Hibbett Sports Inc. (HIBB) Q2 2022 Earnings Call Transcript

Hibbett Sports Inc. (NASDAQ: HIBB) Q2 2022 earnings call dated Aug. 27, 2021

Corporate Participants:

Jason Freuchtel — Director, Investor Relations

Michael E. Longo — Chief Executive Officer and President

Jared S. Briskin — Senior Vice President and Chief Merchant

Robert J. Volke — Chief Financial Officer

William G. Quinn — Senior Vice President of Digital Commerce

Benjamin A. Knighten — Senior Vice President of Operations

Analysts:

Alex Perry — Bank of America — Analyst

Sam Poser — Williams Trading — Analyst

Cristina Fernandez — Telsey Group — Analyst

Jim Chartier — Monness Crespi Hardt — Analyst

Justin Kleber — Baird — Analyst

John Lawrence — The Benchmark Company — Analyst

Presentation:

Operator

Greetings and welcome to the Hibbett Incorporated Second Quarter Fiscal Year 2022 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jason Freuchtel. Thank you, Jason. You may begin.

Jason Freuchtel — Director, Investor Relations

Good morning. Please note that we have 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 home page or at investors.hibbett.com under the News & Events section. 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 these factors that could contribute to such differences have been described in the news release issued this morning and 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 will find a reconciliation to the most directly comparable GAAP measures on our website. Lastly, I would like to point out that management’s remarks during the conference call are based on information and understandings believed accurate as of today’s date, August 27, 2021. Because of the time-sensitive nature of this information, it is in the policy of Hibbett to limit the archive 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, Senior Vice President and 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. And good morning and welcome to the Hibbett Q2 earnings call. If you’re following along using the slide deck, I’m on the third slide titled Introduction.

This quarter’s financial performance was a strong outcome for the company. As you saw in the press release, we reported a decrease of 6% for total comp sales for the quarter. Having said that, we were comparing to a total comp for the second quarter last year of 79%. That means our two-year comp was a strong 73% for the quarter and 63% year-to-date. This resulted in operating income of $61.5 million and a diluted earnings per share of $2.86.

These results were made possible by the hard work of our 10,000 teammates in the stores, the store support center and the distribution centers. They executed their respective responsibilities at a high level and helped lead us through another quarter in a challenging business environment. We’re proud to represent our teammates today and wanted to make sure to thank them for a job well done. And as I’ve said repeatedly, this is my favorite team sport and I love our team.

We believe our results put us on track to significantly outperform our previously announced fiscal year guidance and Bob Volke will address that in his guidance in his remarks in a few minutes. But first, I want to highlight some of the reasons for the strong Q2 performance.

Several factors last year gave both new and existing customers compelling reasons to shop with us. This included competitive closures, increased e-commerce adoption, spending rotation into our product categories and some fiscal stimulus. As a result, we believe we’ve increased our market share. The momentum from these factors gave us even more opportunities to attract and retain new customers. And our data shows we’ve done a good job retaining them so far.

Let’s talk a little bit more about sales drivers on Slide 4. As we stated previously, our competitive advantage as a service, selection and a best-in-class omnichannel capability provide us with a strong and resilient business model that continues to satisfy our existing customers while also attracting and retaining new customers without sacrificing our ability to deliver a premium consumer experience.

We continue to update and expand our product assortment, improve our supply chain capabilities and enhance our overall customer experience both in-store and online. Our second quarter result delivered a strong two-year sales growth as well as a strong gross margin performance. Some of the key contributors to these results include: first, delivering on a number of business model improvements earlier than anticipated. And those include supply chain innovations, continued emphasis on store culture and numerous other investments that will provide future benefits. Second, we added new customers while retaining our existing customers at above historical level.

Third, we experienced year-over-year gains in the number of existing customer shopping with us and their average purchase price amount continued to increase. And finally, competitive closures and limited distribution continue to impact our sales positively. The combination of these factors drove our solid quarterly sales results and allowed us to maintain a high gross margin.

Moving on to Slide 5, we want to give you some insight into our next few quarters. For some of the factors mentioned previously were temporary, while others will persist into the future and could significantly improve our opportunities to drive incremental sales and profitability. We believe the factors that will have a lasting impact in the future includes continued improvements to our business model, additional investments in the consumer experience, new customer retention, capitalizing on competitive closures and the reduction in distribution of key brands and an improved inventory position.

And to discuss some of that, I’ll now be — I’ll now turn the call over to Jared to discuss our merchandising performance. Jared?

Jared S. Briskin — Senior Vice President and Chief Merchant

Thank you, Mike. Good morning. If you’ll turn to the merchandising slide, for the second quarter, all categories were significantly above plan, as we were able to comp the majority of the prior year’s significant sales increase. Our focus on toe-to-head merchandising continues to drive results. Women’s license products and team sports achieved double-digit growth for the quarter but were offset by declines at our men’s and kid’s business. All genders and all categories achieved double-digit growth as compared to fiscal 2020 with women’s being the standout area with triple-digit growth over the two-year period.

Our apparel business declined mid-single digits during the quarter. Drivers remained color-connected tops and bottoms, weaker connectivity and tall-to-small connectivity from adults to kids’ sizing. From the athletic brands, we continue to see strong demand for lifestyle products and improvement in performance products. Our fashion brand performance continued to be very strong. Our vendors in this space are very nimble and they’ve worked very closely with us to mitigate supply issues.

Denim remains an important growth driver. License business was very strong led by headwear and jerseys and looks inspired by the ’90s are resonating and are in significant demand. Sneaker accessories, bags and sunglasses had strong results during the quarter, but were offset by pandemic-related items such as masks in the year ago period.

The footwear business declined mid-single digits. Basketball and lifestyle footwear continue to drive our footwear business. Classics demand remains very strong. The running business was also strong during the quarter as our elevated investment in this area has resonated with our consumer. Casual shoes as well as slides and sandals continue to perform exceptionally well. Specific to footwear and apparel, our women’s business was our fastest growing area with men’s and kid’s declining.

Inventory remains under pressure due to the increased sales volume and supply chain disruption. Our merchants are working tirelessly with our vendor partners to deliver what we have on order as well as secure additional inventory. Based on current projections and information, we expect inventory levels to be up to fiscal ’21 during the back half of the year but to remain below fiscal ’20 levels.

I will now turn the call over to Bob to discuss our financial results.

Robert J. Volke — Chief Financial Officer

Thanks, Jared, and good morning. Please refer to the seventh slide titled Second Quarter Fiscal 2022 Results.

As a reminder, our results include both Hibbett and for the year and are reported on a combined basis. For the second quarter, total net sales decreased 5.1% to $219.3 million and consolidated comp sales declined 6.4%. This compares to second quarter fiscal 2021 sales of $441.6 million and a comp sales increase of 79.2%. Over a two-year period, our comp sales have increased 72.8%. Brick and mortar comp sales were solid during the second quarter and came in at a 3.8% decrease versus fiscal 2021 but were up 64.5% relative to the second quarter two years ago.

E-commerce comp sales declined 20.4% compared to last year’s second quarter but reflected a 153.3% comp versus the same period two years ago. In the prior year second quarter, consumer shopping habits were disrupted as a result of the COVID-19 pandemic. This drove incremental business to our online channel. As a result, e-commerce sales declined to 13.1% of net sales in the current quarter compared to 15.7% in the prior year second quarter. However, the current quarter mix of e-commerce sales is still approximately 450 basis points higher than the second quarter of fiscal 2020.

Our GAAP gross margin expanded meaningfully to 39% of net sales compared to 37% in the prior year second quarter. This approximate 200 basis point improvement was due to higher initial sell through premium price product, a low promotional environment, improved e-commerce margin and a slight mix shift away from e-commerce, which despite an overall improved margin still carries a lower rate due to the cost of fulfillment. Excluding adjustments to our non-cash inventory valuation reserve last year, the current year gross margin of 39% is comparable to adjusted gross margins of 36.7% in the prior year.

Store operating, selling and administrative expenses, excluding depreciation and amortization, were 22.3% of net sales in the second quarter, which was slightly below the 22.6% reported in the second quarter of fiscal 2021. This decrease was the result of having minimal costs in the current year associated with City Gear acquisition and integration activity. Excluding certain City Gear acquisition and integration expenses, prior year SG&A expense on an adjusted basis was 19.3%. Thus, the current year SG&A expense rate of 22.3% represents an approximately 300 basis point increase versus the adjusted prior year second quarter results.

This increase was primarily related to the incremental cost of operating fully staffed stores across regular business hours engaging in targeted advertising aimed at attracting new customers and disrupted markets and investments to improve the customer experience and to drive efficiency in back-office processes. As a reminder, many of our stores operate at less than regular business hours with slightly reduced staffing levels in the prior year second quarter. Depreciation and amortization increased approximately $900,000 from last year’s second quarter, reflecting increased capital expenditures on store development initiative, plus additional growth opportunities and infrastructure projects.

On a GAAP basis, we $61.5 million of operating profit in the quarter or 14.7% of net sales, which compares to last year’s second quarter operating profit of $56.3 million. Excluding all non-GAAP adjustments during last year’s second quarter, our $61.5 million of operating income this year compared to adjusted operating income of $69.7 million in the second quarter of fiscal 2021.

GAAP diluted earnings per share were $2.86 for this year’s second quarter and we had no adjusting items in the current period. In last year’s second quarter, GAAP diluted earnings were — per share were $2.38 and adjusted diluted earnings per share were $2.95.

Now, we’ll turn to Slide 8. On a year-to-date basis, sales increased 30.2% to $926.1 million, which is up from $711.4 million over the first six months in the prior year and significantly higher than the $595.7 million in the first six months of fiscal 2020. Relative to fiscal 2021, comparable sales increased 30.3%. Brick-and-mortar comparable sales were up 39.9%, while e-commerce sales decreased 11.4%. E-commerce represented 12.4% of total sales in the current year compared to 18.2% of total sales in the comparable period last year. In looking back two years for the first six months of fiscal 2020, comparable sales increased 63.4%. Brick-and-mortar comparable sales increased 56.9% and e-commerce sales grew 127.7% over the two-year period.

Our year-to-date GAAP growth margin was 40.3% of net sales compared to 33.4% for the first six months of fiscal ’21. Excluding adjustments to our non-cash inventory valuation reserve last year, the current year gross margin of 40.3% is comparable to the adjusted gross margin of 33.9% in the prior year.

First half SG&A expenses were 20% of net sales compared with 26.6% of net sales in the first six months of last year. Excluding certain City Gear acquisition and integration expenses and pandemic-related impairment and valuation cost that occurred last year, current year SG&A expense of 20% of net sales reflected an improvement of approximately 100 basis points from adjusted SG&A expenses of 21% over the first six months of last year.

On a GAAP basis, we produced $171.6 million of year-to-date operating profit compared to last year’s operating profit of $34.2 million. Excluding all non-GAAP adjustments for last year, our year-to-date operating profit of $176.6 million compared to adjusted operating profit of $77.5 million over the first six months of last year. GAAP year-to-date diluted earnings per share were $7.90 compared to $1.50 in the prior fiscal year. Since there were no adjusting items in the current year, the diluted earnings per share of $7.90 compares to $3.30 for the comparable period of fiscal ’21, excluding all non-GAAP adjustments.

Driven by strong sales, robust margins and leverage of SG&A expenses, we generated operating cash flow of $115.5 million on a year-to-date basis and have spent $20.8 million in capital, which was largely related to new store openings, relocations, remodels and expansions of existing stores. Over the first six months of the prior year, operating cash flow was $178.9 million and capital expenditures were $12.5 million.

Turning to the balance sheet. We ended the quarter with $176.8 million in cash and cash equivalents. This is down from $270.9 million at the beginning of the quarter and $217.8 million a year ago as we continue to deploy cash to build inventories and fund capital expenditures, while also returning cash to our stockholders. We entered into a new five-year $100 million unsecured credit agreement with Regions Bank during the second quarter. We have no outstanding borrowings at present and do not anticipate the need to borrow from this unsecured credit line based on current cash projections.

Net inventory at quarter end was $216.8 million, an 18.9% increase from the beginning of the quarter and a 19.1% increase from last year’s second quarter. As Jared previously mentioned we have continued to strengthen our relationship with our vendor partners and our buying team continues to work around the significant challenges posed by the global supply chain to obtain merchandise that is highly coveted by our customer base.

During the second quarter, we returned $87 million to our stockholders as we repurchased just over 985,000 shares of common stock at a cost of $83.2 million under our authorized share repurchase plan and distributed $3.8 million as part of our first-ever recurring quarterly dividend. For the year, we have repurchased approximately 1,527,000 shares of common stock at a cost of $120.5 million under our share buyback plan. In addition, our Board of Directors has declared a net quarterly dividend payment in the amount of $0.25 per common share to stockholders of record at the close of business on September 9th, 2021.

Next, I’ll review our updated fiscal 2022 guidance on the 9th slide entitled Updated Guidance. Given the strong performance in the second quarter, we are revising our full year outlook for fiscal 2022, which ends on January 29, 2022. This update is influenced by several factors. As mentioned in previous comments, we attract and retain new customers for our fiscal year 2021 due to pent-up demand, market disruptions and government stimulus payments. We continue to attract and retain additional new customers in fiscal 2022. We expect that accelerating consumer adoption and e-commerce, we’ll continue to drive growth across our best-in-class omni-channel platform.

Those factors, in addition to our product selection and improved inventory positions, have us well-positioned to take advantage of additional revenue opportunities. Net double-digit store unit growth, incremental improvements to the in-store consumer experience and capital investments and supply chain capabilities and corporate infrastructure should also help drive sales and profitability growth. We are now forecasting comp sales for the full year in the positive mid-teens, which is up from previous guidance of high single-digits to low double-digits. Although we expect comp sales to be positive in both the third and fourth quarters, we also expect the year-over-year growth to slow.

We expect gross margin performance will be lower in the second half of the year in relation to the first half of fiscal 2022 due to potential headwinds on freight and shipping costs and deleverage from store occupancy cost. We continue to expect gross margin will be favorable to both the GAAP and adjusted fiscal 2021 gross margin percentages on a full-year basis.

We continue to expect to deliver SG&A leverage on a full-year basis compared to both GAAP and adjusted SG&A reported in fiscal 2021. And we believe SG&A as a percent of sales will increase in the second half of the year in comparison to the first half of fiscal ’22 due to wage and related benefit impact, performance-based incentive and equity costs — performance-based incentive and equity costs and increased costs in categories such as repairs and maintenance, travel and insurance.

Depreciation expense is expected to delever slightly in the back half of the year due to the expected level of capital expenditure. We would also like to point out that we believe year-over-year gross margin and operating margin comparisons will be more difficult in the third quarter than the fourth quarter due to fixed cost leverage considerations.

Lastly, diluted EPS is now forecasted to be in the range of $11 to $11.50 versus our previous outlook for projected diluted EPS of $8.50 to $9. Our diluted EPS forecast assumes an effective tax rate of approximately 25% and a weighted average diluted share count for the year of approximately 16.2 million shares. We do not anticipate the difference between our GAAP results and non-GAAP results will be material for the current fiscal year.

From a capital expenditure perspective, we remain committed to investing in our business for the long-term and have identified additional investment opportunities. We now forecast capital expenditures of approximately $70 million focusing on organic growth opportunities that we believe will lead to incremental sales and profitability and also on strategic infrastructure projects that will enhance our distribution and back-office efficiency. We believe that these investments will assist in attracting new customers, improve retention of new and existing customers, enhance the consumer experience in stores and online and modernize our technology and processes.

In addition to our capital expenditure plans, we intend to opportunistically allocate capital to share repurchases and as of the end of the second quarter have approximately $516 million available under our share repurchase program. We also remain dedicated to returning additional capital to our stockholders in the form of a recently initiated recurring quarterly dividend program.

That concludes our prepared remarks. Operator, please open the line for questions.

Questions and Answers:

Operator

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

Alex Perry — Bank of America — Analyst

Hi. Thanks for taking my question and congrats on another great quarter. So, I think there is an implied slowdown in the two-year stack in the guidance. Can you explain sort of what is being considered that would lead to a slowdown? Is most of it just contemplating challenges, securing inventory in the back half? And then, maybe just off of that, could you give us a little more color thinking through on sort of the cadence of the comp progression in 3Q versus 4Q? Thank you.

Jared S. Briskin — Senior Vice President and Chief Merchant

Yeah. This is Jared. I’ll take the first part of the question. See, obviously we’re very confident in the results that we’ve had here recently without a question. And we’re certainly starting to go up against additional very strong numbers from the year ago period. There’s certainly some concerns with regard to supply chain. I guess I would characterize it as chaotic and somewhat fluid. But we feel really strongly about our flow of goods and our ability to hit the numbers that we talked about.

So I think I’ll turn it back to Bob maybe to the second part of your question.

Robert J. Volke — Chief Financial Officer

Yeah. As far as the back half of the year, so we did indicate that obviously coming off of some pretty strong quarters over the last four periods. It gets a little bit tougher to keep comping such large numbers built. But we still expect to see positive comps from the back half of the year. I think we’re kind of playing somewhere in mid to upper-single digits for the back half of the year. So, again, we think that that’s what’s going to keep the momentum going.

Alex Perry — Bank of America — Analyst

That’s really helpful. And then, just my second question. So, in light of the newly raised guidance and thinking through the guidance about next year that you gave us at Investor Day, how should we be thinking about that changing at all? Like, is there still a scenario that you’re planning for a positive same-store sales and gross margin expansion off of a pretty high base this year? Just any more color on shaping for next year?

Robert J. Volke — Chief Financial Officer

Yeah. I mean, obviously, a challenging question from a standpoint of — we’ve kind of outperformed a lot of our expectations over the last several quarters. Again, we still expect that we’ve got future growth opportunities. I think, as we continue to pile one good quarter after another, obviously the hurdle rate gets a little bit more difficult, but we still feel confident in our long-term outlook. Again, this is not a linear equation. We don’t necessarily go up in certain steps year-after-year or quarter-after-quarter. But again, we think over an extended period of time, we still have opportunities to grow obviously sales and continue to expand on margin and profitability.

Alex Perry — Bank of America — Analyst

Perfect. That’s really helpful. Best of luck going forward.

Operator

Thank you. Our next question is from Sam Poser with Williams Trading. Please proceed with your question.

Sam Poser — Williams Trading — Analyst

Thank you for taking my questions. I’ve got a few. Let me just — I just want clarification. You’re saying that you’re going to comp up versus this year in the back — versus last year in the back half or versus two years ago in the back half?

Robert J. Volke — Chief Financial Officer

No, we will comp positive in the back half this year versus last year.

Sam Poser — Williams Trading — Analyst

And the range again you mentioned was how much?

Robert J. Volke — Chief Financial Officer

Mid to high single-digits is our expectation.

Sam Poser — Williams Trading — Analyst

Doesn’t that put your full year comp above your guidance?

Robert J. Volke — Chief Financial Officer

No, that’s basically the math to get to the guidance.

Sam Poser — Williams Trading — Analyst

Okay. Compared to fiscal Q2 ’20, Jared, women’s, men’s and kid’s — sorry, I’m sorry, Footwear, Apparel and Team Sports versus two years ago, could you give us some color there as to what it was versus a couple of years ago, please?

Jared S. Briskin — Senior Vice President and Chief Merchant

Yeah. As I mentioned, Sam — first of all, good morning. All of our categories and genders were up double-digits compared to the two-year ago period. Certainly, the standout, as I referenced, was our women’s area. Next would be our kid’s area, which was incredibly strong. And as a reminder, those two areas were a significant focus for us as we evolved our entire merchandising organizations try and capitalize on that opportunity. Our smallest area of growth was our Team Sports area. We were thrilled with the double-digit improvement over the two-year ago period, but the growth was really driven by Footwear and Apparel.

Sam Poser — Williams Trading — Analyst

Great. And then, I also went — when you gave your Analyst Day, you said that you expect — based on the prior guidance for this year that you anticipated that next year’s EPS would grow versus fiscal ’21 — ’22, excuse me. And the question is, is it based on what you know today? Is that still the case when we look into fiscal ’23?

Robert J. Volke — Chief Financial Officer

Again — hi, Sam; it’s Bob. I don’t know if we were definitive in that saying it was — definitely we said. I think the question was more along, like could it grown, I think the answer was, yes, we thought it could certainly grow year-over-year. As I just mentioned, we talked to Alex here in the last question, as we continue to stack strong quarters that obviously increases the bar a little bit. Again, I’m going to repeat what I just said, but it again may not be completely linear. Again, I still think it is possible. And I still think that we will do the best we can to continue to grow on a year-over-year basis. But again, I don’t think we’ve made a firm commitment to that. That’s our expectation and hope that we can continue to do that.

Sam Poser — Williams Trading — Analyst

All right. [Indecipherable]. Thank you.

Operator

Thank you. Our next question comes from Cristina Fernandez with Telsey Group. Please proceed with your question.

Cristina Fernandez — Telsey Group — Analyst

Hey. Good morning and thank you for taking my questions. My first question is, on the last call, you talked about increasing inventory by, let’s say, $80 million to $100 million, I think that’s the number by the end of the year. Do you still think that is possible just given the supply chain constraints in the system?

Jared S. Briskin — Senior Vice President and Chief Merchant

Yeah. So, good morning, it’s Jared. I would say, our aspiration is certainly to continue to try and get our inventory levels caught up to those numbers. But based off the demand that we’re seeing in some of the constraints, that’s becoming more difficult. At the same time, I think we’ve effectively operated on a significant lower amount of inventory and our teams gotten more comfortable in operating with a lower amount of inventory. So, I think it really becomes more about the flow of that inventory, how a trend rate we are and ensuring we have it at the right time. But that’s where we’re focused on now. We’re controlling the things that we can control with regard to the supply chain, but we’re very confident in the inventory that we have and the flow of inventory coming in.

Cristina Fernandez — Telsey Group — Analyst

Thank you. And then, my follow-up is, can you provide more details about where the incremental capex is going this year, the $70 million you forecast now versus previously the $45 million to $50 million? Thanks.

Robert J. Volke — Chief Financial Officer

There’s a couple of kind of major buckets on that. So, obviously store development, when we talk about new store growth expansions, remodels, refreshes of our stores, we — again, we’ve got the opportunity to kind of move that forward a little bit more quickly. We figure this is just something that we will be doing over time anyways so we’ve accelerated some of that to get the bigger bang for the buck into the future. That’s a piece of it.

The second piece is, what we’re kind of referring to as the overall store infrastructure project. We’ve committed to putting a smart face in all of our Hibbett stores. And as a result, it’s kind of going into those stores and upgrading some of the technology. We decided to also attack some of the IT infrastructure to give us more IT capabilities as well as just kind of refreshing the fixturing around some of the cash wraps and some of the other fixtures within the store.

So, again, accelerate those projects from something we probably would have done normally over a two or three-year period, took advantage of kind of the timing and moved that stuff forward. Again, I wanted to be clear that the $70 million is not the new baseline for the go-forward spend, but it was an advantage — or an opportunity we took advantage of in the current year.

Michael E. Longo — Chief Executive Officer and President

Yeah. Cristina, this is Mike. I’m going to tag along on those comments. We think there’s a lot of upside on those investments. We’re very excited about them. Bob outlined some of the broad strokes there, but our opportunity to invest in and improve the consumer experience is still there, still provides upside. And in my opinion, it’s one of the more exciting aspects of this core. In fact, we took that bold step, we see those opportunities and we’re executing against them. So I’m really enthusiastic about that. So, thanks for asking the question.

Cristina Fernandez — Telsey Group — Analyst

Thank you. Very helpful.

Operator

Thank you. Our next question comes from Jim Chartier with Monness Crespi Hardt. Please proceed with your question.

Jim Chartier — Monness Crespi Hardt — Analyst

Hi. Good morning. Thanks for taking my questions. So, you’re one of the few companies that have seen a big acceleration in their two-year sales trend. And I’m just curious if you provide a little color in terms of what drove that improvement relative first quarter. Was it just better inventory availability or were there other factors at play?

Robert J. Volke — Chief Financial Officer

A-Robert: Well, thank you. Yeah, we’re very excited about that two-year comp. I think that’s the thing that everybody has been waiting on is how are they going to do, how’s Hibbett going to do against a 79% second quarter last year. And that’s been the speed bump everyone has been waiting to see how we’re going to perform against. And I got to tell you, I’m very excited about this performance, 73% two-year comp is something to get excited about. So pretty proud of that, pretty proud of how the team executed against it.

Do we expect to have 79% and 87% comps from here on out? Probably not. But certainly we aspire to great things. So we’re continuing to push that. And I know that the efforts of Ben in the stores, and Bill in digital and marketing and Jared in merchandising, there’s a lot of exciting things coming. And I can’t wait to get after it.

Jim Chartier — Monness Crespi Hardt — Analyst

Great. And then, customer retention trends, now that the country is mostly reopened and stores that were closed last year are open again, are you seeing any change in customer retention trends?

William G. Quinn — Senior Vice President of Digital Commerce

Hi. This is Bill Quinn. Good morning. Yes, we are. Actually very, very positive trends overall in customer retention. So, when we reopened our stores back in May of last year, we tracked each customer cohort group by month of May of 2020, June, etc. And what we’re seeing in those cohorts is low attrition, lower one and done. Also on top of that, more trips, higher average purchase value. And on top of that, we’ve even seeing lapsed customers, customers that we haven’t seen a while come back in and shop with us.

Jim Chartier — Monness Crespi Hardt — Analyst

And then, in terms of the lapsed customers, that’s something that you’re doing in terms of your outreach or is that just happening organically?

William G. Quinn — Senior Vice President of Digital Commerce

Yes. We are actually doing a lot of outreach to lapsed customers so that’s definitely part of it. The other part of it is, we continue to improve our model. So, if you look at the level of customer service that we provide in the stores as well as online and continue to improve that customer experience. On top of that, we continue to improve product. Jared’s team and our vendors have just done a fantastic job there. And lastly, our best-in-class royalty program attract customers. It is very easy to use and provides a lot of benefit to them.

Jim Chartier — Monness Crespi Hardt — Analyst

Great. And then, last year, you put out a target, I think, of $20 million to $40 million sales benefit from competitor store closings. What are you seeing in the markets where Stage and JCPenney stores closed? And then, how are you tracking versus your initial expectation?

Michael E. Longo — Chief Executive Officer and President

This is Mike. We feel really good about that estimate. We’re seeing those sales come in. We track all of the competitive closures as well as changes in distribution as reported externally within a three-mile radius of our stores. We know where those competitors are. We believe we have a pretty accurate model of what it means to our sales forecasts. We’re executing against that. We have gone to the level of detail of doing the obvious things like marketing against those opportunities and getting the consumer awareness to know that we’re there. And we’ve got the product and we’re ready to serve those consumers.

We’ve gone to the lengths of changing the product mix in the store and adding to product. We’ve done a great job. Ben has done a great job in coaching our employees in the stores and getting ready for that. So we feel really good about the estimate. There’s more to come. I think everybody remembers it was this time last year that Stage Stores began — actually closed their stores. I believe it was the 26th or 27th of August. One thing that we didn’t see very clearly was, we thought that it would be more — it would come in quicker. And so, what we saw was somewhere along the lines of 45 to 60 days before the effects began to really show up in our cash registers.

That has been relatively consistent. And so, as you would think about it now, we’re going to annualize those numbers at least against Stage. But as you continue to think about the future and how those sales opportunities layer in, we still got upside against all of those publicly reported changes in distribution. They really don’t all come into effect until the end of this calendar year. So, all of those upsides are still in the future except for the Stage Store’s comp.

Did I answer your question yet?

Jim Chartier — Monness Crespi Hardt — Analyst

That was great. I appreciate it.

Michael E. Longo — Chief Executive Officer and President

Sure. Thank you.

Jim Chartier — Monness Crespi Hardt — Analyst

Thank you.

Operator

Thank you. Our next question is from Justin Kleber with Baird. Please proceed with your question.

Justin Kleber — Baird — Analyst

Yeah. Hey, everyone. Thanks for taking the questions. Just first off, as we think about the timing and magnitude of back-to-school, how much of that business do you think came at the tail end of 2Q or is most of that hitting here in 3Q?

Michael E. Longo — Chief Executive Officer and President

Yeah. So, back-to-school in general — this is Mike — back-to-school in general, we think, is going to mimic historical levels and historical sales curves in terms of timing and seasonality. We did see that it shifted a little bit to the right. It shifted a little bit later simply because — I mean, for all the obvious reasons, I think that school districts and parents had a general — there was some angst out there. And I think that they gave themselves a week or two additional lead up to back-to-school to prepare themselves for it. So, we will see and we won’t comment any further than this specific thing. We do believe that a little bit of the sales from Q2 moved into Q3. I don’t think it’s something you should think of as material, but we did see it.

Ben, how’s it going in the stores with regards to back-to-school?

Benjamin A. Knighten — Senior Vice President of Operations

Yeah, Mike. Kind of echo some of those comments. Of course, comparing to last year, which we really didn’t have a back-to-school, so comparing a few years ago, definitely a little bit later shift there. I’ve been very happy with our results by the way and it continues. We do have a lot of stores in the northern and western markets that still haven’t gone back and it will go back after Labor Day, but then very pleasing results. We did a lot of things in-store in markets to capture that, particularly with our DSMs leading local efforts from a marketing standpoint, around back-to-school with backpack giveaways and things hyper local event, which we’ve been very excited about. But it continues on, definitely saw a shift, but nothing major there. And then very happy with the results so far.

Justin Kleber — Baird — Analyst

Okay. That’s good to hear. Maybe a question for Bob, just in terms of the gross margin outlook. The second half rate being below the first half, I think, makes sense. But do you think the second half gross margin will be above last year’s second half, which was around 37.6%?

Robert J. Volke — Chief Financial Officer

Yeah. Like I said, by the way, Justin, welcome to the process here. I think we have a tough compare in Q3 coming up here because last year was — Q3 was our highest margin quarter of the year. We had some opportunities in the marketplace to get access to products at maybe some discounted prices. But I think, again, we are struggling to figure out exactly where all the margin movement is going. We are going to see some deleverage, we think, in shipping and freight costs. Also, some of the competition against the store occupancy number is going to be a little bit more challenging. But we think overall for that back half of the year, we think we can certainly compare or have a strong compare to the last half of last year.

Justin Kleber — Baird — Analyst

Okay. And then, just one last one, if I could sneak in and just going back to the long-term guidance you outlined at the meeting. I know, it’s been asked a few times here but the 15 to 25 basis points of annual improvement that you guys talked about, when you set that guide, were you using the old base for this year, which was something north of 12 or did you outline this expansion knowing that your base was going to be moving higher? I think based on today’s guidance, you’re going to be north of 14% on the operating margin lines. I’m just trying to make sure I understand exactly what you’re saying there in terms of a go-forward basis. Thank you.

Robert J. Volke — Chief Financial Officer

Yeah. As we said, we keep stacking pretty strong quarters on top of each other. I think, the 15 to 25 was clearly based off of a slightly lower estimate from what we have achieved here in the most recent quarter. Again, thinking about this over a longer-term cycle, not just in a linear equation, we still think we’re going to end up where we said we’d be over a multiple year period. It may not just be that big of a lift from a period to period to period.

Justin Kleber — Baird — Analyst

Okay. Thank you, guys. And congrats on the strong results.

Michael E. Longo — Chief Executive Officer and President

Thank you.

Operator

Thank you. Our next question is from John Lawrence with The Benchmark Company. Please proceed with your question.

John Lawrence — The Benchmark Company — Analyst

Yeah. Thanks. Congrats, guys. Mike, would you comment a little bit about, we’ve seen this week some of your competitors and just a really strong reports for the space. Can you talk a little bit about — you’ve indicated about what you’ve done to be able to help your business, but is there something structural in this sporting goods business that besides the closures that have set this up on a higher bar going forward?

Michael E. Longo — Chief Executive Officer and President

Good morning, John. Welcome. Thanks for the question. I think this industry is in a very good place. The reason that I believe that is, I think the consumer has money. The opportunity to have a job is there. I think that a great deal of the angst that we were suffering through last year, while it hasn’t dissipated, I think the coping skills of the consumer have improved in a much more realistic idea of how to cope with the pandemic. I think all of the concerns that we all had about our kid’s going to be able to go to school, what’s going to happen to us in general, I think all of those have — we have been able to comp against.

And I think people’s outlooks have gotten much better. So the strength of the mental mindset, combined with the just basic microeconomics of how they’re doing as an individual and how their families are faring, combined with a very good job by the brands of controlling the distribution of their product continuing to innovate, continuing to provide new reasons to consume. All of those combine into a demand curve that we think is really strong. So the demand continues to exceed the supply. That then leads to all of the things that you know I’m going to say now. Right? So, you’re going to see prices continue to creep up and that will be less about the inflation and more about demand exceeding supply.

You’re going to see continued high turns and sell-throughs at the store level and online. Those then lead to higher gross margins on the product. Certainly we’re going to see some inflation creep in on the product cost. But as long as the gross margin continues to keep pace, that means actual — the gross profit dollars per product are actually going to be higher. We are certainly going to see challenges in the supply chain. I don’t think you need me to go chapter and verse on that, we all know what they are. They’re publicly reported. You all see it. Anybody’s try to order anything has found that it’s hard to get.

Everybody’s try to order anything is found that it’s hard to get. So that means that we’re going to see disruptions in the supply chain. It’s going to cause problems with timing. It’s going to cause increased freight costs. It’s going to cost us more in supply chain. But all those are swamped by the benefits of an increased demand over supply. And that gap continues to increase.

Now that won’t last forever because we all know what economics is, it’s going to catch up. But by the time it catches up, the industry itself will be in a completely new place. And that place is, again, we’ve got innovative products, we’re addressing the consumer’s needs and we’re doing it in innovative ways both the brands and the retailers themselves. And for my part, I couldn’t be more bullish about our industry and our segment and what we’re doing and how it’s looking going forward.

John Lawrence — The Benchmark Company — Analyst

Great. Thanks so much for that insight. And Jared, just one question for you. Remind us a little bit, I mean, when you look at this women’s business and you reformulated the buying themes and restructured that. Remind us a little bit because obviously that’s turned out to be a pretty bullish move and pretty dramatic in the numbers. Can you walk through that just a little bit, please?

Jared S. Briskin — Senior Vice President and Chief Merchant

Yeah. Thank you. Good morning. Yeah. So really pleased with the results. I mean, we took an opportunity. We felt like we had significant opportunity across the women’s and kid’s business. And with the men’s business being our largest business, we felt like we weren’t putting enough time, enough effort into growing the women’s and kid’s business that we were able to bring in some external talent, which helped significantly. And we reorganized the entire merchandising area with leadership across men’s, women’s and kids, as well as City Gear.

And that focus has allowed us to really dig in and look at all these incremental opportunities and then really put for at the strong effort and partnering with Ben and the ops team and Bill and the marketing team to really ensure that we’re really getting after these consumers individually in trying to capitalize on. Really it was a lot of low hanging fruit. So, really pleased that there’s really more about providing the focus and then making the appropriate investments and frankly taking some risk and inventory in these areas based off the data that we saw.

John Lawrence — The Benchmark Company — Analyst

Yeah. Thanks for that update. Congrats, Jared.

Jared S. Briskin — Senior Vice President and Chief Merchant

And what Bill [Phonetic] has done there because the way that’s come to life in the store is really connectivity at a higher level across those genders, right. And so, now when you walk in the store and we talk about toe-to-head, you see it come to life much more so than it has done historically. And so, we now have that connectivity in store from footwear to the apparel to the accessories. And so, that’s where it shows up for the customer and we see the result.

John Lawrence — The Benchmark Company — Analyst

Thanks a lot. Congrats again.

Michael E. Longo — Chief Executive Officer and President

Thank you.

Operator

Thank you. Our next question is from Sam Poser with Williams Trading. Please proceed with your question.

Sam Poser — Williams Trading — Analyst

Hi. I just wanted to follow-up on the supply chain specifically. How — when you’re looking for this fall, this is probably for Jared, when you’re looking at this fall and then looking into spring ’22, we’re starting to hear that some of the vendors are raising prices specifically large ones and that they’re starting to adjust orders. So I want to know — I want to get your impression of what’s going on and to what degree are you getting your fair share or more than your fair share however you want to attack that? Thanks

Jared S. Briskin — Senior Vice President and Chief Merchant

Hey, Sam. I think I would revert back to something I said earlier. First and foremost, it’s pretty chaotic, it is fluid, it is changing rapidly. Our team has done a great job without question. They’ve been tasked with having to continually redo, reassort, reallocate, rebuy and find opportunities and have done a remarkable job. And we’ve been doing this for the last 16 months. So, we know how to do it. We’ve been doing it and it’s something that we’re used to, although we don’t like it. So we’re going to control the things that we can control. We feel really strongly about the flow of our inventory. And we feel very strongly about the way our vendors are treating our business.

Sam Poser — Williams Trading — Analyst

You really don’t want to answer the question. I mean, we’ve heard — I’ll be blunt — we’ve heard that Nike has, one, taken, I guess, January orders that were written prior and raised the prices 5% or 10%. And we’re hearing that they’re starting to cancel some spring orders with other retailers. Are you seeing those specific things?

Jared S. Briskin — Senior Vice President and Chief Merchant

Sam, we’ve seen some price increases. I don’t think that would be a surprise. There’s nothing that we’ve seen that we’re concerned about. As Mike mentioned earlier, the complement of the price increases will allow us to continue to drive additional gross margin. With regard to any cuts or cancellations, as I said earlier, these are things we’ve been dealing with for the last 16 months. As of right now, our vendors have done an incredible job of treating our business as a priority and I would expect it to stay that way.

Sam Poser — Williams Trading — Analyst

Thank you very much. Continued success, guys.

Operator

Thank you. Our next question is from Alex Perry with Bank of America. Please proceed with your question.

Alex Perry — Bank of America — Analyst

Hi. Thanks for taking my follow-up question here. I just wanted to ask about, maybe Jared, if you’re seeing the consumer sort of willing to substitute between brands and between products based on the inventory availability. So if they came looking for Air Jordan 1, being willing to maybe substitute based on the inventory availability? Thank you.

Jared S. Briskin — Senior Vice President and Chief Merchant

Yeah. Thanks, Alex. Good question. I mean, certainly as Mike mentioned, the demand has been far greater than supply. So we are seeing more of an opportunity for substitutions. But at the same time, consumers frequently want what they want. So we’ve done a lot within our company to be able to ensure that we can provide access to consumers. That’s certainly paying off, but we are absolutely seeing, I wouldn’t say necessarily a full trade, but consumers are a little bit more accepting of similar products. But I think, Ben can give some really good insight to this from a store perspective. So I’m going to flip it over to Ben.

Michael E. Longo — Chief Executive Officer and President

Yeah. I would — thanks, Jared. I can’t classify it as a more understanding than they have been historically around inventory levels because they see it kind of throughout, be it in our industry or in other industries. And the limited supply or it’s here one day, it’s not there the next day just because there’s fell through. So we’ve seen some substitution out there that you probably haven’t historically, but still very brand loyal by nature. But when you have to buy for back-to-school, you have to buy for back-to-school. And so, you kind of shop around, figure out where you can get what you’re looking for. And we hope we provide that in the best way possible.

Alex Perry — Bank of America — Analyst

Perfect. That’s really helpful. Thanks again.

Operator

[Operator Instructions] Hi. It looks like we have a few questions over the webcast. To summarize, how do you think about your capital allocation strategy in terms of returning capital to shareholders? Do you view repurchasing additional shares or increasing your dividend a higher priority?

Robert J. Volke — Chief Financial Officer

Well, this is Bob. Again, we believe they’re both important parts of the capital allocation strategy. At this point in time, we have still, as I mentioned in my comments, over $0.5 billion available to repurchase shares. We will certainly be opportunistic in doing that. You’ve seen that we’ve been fairly aggressive in the first six months of the year. I would expect again that that will be a priority for us as we go forward. The dividend is now established. We expect that it will be fairly stable here for the next couple of quarters. But again, we will continue to kind of evaluate all of those opportunities as we continue to have the cash available to support that program.

Operator

Thank you. There are no further questions at this time. I’d like to turn the floor back over to management for any closing comments.

Michael E. Longo — Chief Executive Officer and President

Well, thank you for your time this morning. We always love to speak to our business, answer questions and represent our teammates on the call. Again, we’re very bullish about the industry. We love our team. We love our business model. And we really appreciate your time this morning. And so, thank you. We’ll sign off now. Goodbye.

Operator

[Operator Closing Remarks]