009.
|
|||
52
|
10.3
|
Master Note – Regions Bank Line of Credit; attached as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed August 20, 2009. | ||
| 10.4 | Authorization by Board of Directors of Hibbett Sports, Inc. for stock repurchase program, dated November 18, 2009; incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 20, 2009. | ||
|
10.5
|
Hibbett
Sports, Inc. Executive Voluntary Deferral Plan approved by the Board of
Directors, dated November 18, 2009; incorporated by reference as Exhibit
10.1 to the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on November 20, 2009.
|
||
|
10.6
|
Amendment
No. 2 to Credit Agreement between the Company and Bank of America, N.A.,
dated as of November 20, 2009; incorporated by reference as Exhibit 10.1
to the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on November 23, 2009.
|
||
|
Annual Report to Security
Holders
|
|||
|
13.1
|
Fiscal
2010 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 Holdings, 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)
|
55
|
|
|
Certifications
|
|||
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed
herewith)
|
56
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed
herewith)
|
57
|
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer and Chief Financial Officer
(filed herewith)
|
58
|
|
53
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 26, 2010
|
By:
|
/s/
Gary A. Smith
|
|
Gary
A. Smith
Senior
Vice President and Chief Financial Officer
(Principal Financial Officer
and Chief 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/ Jeffry
O. Rosenthal
|
Chief
Executive Officer and President
(Principal Executive
Officer)
|
March 26, 2010
|
|
Jeffry O. Rosenthal
|
||
|
/s/ Gary
A. Smith
|
Senior
Vice President and Chief Financial Officer
(Principal Financial Officer
and Chief Accounting Officer)
|
March 26, 2010
|
|
Gary A. Smith
|
||
|
/s/ Michael
J. Newsome
|
Executive
Chairman of the Board
|
March 26, 2010
|
|
Michael
J. Newsome
|
||
|
/s/ Terrance
G. Finley
|
Director
|
March 26, 2010
|
|
Terrance
G. Finley
|
||
|
/s/ Albert
C. Johnson
|
Director
|
March 26, 2010
|
|
Albert
C. Johnson
|
||
|
/s/ Carl
Kirkland
|
Director
|
March 26, 2010
|
|
Carl Kirkland
|
||
|
/s/ Ralph
T. Parks
|
Director
|
March 26, 2010
|
|
Ralph T. Parks
|
||
|
/s/ Thomas
A. Saunders, III
|
Director
|
March 26, 2010
|
|
Thomas A. Saunders,
III
|
||
|
/s/ Alton
E. Yother
|
Lead
Director
|
March 26, 2010
|
|
Alton E. Yother
|
||
54