Hibbett Sports Inc. (HIBB) Q2 2021 Earnings Call Transcript

Hibbett Sports Inc. (NASDAQ: HIBB) Q2 2021 earnings call dated Aug. 28, 2020

Corporate Participants:

Jason Freuchtel — Director, Finance and Investor Relations

Michael E. Longo — Chief Executive Officer and President

Robert J. Volke — Chief Financial Officer

Jared S. Briskin — Senior Vice President and Chief Merchant

Benjamin A. Knighten — Senior Vice President of Operations

Analysts:

Alex Perry — Bank of America Merrill Lynch — Analyst

Samuel Poser — Susquehanna Financial Group — Analyst

Peter Benedict — Robert W. Baird — Analyst

James Chartier — Monness, Crespi, Hardt & Co — Analyst

Presentation:

Operator

Greetings and welcome to the Hibbett Sports Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jason Freuchtel, Director of Finance and Investor Relations. Please go ahead.

Jason Freuchtel — Director, Finance and Investor Relations

Good morning. Please note that we have prepared a slide deck that we will refer to during our prepared remarks. The slide deck is available on hibbett.com via the Investor Relations link found at the bottom of the homepage. These materials may help you follow along with our discussion this morning.

Before we begin, I would like to remind everyone that some of management’s comments during this conference call are forward-looking statements. These statements, which reflect the company’s current views with respect to future events and financial performance are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued this morning, the company’s annual report on Form 10-K, the most recent quarterly report on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information.

Also to the extent non-GAAP financial measures are discussed on this call. You may find a reconciliation to their most directly comparable GAAP measures on our website.

Lastly, I would like to point out that management’s remarks during this conference call are based on information and understandings believed accurate as of today’s date, August 28, 2020. Because of the time-sensitive nature of this information, it is the policy of Hibbett Sports to limit the archived replay of this conference call webcast to a period of 30 days.

The participants on this call are Mike Longo, President and Chief Executive Officer; Bob Volke, Chief Financial Officer; Jared Briskin, Senior Vice President and Chief Merchant; Bill Quinn, Senior Vice President of Marketing and Digital; and Ben Knighten, Senior Vice President of Operations.

I will now turn the call over to Mike Longo.

Michael E. Longo — Chief Executive Officer and President

Thanks, Jason. Good morning and welcome to the Hibbett Sports Q2 earnings call. If your following along using the slide deck, I’m on the third slide entitled Introduction. This quarter was a remarkable outcome from a financial perspective for the company. From sales to gross margin to profits and cash flow, this was an unprecedented quarter. As you saw in the press release, we reported a nearly 80% sales comp with a brick and mortar comp of 65% and e-commerce of 212%. This resulted in an operating income of $70 million and non-GAAP earnings per share of $2.95. These remarkable results were made possible by the hard work our 10,000 team mates in the stores, the store support center and the distribution center. They put in their time. They made the right decisions in a very challenging time. Those of us on the call are proud to represent our team mates today and we’re extremely proud of them. And is I’m fond of saying, retail is the ultimate team sport, and I couldn’t have picked a better team to complete with.

Speaking of our team, I did want to highlight the press release that came out earlier this week about recent changes to our store operations team. These new regional Vice Presidents of stores, reporting directly to Ben Knighten, our Senior Vice President of Ops, allow us to both improve our capabilities and better represent our consumer base. We’re very excited about the team and their ability to further improve our consumer experience in the stores and in the omni-channel business.

Next slide that we’re going to cover is the COVID response. As a reminder since mid-March, Hibbett adopted a stance and we would remain open in the stores and online as long as it was in compliance with state and local restrictions. At the same time we extend to pay benefits to our full-timers in order to help them during the time when their individual stores were closed. While running those stores, we made sure we follow federal, state and local guidelines to ensure the safety of our consumers as well as our employees. As a result of these actions, when we reopened our stores, we were fully staffed and we believe that our consumers felt safe to shop. And since we continue to do business throughout this time, we reopened with the freshest and newest inventory to sell.

So the next slide that we’re going to cover is the sales drivers slide, and in that we wanted to break down the factors that we believe drove the second quarter sales and continue to produce strong sales results into Q3. As we discussed previously on our July 20 update, we believe the increases in sales were driven by a number of factors including, temporary closures of competitors, which we believe gave us the advantage of accessing new consumers, both in-store and online. Second one was accelerating consumer adoption of the e-commerce that gave us yet another set of new consumers who could test drive our best-in-class omni-channel experience. And the pent-up demand for March and the boost from fiscal stimulus gave consumers, both new and existing consumers even more reasons to shop with us.

And our data shows us a handful of important facts that I want to highlight. First, this situation drove traffic to our stores and to our website and yielded what we believe to be increased market share in resulting higher sales. Approximately 27% of store traffic and approximately 49% of our online business came from these new consumers. Second, now that these new consumers have experienced our trademark service and best-in-class omni-channel experience, it’s our belief that we have the opportunity to retain many of them and drive higher sales volumes in the future. In fact, our data shows that we’ve done a good job retaining these new consumers so far. On top of all this, we believe that we have tailwinds going into the third quarter and beyond. We’re just now beginning to see the benefits of the permanent closure of a number of competitors and similar businesses who also sell apparel and footwear.

These compare — these competitors specifically J.C. Penney and Stage Stores have announced the closure of approximately 250 stores within 2 miles of an existing City Gear or Hibbett Sports location. That presents a meaningful upside opportunity for us in both fashion and athletic categories. These are just the announced closures of stores and publicly traded companies in a very narrowly defined channel. The total number of closures will ultimately be higher than that when we include other smaller chains. In order to capitalize on these opportunities, the merchandising team led by Jared, made specific buys for these stores to handle the additional business that we anticipate.

Additionally, we see what we believe this continued consumer adoption of omni-channel. This plays to our strength with our best-in-class omni-channel consumer experience. Finally, we believe that many of the new consumers we attract the last quarter and continue to attract will continue to shop with us in the future. In total, we believe these changes in the competitive landscape and changes to consumer behavior resulted in an approximate $20 million to $40 million annual incremental sales opportunity for Hibbett. For this and a number of other reasons, we are very confident in our future. While we won’t likely report another quarter like this one, we do expect continued sales momentum into the third quarter.

Now before we go any further in the future, I’m going to ask Bob Volke to provide some detail on the financial results. Bob?

Robert J. Volke — Chief Financial Officer

Thanks, Mike, and good morning. If you will, please refer to the second quarter results slide. As a reminder, we treat City Gear as an extension of the Hibbett business and these results are reported on a combined basis. For the second quarter, total net sales increased 74.9% to $441.6 million and consolidated comp sales increased 79.2%. This compares to second quarter of fiscal 2020 sales of $252.4 million and a comp sales increase of 0.3%. Brick and mortar comp sales were very strong and came in at 65.2%, while the momentum in the e-commerce business we saw at the end of the first quarter carried into the second quarter resulted in a 212.2% comp. For the quarter, e-commerce sales accounted for 15.7% of net sales compared to 8.6% in the second quarter of last year.

Our GAAP gross margin expanded significantly to 37% of net sales compared to 30.3% in the prior year second quarter. This approximate 670 basis point improvement was due to higher initial sell-through, a reduction of inventory reserves and leverage of store occupancy costs that are included in our gross margin calculation. There is a slight offset due to the higher volume of e-commerce sales, which carry a slightly lower margin due to the incremental shipping costs associated with these sales. Excluding the reduction of inventory reserves in the current period, adjusted gross margin was 36.7% this year compared to adjusted gross margin of 30.3% last year.

Store operating, selling and administrative expenses were 22.6% of net sales in the second quarter compared to 31.8% in the second quarter of fiscal 2020. This decrease of approximately 920 basis points was primarily due to the leverage from the strong sales performance. Excluding certain expenses related to the COVID-19 pandemic and City Gear acquisition and integration expenses, adjusted SG&A was 19.3% of net sales compared to adjusted SG&A of 28.5% in the prior year second quarter.

The primary non-GAAP adjustment in the current quarter was an approximate $14.5 million increase in the liability for the year to earn-out related to the City Gear acquisition. This was driven by the strong 2Q results and the optimistic outlook for the remainder of the fiscal year. Let me remind you that we took an $11 million reduction in this liability in the first quarter based on the uncertain business outlook at that time.

Depreciation and amortization declined approximately $200,000 due to store closures in fiscal 2020 as part of the company’s strategic alignment plan, partially offset by the new capital expenditures over the last several months. On a GAAP basis, we generated $56.3 million of operating profit, which compares to last year’s operating loss of $11.6 million. Excluding all non-GAAP adjustments for the quarter, adjusted operating income was $69.7 million or 15.8% of sales compared to an operating loss of $3.2 million in the second quarter of fiscal 2020.

GAAP earnings per share were $2.38 for this year second quarter and non-GAAP earnings per share were $2.95. We generated $175 million of operating cash flow during the quarter and spent approximately $80.4 million in capital, most of which was related to new, relocated and remodeled stores. In the prior year second quarter operating cash flow was $2.1 million and capital expenditures were $3.4 million.

I’ll now have you move forward to the year-to-date results page. On a year-to-date basis, sales increased 19.4% to $711.4 million from $595.7 million over the first six months of the prior year. Comp sales on a year-to-date basis are 22.2%, with brick and mortar posting 8.9% and e-commerce coming in at 150.9%. On a year-to-date basis, e-commerce sales are 18.2% of our total net sales compared to 8.4% for the first half of last year. Our GAAP gross margin was 33.4% of net sales compared to 32.7% in the first six months of 2020 as the strong second quarter margin performance lifted the overall year-to-date results. Excluding year-to-date inventory reserve adjustments in the current year and City Gear acquisition costs in the prior year, adjusted gross margin was 33.9% this year, compared to 32.9% for the first half of last year.

First half GAAP SG&A expenses were 26.6% of net sales compared to 25.9% in the first six months of last year. This increase of approximately 70 basis points was primarily due to first quarter adjustments for noncash intangible impairments attributable to the COVID-19 pandemic. Adjusted SG&A was 21% for the first six months of the current year compared to 24.2% for the same period last year. On a GAAP basis, we produced $34.2 million of year-to-date operating profit compared to last year’s operating profit of $25.7 million. Excluding all non-GAAP adjustments in both years, adjusted operating income was $77.5 million this year, compared to operating profit of $36.8 million for the first half of last year.

GAAP year-to-date earnings per share were $1.50 for the current year compared to $1.05 in the prior fiscal year and non-GAAP earnings per share were $3.30 this year compared to $1.50 for the comparable period of fiscal 2020. We generated $178.9 million of operating cash flow on a year-to-date basis and have spent $12.5 million in capital, once again with a focus on new relocated and remodeled stores. Over the first six months of the prior year, operating cash flow was $74.1 million and capital expenditures were $5.9 million.

Turning to the balance sheet. We ended the quarter with $217.8 million in cash versus $97.8 million a year ago. We paid off all amounts outstanding under our secured credit line during the quarter and currently have no debt. We have $75 million of borrowing capacity available to us, but do not anticipate the need to borrow under our secured credit line on current — based on current cash projections. Inventory at the end of the quarter is $182 million, a 32.7% decline from last year’s second fiscal quarter. The strong sales in both the brick and mortar and online channels drove the decrease. We did not purchase any shares during the second quarter under our authorized share repurchase plan. We have just over $143 million of remaining authorization through January 29, 2022 for future share repurchases at management’s discretion.

I’ll now turn the call over to Jared for review of merchandising.

Jared S. Briskin — Senior Vice President and Chief Merchant

Thanks, Bob. If you’ll refer to the merchandising slide. Our incredible comp performance was driven by apparel and footwear with significant gains in sales and share of our mix. Team sports was impacted by COVID, it was down in the mid-teens and had a reduced share of our mix. Apparel business was up in the mid 80s. This increase was driven primarily by significant gains and branded apparel, license products and accessories. All genders were significantly positive. Within our apparel business, sneaker connectivity and assortment remain critical and helped us achieve growth of units in the transaction as well as transaction dollar growth. From the athletic brands, we saw an acceleration in our performance business as well as the lifestyle business. This was driven as fitness, wellness and casual lifestyle trends all accelerated.

Our fashion brand performance was exceptional as we’re able to capitalize on strong performances in Denim, Twill and Tees. Our licensed product business had significant growth in the quarter as we advanced our strategy of sneaker connectivity. Caps, jerseys and tees all performed well. Accessory business also achieved significant growth as socks, hydration and sunglasses all were significant gators. New category investment in masks and underwear added incremental sales and are quickly becoming meaningful categories.

Footwear business is up in the mid 90s. This increase was driven by significant gains across performance, lifestyle, basketball and our sandal category, which includes slides. All genders were significantly positive with women’s growth outpacing men’s and kids. In the performance business, the health and wellness trend acceleration lined up with our investment strategy and business was very strong. Lifestyle and basketball results were explosive during the quarter as the launch calendar was favorable and key franchises sold through very quickly. Slides in sandals also saw a significant acceleration as consumers are spending more time at home being impacted by COVID.

Specific to footwear and apparel, our women’s business was exceptional growing triple-digits for the quarter. This was followed closely by men’s, which grew in the mid 80s and kids which grew in the mid 70s. Inventory at the end of the quarter was significantly down. This is a result of increased sales as well as a fantastic job of inventory management by our team. Inventory declines will moderate in the back half. We’ve made appropriate investments to balance our trend with potential uncertainty. Aged inventory is slightly elevated mostly due to the effect of COVID on team sports. Our team as managed this incredibly well and we do not see this as a risk moving forward.

I’ll now turn the call back over to Mike.

Michael E. Longo — Chief Executive Officer and President

We’ll if you will, please turn to the final slide called Future. We’re confident in our ability to deliver improvements to the business in second half of fiscal year ’21. We anticipate that several of the factors that we noted earlier that drove sales will continue into the second half. Most notably, permanent competitive closures, our best-in-class omni-channel platform and new consumer retention. Additionally, a number of initiatives are underway that will significantly improve our connectivity to the consumer and drive further competitive advantages. Again on the omni-channel experience, we have same-day delivery that we’re working through while we’re doing it today, we continue to expand that. We’ve got improvements to our Raffle system and a number of other initiatives with regards to our app and mobile.

Second, the in-store consumer experience we’re going to talk about this further in the next earnings call, but we’re doing store refreshes, we got the new store design that we’re working through on a new prototype. Ben is pioneering sales training as well as a change of the culture at the store level and that is going incredibly well. And then on the part of the business that we don’t talk a lot about, but is incredibly important to what we do as retailers every day on the supply chain, a lot of work being done both in the distribution center as well as in the transport of those goods and some of the things that we can do to increase frequency of delivery, speed to market and then there is a hub store initiative that we’ll speak to more in the future. All of those things combined, help us to continue to improve our business model and continue to improve our competitive advantages.

More important than all of that, our team of dedicated people who day-in and day-out deliver on our commitment to our consumer, we’re so proud of what they do and so thank you to our employees. Bob, can you outline our future guidance please.

Robert J. Volke — Chief Financial Officer

Certainly. We continue to experience a great deal of economic uncertainty as longer term consumer behavior is difficult to predict in light of the ongoing COVID-19 pandemic, high unemployment rates and gridlock regarding additional stimulus measures. However, we are very confident in our business model and the trends we have seen over the last couple of months. As a result, we will provide some limited GAAP guidance for the back half of fiscal 2021. First, we anticipate comp sales will be in the mid single-digits. Gross margin is expected to improve by approximately 50 basis points to 70 basis points in comparison to the back half of fiscal 2020. SG&A as a percent of sales is projected to be approximately 70 basis points to 90 basis points below the comparable six month period of fiscal 2020. Diluted EPS is forecast to be in the range of $0.85 to $1 with an assumption that the effective tax rate will be approximately 26% and the diluted share count will be approximately 16.9 million. We do not anticipate the difference between our GAAP measures and our non-GAAP measures will be material in the second half of the year.

That concludes our prepared remarks. We have provided quite a bit of information for you to digest and we know you will be needing additional questions answered. So, operator, please open up the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Alex Perry with Bank of America. Please proceed.

Alex Perry — Bank of America Merrill Lynch — Analyst

Hi. Thanks for taking my question and congrats on an exceptional quarter. Just first, you mentioned in the press release, you’re strong vendor relationships should allow you to meet customer demand. Can you talk through more what you mean there? Are you getting better product allocations from your vendor partners on a year-over-year basis? And then since the brands, presumably have cut orders with their manufacturing partners, is inventory shortage with the high heat product not a concern in the back half? Thanks.

Michael E. Longo — Chief Executive Officer and President

Yes. So I won’t get specific with regard to allocations. But our partners have been incredible in helping us manage the flow of inventory. Obviously with the results at the end of the quarter, we’re selling it as fast as we get it. We’ve been able to work closely with our partners. Our team has done incredible job of making incremental buys for the back half of the year. Based on our expectations on our flow, as I said, our declines in inventory are going to moderate some, we will still be down, but we expect to be in a better inventory position throughout the back half than we saw towards the latter end of the second quarter.

Alex Perry — Bank of America Merrill Lynch — Analyst

Perfect. That’s really helpful. And then just a follow-up on the e-commerce business. The growth has been pretty exceptional here. Like, I guess what do you think were the main drivers for the 49% new customer adoption since the competitor’s websites were also open like, what do you think is sort of driving people to your e-commerce business versus others?

Jared S. Briskin — Senior Vice President and Chief Merchant

Well, yeah, we had exceptional Q1 as well as Q2. We’ve done a lot of things from a marketing standpoint to drive new customers to the website. We’ve seen increases across every channel. Part of that has been omni-channel activity as well as e-commerce. So we’ve got a lot more people both shopping online and in our stores. So that has also attributed to a gain in overall traffic as well. But we’re also seeing really, really good gains in mobile traffic and part of that is the strength of our app. If you look at our launch calendar over Q2 was very, very favorable. So we had a lot of people come to the website at that point and shop as well as the apps, and that also drove online traffic.

Alex Perry — Bank of America Merrill Lynch — Analyst

Perfect. Thank you. Best of luck going forward.

Michael E. Longo — Chief Executive Officer and President

Thank you.

Robert J. Volke — Chief Financial Officer

Thanks.

Operator

Our next question comes from Sam Poser with Susquehanna. Please proceed.

Samuel Poser — Susquehanna Financial Group — Analyst

Good morning, everybody. Thank you for taking my questions. And I have quite a few, despite the good information that you provided in the release and in the presentation. Good morning. I guess first of all, about the inventory. I understand that the inventory is going to — not going to be as low year-over-year going forward. Does the results from the second quarter given — with your inventory levels, give you an opportunity to re-base your inventory and increase your churn versus what it was historically. Going forward, if we think about fiscal ’20 — fiscal ’21 and even this year, but I mean, do you now bring your inventories back to a lower base level than they used to be?

Michael E. Longo — Chief Executive Officer and President

Yes. Jared, do you want to.

Jared S. Briskin — Senior Vice President and Chief Merchant

Yes. Sam, good morning. So, I mean obviously the second quarter levels are not sustainable, but we’re absolutely utilizing this opportunity to reset our base. Certainly, we believe we can have significant improvement in KPIs from a pre-COVID levels based off the reset. I do want to be clear, that the second quarter levels we don’t believe to be sustainable. But we do believe we can have significant improvement going forward with regard to inventory KPIs.

Samuel Poser — Susquehanna Financial Group — Analyst

Thanks. Thank you, Jared. And then going forward on store openings and given that you probably had a significant benefit being off mall again to keep your less stores sort of forced to close versus many competitors. What is your store opening plans both in the near term and sort of more theoretically, I guess, in the long-term given where things are right now and the success you’ve had?

Michael E. Longo — Chief Executive Officer and President

Sure, Ben.

Benjamin A. Knighten — Senior Vice President of Operations

Yes, Sam, it’s Ben Knighten. We’re really focused obviously on both manners or both brands out there, City Gear and Hibbett, in kind of looking forward, we anticipate double-digit unit growth in both of those City Gear and Hibbett brands going forward.

Samuel Poser — Susquehanna Financial Group — Analyst

Does that mean this year or talking beginning next year?

Benjamin A. Knighten — Senior Vice President of Operations

Yes, it’s both.

Michael E. Longo — Chief Executive Officer and President

We’re going to, we’ll give…

Samuel Poser — Susquehanna Financial Group — Analyst

Thank you.

Michael E. Longo — Chief Executive Officer and President

In Q3, Sam, this is Mike again. Q3 and Q4, and we were going to talk about this because we’re pretty sure it was going to come up. We’re going to begin to work on some multi-year guidance for you, which will include a number of openings per year and leverage that we expect to get and that will dovetail nicely. We’ll have the Q3 results and we’ll be able to do a little bit better job for you talking about the future.

Samuel Poser — Susquehanna Financial Group — Analyst

Can you give us some idea of your store opening plans by quarter of this year for the route down to the — for the balance of the year of this year.

Michael E. Longo — Chief Executive Officer and President

I think we’ll hit the total number. We don’t typically talk about quarter-to-quarter. Let me say this though to help answer your question. We are having no problems with disruption of store openings and we’re having no disruptions in terms of running the stores that we have.

Samuel Poser — Susquehanna Financial Group — Analyst

Okay. Great and thank you. And then, just the margins, can you give us what the merchandise and fixed cost — was you’re merch margin was up or down in the quarter and your fixed cost leverage?

Jared S. Briskin — Senior Vice President and Chief Merchant

Yes. Sam, it’s Jared. Merch margins were up, obviously our — the health of our inventory and the fast turns that we saw certainly helped that. We believe our inventory is positioned incredibly well right now, although lean, we’re very clean where it matters in this environment and obviously are very confident in the flow going forward. On top of that from a marketplace perspective, we were very concerned about the health of the levels of inventory in the marketplace and the marketplace fuels fairly clean. So we do think that there is some opportunity for continued expansion.

Michael E. Longo — Chief Executive Officer and President

And Sam…

Samuel Poser — Susquehanna Financial Group — Analyst

I really just wanted the history, what the merch margin was in the quarter in Q2?

Michael E. Longo — Chief Executive Officer and President

It was — we reported in the earnings right? So it’s in the press release.

Robert J. Volke — Chief Financial Officer

Total, not merchandise. Total margins.

Michael E. Longo — Chief Executive Officer and President

We commented on margin in the press release and that’s what it is. So we don’t go beyond that level of detail.

Robert J. Volke — Chief Financial Officer

Sam. The second part of your question is the occupancy or the fixed cost. So we do capture store occupancy cost within our gross margin calculation. So as you can imagine, rent and property taxes and things that go along with the building are relatively fixed. There is some variability as we open and closed stores obviously, but for the most part, as our sales lift were so substantial, we obviously had significant leverage on that occupancy component.

Samuel Poser — Susquehanna Financial Group — Analyst

Well, historically, you’ve given the — you’ve given both. You’ve given the fixed cost and the merch. So, is this a change in the way you’re now going to report?

Jared S. Briskin — Senior Vice President and Chief Merchant

No, that’s not a change and we’re consistent with our past practices.

Samuel Poser — Susquehanna Financial Group — Analyst

Okay. Then few other things, Nike is now decided to pull their product out of quite a few stores in your neighborhood. Dillards and that [Phonetic] being primary. How do you view that as potential help when we — into next year?

Michael E. Longo — Chief Executive Officer and President

I’ll start, this is Mike and Jared will follow-up. We stated what we’re comfortable stating because that’s in the public domain. The commentary about Stage Stores and J.C. Penney publicly traded companies have made public announcements, and those are facts. We’re not comfortable talking about other people’s businesses. And Jared?

Jared S. Briskin — Senior Vice President and Chief Merchant

Yes. I think Sam, we’ll obviously watch other competitor closures and any changes from a distribution perspective. And as we get more information we’ll run a similar play to what we’ve run already for J.C. Penney and Stage.

Samuel Poser — Susquehanna Financial Group — Analyst

Okay. And then two more. One with your e-commerce business, can you give us an idea of what percent of that business was a BOPIS or/and curbside pickup and what curbside is looking like going forward. And then, Jared, I just want to get the allocations one more time, especially in the fourth quarter when it comes to some of the big launch shoes. I mean are you — are your allocations going to be in line with last year on the key items in the fourth quarter?

Michael E. Longo — Chief Executive Officer and President

Why don’t we start with Jared and I’ll follow.

Jared S. Briskin — Senior Vice President and Chief Merchant

Yes. I’ll start. I mean, I’m not going to get to the specific levels of details on allocation. I’ll just reiterate what I said earlier. We’re very confident in our flow of inventory. So we feel, again, and based on our guidance, we feel good about our back half.

Michael E. Longo — Chief Executive Officer and President

And then back to omni-channel, I don’t know if I had mentioned it a couple of times, but we have a best-in-class omni-channel consumer experience. And so part of that is the both businesses growth is the curbside and I do like the brag on the team that the day that we decided to go in curbside it took up 6 hours to get it up and running. So that’s the kind of team that can execute and represented here by Ben Knighten and Bill Quinn. So Bill, you want to give additional flavor to that?Yes. Yes, Sam, I can’t talk about specific percentages for a curbside, what I can say is, we’re happy with the performance. We’ve surveyed the customers who have done it as well as our stores and everyone likes the programs that we’re very, very happy with it. We also added a new omni-channel program, buy online ship to store that was done over the summer, early summer. And so we’re continuing to invest in omni-channel. The other thing I would say is there is certainly these programs, but also just the general behavior of customers shopping in both channels has increased pretty significantly. So we’ve got a lot of customers who are shopping in-store and online.

Samuel Poser — Susquehanna Financial Group — Analyst

Okay. Well thank you very much and continued success.

Michael E. Longo — Chief Executive Officer and President

Thank you.

Operator

[Operator Instructions] Our next question comes from Peter Benedict with Baird. Please proceed.

Peter Benedict — Robert W. Baird — Analyst

All right, guys, thanks for taking the question. Mike, so the mid single-digit comp plan for the second half. Just curious, is there any 3Q versus 4Q dynamic that we should be aware of, maybe anything on how August is influencing that spread. That’s my first question.

Michael E. Longo — Chief Executive Officer and President

As you know August is a significant portion of the Q3 sales. We feel very confident about what’s going on. There has been a lot of commentary in the public about back-to-school and while the timing is disrupted, we don’t believe the amplitude of it has changed. We believe the back-to-school spending will have a positive versus previous year, and our experience in Q3 is in line with that. And the results that we’re seeing are in line with the guidance that we’ve given. So we’re pretty confident about Q3 as well.

Peter Benedict — Robert W. Baird — Analyst

Okay. So at this point, no material difference I guess between how you’re thinking about 3Q and 4Q, understanding obviously there’s a lot of just general uncertainty.

Michael E. Longo — Chief Executive Officer and President

Sure. But we — and that uncertainty is mostly around timing with specifically Q3. The other uncertainties that we’ve mentioned both in print and during our commentary here about the macro situation and all the other things going on in the world, yes, those uncertainties exist, but the rest of it, we feel pretty confident.

Peter Benedict — Robert W. Baird — Analyst

Great. Now that’s helpful. What — how should we think about the flow through on that incremental revenue that you guys are expecting from the closures J.C. Penney Stage Stores. So $20 million, $40 million, I guess, as we kind of cut through the noise of — of this year, how are you thinking about flow-through margins and that type?

Michael E. Longo — Chief Executive Officer and President

Well, if you’re talking about operating income, what we’ve typically seen in just all the retail I’ve ever been, and this one included of approximately one-third of incremental revenue falls to the bottom line inside a relevant range. If we were talking about doubling revenue that range doesn’t hold, but in this case, it’s in the relevant range. So generally about 30% of incremental revenue falls to the operating income line in most retailers.

Peter Benedict — Robert W. Baird — Analyst

Okay. Perfect. That’s helpful. And then I guess the last question would be just the plans for allocating the excess cash. Obviously you’re going to rebuild the inventory levels to some degree, but beyond that what are the priorities here? Do you have any buyback that’s baked into the second half, that look like it, but just curious when you might turn that back on? And just any thoughts on capex? I apologize if I missed anything on capex. Thank you.

Michael E. Longo — Chief Executive Officer and President

We didn’t give much guidance on that. So let me fill in some blanks here. As you pointed out, we’ve got approximately $13 per share in cash on the balance sheet that’s substantial. We will use some of that although not a tremendous amount to replenish the inventory as it comes in through Q3 inventory builds, which will then also take care of that metric on aged inventory percentage, as that inventory builds will be somewhat of the use of cash, then we are going to come back in Q3, Q4 and talk about our strategic alternatives on uses of cash. But we’re not comfortable talking about it further than that. Bob?

Robert J. Volke — Chief Financial Officer

Yes. I mean, the big thing obviously is share repurchase plan, which we’ve done historically. We did not do any of that in Q2 due to the great amount of uncertainty. We are certainly considering and talking about our options as far as doing some share repurchase. I think at the end of the day, obviously we want to try to find the best use of our cash regardless of what that uses for, but we’re going to keep looking for ways to beef up the business and bring more profitability to the bottom line.

Peter Benedict — Robert W. Baird — Analyst

Okay. Great. And just one follow-up. I apologize for asking so many. Just when you think about the back half of the year, I mean the plan as mid single-digit comps. It seems like it implies roughly flattish operating margins. Is that kind of how we should be thinking about the business longer term. I know you’re going to give us more information, but given the penetration of Digital etc, how the sales are coming through the door that kind of a mid single-digit comp is something where you would be able to maintain operating margins?

Michael E. Longo — Chief Executive Officer and President

We think that the operating margins go up from here. So we’re going to walk back through the guidance one more time, make sure that we’re answering your question appropriately. So gross margin leverage is 50 basis points to 70 basis points. SG&A leverage 70 basis points to 90 basis points. And then on top of that, we’ve got the mid single-digit comp which should drive incremental margin on top of that on the operating income. And so as a result, earnings per share and in here you will see a flat share count. So…

Robert J. Volke — Chief Financial Officer

Slight increase.

Michael E. Longo — Chief Executive Officer and President

Yes. So that’s where we got to the $0.85 to a $1.

Robert J. Volke — Chief Financial Officer

Yes. So if you think about it Peter, last year I think we did on a GAAP basis $0.47 in the second half of the year and here we’re talking about a range of $0.85 to $1 and it’s not all related to share repurchases in prior periods. It is truly kind of mix between that share count as well as some additional profitability.

Peter Benedict — Robert W. Baird — Analyst

Yes. I guess I was thinking about it on an adjusted basis. I understand the GAAP guidance. I was thinking more adjusted. We can walk through some of it offline. Thanks so much guys. Appreciate it.

Michael E. Longo — Chief Executive Officer and President

Thank you, Peter.

Operator

Our next question comes from Jim Chartier with Monness, Crespi, & Hardt. Please proceed.

James Chartier — Monness, Crespi, Hardt & Co — Analyst

Good morning. Thanks for taking my questions. I just wanted to touch on the store opening plan. I think last year you closed 7% of your stores. And just want to understand the rationale for now starting to return to double-digit growth? And within that, where do you see the opportunity for new stores, maybe from geographies that you aren’t in or is it more within existing geographies?

Jared S. Briskin — Senior Vice President and Chief Merchant

We certainly did historically close some stores. They were poor performers and they were closed when the lease came up for renewal. So that the company didn’t have any extraordinary cost in closure and the capital was reallocated. That historically was happening given the health of the current fleet of stores, plus the underlying changes to the competitive landscape plus the changes to our business model which had been relatively substantial. We really are very optimistic about the fleet of stores that we have today. And that comes from a number of things, not the least of which is the improved selection of merchandise in the stores, the improved morale in the stores as well as the sales training that’s going on and morale comes from winning. And it’s as simple as that. People like to win and when you win they want to win some more. Winning deals in the store level hit my bonus target. And everyday I go home, I feel like I’ve won. So winning begets winning and the sales training that’s going on in the stores is helping that flywheel to turn a bit faster. And I don’t know if I’ve mentioned omni-channel yet, but that is a substantial portion of our business and we really like what’s going on there, right. Pure play, e-commerce businesses have a problem. Pure play, brick and mortar businesses have a problem. Good retail is omni-channel where you have both and you do them both very, very well. And I will say Bill Quinn and Ben Knighton’s teams are executing a very high level with regards to the omni-channel business.

So as a result we believe that there is a tremendous opportunity to turn back on the sort of net store growth. We will always have a handful of stores that are underperforming, because when you have a portfolio of stores, we’re going to open some that aren’t as good as others. So we’ll close a handful every year when the leases come up, and that’s the appropriate way to do it. At the same time, we have a lot of white space opportunities, while we’re not comfortable commenting on specifically where those stores go, we will be able to give further guidance in the future. We don’t like to talk about exactly where simply from a competitive stance.

James Chartier — Monness, Crespi, Hardt & Co — Analyst

Understood. And then just on the store refreshers. What percentage of your existing store base do you think needs a refresh. How many refreshes, do you think you’ll do per year. And then, what’s the cost of that and what kind of sales lift have you seen from doing refresh in the past?

Jared S. Briskin — Senior Vice President and Chief Merchant

We’re going to come back with some facts and figures and where we’re at in Q3, but we have an initiative underway to improve the look and feel of every store in the chain. We believe that is incredibly important, its retail 101, one store model, one look, one feel, one way of doing business. And that should — we should be substantially done in Q3.

James Chartier — Monness, Crespi, Hardt & Co — Analyst

Great. Thanks and best of luck.

Jared S. Briskin — Senior Vice President and Chief Merchant

Thank you. We appreciate the call and the questions.

Operator

We have a follow-up question from Sam Poser with Susquehanna. Please proceed.

Samuel Poser — Susquehanna Financial Group — Analyst

Just for clarification, the double-digit — when I asked the question regarding double-digit store growth, you mentioned double-digit store growth, does that mean more than 10 or does that mean as a percent?

Jared S. Briskin — Senior Vice President and Chief Merchant

Everybody in the room are shaking their head because they knew, I just said it’s unit growth, its store growth and store growth is not percentage growth. Thank you. Thanks for the clarification.

Samuel Poser — Susquehanna Financial Group — Analyst

Okay and then just, I was just wondering if you can call out, Jared maybe some of the brands that are performing or not performing right now or improvements you’re seeing or brands is slowing down. Any color you want to give us there.

Jared S. Briskin — Senior Vice President and Chief Merchant

Yes. I’m not going to give too detailed here Sam, but I mean overall with the results that we’ve had business was really strong overall. I would say certain categories performed better than others and that led to brand performance both positive and negative. Just a few that I will comment on certainly business with Nike was exceptionally strong, business Jordan was exceptionally strong. Our business with Adidas was very strong. But overall, it was a really, really good result.

Samuel Poser — Susquehanna Financial Group — Analyst

Great. All right. Thanks again.

Operator

There are no further questions at this time, please continue with your presentation or closing remarks.

Michael E. Longo — Chief Executive Officer and President

Well, thank you everyone. We really appreciate your time and attention during the call. We know that there was a lot of information. We appreciate the questions. We appreciate the feedback and we look forward to doing this again very, very soon. Thank you.

Operator

[Operator Closing Remarks]