1 0 Y E A R S O F G R O W T H
1997
2007
H I B B E T T S p o r t s , I n c . A n n u a l R e p o r t 2 0 0 7
6 2 Y E A R S O F T E A M W O R K
1945
2007
F I N A N C I A L H I G H L I G H T S
(Dollars in thousands, except per share amounts)
For the Year
Net sales
Operating income
Earnings per basic common share(1)
Earnings per diluted common share(1)
At Year End
Working capital
Total assets
Total debt
Stockholders’ investment
2007
(53 Weeks)
2006
(52 Weeks)
Percent
Change
$ 512,094
$ 440,269
$ 061,738
$ 051,722
$ 0001.19
$ 0001.00
$ 0001.17
$ 0000.98
$ 106,428
$ 198,623
$ 212,853
$ 195,829
$ 000,00–
$ 000,00–
$ 136,641
$ 124,773
16%
19%
19%
19%
8%
9%
– %
10%
S A L E S , E A R N I N G S A N D S T O R E G R O W T H
$512.1
$1.17
$440.3
$0.98
$377.5
$321.0
$279.2
$0.70
$0.55
$0.41
613
549
482
428
371
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
NET SALES
(In Millions)
EARNINGS PER
DILUTED SHARE(1)
TOTAL STORES
(1) Except for fiscal 2007 which includes 53 weeks, all fiscal years presented are comprised of 52 weeks. All share and per share information has been
revised to reflect the effects of the 3-for-2 stock split effective September 27, 2005. No dividends were declared or paid.
Our accomplishment? Celebrating 10
years as a publicly traded company.
Hibbett Senior Management Team: (l to r)
Brian Priddy, Cathy Pryor, Mickey Newsome,
Gary Smith and Jeff Rosenthal
D E A R F E L L O W S T O C K H O L D E R S :
It is not every year that we are able to celebrate a milestone such as the one Hibbett Sports reached in
fiscal 2007. On October 11, 2006, we celebrated our tenth year as a public company by “ringing” the
opening bell at the Nasdaq Stock Market. In fact, since our start 62 years ago as Dixie Supply Company
in Florence, Alabama, there has never been a period in our company’s history to match the 10 years
of exceptional growth we have enjoyed.
We have many people to thank for the enviable track record Hibbett Sports has established – our dedicated
team members who live and breathe sports and bring an enthusiastic commitment to superior customer
service; loyal customers who have counted on Hibbett Sports to bring the best in sporting goods to their
hometown; leading brands that have entrusted us to expand their presence in our small to mid-size markets;
and the shareholders who have invested with us during this phenomenal period of growth.
Each year, we keep setting the bar higher for financial and operational excellence and this year was no
exception. For the 53-week fiscal 2007, we reported a 16% increase in net sales, a 3.8% increase in
comparable store sales, a 30-basis point improvement in operating margin to 12.1% and a 19% increase
in earnings per diluted share. Our store base grew by a net of 64 stores, reaching 613 stores in 23 states
at year end. We continued our migration across the Sunbelt with the addition of new stores in the State
of Arizona.
These record results included a few notable highlights that should position Hibbett Sports for continued
growth over the next several years. The first was our testing of store openings in even smaller markets than
we typically target. The initial results have exceeded expectations. This strategy will provide us another
source of store growth.
Another highlight reflects our continued commitment to investing in technology. This was demonstrated in
fiscal 2007 by a major initiative relating to the implementation of the JDA Software merchandise inventory
management system. With the implementation of the JDA planning system in the latter part of fiscal 2008,
we expect to achieve incremental improvement in our operating margins.
We realize that among some investors in the market today a company is only as good as its last year
or even its last quarter’s financial results. Rest assured that Hibbett Sports is looking well beyond those
short-term horizons and is committed to continuing a long-term track record of growth and improved
shareholder returns. The population of the Sunbelt region where we primarily operate has grown rapidly
in recent years and is projected to continue to grow at an accelerated pace for the next 25 years according
to the U.S. Census Bureau. Population growth equals opportunity for Hibbett Sports. We are confident we
will be as successful in the future as we have been in the past.
Thank you for your continued investment in Hibbett Sports.
Sincerely,
Mickey Newsome
Chairman and Chief Executive Officer
Our advantage? Never losing sight of our
roots as a neighborhood sporting goods
store.
We think of the customers’ needs first in every
significant merchandising, operating, financial
and logistical decision we make. The end result
has been a significant competitive advantage
created by team members who have the genuine
desire to provide superior customer service and
product knowledge backed by the sophisticated
systems that enable us to customize merchandise
offerings to the dynamics of the local market. We
believe this combination makes us desirable to
customers as well as an attractive partner to vendors
and shopping center owners.
“We seek the most talented
people available.”
“Equipment and accessories
designed to increase
performance.”
“The first place players
think of.”
“Hibbett sells only the
best brands.”
“Superior customer service
is one of our hallmarks.”
Our focus? Providing the best and most
technologically advanced brands in
sporting goods.
The top brands have always driven the growth of
the sporting goods industry, and Hibbett Sports has
been there with them every step of the way. Today,
those brands are changing the face of sports and
fashion with technological innovations in design
and fabrics to meet the demands of more active
lifestyles. With access to these latest innovations
and an attractive store format, we are able to
showcase these brands with prominent in-store
displays. Our customers demand the best, and we
bring them a wide selection of sports equipment,
footwear and apparel so they don’t have to leave
their hometown to get the best.
Football
Baseball/Softball
Physical Fitness
Basketball
Soccer
Our future? Investing in technology and
systems that will support and help us
manage our rapid growth.
Technology continues to offer exciting new
management tools that we intend to capitalize on
as our growth expands into new markets. From
website enhancements to the new JDA merchandise
inventory management and planning systems,
Hibbett Sports is committed to its investment in
sophisticated information systems in order to take
advantage of all technology has to offer.
“Inspired by sport.”
“Your sports apparel
headquarters.”
“A true understanding
of the right equipment.”
“Bringing together the
best footwear products
in the industry.”
“Each store is about the
customer and their needs.”
C O R P O R A T E P R O F I L E
Hibbett Sports, Inc. is a rapidly-growing operator of sporting goods stores in small to mid-sized markets predominantly
in the Sunbelt, Mid-Atlantic and Midwest. The Company’s primary retail format is Hibbett Sports, a 5,000-square-foot
store located in enclosed malls or in strip centers which are generally the center of commerce within the area and which
are usually anchored by a Wal-Mart store.
Hibbett is the only sporting goods chain committed to serving small markets. With a low-cost operating philosophy and
a commitment to providing a high level of customer service, Hibbett has successfully grown its store base from 79 stores in
10 states at the time of its initial public offering on October 11, 2006, to 613 stores in 23 states by February 3, 2007.
S T O R E L O C A T I O N S
2
4
3
15
25
51
5
21
14
16
10
30
46
76
79
30
28
48
4
11
43
26
26
We have identified over 400 additional markets for Hibbett stores
in our 23-state area.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
February 3, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: __________________________ to __________________________
Commission file number: 000-20969
HIBBETT SPORTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
State or other jurisdiction of
incorporation or organization
20-8159608
(I.R.S. Employer
Identification No.)
451 Industrial Lane, Birmingham, Alabama 35211
(Address of principal executive offices, including zip code)
205-942-4292
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 Par Value Per Share
Title of Class
Nasdaq Stock Market, LLC
Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
X
Yes
X
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
X
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
X
The aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming for purposes of this calculation that all executive
officers and directors are “affiliates”) was $615,690,000 on July 28, 2006, based on the closing sale price of $19.22 at July 28, 2006 for the
Common Stock on such date on the NASDAQ National Market.
The number of shares outstanding of the Registrant’s Common Stock, as of March 30, 2007 was 31,626,503.
DOCUMENTS INCORPORATED BY REFERENCE
The information regarding securities authorized for issuance under equity compensation plans called for in Item 5 of Part II and the information
called for in Items 10, 11, 12, 13 and 14 of Part III are incorporated by reference from the Company’s definitive Proxy Statement for the 2007
Annual Meeting of Stockholders, to be held June 5, 2007. Registrant’s definitive Proxy Statement will be filed with the Securities and Exchange
Commission on or before April 24, 2007.
- 2 -
HIBBETT SPORTS, INC.
INDEX
PART I
Item
Item
Item
Item
Item
Item
Business.
1.
1A. Risk Factors.
1B. Unresolved Staff Comments.
2.
3.
4.
Properties.
Legal Proceedings.
Submission of Matters to a Vote of Security Holders.
PART II
Item
5.
Item
Item
Item
Item
Item
Item
Item
Part III
Item
Item
Item
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Selected Consolidated Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
6.
7.
7A. Quantitative and Qualitative Disclosures About Market Risk.
8.
9.
Consolidated Financial Statements and Supplementary Data.
Changes in and Disagreements with Independent Registered Public Accounting Firm on
Accounting and Consolidated Financial Disclosure.
9A. Controls and Procedures.
9B. Other Information.
10. Directors, Executive Officers and Corporate Governance.
11.
12.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Item
Item
13. Certain Relationships and Related Transactions, and Director Independence.
14.
Principal Accounting Fees and Services.
Part IV
Item
15.
Exhibits and Consolidated Financial Statement Schedules.
Signatures.
Page
5
9
12
12
12
13
14
17
18
27
28
50
50
50
52
52
52
52
52
53
55
A warning about Forward-Looking Statements
This document contains “forward-looking statements” as that term is used in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements address future events, developments and results. They include
statements preceded by, followed by or including words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “target”
or “estimate.” For example, our forward-looking statements include statements regarding:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our anticipated sales, including comparable store net sales, net sales growth and earnings growth;
our growth, including our plans to add, expand or relocate stores and square footage growth and our
market’s ability to support such growth, as well as our plans not to open any more Sports and Company
format stores;
the possible effect of inflation and other economic changes on our costs and profitability;
the possible effect of recent accounting pronouncements;
our cash needs, including our ability to fund our future capital expenditures and working capital requirements
and our ability and plans to renew or increase our revolving credit facility;
our gross profit margin and earnings and our ability to leverage store operating, selling and administrative
expenses and offset other operating expenses;
our seasonal sales patterns and our expectations regarding competition;
the future reliability of, and cost associated with, our sources of supply, particularly imported goods;
the capacity of our distribution center and plans to open an additional facility;
our estimates and assumptions as they relate to accruals, inventory valuations, dividends, carrying amount
of financial instruments and fair value of options and other stock-based compensation as well as our
estimates of economic and useful lives of depreciable assets and leases;
our expectations concerning future stock-based award types and our expectations concerning employee
option exercise behavior;
the possible effect of pending legal actions and other contingencies;
our expected benefits from the JDA merchandising system;
our target market presence and its expected impact on our sales growth;
our ability to renew or replace store leases satisfactorily;
our analyses and trends as related to earnings performance.
You should assume that the information appearing in this annual report is accurate only as of the date it was
issued. Our business, financial condition, results of operations and prospects may have changed since that date.
For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments
or results, you should carefully review the “Risk Factors“ described beginning on page 9, as well as “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 18.
Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions.
The future events, developments or results described in this report could turn out to be materially different. We have no
obligation to publicly update or revise our forward-looking statements after the date of this annual report and you should
not expect us to do so.
Investors should also be aware that while we do, from time to time, communicate with securities analysts and
others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential
commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued
by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections
issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
Recent Events
On February 10, 2007, Hibbett Sports, Inc. became the successor holding company for Hibbett Sporting
Goods, Inc., which is now our operating subsidiary. Executives who served in senior executive roles with Hibbett
Sporting Goods, Inc. are now the executives of Hibbett Sports, Inc. Directors who served on our Board of Directors
with Hibbett Sporting Goods, Inc. are now the directors of Hibbett Sports, Inc.
Introductory Note
Unless specifically indicated otherwise, any reference to “2008” or “Fiscal 2008” relates to our year ending
February 2, 2008. Any reference to “2007” or “Fiscal 2007” relates to our year ended February 3, 2007. Any reference
to “2006” or “Fiscal 2006” relates to our year ended January 28, 2006. Any references to “2005” or “Fiscal 2005”
relates to our year ended January 29, 2005.
- 4 -
Item 1.
Business.
Our Company
PART 1
Our Company was originally organized in 1945 under the name Dixie Supply Company in Florence, Alabama,
in the marine and small aircraft business. In 1951, the Company started targeting school athletic programs in North
Alabama and by the end of the 1950’s had developed a profitable team sales business. In 1960, we sold the marine
portion of our business and have been solely in the athletic business since that time. In 1965, we opened Dyess &
Hibbett Sporting Goods in Huntsville, Alabama, and hired Mickey Newsome, our current Chief Executive Officer and
Chairman of the Board. The next year, we opened another sporting goods store in Birmingham and by the end of 1980,
we had stores operating in 12 locations in central and northwest Alabama with a distribution center located in
Birmingham and our central accounting office in Florence. We went public and have been incorporated under the laws of
the State of Delaware as Hibbett Sporting Goods, Inc. since October 1996. We incorporated under the laws of the State
of Delaware as Hibbett Sports, Inc. in January 2007 and on February 10, 2007, Hibbett Sports, Inc. became the
successor holding company for Hibbett Sporting Goods, Inc., which is now our operating subsidiary.
Today, we are a rapidly-growing operator of sporting goods stores in small to mid-sized markets predominantly
in the Sunbelt, Mid-Atlantic and Midwest. Our stores offer a broad assortment of quality athletic equipment, footwear and
apparel at competitive prices with a high level of customer service. Hibbett’s merchandise assortment features a broad
selection of brand name merchandise emphasizing team sports complemented by localized apparel and accessories
designed to appeal to a wide range of customers within each individual market. We believe our stores are among the
primary retail distribution avenues for brand name vendors that seek to penetrate our target markets.
As of February 3, 2007, we operated 593 Hibbett Sports stores as well as 16 smaller-format Sports Additions
athletic shoe stores and 4 larger-format Sports & Co. superstores in 23 states, opening our first store in Arizona in the
second quarter of fiscal 2007. Over the past two years, we have increased the number of stores from 482 stores to 613
stores, an increase in store base of approximately 27%. Our primary retail format and growth vehicle is Hibbett Sports, a
5,000 square foot store located in strip centers which are generally the center of commerce within the area and which
are usually anchored by a Wal-Mart store or in enclosed malls. Although competitors in some markets may carry similar
product lines and national brands, we believe the Hibbett Sports stores are typically the primary sporting goods retailers
in their markets due to the extensive selection of branded merchandise and a high level of customer service.
Available Information
The Company maintains an Internet website at the following address: www.hibbett.com.
We make available on or through our website certain reports that we file with or furnish to the Securities and
Exchange Commission (the “SEC”) in accordance with the Securities Exchange Act of 1934. These include our
annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this
information available on our website free of charge as soon as reasonably practicable after we electronically file the
information with or furnish it to the SEC.
Reports filed with or furnished to the SEC are also available free of charge upon request by contacting our
corporate office at (205) 942-4292.
The public may also read or copy any materials filed by us with the SEC at the SEC’s Public Reference
Room at 100F Street, N.E., Washington, DC 20549. Information may be obtained on the operation of the Public
Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports,
proxy and information statements, and other information regarding issuers that file electronically at www.sec.gov.
Our Business Strategy
We target markets with county populations that range from 30,000 to 100,000. By targeting these smaller
markets, we believe that we achieve significant strategic advantages, including numerous expansion opportunities,
comparatively low operating costs and a more limited competitive environment than generally faced in larger markets. In
addition, we establish greater customer and vendor recognition as the leading sporting goods retailer in these local
communities.
We believe our ability to merchandise to local sporting and community interests differentiates us from our
national competitors. This strong regional focus also enables us to achieve significant cost benefits including lower
corporate expenses, reduced distribution costs and increased economies of scale from marketing activities. Additionally,
we also use sophisticated information systems to maintain tight controls over inventory and operating costs and
- 5 -
continually search for ways to improve efficiencies through information system upgrades, such as the JDA
Merchandising System we implemented beginning February 4, 2007.
We strive to hire enthusiastic sales personnel with an interest in sports. Our extensive training program focuses
on product knowledge and selling skills and is conducted through the use of in-store clinics, videos, self-study courses,
interactive group discussions and “Hibbett University” designed specifically for store management.
Our Store Concepts
Hibbett Sports
Our primary retail format is Hibbett Sports, a 5,000 square foot store located in enclosed malls or in strip
centers which are generally the center of commerce within the area and which are usually anchored by a Wal-Mart
store. We tailor our Hibbett Sports stores to the size, demographics and competitive conditions of each market. Of these
stores, 202 Hibbett Sports stores are located in enclosed malls, the majority of which are the only enclosed malls in the
county, and the remaining 391 stores are located in strip centers.
Hibbett Sports stores offer a core selection of quality, brand name merchandise with an emphasis on team
sports. This merchandise mix is complemented by a selection of localized apparel and accessories designed to appeal
to a wide range of customers within each market. We strive to respond quickly to major sporting events of local interest.
Such events in fiscal 2007 included the Florida Gator’s NCAA Basketball Championship and victory in the Bowl
Championship Series (“BCS”) national championship game as well as the turn-around seasons of the Dallas Cowboys
and New Orleans Saints.
Sports Additions
Our sixteen Sports Additions stores are small, mall-based stores, averaging 2,300 square feet with
approximately 90% of merchandise consisting of athletic footwear and the remainder consisting of caps and a limited
assortment of apparel. Sports Additions stores offer a broader assortment of athletic footwear, with a greater emphasis
on fashion than the athletic footwear assortment offered by Hibbett Sports stores. All but five Sports Additions stores are
currently located in malls in which Hibbett Sports stores are also present.
Sports & Co.
We opened four Sports & Co. superstores between March 1995 and September 1996. Sports & Co.
superstores average 25,000 square feet and offer a broader assortment of athletic footwear, apparel and equipment
than Hibbett Sports stores. Athletic equipment and apparel represent a higher percentage of the overall merchandise
mix at Sports & Co. superstores than they do at Hibbett Sports stores. Sports & Co. superstores are designed to project
the same in-store atmosphere as Hibbett Sports stores but on a larger scale. Management strategy does not include
opening any superstores in the future.
Team Sales
Hibbett Team Sales, Inc. (“Team Sales”), a wholly-owned subsidiary of the Company, is a leading supplier of
customized athletic apparel, equipment and footwear to school, athletic and youth programs primarily in Alabama. Team
Sales sells its merchandise directly to educational institutions and youth associations. The operations of Team Sales are
independent of the operations of our retail stores. Team Sales does not meet the quantitative or qualitative reporting
requirements of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information.”
Our Expansion Strategy
In fiscal 1994, we began to accelerate our rate of new store openings to take advantage of the growth
opportunities in our target markets. We have currently identified approximately 400 potential markets for future Hibbett
Sports stores generally within the states in which we operate. Our clustered expansion program, which calls for opening
new stores within a two-hour driving distance of an existing Hibbett location, allows us to take advantage of efficiencies
in distribution, marketing and regional management. We believe our current distribution center can support
approximately 850 stores.
In evaluating potential markets, we consider population, economic conditions, local competitive dynamics and
availability of suitable real estate. Hibbett Sports stores effectively operate in both enclosed mall and in strip center
locations, which are generally the center of commerce within the area and which are usually anchored by a Wal-Mart
store.
- 6 -
Our continued growth largely depends upon our ability to open new stores in a timely manner, to operate them
profitably and to manage them effectively. Additionally, successful expansion is subject to various contingencies, many
of which are beyond our control. See “Risk Factors.”
Our Distribution
We maintain a single 220,000 square foot distribution center in Birmingham, Alabama, which services our
existing stores. The distribution process is centrally managed from our corporate headquarters, which is located in the
same building as the distribution center. We believe strong distribution support for our stores is a critical element of our
expansion strategy and is central to our ability to maintain a low cost operating structure. Due to improved technology
and vendor assistance with cross-docking, we believe we can service approximately 850 stores out of our current
distribution center.
We receive substantially all of our merchandise at our distribution center. For key products, we maintain
backstock at the distribution center that is allocated and distributed to stores through an automatic replenishment
program based on items that are sold. Merchandise is typically delivered to stores weekly via Company-operated
vehicles.
Because of our continued expected growth, we plan to add another distribution center in or around Dallas,
Texas within fiscal year 2008. This new facility will service primarily those stores west of the Mississippi River and
enhance our expansion strategy in that region and beyond. We expect to be able to service an additional 500 to 700
stores from this new facility.
Our Merchandising Strategy
Our merchandising strategy is to provide a broad assortment of quality brand name footwear, athletic
equipment, and apparel at competitive prices in a full service environment. Historically, as well as for fiscal 2007, our
most popular consumer item is athletic footwear, followed by performance apparel and team sports equipment, ranked
according to sales.
We believe that the breadth and depth of our brand name merchandise selection generally exceeds the
merchandise selection carried by local independent competitors. Many of these branded products are highly technical
and require considerable sales assistance. We coordinate with our vendors to educate the sales staff at the store level
on new products and trends.
Although the core merchandise assortment tends to be similar for each Hibbett Sports store, important local or
regional differences frequently exist. Accordingly, our stores regularly offer products that reflect preferences for particular
sporting activities in each community and local interests in college and professional sports teams. Our knowledge of
these interests, combined with access to leading vendors, enables Hibbett Sports stores to react quickly to emerging
trends or special events, such as college or professional championships.
Our merchandising staff, operations staff and management analyze current sporting goods trends primarily
through the gathering and analyzing of detail daily sales activity available through point-of-sale terminals located in the
stores. We also visit Hibbett and competitor store locations, maintain close relationships with vendors and other retailers,
monitor product selection at competing stores, communicate with district and store managers and review industry trade
publications in an effort to recognize trends. The merchandising staff works closely with store personnel to meet the
requirements of individual stores for appropriate merchandise in sufficient quantities.
Our success depends in part on our ability to anticipate and respond to changing merchandise trends and
consumer demand on a store level in a timely manner. See “Risk Factors.”
Our Vendor Relationships
The sporting goods retail business is very brand name driven. Accordingly, we maintain relationships with a
number of well known sporting goods vendors to satisfy customer demand. We believe that our stores are among the
primary retail distribution avenues for brand name vendors that seek to penetrate our target markets. As a result, we are
able to attract considerable vendor interest and establish long-term partnerships with vendors. As our vendors expand
their product lines and grow in popularity, we expand sales and promotions of these products within our stores. In
addition, as we continue to increase our store base and enter new markets, the vendors have increased their brand
presence within these regions. We also emphasize and work with our vendors to establish favorable pricing and to
receive cooperative marketing funds. We believe that we maintain good working relationships with our vendors. For the
fiscal year ended February 3, 2007, Nike, our largest vendor, represented approximately 46.6% of our total purchases
while our next largest vendor represented approximately 9.4% of our total purchases. For the fiscal year ended January
- 7 -
28, 2006, Nike, our largest vendor, represented approximately 43.9% of our total purchases while our next largest
vendor represented approximately 7.6% of our total purchases.
The loss of key vendor support could be detrimental to our business, financial condition and results of
operations. We believe that we have long-standing and strong relationships with our vendors and that we have
adequate sources of brand name merchandise on competitive terms; however, we cannot guarantee that we will be
able to acquire such merchandise at competitive prices or on competitive terms in the future. In this regard, certain
merchandise that is high profile and in high demand may be allocated by vendors based upon the vendors’ internal
criterion, which is beyond our control. See “Risk Factors.”
Our Advertising and Promotion
We target special advertising opportunities in our markets to increase the effectiveness of our advertising
budget. In particular, we prefer advertising in local media as a way to further differentiate Hibbett from national chain
competitors. Substantially all of our advertising and promotional spending is centrally directed. Print advertising,
including direct mail catalogs and postcards to customers, serves as the foundation of our promotional program and
accounted for the majority of our total advertising costs in fiscal 2007. Other advertising means, such as television
commercials, outdoor billboards, Hibbett trucks, our MVP loyalty program and the Hibbett website, are used to reinforce
Hibbett’s name recognition and brand awareness in the community.
Our Competition
The business in which we are engaged is highly competitive. Many of the items we offer in our stores are also
sold by local sporting goods stores, athletic footwear and other specialty athletic stores, traditional shoe stores and
national and regional sporting goods stores. The marketplace for sporting goods remains highly fragmented as many
different retailers compete for market share by utilizing a variety of store formats and merchandising strategies. In recent
years, there has been significant consolidation of large format retailers in large metropolitan markets. However, we
believe the competitive environment for sporting goods remains different in small to mid-sized markets where retail
demand may not support larger format stores. In smaller markets, such as those targeted by Hibbett, national chains
compete by focusing on a specialty category like athletic footwear.
Our stores compete with national chains that focus on athletic footwear, local sporting goods stores,
department and discount stores, traditional shoe stores and mass merchandisers. Although we face competition from a
variety of competitors, including on-line competitors, we believe that our stores are able to compete effectively by being
distinguished as sporting goods stores emphasizing team sports and fitness merchandise complemented by a selection
of localized apparel and accessories. Our competitors may carry similar product lines and national brands and a broader
assortment, but we believe the principal competitive factors for all of our stores, including our four superstores, are
service, breadth of merchandise offered, availability of brand names and availability of local merchandise. We believe
we compete favorably with respect to these factors in the small to mid-sized markets predominantly in the Sunbelt, Mid-
Atlantic and Midwest. However, we cannot guarantee that we will continue to be able to compete successfully against
existing or future competitors. Expansion into markets served by our competitors, entry of new competitors or expansion
of existing competitors into our markets, could be detrimental to our business, financial condition and results of
operations. See “Risk Factors.”
Our Trademarks
Our Company, by and through subsidiaries, is the owner or licensee of trademarks that are very important to
our business. For the most part, trademarks are valid as long as they are in use and/or their registrations are properly
maintained. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use.
Following is a list of active trademarks registered and owned by the Company:
• Hibbett Sports, Registration No. 2717584
• Sports Additions, Registration No. 1767761
We also have pending registration on the trademark logo “Hibbett.”
Our Employees
As of February 3, 2007, we employed approximately 1,700 full-time and approximately 3,500 part-time
employees, none of whom are represented by a labor union. The number of part-time employees fluctuates
depending on seasonal needs. We cannot guarantee that our employees will not, in the future, elect to be
represented by a union. We consider our relationship with our employees to be good and have not experienced
significant interruptions of operations due to labor disagreements.
- 8 -
Employee Development. We develop our training programs in a continuing effort to service the needs of our
customers and employees. These programs are designed to increase employee knowledge and include video
training in all stores for the latest in technical detail of new products and new operational and service techniques.
Because we primarily promote or relocate current employees to serve as managers for new stores, training and
assessment of our employees is essential to our continued growth.
We have implemented programs in our stores and corporate offices to ensure that we hire and promote the
most qualified employees in a non-discriminatory way. One of the most significant programs we have is Hibbett
University or “Hibbett U” which is an intensive, four day training session held at our corporate offices for new store
managers.
Item 1A. Risk Factors.
You should carefully consider the following risks, as well as the other information contained in this report,
before investing in shares of our common stock. If any of the following risks actually occur, our business could be
harmed. In that case, the trading price of our common stock could decline, and you might lose all or part of your
investment.
We may be unable to achieve our expansion plans for future growth.
We have grown rapidly primarily through opening new stores, growing from 67 stores at the beginning of fiscal
year 1997 to 613 stores at February 3, 2007. We plan to increase our store base by a net of 85 to 90 new Hibbett Sports
stores in fiscal year 2008. Our continued growth will depend, in large part, upon our ability to open new stores in a timely
manner and to operate them profitably. Additionally, successful expansion is subject to various contingencies, many of
which are beyond our control. These contingencies include, among others:
•
•
•
•
•
•
our ability to identify and secure suitable store sites on a timely basis;
our developers’ and landlords’ ability to deliver leased premises timely;
our ability to negotiate advantageous lease terms;
our ability to complete any necessary construction or refurbishment of these sites;
the successful integration of new stores into existing operations; and
our ability to successfully integrate a new distribution facility.
As our business grows, we will need to attract and retain additional qualified personnel in a timely manner and
develop, train and manage an increasing number of management level sales and other employees. We cannot assure
you that we will be able to attract and retain personnel as needed in the future. If we are not able to hire capable store
managers and other store-level personnel, we will not be able to open new stores as planned and our revenue growth
and operating results could suffer.
We cannot give any assurances that we will be able to continue our expansion plans successfully; that we will
be able to achieve results similar to those achieved with prior locations; or that we will be able to continue to manage our
growth effectively. Our failure to achieve our expansion plans could materially and adversely affect our business,
financial condition and results of operations. In addition, our operating margins may be impacted in periods in which
incremental expenses are incurred as a result of new store openings.
A downturn in the economy could affect consumer purchases of discretionary items, which could reduce our
sales.
In general, our sales represent discretionary spending by our customers. Discretionary spending is affected by
many factors, including, among others, general business conditions, interest rates, the availability of consumer credit,
taxation and consumer confidence in future economic conditions. Our customers’ purchases of discretionary items,
including products that we sell, could decline during periods when disposable income is lower or periods of actual or
perceived unfavorable economic conditions. If this occurs, our revenues and profitability could decline. In addition, our
sales could be adversely affected by a downturn in the economic conditions in the markets in which we operate.
Our inability to identify, and anticipate changes in consumer demands and preferences and our inability to
respond to such consumer demands in a timely manner could reduce our sales.
Our products appeal to a broad range of consumers whose preferences cannot be predicted with certainty and
are subject to rapid change. Our success depends on our ability to identify product trends as well as to anticipate and
respond to changing merchandise trends and consumer demand in a timely manner. We cannot assure you that we will
be able to continue to offer assortments of products that appeal to our customers or that we will satisfy changing
- 9 -
consumer demands in the future. Accordingly, our business, financial condition and results of operations could be
materially and adversely affected if:
• we are unable to identify and respond to emerging trends, including shifts in the popularity of certain products;
• we miscalculate either the market for the merchandise in our stores or our customers’ purchasing habits; or
•
consumer demand unexpectedly shifts away from athletic footwear or our more profitable apparel lines.
In addition, we may be faced with significant excess inventory of some products and missed opportunities
for other products, which could decrease our profitability.
If we lose any of our key vendors or any of our key vendors fail to supply us with merchandise, we may not
be able to meet the demand of our customers and our sales could decline.
Our business is dependent to a significant degree upon close relationships with vendors and our ability to
purchase brand name merchandise at competitive prices. The loss of key vendor support could have a material adverse
effect on our business, financial condition and results of operations. We cannot guarantee that we will be able to acquire
such merchandise at competitive prices or on competitive terms in the future. In this regard, certain merchandise that is
in high demand may be allocated by vendors based upon the vendors’ internal criterion which is beyond our control.
In addition, we believe many of our largest vendors source a substantial majority of their products from
China and other foreign countries. Imported goods are generally less expensive than domestic goods and indirectly
contribute significantly to our favorable profit margins. A disruption in the flow of imported merchandise or an increase
in the cost of those goods may significantly decrease our sales and profits.
We may experience a disruption or increase in the cost of imported vendor products at any time for reasons
that may not be in our control. If imported merchandise becomes more expensive or unavailable, the transition to
alternative sources by our vendors may not occur in time to meet our demands or the demands of our customers.
Products from alternative sources may also be more expensive than those our vendors currently import. Risks
associated with reliance on imported goods include:
•
•
disruptions in the flow of imported goods because of factors such as:
• raw material shortages, work stoppages, strikes and political unrest;
• problems with oceanic shipping;
• economic crises and international disputes; and
increases in the cost of purchasing or shipping foreign merchandise resulting from:
• foreign government regulations;
• changes in currency exchange rates and local economic conditions; and
• trade restrictions, including import duties and import quotas.
Our sales and profitability could decline if vendors are unable to promptly replace sources providing equally
appealing products at a similar cost.
Problems with our information system software could disrupt our operations and negatively impact our
financial results and materially adversely affect our business operations.
The efficient operation of our business is dependent on the successful integration and operation of our
information systems. In particular, we rely on our information systems to manage effectively our sales, distribution,
merchandise planning and replenishment, to process financial information and sales transactions and to optimize our
overall inventory levels. Most of our information systems are centrally located at our headquarters, with offsite backup
at other locations. We continue to focus on enhancements to the inventory management systems and point-of-sale
systems and have upgraded to the JDA Merchandising System. Any material disruption, malfunction or other similar
problems in or with our information systems could negatively impact our financial results and materially adversely
affect our business operations.
Pressure from our competitors may force us to reduce our prices or increase our spending, which would
lower our revenue and profitability.
The business in which we are engaged is highly competitive. The marketplace for sporting goods remains
highly fragmented as many different retailers compete for market share by utilizing a variety of store formats and
merchandising strategies. Hibbett Sports stores compete with national chains that focus on athletic footwear, local
sporting goods stores, department and discount stores, traditional shoe stores and mass merchandisers. Many of our
competitors have greater financial resources than we do. In addition, many of our competitors employ price discounting
policies that, if intensified, may make it difficult for us to reach our sales goals without reducing our prices. As a result of
this competition, we may also need to spend more on advertising and promotion than we anticipate. We cannot
- 10 -
guarantee that we will continue to be able to compete successfully against existing or future competitors. Expansion into
markets served by our competitors, entry of new competitors or expansion of existing competitors into our markets could
be detrimental to our business, financial condition and results of operations.
Our operating results are subject to seasonal and quarterly fluctuations, which could cause the market price
of our common stock to decline.
We have historically experienced and expect to continue to experience seasonal fluctuations in our net sales,
operating income and net income. Our net sales, operating income and net income are typically higher in the spring,
back-to-school and Christmas seasons. An economic downturn during these periods could adversely affect us to a
greater extent than if a downturn occurred at other times of the year.
Our operating results may fluctuate as we open new stores.
We plan to increase our store base by a net of approximately 85 to 90 new Hibbett Sports stores in fiscal year
2008. Our results of operations may vary significantly as a result of the timing of new store openings, the amount and
timing of net sales contributed by new stores, the level of pre-operating expenses associated with new stores and the
relative proportion of new stores to mature stores. Any significant variation in our results of operations could adversely
affect our stock price.
We would be materially and adversely affected if our single distribution center were shut down.
We currently operate a single centralized distribution center in Birmingham, Alabama. We receive and ship
substantially all of our merchandise at our distribution center. Any natural disaster or other serious disruption to this
facility due to fire, tornado or any other cause would damage a portion of our inventory and could impair our ability to
adequately stock our stores and could adversely affect our sales and profitability. In addition, we could incur significantly
higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to
reopen or replace the center.
We depend on key personnel. If we lose the services of any of our principal executive officers, including
Michael J. Newsome, our Chief Executive Officer and Chairman of the Board, we may not be able to run our
business effectively and operating results could suffer.
We have benefited from the leadership and performance of our senior management, especially Michael J.
Newsome, our Chairman and Chief Executive Officer. Mr. Newsome has been instrumental in directing our business
strategy within the small to mid-sized markets in the Sunbelt, Mid-Atlantic and Midwest and maintaining long-term
relationships with our key vendors. Our overall success and the success of our expansion strategy will depend on our
ability to retain our current management, including Mr. Newsome, and our ability to attract and retain qualified
personnel in the future. As we continue to grow, we will continue to hire, appoint or otherwise change senior
managers and other key executives. We do not maintain key man life insurance on any of our executive officers. The
loss of services of Mr. Newsome for any reason could have a material adverse effect on our business, financial
condition and results of operations. In addition, the loss of certain other principal executive officers could affect our
ability to run our business effectively and our ability to successfully expand our operations.
On March 9, 2005, we entered into a Retention Agreement (“Agreement”) with Mr. Newsome. The purpose of
the Agreement is to secure the continued employment of Mr. Newsome as an advisor to us following his future
retirement from the duties of Chief Executive Officer of our Company. Such retirement is not currently planned.
Provisions in our charter documents and Delaware law might deter acquisition bids for us.
Certain provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects
and may discourage, delay or prevent a takeover attempt that a stockholder might consider in its best interest. These
provisions, among other things:
•
•
•
•
•
classify our Board of Directors into three classes, each of which serves for different three year periods;
provide that a director may be removed by stockholders only for cause by a vote of the holders of not less than
two-thirds of our shares entitled to vote;
provide that all vacancies on our Board of Directors, including any vacancies resulting from an increase in the
number of directors, may be filled by a majority of the remaining directors, even if the number is less than a
quorum;
provide that special meetings of the stockholders may only be called by the Chairman of the Board of
Directors, a majority of the Board of Directors or upon the demand of the holders of a majority of the shares
entitled to vote at any such special meeting; and
call for a vote of the holders of not less than two-thirds of the shares entitled to vote in order to amend the
- 11 -
foregoing provisions and certain other provisions of our certificate of incorporation and bylaws.
In addition, our Board of Directors, without further action of the stockholders, is permitted to issue and fix the
terms of preferred stock which may have rights senior to those of common stock. We are also subject to the
Delaware business combination statute, which may render a change in control of us more difficult. Section 203 of the
Delaware General Corporation Laws would be expected to have an anti-takeover effect with respect to transactions
not approved in advance by the Board of Directors, including discouraging takeover attempts that might result in a
premium over the market price for the shares of Common Stock held by stockholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We currently lease all of our existing 613 store locations and expect that our policy of leasing rather than
owning will continue as we continue to expand. Our leases typically provide for terms of five to ten years with options on
the part of Hibbett to extend. Most leases also contain a kick-out clause if projected sales levels are not met and an-
early termination/remedy option if co-tenancy and exclusivity provisions are violated. We believe that this lease strategy
enhances our flexibility to pursue various expansion opportunities resulting from changing market conditions and to
periodically re-evaluate store locations. Our ability to open new stores is contingent upon locating satisfactory sites,
negotiating favorable leases and recruiting and training qualified management personnel.
As current leases expire, we believe that we will be able either to obtain lease renewals for present store
locations or to obtain leases for equivalent or better locations in the same general area. For the most part, we have not
experienced any significant difficulty in either renewing leases for existing locations or securing leases for suitable
locations for new stores. Based primarily on our belief that we maintain good relations with our landlords, that most of
our leases are at approximate market rents and that generally we have been able to secure leases for suitable locations,
we believe that our lease strategy will not be detrimental to our business, financial condition or results of operations.
Our offices and our distribution center are leased under an operating lease. We own Team Sales’
warehousing and distribution center located in Birmingham, Alabama. We believe our facilities are suitable and
adequate to meet our immediate needs and we expect to open a second distribution center in or around Dallas,
Texas in the last half of fiscal 2008 to meet our future needs with continued expansion westward.
Store Locations
We currently operate 613 stores in 23 contiguous states. Of these stores, 219 are located in malls and 394 are
located in strip-shopping centers which are generally the centers of commerce within the area and which are usually
anchored by a Wal-Mart store. The following shows the number of locations by state as of March 30, 2007:
Alabama
Arizona
Arkansas
Florida
Georgia
Iowa
Illinois
Indiana
-
-
-
-
-
-
-
-
76
2
30
26
79
5
14
16
Kansas
Kentucky
Louisiana
Missouri
Mississippi
Nebraska
New Mexico
North Carolina
-
-
-
-
-
-
-
-
15
30
28
21
48
3
4
43
Ohio
Oklahoma
South Carolina
Tennessee
Texas
Virginia
West Virginia
-
-
-
-
-
-
-
10
25
26
46
51
11
4
Item 3.
Legal Proceedings.
In October 2005, three former employees filed a lawsuit in Mississippi federal court alleging negligence and
various violations of the Fair Labor Standards Act (“FLSA”). The violations allege that the Company improperly
classified certain employees as exempt salaried employees and that we owe back wages for overtime as a result of the
alleged misclassification. The suit asks the court to certify the case as a collective action under the FLSA on behalf of all
similarly situated former and current employees. Plaintiffs seek to recover overtime pay, liquidated damages,
declaratory relief and attorney’s fees. Currently, the Court has not ruled upon whether or not to certify the collective
action. No trial date has been scheduled.
The outcome of any litigation is inherently uncertain. At trial, the Company would bear the burden of
establishing its entitlement to the exemption from the overtime requirements of the FLSA, and no assurances could be
given that we would be successful. The rulings by the Court on both substantive and procedural motions and issues,
including evidentiary issues at trial, could significantly affect the course and outcome of these proceedings positively or
- 12 -
negatively for the Company. While we believed that these employees were and have been properly classified as
exempt employees under the FLSA and that the actions described above were not appropriate for collective action
treatment, and while we have vigorously defended these actions, there were no assurances that we would have been
successful in that defense on the merits or otherwise, and, if unsuccessful, the resolution(s) could have had a material
adverse effect on our results of operations and our financial statements as a whole in the period of resolution. As such,
the parties have negotiated a verbal settlement that has not yet been perfected. At year ended February 3, 2007, we
estimated that the liability related to this matter is within the range of $750,000 and $960,000. Accordingly, we have
accrued $750,000 as a current liability on our Consolidated Balance Sheet. At year ended January 28, 2006, no loss
amount was accrued because a loss was not considered probable or estimable.
We are also a party to other legal actions and claims arising in the ordinary course of business. We believe,
based upon information currently available, that such other litigation and claims, both individually and in the aggregate,
will be resolved without a material effect on our results of operations and our financial statements as a whole in the
period of resolution. However, litigation involves an element of uncertainty and future developments could cause these
actions or claims to have a material adverse effect on our results of operations and our financial statements as a whole
in the period of resolution.
From time to time, we enter into certain types of agreements that require us to indemnify parties against third
party claims under certain circumstances. Generally these agreements relate to: (a) agreements with vendors and
suppliers under which we may provide customary indemnification to our vendors and suppliers in respect of actions they
take at our request or otherwise on our behalf; (b) agreements to indemnify vendors against trademark and copyright
infringement claims concerning merchandise manufactured specifically for or on behalf of us; (c) real estate leases,
under which we may agree to indemnify the lessors from claims arising from our use of the property; and (d) agreements
with our directors, officers and employees, under which we may agree to indemnify such persons for liabilities arising out
of their relationship with us. We have directors and officer’s liability insurance, which, subject to the policy’s conditions,
provides coverage for indemnification amounts payable by us with respect to our directors and officers up to specified
limits and subject to certain deductibles.
If the Company believes that a loss is both probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of SFAS No. 5, “Accounting for Contingencies.” With respect to any matter, the
Company could change its belief as to whether a loss is probable or estimable, or its estimate of loss, at any time. Even
though the Company may not believe a loss is probable or estimable, it is reasonably possible that the Company could
suffer a loss with respect to that matter in the future.
Item 4.
Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our stockholders during the fourth quarter of fiscal year 2007.
- 13 -
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is traded on the NASDAQ Global Select Market (NASDAQ) under the symbol HIBB. The
following table sets forth, for the periods indicated, the high and low sales prices of shares of our Common Stock as
reported by NASDAQ.
Fiscal 2007:
First Quarter ended April 29, 2006
Second Quarter ended July 29, 2006
Third Quarter ended October 28, 2006
Fourth Quarter ended February 3, 2007
Fiscal 2006:
First Quarter ended April 30, 2005
Second Quarter ended July 30, 2005
Third Quarter ended October 29, 2005
Fourth Quarter ended January 28, 2006
High
Low
$
$
$
$
34.54
31.19
28.16
33.95
20.76
27.47
26.97
31.70
28.20
18.95
18.90
27.00
17.20
18.78
20.95
26.13
On March 30, 2007, the last reported sale price for our common stock as quoted by NASDAQ was $28.59 per
share. As of March 30, 2007, we had 43 stockholders of record.
- 14 -
The Stock Price Performance Graph below compares the percentage change in our cumulative total
stockholder return on its common stock against a cumulative total return of the NASDAQ Composite Index and the
NASDAQ Retail Trade Index. The graph below outlines returns for the period beginning on January 31, 2002 to January
31, 2007. We have not paid any dividends. Total stockholder return for prior periods is not necessarily an indication of
future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hibbett Sports, Inc., The NASDAQ Composite Index
And The NASDAQ Retail Trade Index
$600
$500
$400
$300
$200
$100
$0
1/02
1/03
1/04
1/05
1/06
1/07
Hibbett Sports, Inc.
NASDAQ Composite
NASDAQ Retail Trade
* $100 invested on 1/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending January 31.
We have never declared or paid any dividends on our common stock. We currently intend to retain our future
earnings to finance the growth and development of our business and for our stock repurchase, and therefore do not
anticipate declaring or paying cash dividends on our common stock for the foreseeable future. Any future decision to
declare or pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as our Board of Directors deems relevant.
- 15 -
The following table presents our share repurchase activity for the fourteen weeks and quarter ending February
3, 2007:
ISSUER PURCHASES OF EQUITY SECURITIES (1)
Period
Balance as of October 28, 2006
Total
Number of
shares
Purchased
4,213,413
Average
Price per
Share
$ 22.46
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Programs
4,213,413
Approximate
Dollar Value of
Shares that may
yet be
Purchased
Under the
Programs
$55,375,000
October 29, 2006 to November 25, 2006
November 26, 2006 to December 30, 2006
December 31, 2006 to February 3, 2007
Quarter ended February 3, 2007
93,000
--
--
93,000
$ 29.10
--
--
$ 29.10
93,000
--
--
93,000
$52,668,000
$52,668,000
$52,668,000
Total since inception
4,306,413
$ 22.60
4,306,413
$52,668,000
(1) In August 2004, the Board of Directors authorized a plan to repurchase our common stock. The Board of
Directors has subsequently authorized increases to this plan with a current authorization effective August
2006 of $150.0 million. The current authorization expires on February 2, 2008. Considering stock
repurchases through February 3, 2007, we have approximately $52.7 million of the total authorization
remaining for future stock repurchases.
- 16 -
Item 6. Selected Consolidated Financial Data.
The following selected consolidated financial data has been derived from the consolidated financial statements
of the Company. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes to Financial
Statements thereto.
(Dollars in thousands, except per share amounts and Selected Operating Data)
Fiscal Year Ended
January 29,
2005
(52 weeks)
January 31,
2004
(52 weeks)
January 28,
2006
(52 weeks)
February 1,
2003
(52 weeks)
February 3,
2007
(53 weeks)
Income Statement Data:
Net sales
Cost of goods sold, including distribution center
and store occupancy costs
Gross profit
Store operating, selling and administrative
expenses
Depreciation and amortization
Operating income
Interest income
Interest expense
Interest income (expense), net
Income before provision for income taxes
$
512,094
$
440,269
$
377,534
$
320,964
$
279,187
338,963
173,131
293,368
146,901
255,250
122,284
216,938
104,026
192,082
87,105
100,461
10,932
61,738
906
30
876
62,614
85,060
10,119
51,722
1,170
24
1,146
52,868
72,923
9,939
39,422
517
42
475
39,897
63,514
9,686
30,826
165
59
106
30,932
55,748
8,727
22,630
26
240
(214)
22,416
Provision for income taxes
Net income
24,541
19,244
14,750
11,290
8,182
$
38,073
$
33,624
$
25,147
$
19,642
$
14,234
Earnings per common shares:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet Data:
Working capital
Total assets
Long-term debt
Stockholders’ investment
Selected Operating Data:
Number of stores open at end of period:
Hibbett Sports
Sports & Co.
Sports Additions
Total
$
$
1.19
1.17
$
$
1.00
0.98
$
$
0.72
0.70
$
$
0.57
0.55
$
$
0.42
0.41
32,094,127
32,619,839
33,605,568
34,393,026
34,855,682
35,690,363
34,521,674
35,397,089
33,869,294
34,553,277
$
$
106,428
212,853
-
136,641
98,623
195,829
-
124,773
$
106,012
202,105
-
130,039
$
$
96,042
173,759
-
120,440
70,204
133,729
-
95,606
593
4
16
613
527
4
18
549
461
4
17
482
408
4
16
428
351
4
16
371
Note: No dividends have been declared or paid.
- 17 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Overview
Hibbett Sports, Inc. is a rapidly growing operator of sporting goods stores in small to mid-sized markets
predominantly in the Sunbelt, Mid-Atlantic and Midwest. Our stores offer a broad assortment of quality athletic
equipment, footwear and apparel with a high level of customer service. As of February 3, 2007 we operated a total of
613 retail stores composed of 593 Hibbett Sports stores, 16 Sports Additions athletic shoe stores and 4 Sports & Co.
superstores in 23 states.
Our primary retail format and growth vehicle is Hibbett Sports, a 5,000-square-foot store located in strip centers
which are generally the centers of commerce within the area and which are usually anchored by a Wal-Mart store and in
enclosed malls. Over the last few years, we have concentrated and expect to continue our store base growth in strip
centers versus enclosed malls as the centers are more prominent in the markets we target. We believe Hibbett Sports
stores are typically the primary sporting goods retailers in their markets due to the extensive selection of traditional team
merchandise and a high level of customer service. We do not expect that the average size of our stores opening in fiscal
2008 will vary significantly from the average size of stores opened in fiscal 2007.
We historically have comparable store sales in the low to mid-single digit range and we plan to increase total
company-wide square footage by approximately 15% in fiscal year 2008. We believe total sales percentage growth will
be in the mid teens in fiscal 2008. Over the past several years, we have increased our product margin due to improved
vendor discounts, fewer retail reductions, increased efficiencies in logistics and favorable leveraging of store occupancy
costs. We expect gross profit to increase 15 to 20 basis points in fiscal 2008 attributable to vendor leveraging and
continued improvement of inventory turns.
Due to our increased sales, we have historically leveraged our store operating, selling and administrative
expenses. With our expected sales increase, we expect operating, selling and administrative expenses to increase
somewhat in fiscal 2008 primarily due to the movement of certain stock option expense into fiscal 2008, the new store
cost related to approximately 18 additional new stores over fiscal 2007 and the start up costs related to the second
distribution center we plan to open in the second half of fiscal 2008. We also expect to continue to generate sufficient
cash to enable us to expand and remodel our store base, to provide capital expenditures for both distribution center and
technology upgrade projects and to repurchase shares of our common stock through the stock repurchase plan.
Hibbett maintains a merchandise management system that allows us to identify and monitor trends. However,
this system does not produce U.S. generally accepted accounting principle (“GAAP”) financial information by product
category. Thus it is impracticable to provide GAAP net sales by product category.
Hibbett operates on a 52- or 53-week fiscal year ending on the Saturday nearest to January 31 of each year.
The consolidated statement of operations for fiscal year ended February 3, 2007 includes 53 weeks of operations
while the consolidated statements of operations for fiscal years ended January 28, 2006 and January 29, 2005 both
include 52 weeks of operations.
- 18 -
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in our
Consolidated Statements of Operations expressed for the periods indicated. Percentages may not add due to
rounding:
Fiscal Year Ended
February 3,
2007
January 28,
2006
January 29,
2005
Net sales
100.0 %
100.0 %
100.0 %
Cost of goods sold, including distribution
and store occupancy costs
Gross Profit
Store operating, selling and administrative
expenses
Depreciation and amortization
Operating income
Interest income, net
Income before provision for income taxes
Provision for income taxes
Net income
Fiscal 2007 Compared to Fiscal 2006
66.2
33.8
66.6
33.4
67.6
32.4
19.6
2.1
12.1
0.2
12.2
4.8
7.4 %
19.3
2.3
11.8
0.3
12.0
4.4
7.6 %
19.3
2.6
10.4
0.1
10.6
3.9
6.7 %
Net sales. Net sales increased $72.0 million, or 16.3%, to $512.1 million for the 53 weeks ended February 3,
2007, from $440.3 million for the 52 weeks ended January 28, 2006. We attribute this increase to the following
factors:
• We opened 74 Hibbett Sports and closed 8 Hibbett Sports stores and 2 Sports Additions stores for
net stores opened of 64 stores in the 53 weeks ended February 3, 2007. New stores and stores not
in the comparable store net sales calculation accounted for $56.7 million of the increase in net
sales.
• We experienced a 3.8% increase in comparable store net sales for the 52 weeks ended January 27,
2007 primarily as the result of an increase in price. Higher comparable store net sales contributed
$15.1 million to the increase in net sales.
• We believe sales pick-up related to the 53rd week contributed approximately 2.7% to the increase in
sales over last year.
We believe the increase in comparable store sales is attributable to an overall positive merchandise
performance during the year and increased focus on customer service. Additionally, our results were positively
impacted in the third quarter by the introduction of tax-free holidays in three of our states and an increased
promotional effort in an attempt to leverage the strong post-hurricane sales from the prior year. We also experienced
strong seasonal sales in the last quarter of fiscal 2007 related to the Christmas holidays.
• Nike and Under Armour brands experienced solid performance in youth and cleats, performance
apparel and team equipment.
• Pro and college licensed apparel performed well, particularly in youth products and NFL jerseys.
Key professional teams in our market included the Indianapolis Colts, New Orleans Saints and
Chicago Bears. Top selling NFL jerseys included Peyton Manning, Reggie Bush, Tony Romo and
Brian Urlacher. College licensed apparel was led by women’s Nike product.
• We continue to experience weakness in caps and in classics footwear.
Comparable store net sales data for the period reflects sales for our traditional format Hibbett Sports and
Sports Additions stores open throughout the period and the corresponding period of the prior fiscal year. If a store
remodel or relocation results in the store being closed for a significant period of time, its sales are removed from the
comparable store base until it has been open a full 12 months. During the 52 weeks ended January 27, 2007, 459
stores were included in the comparable store sales comparison. Our four Sports & Co. stores are not and have never
- 19 -
been included in the comparable store net sales comparison because we have not opened a superstore since
September 1996 nor do we plan to open additional superstores in the future.
Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $173.1 million, or 33.8% of net sales, in the 53 weeks
ended February 3, 2007, compared with $146.9 million, or 33.4% of net sales, in the 52 week period of the prior fiscal
year. We attribute this increase in gross profit primarily to a reduction in markdown rate. Occupancy, as a percent of
net sales, improved by 31 basis points year over year due to decreases in common area maintenance and rental
expenses as a percentage of sales. Offsetting these decreases were distribution center costs by 10 basis points,
primarily due to the increased repair and maintenance expenses and a decrease in vendor violations.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $100.5 million, or 19.6% of net sales, for the 53 weeks ended February 3, 2007, compared with $85.1 million, or
19.3% of net sales, for the 52 weeks ended January 28, 2006. These expenses increased as a percentage of net
sales between periods primarily due to the implementation of 123R which added 53 basis points in stock based
compensation. Other trends experienced included:
•
•
•
an increase in legal fees as a percent of net sales of 8 basis points related to pending litigation;
an increase in credit/debit card fees as a percent of net sales of 7 basis points related to the
increased use of these tenders by our customers over cash; and
decreases as a percent of net sales in insurance costs of 11 basis points and freight and
shipping costs of 5 basis points.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.1% in the
53 weeks ended February 3, 2007, and 2.3% in the 52 weeks ended January 28, 2006. We experienced a slight
trend upwards in the terms of our new store leases which contributed to the leveraging of depreciation expense as
leasehold improvements were expensed over the longer lease term which, in most cases, is less than the estimated
useful life of the asset. Our average lease term of leases added in fiscal 2007 was 7.44 years compared to 7.15
years for leases added in fiscal 2006.
Provision for income taxes. Provision for income taxes as a percentage of net sales was 4.8% in the 53
weeks ended February 3, 2007, compared to 4.4% for the 52 weeks ended January 28, 2006. The combined federal,
state and local effective income tax rate as a percentage of pre-tax income was 39.2% for fiscal 2007 and 36.4% for
fiscal 2006. The increase in rate over last year is primarily the result of the permanent difference related to incentive
stock options arising as a result of applying the provisions of SFAS No. 123R.
Fiscal 2006 Compared to Fiscal 2005
Net sales. Net sales increased $62.7 million, or 16.6%, to $440.3 million for the 52 weeks ended January 28,
2006, from $377.5 million for the 52 weeks ended January 29, 2005. We attribute this increase to the following
factors:
• We opened 73 Hibbett Sports stores and 1 Sports Additions store and closed 7 Hibbett Sports
stores for net stores opened of 67 stores in the 52 weeks ended January 28, 2006. New stores and
stores not in the comparable store net sales calculation accounted for $44.2 million of the increase
in net sales.
• We experienced a 5.6% increase in comparable store net sales for the 52 weeks ended January 28,
2006. Approximately 2.0% of this increase was the result of an increase in transactions with the
remainder due to an increase in price. Higher comparable store net sales contributed $18.5 million
to the increase in net sales.
• We believe sales pick-up related to the Quarter 3 hurricanes contributed 0.6% to 0.8% of the
increase in comparable sales.
The increase in comparable store sales was driven by an increase in sales in all three of our product
categories; apparel, footwear and equipment.
• Apparel was positive in comp stores due to strong performance in urban and activewear which
•
offset a weakness in the pro-licensed category.
Footwear was positive in all major categories, led by Nike, Fila, Asics, Mizuno and K-Swiss.
Children’s categories, performance and cleats were particularly strong performers.
• Equipment sales were positively impacted in all major hardgood categories, particularly baseball,
football, soccer and basketball.
- 20 -
Comparable store net sales data for the period reflects sales for our traditional format Hibbett Sports and
Sports Additions stores open throughout the period and the corresponding period of the prior fiscal year. If a store
remodel or relocation results in the store being closed for a significant period of time, its sales are removed from the
comparable store base until it has been open a full 12 months. During the 52 weeks ended January 28, 2006, 401
stores were included in the comparable store sales comparison. Our four Sports & Co. stores are not and have never
been included in the comparable store net sales comparison because we have not opened a superstore since
September 1996 nor do we plan to open additional superstores in the future.
Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $146.9 million, or 33.4% of net sales, in the 52 weeks
ended January 28, 2006, compared with $122.3 million, or 32.4% of net sales, in the same period of the prior fiscal
year. This year’s gross margin is primarily attributable to the increased product margin in apparel and footwear, the
leveraging of occupancy and distribution center cost and improved inventory turn. Product margin rate increased due
to additional vendor discounts and lower markdowns. Occupancy, as a percent of net sales, improved by 12 basis
points year over year due to decreases in common area maintenance and rental expenses as a percentage of sales.
Distribution center costs improved by 7 basis points, primarily due to the leveraging of salaries and benefits.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $85.1 million, or 19.3% of net sales, for the 52 weeks ended January 28, 2006, compared with $72.9 million, or
19.3% of net sales, for the comparable period a year ago. These expenses remained consistent as a percentage of
net sales between periods, but experienced the following trends:
•
Labor and benefits expenses accounted for a decrease as a percent of net sales of 27 basis
points at the store level as compared to the same period last year. This was somewhat offset by
an increase of 19 basis points in administrative salaries and benefits as compared to the same
period last year as we grew our corporate infrastructure to position ourselves for continued
store growth.
• Professional fees, primarily associated with Sarbanes-Oxley compliance and testing, decreased
•
14 basis points as compared to the same period last year.
Legal fees related to pending litigation and debit card expenses related to increased usage over
cash tender both increased 6 basis points as compared to the same period last year.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.3% in the
52 weeks ended January 28, 2006, and 2.6% in the 52 weeks ended January 29, 2005. The leveraging in
depreciation and amortization expense as a percentage of net sales is due to an increase in sales this year compared
to the same 52 weeks last year as well as an increase in asset lives related to lease terms.
Provision for income taxes. Provision for income taxes as a percentage of net sales was 4.4% in the 52
weeks ended January 28, 2006, compared to 3.9% for the 52 weeks ended January 29, 2005, due to an increase in
pre-tax income. The increase was somewhat offset by a decrease in the effective tax rate for fiscal 2006 as a result of
the resolution of state income tax issues. The combined federal, state and local effective income tax rate as a
percentage of pre-tax income was 36.4% for fiscal 2006 and 37.0% for fiscal 2005.
Liquidity and Capital Resources
Our capital requirements relate primarily to new store openings, stock repurchases and working capital
requirements. Our working capital requirements are somewhat seasonal in nature and typically reach their peak near the
end of the third and the beginning of the fourth quarters of our fiscal year. Historically, we have funded our cash
requirements primarily through our cash flow from operations and occasionally from borrowings under our revolving
credit facilities.
Our Consolidated Statements of Cash Flows are summarized as follows (in thousands):
Fiscal Year Ended
Net cash provided by operating activities:
Net cash used in investing activities:
Net cash used in financing activities:
Net increase (decrease) in cash and cash equivalents
February 3,
2007
$
$
36,462
(2,997)
(29,042)
4,423
- 21 -
January 28,
2006
38,061
(28,532)
(41,927)
(32,398)
$
$
January 29,
2005
$
$
46,123
(12,626)
(17,118)
16,379
Operating Activities.
Cash flow from operations is seasonal in our business. Typically, we use cash flow from operations to increase
inventory in advance of peak selling seasons, such as pre-Christmas and back-to-school. Inventory levels are reduced
in connection with higher sales during the peak selling seasons and this inventory reduction, combined with
proportionately higher net income, typically produces a positive cash flow.
Net cash provided by operating activities was $36.5 million for the 53 weeks ended February 3, 2007 compared
with net cash provided by operating activities of $38.1 million and $46.1 million in the 52 weeks ended January 28, 2006
and January 29, 2005, respectively. Inventory levels and inventory turns have continued to increase year over year as
store levels have increased.
The increase in inventory used cash of $16.4 million, $5.9 million and $8.2 million during fiscal years ended
2007, 2006 and 2005, respectively, while the accounts payable decrease used cash of $3.9 million and $4.3 million
during fiscal years ended 2007 and 2006, respectively. Accounts payable offset the use of cash by $12.2 million in fiscal
2005. Also offsetting these uses of cash were net income of $38.1 million, $33.6 million and $25.1 million during fiscal
years ended 2007, 2006 and 2005, respectively, and non-cash charges, including depreciation and amortization
expense of $10.9 million, $10.1 million and $9.9 million during fiscal years ended 2007, 2006 and 2005, respectively,
and stock-based compensation expense during fiscal 2007 of $2.8 million.
Investing Activities.
Cash provided by investing activities in the fiscal periods ended February 3, 2007, January 28, 2006 and
January 29, 2005 totaled $3.0 million, $28.5 million and $12.6 million, respectively. During fiscal period 2007, net
redemption of short-term investments was $13.2 million compared to net purchases of short-term investments of $13.2
million during fiscal period 2006. We did not have any short-term investment activity in fiscal 2005. Gross capital
expenditures used $16.3 million, $15.3 million and $12.7 million during fiscal periods ended 2007, 2006 and 2005,
respectively.
We use cash in investing activities to build new stores and remodel or relocate existing stores. Furthermore,
net cash used in investing activities includes purchases of information technology assets and expenditures for our
distribution facility and corporate headquarters.
We opened 74 new stores and relocated and/or remodeled 7 existing stores during the 53 weeks ended
February 3, 2007. We opened 74 new stores and relocated and/or remodeled 9 existing stores during the 52 weeks
ended January 28, 2006. We opened 63 new stores and relocated and/or remodeled 14 existing stores during the 52
weeks ended January 29, 2005.
We estimate the cash outlay for capital expenditures in fiscal year ended February 2, 2008 will be
approximately $24.0 million, which relates to the opening of approximately 92 new stores, remodeling of selected
existing stores, information system upgrades and various improvements at our headquarters and distribution center. Of
the total budgeted dollars for capital expenditures for fiscal 2008, we anticipate that approximately 66% will be related to
the opening of new stores and remodeling and or relocating existing stores. Approximately 18% will be related to the
opening of the new distribution facility and miscellaneous distribution center upgrades. Approximately 9% will be related
to information systems with the remaining 7% related primarily to automobiles and security equipment for our stores.
As of February 3, 2007, we had an approximate $0.2 million outlay remaining on our JDA merchandising
system implementation. We implemented this new merchandising system on February 4, 2007 and believe this system
will help us develop better efficiencies in the allocation and planning of inventory and better enable us to analyze and
generally improve sales across all markets and merchandise by allowing us to better analyze inventory at the store level.
Financing Activities.
Net cash used in financing activities was $29.0 million in the 53 weeks ended February 3, 2007 compared to
$41.9 million and $17.1 million in the 52 weeks ended January 28, 2006 and January 29, 2005, respectively. The cash
fluctuation as compared to prior fiscal years was primarily the result of the repurchase of our common stock. In fiscal
2007 we expended $33.0 million on repurchases of our common stock compared to $45.3 million and $19.1 million in
fiscal 2006 and fiscal 2005, respectively.
Financing activities also consisted of proceeds from transactions in our common stock and the excess tax
benefit from the exercise of incentive stock options. As stock options are exercised, we will continue to receive proceeds
and expect a tax deduction; however, the amounts and timing cannot be predicted.
- 22 -
At February 3, 2007, we had a revolving credit facility that allows borrowings up to $15.0 million and which
renews annually in November. Under the provisions of this facility, we can draw down funds when our main operating
account falls below $100,000. The facility does not require a commitment or agency fee and there are no covenant
restrictions associated with the facility. We plan to renew this facility as it expires and do not anticipate any problems in
doing so; however, no assurance can be given that we will be granted a renewal or terms which are acceptable to us.
At January 28, 2006, we had two unsecured credit facilities that allowed borrowings up to $15.0 million and
$10.0 million and which renewed annually in November. Under the provisions of these facilities, we could draw down
funds when our main operating account fell below $100,000. Neither facility required a commitment or agency fee nor
were there any covenant requirements.
At January 29, 2005, we had an unsecured revolving credit facility that allowed borrowings up to $25.0 million
and which expired November 5, 2005. The credit facility was subject to renewal every two years. Under the provisions of
this facility, we paid a commitment fee of $10,000 annually and could draw down funds when the balance of our main
operating account fell below $100,000.
As of February 3, 2007, January 28, 2006 and January 29, 2005, we had no debt outstanding under any of
these facilities. Based on our current operating and store opening plans and plans for the repurchase of our common
stock, we believe we can fund our cash needs for the foreseeable future through cash generated from operations and, if
necessary, through periodic future borrowings against our credit facility.
The following table lists the aggregate maturities of various classes of obligations and expiration amounts of
various classes of commitments related to Hibbett Sports, Inc. at February 3, 2007:
Payments due under contractual obligations (in thousands)
Long-term Debt
Obligations (1)
Capital Lease
Obligations (2)
Operating Lease
Obligations (3)
Total
Fiscal 2008
Fiscal 2009
Fiscal 2010
Fiscal 2011
Fiscal 2012
Thereafter
$
$
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
$
$
36,046
31,445
26,144
19,731
13,875
29,852
157,093
$
$
36,046
31,445
26,144
19,731
13,875
29,852
157,093
(1) See “Debt” – Consolidated Financial Statements Note 5 in Item 8.
(2) As of fiscal year ended 2007, we do not have any capital lease obligations.
(3) See “Lease Commitments” – Consolidated Financial Statements Note 9 in Item 8.
Off-Balance Sheet Arrangements
We have not provided any financial guarantees as of February 3, 2007. All purchase obligations are
cancelable and therefore are not included in the table above.
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose
of raising capital, incurring debt or operating our business. We do not have any arrangements or relationships with
entities that are not consolidated into the financial statements.
Inflation and Other Economic Factors
Our ability to provide quality merchandise on a profitable basis may be subject to economic factors and
influences that we cannot control. National or international events, including the war on terrorism, could lead to
disruptions in economies in the United States or in foreign countries where a significant portion of our merchandise is
manufactured. These and other factors could increase our merchandise costs and other costs that are critical to our
operations. Consumer spending could also decline because of economic pressures.
Merchandise Costs. Based on current economic conditions, we expect that any increase in merchandise
costs per unit will be offset by improved vendor discounts and increased retail prices in fiscal 2008.
Freight Costs. We continued to experience rising fuel costs during fiscal 2007 that increased our freight
costs. However, these fuel cost increases began to stabilize somewhat towards the end of fiscal 2007 and we expect
- 23 -
this stabilization to continue. We do not expect increases in freight costs to have a material effect on our results of
operations as we continue to leverage the costs associated with inbound freight against the cost of outbound freight.
Minimum Wage. An increase in the mandated minimum wage could significantly increase our payroll costs.
There is currently legislation in Congress that would raise the federal minimum wage by approximately 41% by March
2009 with the first increase of an estimated 14% to take place in fiscal 2008. Also, eight of the states we operate in
passed legislation to raise the minimum wage beginning in calendar year 2007; some with automatic provision for
future increase based on the Consumer Price Index.
Insurance Costs. In fiscal 2006, we experienced an increase in general business insurance costs due to
raised limits on Directors and Officers insurance and expanded coverage on our distribution center. During the same
period, health insurance declined due to a reduction in claims. In fiscal 2007, we experienced a decrease in general
business insurance costs primarily because we changed to a partially self-insured program for our workers’
compensation and general liability. During the same period, we experienced an increase in our average monthly
health insurance claims. In fiscal 2008, we expect that general business insurance costs will stabilize while health
insurance costs will increase slightly.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements;
however, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating
the impact, if any, that SFAS No. 157 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158
requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or
liability in the statement of financial position and recognition of changes in that funded status in comprehensive
income in the year in which the changes occur. SFAS No. 158 also requires measurement of the funded status of a
plan as of the date of the statement of financial position. SFAS No. 158 is effective for recognition of the funded
status of the benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date
provisions for fiscal years ending after December 15, 2008. The adoption of SFAS No. 158 will not have a material
effect on our consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108
provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current
year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires
quantification of financial statement errors based on the effects on each of the Company’s balance sheet, statement
of operations and related financial statement disclosures. The SAB permits the recording of the cumulative effect of
initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting
adjustments recorded to the opening balance of retained earnings. SAB No. 108 is effective for fiscal 2007. The
adoption of SAB No. 108 did not have a material effect on our consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109.” FIN No. 48 clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes,” by prescribing a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Under FIN No. 48, the financial
statement effects of a tax position should initially be recognized when it is more-likely-than-not, based on the
technical merits, that the position will be sustained upon examination by the taxing authority. A tax position that
meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest
amount of tax benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with a
taxing authority. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We do not expect the
adoption of FIN No. 48 to have a material effect on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments,” which requires that
companies recognize the grant-date fair value of stock options and other equity-based compensation issued to
employees as an expense in the income statement. SFAS No. 123R generally requires that companies account for
those transactions using the fair-value-based method, and eliminates using the intrinsic value method of accounting
in Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees.” In March 2005, the SEC
issued SAB No. 107, “Share-Based Payment,” which provided the staff’s views regarding the interaction between
- 24 -
SFAS No. 123R and certain SEC rules and regulations and also the valuation of share-based payment arrangements
for public companies. We adopted SFAS No. 123R effective January 29, 2006 using the modified prospective
transition method. This method requires that compensation cost be recognized on or after the required effective date
for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant
date fair value of those awards calculated under SFAS No. 123, “Accounting for Stock-Based Compensation,” pro-
forma disclosures. The impact of SFAS No. 123R on our consolidated statement of operations in fiscal 2007 and
beyond will depend upon various factors, including the amount of awards granted and the fair value of those awards
at the time of grant. We incurred an incremental expense of $2.8 million, or approximately $0.07 per diluted shares
during the 53 weeks ended February 3, 2007 as a result of the adoption of SFAS No. 123R. See “Stock-Based
Compensation” in Note 3 to the Consolidated Financial Statements in Item 8.
Our Critical Accounting Policies
Our critical accounting policies reflected in the consolidated financial statements are detailed below.
Revenue Recognition. We recognize revenue, including gift card and layaway sales, in accordance with
the SEC SAB No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue
Recognition.”
Retail merchandise sales occur on-site in our retail stores. Customers have the option of paying the full
purchase price of the merchandise upon sale or paying a down payment and placing the merchandise on layaway.
The customer may make further payments in installments, but the entire purchase price for merchandise placed on
layaway must be received by us within 30 days. The down payment and any installments are recorded by us as
short-term deferred revenue until the customer pays the entire purchase price for the merchandise. We recognize
revenue at the time the customer takes possession of the merchandise. Retail sales are recorded net of returns and
discounts and exclude sales taxes.
The cost of coupon sales incentives is recognized at the time the related revenue is recognized by us.
Proceeds received from the issuance of gift cards are initially recorded as deferred revenue. Revenue is
subsequently recognized at the time the customer redeems the gift cards and takes possession of the merchandise.
Unredeemed gift cards are recorded as a current liability.
It is not our policy to take unclaimed layaway deposits and unredeemed gift cards into income. As of
February 3, 2007, January 28, 2006 and January 29, 2005, there was no breakage revenue recorded in income. The
deferred revenue liability for layaway deposits and unredeemed gift cards was $1.8 million, $1.3 million and $1.0
million at February 3, 2007, January 28, 2006 and January 29, 2005, respectively. Any unrecognized breakage
revenue is immaterial.
Inventory Valuation. Cost is assigned to store inventories using the retail inventory method. In using this
method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated
cost-to-retail ratio to the retail value of inventories. The retail method is an averaging method that has been widely
used in the retail industry and results in valuing inventories at lower of cost or market when markdowns are taken as
a reduction of the retail value of inventories on a timely basis.
Inventory valuation methods require certain significant management estimates and judgments. These
include estimates of merchandise markdowns and shrinkage, which significantly affect the ending inventory valuation
at cost, as well as the resulting gross margins. The averaging required in applying the retail inventory valuation
method and the estimates of shrink and markdowns may, under certain circumstances, result in inaccurate cost
figures. Inaccurate inventory cost may be caused by applying the retail inventory method to a group of products that
have differing characteristics related to gross margin and turnover.
We accrue for inventory shrinkage based on the actual historical shrink results of our most recent physical
inventories. These estimates are compared to actual results as physical inventory counts are performed and
reconciled to the general ledger. Store counts are performed on a cyclical basis and the distribution center’s counts
are performed mid-year and at the end of December or in early January every year.
Our management believes that the application of the retail inventory method results in an inventory valuation
that reasonably approximates cost and results in carrying inventory at the lower of cost or market.
Beginning in fiscal 2008, we will value our inventory at the lower of cost or market on a weighted-average
cost basis, using the cost method. We believe the cost method is preferable as compared to the retail method
because it will increase the organizational focus on the actual margin realized on each sale. This change in
accounting method is not expected to have a material effect on our consolidated financial statements.
- 25 -
Accrued Expenses. On a monthly basis, we estimate certain material expenses in an effort to record those
expenses in the period incurred. Our most material estimates relate to payroll and payroll tax expenses, property
taxes, insurance-related expenses and utility expenses. Estimates are primarily based on current activity and
historical results and are adjusted as our estimates change. Differences in our estimates and assumptions could
result in an accrual materially different from the accrual calculated. Historically, the differences in these accruals have
not had a material effect on our financial condition or results of operations.
Income Taxes. On a quarterly basis, we estimate our required tax liability and assess the recoverability of
our deferred tax assets. Our taxes payable are estimated based on enacted tax rates, including estimated tax rates in
states where our store base is growing applied to the income expected to be taxed currently. We assess the
realizability of our deferred tax projections for future taxable income. We cannot guarantee that we will generate
income in future years.
Litigation Accruals. Estimated amounts for claims that are probable and can be reasonably estimated are
recorded as liabilities in the consolidated balance sheets. The likelihood of a material change in these estimated
accruals would be dependent on new claims as they may arise and the favorable or unfavorable outcome of a
particular litigation. As additional information becomes available, we assess the potential liability related to pending
litigation and revise estimates as appropriate. Such revisions in estimates of the potential liability could materially
impact our results of operations and financial position.
Impairment of Assets. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining balance of long-lived assets and intangibles may be impaired and not
recoverable. The Company’s policy is to recognize any impairment loss on long-lived assets as a charge to current
income when certain events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. Impairment is assessed considering the estimated undiscounted cash flows over the asset’s remaining
life. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized based on a
comparison of the cost of the asset to fair value less any costs of disposition.
Stock-Based Compensation. We use the Black-Scholes option pricing model to estimate the fair value at the
date of grant of stock options granted under our stock option plans and stock purchase rights associated with the
Employee Stock Purchase Plan. Volatility is estimated as of the date of grant or purchase date based on
management’s estimate of the time period that captures the relative volatility of our stock. We use the risk free
interest rate on the date of grant or purchase date based on the U.S. Treasury rate with maturities approximating the
expected lives of our options. The effects on net income and EPS of stock-based compensation expense, net of tax,
calculated using the fair value of stock options and stock purchase rights in accordance with the Black-Scholes
options pricing model are not necessarily representative of the effects of our results of operations in the future. In
addition, the compensation expense utilizes an option pricing model developed for traded options with relatively short
lives. Our stock option grants have a life of up to ten years and are not transferable. Therefore, the actual fair value of
a stock option grant may be different from the Company’s estimates. The Company believes that its estimates
incorporate all relevant information and represent a reasonable approximation in light of the difficulties involved in
valuing non-traded stock options. All estimates and assumptions are regularly evaluated and updated when
applicable.
Insurance Accruals. We use a combination of insurance and self-insurance for a number of risks including
employee-related health benefits, a portion of which is paid by our employees, workers’ compensation and general
liability . The estimates and accruals for these liabilities associated with these risks are regularly evaluated for
adequacy based on the most current available information, including historical claims experience and expected future
claims costs.
Operating Leases. We lease our retail stores and distribution center under operating leases. Many lease
agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. We recognize rent
expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to
exercise such options would result in an economic penalty. We use a time period for our straight-line rent expense
calculation that equals or exceeds the time period used for depreciation. In addition, the commencement date of the
lease term is the earlier of the date when we become legally obligated for the rent payments or the date when we
take possession of the building for initial setup of fixtures and merchandise.
Dividend Policy
We have never declared or paid any dividends on our common stock. We currently intend to retain our future
earnings to finance the growth and development of our business and for our stock repurchase program, and therefore
do not anticipate declaring or paying cash dividends on our common stock for the foreseeable future. Any future decision
to declare or pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as our Board of Directors deems relevant.
- 26 -
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer (See Item 9A).
Quarterly and Seasonal Fluctuations
We have historically experienced and expect to continue to experience seasonal fluctuations in our net sales
and operating income. Our net sales and operating income are typically higher in the fourth quarter due to sales
increases during the holiday selling season. However, the seasonal fluctuations are mitigated by the strong product
demand in the spring and back-to-school sales periods. Our quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of new store openings, the amount and timing of net
sales contributed by new stores, the level of pre-opening expenses associated with new stores, the relative proportion of
new stores to mature stores, merchandise mix, the relative proportion of stores represented by each of our three store
concepts and demand for apparel and accessories driven by local interest in sporting events.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Our financial condition, results of operations and cash flows are subject to market risk from interest rate
fluctuations on our working capital facilities, which bear interest at rates that vary with LIBOR, prime or quoted cost of
funds rates. During the majority of fiscal 2007 and all of fiscal 2006, we had two operating facilities allowing
borrowings up to $25.0 million. Effective November 2006, we elected to renew only one facility that allows
borrowings up to $15.0 million and renews annually.
At the end of fiscal 2007 and fiscal 2006, we had no borrowings outstanding under any working capital
facility. There were twenty-four days during the fifty-three weeks ended February 3, 2007, where we incurred
borrowings against our credit facilities for an average and maximum borrowing of approximately $2.5 million and $5.1
million and an average interest rate of 6.12%. At no time during the fifty-two weeks ended January 28, 2006, did we
incur borrowings against our credit facility. There were three days during the fifty-two weeks ended January 29, 2005,
where we incurred borrowings against our credit facility for an average borrowing of $297,000. During fiscal 2005, the
maximum amount outstanding against these agreements was approximately $435,000 and the weighted average
interest rate was 2.68%. A 10% increase or decrease in market interest rates would not have a material impact on
our financial condition, results of operations or cash flows.
- 27 -
Item 8.
Consolidated Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary data of our Company are included in
response to this item:
• Report of Independent Registered Public Accounting Firm
• Consolidated Balance Sheets as of February 3, 2007 and January 28, 2006
• Consolidated Statements of Operations for the fiscal years ended February 3, 2007, January
28, 2006 and January 29, 2005
• Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2007, January
28, 2006 and January 29, 2005
• Consolidated Statements of Stockholders’ Investment for fiscal years ended February 3, 2007,
January 28, 2006 and January 29, 2005
• Notes to Consolidated Financial Statements
• Report of Independent Registered Public Accounting Firm on Supplemental Schedule
• Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
- 28 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Hibbett Sports, Inc.:
We have audited the accompanying consolidated balance sheets of Hibbett Sports, Inc. (formerly Hibbett
Sporting Goods, Inc.) and subsidiaries (the Company) as of February 3, 2007 and January 28, 2006, and the related
consolidated statements of operations, stockholders’ investment, and cash flows for each of the years in the three-year
period ended February 3, 2007. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Hibbett Sports, Inc. and subsidiaries as of February 3, 2007 and January 28, 2006, and the
results of their operations and their cash flows for each of the years in the three-year period ended February 3, 2007, in
conformity with U.S. generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, effective January 29, 2006, the Company
changed its method of accounting for share-based payments.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of February 3, 2007,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated April 4, 2007 expressed an unqualified
opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Birmingham, Alabama
April 4, 2007
- 29 -
HIBBETT SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
Current Assets:
ASSETS
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other
Deferred income taxes
Total current assets
Property and Equipment:
Land and building
Equipment
Furniture and fixtures
Leasehold improvements
Construction in progress
Less accumulated depreciation & amortization
Total property and equipment
Non-current Assets:
Deferred income taxes
Other, net
Total non-current assets
Total Assets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable
Accrued income taxes
Accrued expenses:
Payroll-related
Deferred rent
Other
Total current liabilities
Non-current Liabilities:
Deferred rent
Other
Total non-current liabilities
February 3,
2007
January 28,
2006
$
$
30,367
-
4,651
125,240
5,024
1,607
166,889
245
32,946
18,846
50,767
4,417
107,221
64,648
42,573
3,217
174
3,391
212,853
$
$
25,944
13,227
4,745
108,862
1,495
1,203
155,476
245
29,716
17,037
44,815
1,737
93,550
55,905
37,645
2,548
160
2,708
195,829
$
42,016
5,338
$
45,929
563
6,592
4,228
2,287
60,461
15,715
36
15,751
5,555
3,325
1,481
56,853
14,203
-
14,203
Stockholders' Investment:
Preferred stock, $.01 par value 1,000,000 shares authorized,
no shares issued
-
-
Common stock, $.01 par value, 80,000,000 shares authorized,
36,047,732 and 35,734,752 shares issued at February 3, 2007 and
January 28, 2006, respectively
Paid-in capital
Retained earnings
360
81,916
151,697
Treasury stock at cost, 4,306,413 and 3,127,700 shares at
February 3, 2007 and January 28, 2006, respectively
Total stockholders' investment
Total Liabilities and Stockholders' Investment
(97,332)
136,641
212,853
$
$
357
75,166
113,624
(64,374)
124,773
195,829
See accompanying notes to consolidated financial statements.
- 30 -
HIBBETT SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
Fiscal Year Ended
February 3,
2007
(53 Weeks)
January 28,
2006
(52 Weeks)
January 29,
2005
(52 Weeks)
Net sales
$
512,094
$
440,269
$
377,534
Cost of goods sold, including distribution
center and store occupancy costs
Gross profit
338,963
173,131
293,368
146,901
255,250
122,284
Store operating, selling and
administrative expenses
Depreciation and amortization
Operating income
Interest income
Interest expense
Interest income, net
Income before provision for
income taxes
100,461
10,932
61,738
906
30
876
85,060
10,119
51,722
1,170
24
1,146
72,923
9,939
39,422
517
42
475
62,614
52,868
39,897
Provision for income taxes
24,541
19,244
14,750
Net income
$
38,073
$
33,624
$
25,147
Basic earnings per share
$
1.19
$
1.00
$
0.72
Diluted earnings per share
$
1.17
$
0.98
$
0.70
Weighted Average Shares
Outstanding:
Basic
Diluted
32,094,127
33,605,568
34,855,682
32,619,839
34,393,026
35,690,363
See accompanying notes to consolidated financial statements.
- 31 -
HIBBETT SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share information)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Deferred income tax benefit
Excess tax benefit from stock option exercises
Loss on disposal of assets, net
Stock-based compensation expense
(Increase) decrease in operating assets:
Accounts receivable, net
Inventories
Prepaid expenses and other
Other non-current assets
Increase (decrease) in operating liabilities:
Accounts payable
Accrued income taxes
Deferred rent, non-current
Accrued expenses
Net cash provided by operating activities:
Cash Flows From Investing Activities:
Sale (purchase) of short-term investments, net
Capital expenditures
Proceeds from sale of property and equipment
Net cash used in investing activities:
Cash Flows From Financing Activities:
Cash used for stock repurchases
Excess tax benefit from stock option exercises
Proceeds from options exercised and purchase of shares
under the employee stock purchase plan
Net cash used in financing activities:
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Fiscal Year Ended
February 3,
2007
January 28,
2006
January 29,
2005
$
38,073
$
33,624
$
25,147
10,932
(1,073)
(1,232)
370
2,837
94
(16,378)
(3,530)
(19)
(3,913)
6,005
1,513
2,783
36,462
13,227
(16,278)
54
(2,997)
(32,958)
1,232
2,684
(29,042)
4,423
25,944
10,119
(1,918)
-
465
15
112
(5,853)
(501)
(15)
(4,259)
823
3,478
1,971
38,061
(13,227)
(15,348)
43
(28,532)
(45,263)
-
3,336
(41,927)
(32,398)
58,342
9,939
(45)
-
531
-
(1,263)
(8,232)
(56)
(37)
12,212
3,196
3,774
957
46,123
-
(12,671)
45
(12,626)
(19,111)
-
1,993
(17,118)
16,379
41,963
Cash and Cash Equivalents, End of Year
$
30,367
$
25,944
$
58,342
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest
Income taxes, net of refunds
Supplemental Schedule of Non-Cash Financing Activities:
$
$
30
$
24
$
42
19,608
$
20,338
$
10,388
Deferred board compensation
$
31
$
15
$
-
Shares awarded to satisfy deferred board compensation
1,142
581
-
See accompanying notes to consolidated financial statements.
- 32 -
HIBBETT SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENT
(in thousands, except share information)
Common Stock
Treasury Stock
Number
of Shares
Amount
Paid-In
Capital
Retained
Earnings
Number
of
Shares
Amount
Total
Stockholders'
Investment
Balance-January 31, 2004
34,844,490
$
348
$
65,239
$
54,853
-
$
-
$
120,440
25,147
25,147
Net income
Issuance of shares from
the employee stock
purchase plan and the
exercise of stock options,
net of tax benefit $1,569
Purchase of shares under
the stock repurchase
program
388,508
4
3,559
Balance-January 29, 2005
35,232,998
352
68,798
80,000
1,268,100
1,268,100
(19,111)
(19,111)
(15,548)
130,039
33,624
33,624
Net income
Issuance of shares from
the employee stock
purchase plan and the
exercise of stock options,
net of tax benefit $3,023
Purchase of shares under
the stock repurchase
program
501,754
5
6,368
6,373
1,859,600
(45,263)
(45,263)
Balance-January 28, 2006
35,734,752
357
$
75,166
113,624
3,127,700
$
(64,374)
124,773
Net income
Issuance of shares from
the employee stock
purchase plan and the
exercise of stock options,
net of tax benefit $2,539
Adjustment to income tax
benefit from exercises of
employee stock options
Purchase of shares under
the stock repurchase
program
Stock-based
compensation
38,073
38,073
312,980
3
5,220
(1,307)
2,837
5,223
(1,307)
1,178,713
(32,958)
(32,958)
2,837
Balance-February 3, 2007
36,047,732
$
360
$
81,916
$
151,697
4,306,413
$
(97,332)
$
136,641
See accompanying notes to consolidated financial statements.
- 33 -
HIBBETT SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 3, 2007, January 28, 2006 and January 29, 2005
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Hibbett Sports, Inc. (the “Company” or “Hibbett”), formerly Hibbett Sporting Goods, Inc., is an operator of
sporting goods retail stores in small to mid-sized markets predominately in the Sunbelt, Mid-Atlantic and Midwest.
The Company’s fiscal year ends on the Saturday closest to January 31 of each year. The consolidated statement of
operations for fiscal year ended February 3, 2007, includes 53 weeks of operations while the consolidated statements
of operations for fiscal years ended January 28, 2006 and January 29, 2005, include 52 weeks of operations. The
Company’s merchandise assortment features a core selection of brand name merchandise emphasizing individual
team sports complemented by a selection of localized apparel and accessories designed to appeal to a wide range of
customers within each market.
Principles of Consolidation
The consolidated financial statements of the Company include its accounts and the accounts of all wholly-
owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform previously reported data to the current presentation. Such
reclassifications had no impact on total assets, net income or stockholders’ investment.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect (1)
the reported amounts of certain assets and liabilities and disclosure of certain contingent assets and liabilities at the
date of the consolidated financial statements and (2) the reported amounts of certain revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Reportable Segments
Given the economic characteristics of the store formats, the similar nature of products offered for sale, the
types of customers, the methods of distribution and how the Company is managed, the operations of Hibbett
constitute only one reportable segment.
Customers
No customer accounted for more than 5.0% of the Company’s sales during the 53-week period ended
February 3, 2007 and the 52-week periods ended January 28, 2006 and January 29, 2005.
Vendor Arrangements
The Company enters into arrangements with some of its vendors that entitle it to a partial refund of the cost
of merchandise purchased during the year or payments for reimbursement of certain costs it incurs to advertise or
otherwise promote its product. The volume based rebates, supported by a vendor agreement, are estimated
throughout the year and reduce the cost of inventory and cost of goods sold during the year. This estimate is
regularly monitored and adjusted for current or anticipated changes in purchase levels and for sales activity.
Cost of Goods Sold
The Company includes inbound freight charges, merchandise purchases, store occupancy costs and a
portion of the Company’s distribution costs related to its retail business in cost of goods sold. Outbound freight
charges associated with moving merchandise to and between stores are included in store operating, selling and
administrative expenses.
Advertising
The Company expenses advertising costs when incurred. The Company participates in various advertising
and marketing cooperative programs with its vendors, who, under these programs, reimburse it for certain costs
incurred. A receivable for cooperative advertising to be reimbursed is recorded as a decrease to expense as
advertisements are run.
- 34 -
The following table presents the components of the Company’s advertising expense (in thousands):
Fiscal Year Ended
February 3,
2007
January 28,
2006
January 29,
2005
Gross advertising costs
Advertising reimbursements
$
5,194
(3,225)
$
4,727
(2,935)
$
4,471
(2,785)
Net advertising costs
$
1,969
$
1,792
$
1,686
Stock Repurchase Program
In August 2004, the Board of Directors authorized a plan to repurchase up to $30.0 million of our
outstanding common stock. The repurchase authorization was increased by the Board in November 2004 to $40.0
million, in August 2005 to $60.0 million, in November 2005 to $100.0 million and in August 2006 to $150.0 million.
Stock repurchases may be made until February 2, 2008, and may be made in the open market or in negotiated
transactions, with the amount and timing of repurchases dependent on market conditions and at the discretion of
Company management.
The Company repurchased 1,178,713, 1,859,600 and 1,268,100 shares of its common stock during the 53-
week period ended February 3, 2007 and the 52-week periods ended January 28, 2006 and January 29, 2005,
respectively, at a cost of approximately $33.0 million, $45.3 million and $19.1 million, respectively. As of February 3,
2007, the Company had repurchased a total of 4,306,413 shares of its common stock at an approximate cost of
$97.3 million. We have approximately $52.7 million available for stock repurchase as of February 3, 2007.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of 90 days or less,
including commercial paper and money market funds, to be cash equivalents. Amounts due from third party credit
card processors for the settlement of debit and credit card transactions are included as cash equivalents as they are
generally collected within three business days. Cash equivalents related to credit and debit card transactions at
February 3, 2007 and January 28, 2006 were $2.2 million and $1.4 million, respectively.
Short-Term Investments
All investments with original maturities of greater than 90 days are accounted for in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and
Equity Securities.” The Company determines the appropriate classification at the time of purchase. We did not hold
any investments in securities at February 3, 2007. We held approximately $13.2 million of investments in securities
at January 28, 2006. Our investments in securities primarily consisted of auction rate securities classified as
available-for-sale. Investments in these securities are recorded at cost, which approximates fair value due to their
variable interest rates, which reset every 7 to 35 days. Despite the long-term nature of their stated contractual
maturities, we believe there is a ready liquid market for these securities. As a result, there are no cumulative gross
unrealized holding gains (losses) or gross realized gains (losses) from our securities. All income generated from
these securities is recorded as interest income. We continually evaluate our short-term investments for other than
temporary impairment.
Trade and Other Accounts Receivable
Trade accounts receivable at fiscal year-end consisted primarily of amounts due to the Company from sales
to educational institutions and youth associations. We do not require collateral and we maintain an allowance for
potential uncollectible accounts based on an analysis of the aging of accounts receivable at the date of the financial
statements, historical losses and existing economic conditions, when relevant. The allowance for doubtful accounts at
February 3, 2007 and January 28, 2006 was $34,000 and $45,000, respectively.
Other accounts receivable consisted primarily of tenant allowances due from landlords and cooperative
advertising due from vendors, all of which are deemed to be collectible.
Inventories
Inventories are valued at the lower of cost or market using the retail inventory method of accounting, with
cost determined on a first-in, first-out basis and market based on the lower of replacement cost or estimated
- 35 -
realizable value. The Company’s business is dependent to a significant degree upon close relationships with its
vendors. The Company’s largest vendor, Nike, represented approximately 46.6%, 43.9% and 38.9% of its purchases
in fiscal 2007, 2006 and 2005, respectively. Our next largest vendor in fiscal 2007 represented approximately 9.4%,
3.7% and 3.8% of its purchases in fiscal 2007, 2006 and 2005, respectively. The merger between two of our vendors
accounted for the increase in concentration of our second largest vendor between periods. Our third largest vendor
in fiscal 2007 represented approximately 4.7%, 3.2% and 2.6% of its purchases in fiscal 2007, 2006 and 2005,
respectively.
Beginning in fiscal year 2008, inventory will be valued using the lower of weighted average cost or market.
The Company believes the cost method is preferable as compared to the retail method because it will increase the
organizational focus on the actual margin realized on each sale. This change in accounting method is not expected
to have a material impact on the Company’s consolidated financial statements.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on assets is principally provided using the
straight-line method over their estimated service lives (3 to 5 years for equipment, 7 years for furniture and fixtures
and 39 years for buildings) or, in the case of leasehold improvements, the shorter of the initial term of the underlying
leases or the estimated economic lives of the improvements (typically 3 to 10 years).
Construction in progress is comprised of property and equipment related to unopened stores and costs
associated with technology upgrades at period end.
Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of
assets sold, retired or otherwise disposed of are removed from the accounts and the related gain or loss is credited or
charged to income.
In March 1998, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of
Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,”
which provides guidance on accounting for such costs. SOP 98-1 requires computer software costs that are incurred
in the preliminary project stage to be expensed as incurred. Once the capitalization criteria of SOP 98-1 have been
met, directly attributable development costs should be capitalized. It also provides that upgrade and maintenance
costs should be expensed. Our treatment of such costs is consistent with SOP 98-1, with the costs capitalized being
amortized over the expected useful life of the software. In fiscal 2007, we capitalized approximately $120,000 under
SOP 98-1 associated with the implementation of new merchandising software. In fiscal 2006, we capitalized
approximately $10,500 under SOP 98-1 associated with the implementation of new merchandising software.
Deferred Rent from Landlords
Deferred rent from landlords primarily consists of step rent and allowances from landlords related to the
Company’s leased properties. Step rent represents the difference between actual operating lease payments due and
straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out
period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally
lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the
straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the
Company by landlords and may be received in the form of cash or free rent. The Company records a receivable from
the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income
(through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and
the receivable is reduced as amounts are received from the landlord.
On our statements of cash flows, the current and long-term portions of landlord allowances are included as
changes in cash flows from operations. The current portion is included as a change in other operating assets and
liabilities and the long-term portion is included as a change in deferred rent, non-current. The liability for the current
portion of unamortized landlord allowances was $3.1 million and $2.9 million at February 3, 2007 and January 28,
2006, respectively. The liability for the long-term portion of unamortized landlord allowances was $12.6 million and
$11.3 million at February 3, 2007 and January 28, 2006, respectively. The non-cash portion of landlord allowances
received is immaterial.
Revenue Recognition
We recognize revenue, including gift card and layaway sales, in accordance with the Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial
Statements,” as amended by SAB No. 104, “Revenue Recognition.”
- 36 -
Retail merchandise sales occur on-site in the Company’s retail stores. Customers have the option of paying
the full purchase price of the merchandise upon sale or paying a down payment and placing the merchandise on
layaway. The customer may make further payments in installments, but the entire purchase price for merchandise
placed on layaway must be received by the Company within 30 days. The down payment and any installments are
recorded by the Company as short-term deferred revenue until the customer pays the entire purchase price for the
merchandise. We recognize revenue at the time the customer takes possession of the merchandise. Retail sales are
recorded net of returns and discounts and exclude sales taxes.
The cost of coupon sales incentives is recognized at the time the related revenue is recognized by the
Company. Proceeds received from the issuance of gift cards are initially recorded as deferred revenue. Revenue is
subsequently recognized at the time the customer redeems the gift cards and takes possession of the merchandise.
Unredeemed gift cards are recorded as a current liability.
It is not our policy to take unclaimed layaway deposits and unredeemed gift cards into income. For the
years ended February 3, 2007, January 28, 2006 and January 29, 2005, there was no breakage revenue recorded in
income. The deferred revenue liability for layaway deposits and unredeemed gift cards was $1.8 million and $1.3
million at February 3, 2007 and January 28, 2006, respectively. Any unrecognized breakage revenue is immaterial.
The Company escheats unredeemed gift cards.
Store Opening and Closing Costs
New store opening costs, including pre-opening costs, are charged to expense as incurred. Store opening
costs primarily include payroll expenses, training costs and straight-line rent expenses. All pre-opening costs are
included in store operating, selling and administrative expenses as a part of operating expenses.
We consider individual store closings to be a normal part of operations and regularly review store
performance against expectations. Costs associated with store closings are recognized at the time of closing or when
a liability has been incurred.
Accounting for the Impairment of Long-Lived Assets
The Company continually evaluates whether events and circumstances have occurred that indicate the
remaining balance of long-lived assets and intangibles may be impaired and not recoverable. The Company’s policy
is to recognize any impairment loss on long-lived assets as a charge to current income when certain events or
changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment is
assessed considering the estimated undiscounted cash flows over the asset’s remaining life. If estimated cash flows
are insufficient to recover the investment, an impairment loss is recognized based on a comparison of the cost of the
asset to fair value less any costs of disposition.
Self-Insurance Accrual
We are self-insured for a significant portion of our health insurance. Liabilities associated with the risks that
are retained by us are estimated, in part, by considering our historical claims. The estimated accruals for these
liabilities could be affected if future occurrences and claims differ from these assumptions. To minimize our potential
exposure, we carry stop-loss insurance which reimburses us for losses over $100,000 per covered person per year or
$2.0 million per year in the aggregate. As of February 3, 2007 and January 28, 2006, the accrual for these liabilities
was $350,000 and $280,000, respectively, and was included in accrued expenses in the consolidated balance
sheets.
We are also self-insured for our workers’ compensation and general liability insurance up to an established
deductible with a cumulative stop loss. As of February 3, 2007 and January 28, 2006, the accrual for these liabilities
(which is not discounted) was $200,000 and $150,000, respectively and was included in accrued expenses in the
consolidated balance sheets.
Sales Returns, net
Net sales returns were $14.2 million for fiscal 2007, $12.1 million for fiscal 2006 and $10.5 million for fiscal
2005. The accrual for the effect of estimated returns on pre-tax income was $124,000, $113,000 and 83,000 for the
fiscal years ended February 3, 2007, January 28, 2006 and January 29, 2005, respectively, and was included in
accrued expenses in the consolidated balance sheets.
- 37 -
Fair Value of Financial Instruments
We believe that the carrying amount approximates fair value for cash and cash equivalents, short-term
investments, receivables and accounts payable, because of the short maturities of those instruments.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements;
however, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently
evaluating the impact, if any, that SFAS No. 157 will have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158
requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or
liability in the statement of financial position and recognition of changes in that funded status in comprehensive
income in the year in which the changes occur. SFAS No. 158 also requires measurement of the funded status of a
plan as of the date of the statement of financial position. SFAS No. 158 is effective for recognition of the funded
status of the benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date
provisions for fiscal years ending after December 15, 2008. The adoption of SFAS No. 158 will not have a material
effect on the Company’s consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108
provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current
year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires
quantification of financial statement errors based on the effects on each of the Company’s balance sheet, statement
of operations and related financial statement disclosures. The SAB permits the recording of the cumulative effect of
initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting
adjustments recorded to the opening balance of retained earnings. SAB No. 108 is effective for fiscal 2007. The
adoption of SAB No. 108 did not have a material effect on the Company’s consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109.” FIN No. 48 clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes,” by prescribing a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Under FIN No. 48, the financial
statement effects of a tax position should initially be recognized when it is more-likely-than-not, based on the
technical merits, that the position will be sustained upon examination by the taxing authority. A tax position that
meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest
amount of tax benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with a
taxing authority. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We do not expect the
adoption of FIN No. 48 to have a material effect on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires that
companies recognize the grant-date fair value of stock options and other equity-based compensation issued to
employees as an expense in the income statement. SFAS No. 123R generally requires that companies account for
those transactions using the fair-value-based method, and eliminates using the intrinsic value method of accounting
in Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees.” In March 2005, the SEC
issued SAB No. 107, “Share-Based Payment,” which provided the staff’s views regarding the interaction between
SFAS No. 123R and certain SEC rules and regulations and also the valuation of share-based payment arrangements
for public companies. The Company adopted SFAS No. 123R effective January 29, 2006 using the modified
prospective transition method. This method requires that compensation cost be recognized on or after the required
effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based
on the grant date fair value of those awards. The impact of SFAS No. 123R on the Company’s consolidated
statement of operations in fiscal 2007 and beyond will depend upon various factors, including the amount of awards
granted and the fair value of those awards at the time of grant. The Company incurred an incremental expense of
$2.8 million, or approximately $0.07 per diluted share, during the 53 weeks ended February 3, 2007 as a result of the
adoption of SFAS No. 123R. See “Stock-Based Compensation” in Note 3 to the Consolidated Financial Statements in
Item 8.
- 38 -
NOTE 3. STOCK-BASED COMPENSATION
At February 3, 2007, the Company had four stock-based compensation plans:
(a) The 2005 Equity Incentive Plan (“Incentive Plan”) provides that the Board of Directors may grant equity
awards to certain employees of the Company at its discretion. The Incentive Plan authorizes grants of
equity awards of up to 1,233,159 authorized, but unissued shares of common stock which includes
483,159 shares carried forward from the original 1996 Stock Option Plan (“1996 Plan”), as amended,
plus an additional 750,000 shares approved for issuance effective July 1, 2005. At February 3, 2007,
there were 1,028,907 shares available for grant under the Incentive Plan.
(b) The 2005 Employee Stock Purchase Plan (“ESPP”) allows for qualified employees to participate in the
purchase of up to 204,794 shares of our common stock at a price equal to 85% of the lower of the
closing price at the beginning or end of each quarterly stock purchase period. At February 3, 2007,
there were 177,628 shares available for purchase under the ESPP.
(c) The 2005 Director Deferred Compensation Plan (“Deferred Plan”) allows non-employee directors an
election to defer all or a portion of their fees into stock units, stock options or cash. The Deferred Plan
authorizes grants of stock up to 112,500 authorized, but unissued shares of common stock. At
February 3, 2007, there were 110,777 shares available for grant under the Deferred Plan.
(d) The 2006 Non-Employee Director Equity Plan (“DEP”) provides for grants of equity awards to non-
employee directors. The DEP authorizes grants of equity awards of up to 672,975 authorized, but
unissued shares of common stock which includes 172,975 shares carried forward from the original
Stock Plan for Outside Directors (“Director Plan”), plus an additional 500,000 shares approved for
issuance effective June 1, 2006. At February 3, 2007, there were 665,525 shares available for grant
under the DEP.
Prior to January 29, 2006, we accounted for our stock-based compensation plans under the recognition and
measurement principles of APB No. 25, and related interpretations. Under APB No. 25, no compensation cost for
stock options was reflected in net earnings, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. In addition, no compensation expense was
recognized for common stock purchases under the ESPP.
Effective January 29, 2006, we adopted the fair value recognition provisions of SFAS No. 123R using the
modified prospective transition method. Under this method, compensation cost recognized in the period ended
February 3, 2007 included: (a) compensation expense for all share-based payments granted prior to, but not yet
vested as of January 28, 2006, based on the grant date fair value estimated in accordance with the original provisions
of SFAS No. 123 and (b) compensation expense for all share-based payments granted on or after January 29, 2006,
based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. The fair value of
each stock option was estimated on the grant date using the Black-Scholes option-pricing model with various
assumptions used for new grants as described below. Compensation expense for new stock options and nonvested
equity awards is recognized on a straight-line basis over the vesting period. In accordance with the modified
prospective method, results for prior periods have not been restated.
The following table illustrates the pro-forma effect on net income and earnings per share for the fiscal years
ended January 28, 2006 and January 29, 2005 as if we had applied the fair value recognition provisions of SFAS No.
123, as amended, to stock-based compensation (in thousands, except per share data):
- 39 -
Fiscal Year Ended
January 28,
2006
January 29,
2005
Net income, as reported
$ 33,624
$ 25,147
Add: Stock-based employee compensation
expense, included in the determination of net
income, net of tax
Deduct: Stock-based employee compensation
expense, determined under the fair value
based method for all awards, net of tax
Net income, pro-forma
Earnings per share:
Basic - as reported
Basic - pro-forma
Diluted - as reported
Diluted - pro-forma
61
-
(3,778)
$ 29,907
(1,759)
$ 23,388
$ 1.00
$ 0.89
$ 0.72
$ 0.67
$ 0.98
$ 0.87
$ 0.70
$ 0.66
Our plans allow for a variety of equity awards including stock options, restricted stock awards, stock
appreciation rights and performance awards. As of February 3, 2007, the Company had only granted awards in the
form of stock options and restricted stock. Restricted stock awards and options to purchase our common stock have
been granted to officers, directors and key employees. Beginning with the adoption of the Incentive Plan effective
July 1, 2005, a greater proportion of the awards granted to employees, including executive employees, were
restricted stock awards as opposed to stock options when compared to grants made in prior years. As of fiscal 2007,
we had only one performance-based restricted stock award to our Chief Executive Officer. Beginning with the annual
awards of fiscal 2008, all equity awarded to employees will be in the form of restricted stock units and all the five
named executive officers will be granted performance-based awards. We expect the Compensation Committee of
the Board will continue to grant more performance-based awards to key employees in the future. The terms and
vesting schedules for stock-based awards vary by type of grant and generally vest upon time-based conditions.
Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock.
The compensation cost that has been charged against income for these plans was as follows for the fiscal
year ended February 3, 2007 (in thousands):
Stock-based compensation expense by type:
Stock options
Restricted stock awards
Employee stock purchase
Director deferred compensation
Total stock-based compensation expense
Tax benefit recognized
$
Stock-based compensation expense, net of tax
$
2,104
603
99
31
2,837
549
2,288
In accordance with SAB No. 107 issued in March 2005, share-based plan expense has been included in
general and administrative expense since it is incentive compensation. Certain other deferred stock compensation
plans are also reflected in general and administrative expense. There was no capitalized stock-based compensation
cost.
Prior to adoption of SFAS No. 123R, we presented the benefit of all tax deductions resulting from the
exercise of stock options as operating cash flows in the consolidated statements of cash flows. SFAS No. 123R
requires the benefits of tax deductions in excess of grant date fair value be reported as a financing cash flow, rather
than as an operating cash flow. Excess tax benefits of $1.2 million, which were classified as a financing cash inflow
in the 53-weeks ended February 3, 2007, would have been classified as an operating cash inflow if we had not
adopted SFAS No. 123R.
- 40 -
Stock Options
Stock options are granted with an exercise price equal to the closing market price of our common stock on
the last trading day preceding the date of grant. Vesting and expiration provisions vary between equity plans. Grants
awarded to employees under the 1996 Plan, as amended, vest over a 5 year period in equal installments beginning
on the first anniversary of the grant date and expire on the tenth anniversary of the date of grant. Grants awarded to
employees under the Incentive Plan vest over a four year period in equal installments beginning on the first
anniversary of the grant date and expire on the eighth anniversary of the date of grant with the exception of a grant
made on August 18, 2005, whose provisions provided for the five year vesting schedule and ten year term described
in the 1996 Plan. Grants awarded to outside directors under both the DEP and Director Plan, vest immediately upon
grant and expire on the tenth anniversary of the date of grant.
Following is the weighted average fair value of each option granted during the fifty-three weeks ended
February 3, 2007. The fair value was estimated on the date of grant using the Black Scholes pricing model with the
following weighted average assumptions for each period:
Quarter 4
2/3/2007
Quarter 3
10/28/2006
Period Ended
Quarter 2
7/29/2006
Quarter 1
4/29/2006
Grant Date
Weighted average fair value at grant date
Expected option life (years)
Expected volatility
Risk-free interest rate
Dividend yield
12/31/2006
13.15
4.87
41.86%
4.70%
0.00%
9/30/2006
11.01
4.87
40.68%
4.57%
0.00%
6/30/2006
3/31/2006 2/22/2006
10.17
4.77
40.83%
5.10%
0.00%
13.85
4.77
40.66%
4.82%
0.00%
12.89
4.77
40.66%
4.58%
0.00%
We calculate the expected term for our stock options based on historical employee exercise behavior. The
increase in our stock price in recent years has led to a pattern of earlier exercise by employees. We also expect the
reduction of the contractual term from 10 years to 8 years to facilitate the pattern of earlier exercise by employees,
therefore contributing to a gradual decline in the average expected term in future periods.
The volatility used to value stock options is based on historical volatility. We calculate historical volatility
using an average calculation methodology based on daily price intervals as measured over the expected term of the
option. We have consistently applied this methodology since our adoption of the original disclosure provisions of
SFAS No. 123.
We base the risk-free interest rate on a traded zero-coupon U.S. Treasury bond with a term equal to the
option’s expected term. The dividend yield is assumed to be zero since we have no current plan to declare
dividends.
- 41 -
Activity for our option plans during the fifty-three weeks ended February 3, 2007 was as follows:
Options outstanding at January 28, 2006
Granted
Exercised
Forfeited
Weighted
Average
Exercise
Price
$
12.58
30.79
24.09
17.95
Number
of Shares
1,568,900
152,014
(294,988)
(38,538)
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
($000's)
Options outstanding at February 3, 2007
1,387,388
$
15.46
6.61
$
22,945
Exercisable at February 3, 2007
581,466
$
11.80
6.04
$
11,744
The weighted average grant fair value of options granted during the fifty-three weeks ended February 3,
2007 was $12.83. The compensation expense included in general and administrative expense and recognized
during the fiscal year was $2.1 million before the recognized income tax benefit of $0.3 million.
The total intrinsic value of stock options exercised during the fifty-three weeks ended February 3, 2007 and
fifty-two weeks ended January 28, 2006 and January 29, 2005 was approximately $7.1 million, $8.4 million and $4.2
million, respectively. The intrinsic value of stock options is defined as the difference between the current market
value and the grant price. The total cash received from these option exercises during fiscal years 2007, 2006 and
2005 was approximately $2.3 million, $2.9 million and $1.8 million, respectively, and the excess tax benefit realized
for the tax deductions from these option exercises was approximately $2.5 million, $3.0 million and $1.6 million,
respectively, and is included in cash flows from financing activities for the fifty-three weeks ended February 3, 2007
as required by SFAS No. 123R. As of February 3, 2007, there was approximately $4.9 million of unrecognized
compensation cost related to nonvested stock options. This cost is expected to be recognized over a weighted
average period of 2.8 years.
Restricted Stock Awards
Historically, restricted stock awards were granted with a fair value equal to the closing market price of our
common stock on the last trading day preceding the date of grant. Effective November 2006, all restricted stock
awards are granted with a fair value equal to the closing market price of our common stock on the date of grant.
Compensation expense is recorded straight-line over the vesting period. Restricted stock awards generally cliff vest
four to five years from the date of grant.
The following table summarizes the restricted stock awards activity under all of our plans during the fifty-
three weeks ended February 3, 2007:
Restricted stock awards outstanding at January 28, 2006
Granted
Vested
Forfeited
Weighted
Average
Grant Date
Fair Value
$
25.83
31.55
-
30.98
Number
of Awards
29,100
60,510
-
(1,687)
Restricted stock awards outstanding at February 3, 2007
87,923
$
29.66
The weighted average grant date fair value of our restricted stock awards granted was $31.55 for the fifty-
three weeks ended February 3, 2007. There were 60,510 restricted stock awards granted during fiscal 2007 and no
grants vested during the period. Compensation expense included in general and administrative expense and
recognized during the fiscal year was approximately $0.6 million, before the recognized income tax benefit of
approximately $0.2 million.
- 42 -
The total intrinsic value of our restricted stock awards outstanding and unvested at February 3, 2007 was
approximately $2.8 million. As of February 3, 2007, there was approximately $1.8 million of total unamortized
unrecognized compensation cost related to restricted stock awards. This cost is expected to be recognized over a
weighted average period of 3.2 years.
Employee Stock Purchase Plan
The Company’s ESPP allows eligible employees the right to purchase shares of our common stock, subject
to certain limitations, at 85% of the lesser of the fair market value at the end of each calendar quarter (purchase date)
or the beginning of each calendar quarter. Our employees purchased 17,992 shares of common stock at an average
price of $22.02 per share during the fiscal year ended February 3, 2007. The assumptions used in the option pricing
model for the fifty-three weeks ended February 3, 2007 were: (a) expected life of 3 months (.25 years); (b) volatility
between 40.7% and 41.0%; (c) risk-free interest rate between 3.98% and 4.93%; and (d) dividend yield of 0.0%. The
weighted average grant date fair value of ESPP options granted during the fifty-three weeks ended February 3, 2007
was $5.93.
The expense related to the ESPP was determined using the Black-Scholes option pricing model and the
provisions of FASB Technical Bulletin (“FTB”) No. 97-1, “Accounting under Statement 123 for Certain Employee
Stock Purchase Plans with a Look-Back Option,” as amended by SFAS No. 123R. The compensation expense
included in general and administrative expense and recognized during the fifty-three weeks ended February 3, 2007
was approximately $99,000. Prior to the adoption of SFAS No. 123R, the ESPP was considered noncompensatory
and no expense was recorded in the consolidated statement of operations.
Director Deferred Compensation
Under the Deferred Plan, outside non-employee directors can elect to defer all or a portion of their board
and board committee fees into cash, stock options or deferred stock units. Those fees deferred into stock options are
subject to the same provisions as provided for in the DEP and are expensed and accounted for accordingly. Director
fees deferred into our common stock are calculated and expensed each quarter by taking total fees earned during the
calendar quarter and dividing by the closing price on the last day of the calendar quarter, rounded to the nearest
whole share. The total annual retainer, board and board committee fees for non-employee directors that are not
deferred into stock options, but which includes amounts deferred into stock units under the Deferred Plan, are
expensed as incurred in all periods presented. A total of 1,142 and 581 stock units were deferred under this plan in
fiscal 2007 and fiscal 2006, respectively.
The compensation expense included in general and administrative expense and recognized during the fifty-
three weeks ended February 3, 2007 was approximately $31,000 before the recognized income tax benefit of
approximately $12,000.
NOTE 4. EARNINGS PER SHARE
The computation of basic earnings per share (“EPS”) is based on the number of weighted average common
shares outstanding during the period. The computation of diluted EPS is based on the weighted average number of
shares outstanding plus the incremental shares that would be outstanding assuming exercise of dilutive stock options
and issuance of restricted stock. The number of incremental shares is calculated by applying the treasury stock
method.
- 43 -
The following table sets forth the computation of basic and diluted earnings per share:
Fiscal Year Ended
February 3,
2007
January 28,
2006
January 29,
2005
Net income, in thousands
$
38,073
$
33,624
$
25,147
Weighted average number of common
shares outstanding
Stock options
Restricted stock
32,094,127
500,478
25,234
33,605,568
787,458
-
34,855,682
834,681
-
Weighted average number of common
shares outstanding and dilutive securities
32,619,839
34,393,026
35,690,363
Basic earnings per common share
Diluted earnings per common share
$
$
1.19
$
1.00
$
0.72
1.17
$
0.98
$
0.70
In calculating diluted earnings per share for the fifty-three weeks ended February 3, 2007, options to
purchase 274,406 shares of common stock were outstanding as of the end of the period, but were not included in the
computation of diluted earnings per share due to their anti-dilutive effect. In calculating diluted earnings per share for
the fifty-two weeks ended January 28, 2006 and January 29, 2005, options to purchase 49,000 and 32,903 shares of
common stock, respectively, were outstanding as of the end of the respective periods, but were not included in the
computations of diluted earnings per share due to their anti-dilutive effect.
NOTE 5. DEBT
As of February 3, 2007, the Company had one unsecured credit facility, which is renewable annually in
November. The facility allows for borrowings up to $15.0 million at a rate based on prime at the Company’s election
or another mutually agreed upon fixed rate at the time of draw. As of February 3, 2007, the Company had no
borrowings outstanding under its facility. Under the provisions of this facility, the Company does not pay commitment
fees and is not subject to covenant requirements. The Company can draw down on the line of credit when its main
operating account balance falls below $100,000.
During the majority of fiscal 2007, the Company had two operating facilities allowing borrowings up to $25.0
million. Effective November 2006, we elected to renew only one facility that allows borrowings up to $15.0 million.
There were twenty-four days during the fifty-three weeks ended February 3, 2007, where the Company incurred
borrowings against our credit facilities for an average and maximum borrowing of approximately $2.5 million and $5.1
million and an average interest rate of 6.12%. At February 3, 2007, $15.0 million was available to the Company from
its facility.
NOTE 6. PROFIT-SHARING PLAN
The Company maintains a 401(k) profit-sharing plan (the “Plan”) which permits participants to make pre-tax
contributions to the Plan. The Plan covers all employees who have completed one year of service and who are at
least 21 years of age. Participants of the Plan may voluntarily contribute from 1% to 100% of their compensation
subject to certain yearly dollar limitations as allowed by law. These elective contributions are made under the
provisions of Section 401(k) of the Internal Revenue Code which allows deferral of income taxes on the amount
contributed to the Plan. The Company’s contribution to the Plan equals (1) an amount determined at the discretion of
the Board of Directors plus (2) a matching contribution equal to a discretionary percentage of up to 6% of a
participant’s compensation. For fiscal 2007, the Company matched 75% of contributions made to the plan by the
employees up to 6% of the employee’s compensation. Contribution expense amounts for fiscal years 2007, 2006
and 2005 were approximately $520,000, $491,000 and $462,000, respectively.
NOTE 7. RELATED-PARTY TRANSACTIONS
The Company leases one store under a sublease arrangement from Books-A-Million, Inc., of which Clyde B.
Anderson, a director of the Company, is an executive officer, Chairman and stockholder. This sublease agreement
- 44 -
expires in June 2008. Minimum lease payments were $191,000 in fiscal 2007, fiscal 2006 and fiscal 2005. Future
minimum lease payments under this non-cancelable sublease aggregate approximately $270,000.
NOTE 8. INCOME TAXES
A summary of the components of the provision (benefit) for income taxes is as follows (in thousands):
Federal:
Current
Deferred
State:
Current
Deferred
Fiscal Year Ended
February 3,
2007
January 28,
2006
January 29,
2005
$
22,761
(769)
21,992
$
18,800
(1,518)
17,282
$
13,556
(161)
13,395
2,853
(304)
2,549
2,362
(400)
1,962
1,239
116
1,355
$
24,541
$
19,244
$
14,750
A reconciliation of the statutory federal income tax rate as a percentage of income tax rate as a percentage
of income before income taxes follows:
Tax provision computed at the federal
statutory rate
Effect of state income taxes, net of federal
benefits
Other, net
Fiscal Year Ended
February
3, 2007
January
28, 2006
January
29, 2005
35.00%
35.00%
35.00%
2.65%
1.54%
39.19%
2.41%
-1.01%
36.40%
2.21%
-0.24%
36.97%
Deferred income taxes on the balance sheet result from temporary differences between the amount of
assets and liabilities recognized for financial reporting and tax purposes. The components of the deferred taxes
assets (liabilities) are as follows (in thousands):
February 3, 2007
January 28, 2006
Current
Non-current
Current
Non-current
Rent
Depreciation
Inventory
Accruals
Stock-based compensation
Other
Deferred taxes
$
$
1,536
-
285
582
40
(836)
1,607
$
$
6,553
(3,901)
-
59
506
-
3,217
$
$
1,224
-
271
401
-
(693)
1,203
$
$
5,726
(3,178)
-
-
-
-
2,548
In the course of an internal review of prior federal income tax returns, the Company determined that certain
deductions may not meet all of the requirements for deductibility with respect to performance-based plans set forth in
Section 162(m) of the Internal Revenue Code of 1986, as amended. The Company recorded a balance sheet
adjustment in the fourth quarter of fiscal 2007, increasing income taxes payable and reducing additional paid-in-
capital by $1.3 million for deductions taken by the Company in fiscal 2006 and prior years. The related income tax
benefit was previously recorded as an increase in additional paid-in-capital and did not impact prior years’ results of
operations. No adjustments were required to be made to the Company’s consolidated statements of operations. The
fiscal 2007 adjustment is reflected in the accompanying consolidated financial statements and was not material to the
- 45 -
Company’s financial position, results of operations or cash flows for any previously reported annual or interim
periods.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases the premises for its retail sporting goods stores under non-cancelable operating leases
having initial or remaining terms of more than one year. The leases typically provide for terms of five to ten years with
options on the part of Hibbett to extend. Many of the Company’s leases contain scheduled increases in annual rent
payments and the majority of its leases also require it to pay maintenance, insurance and real estate taxes. Additionally,
many of the lease agreements contain tenant improvement allowances, rent holidays and/or rent escalation clauses
(contingent rentals). For purposes of recognizing incentives and minimum rental expenses on a straight-line basis over
the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when
the Company enters the space and begins to make improvements in preparation of its intended use.
The Company also leases certain computer hardware, office equipment and transportation equipment under
non-cancelable operating leases having initial or remaining terms of more than one year.
In February 1996, the Company entered into a sale-leaseback transaction to finance its distribution center and
office facilities. In December 1999, the related operating lease was amended to include the fiscal 2000 expansion of
these facilities. The amended lease rate is $819,000 per year and can increase annually with the Consumer Price Index.
This lease will expire in December 2014.
During the fifty-three weeks ended February 3, 2007, we increased our lease commitments by a net of 64
retail stores, each having initial lease termination dates between January 2009 and January 2018 as well as various
office and transportation equipment. At February 3, 2007, the future minimum lease payments, excluding
maintenance, insurance and real estate taxes, for our current operating leases and including the net 64 operating
leases added during the fifty-three weeks ended February 3, 2007, were as follows (in thousands):
Fiscal 2008
Fiscal 2009
Fiscal 2010
Fiscal 2011
Fiscal 2012
Thereafter
TOTAL
$ 36,046
31,445
26,144
19,731
13,875
29,852
$ 157,093
Rental expense for all operating leases consisted of the following (in thousands):
Minimum rentals
Contingent rentals
February 3,
2007
Fiscal Year Ended
January 28,
2006
$
$
30,291 $ 27,774
1,658
32,630 $ 29,432
2,339
January 29,
2005
$ 24,086
1,230
$ 25,316
Most of the Company’s retail store leases contain provisions that allow for early termination of the lease by
either party if certain pre-determined annual sales levels are not met. Generally, these provisions allow the lease to be
terminated between the third and fifth year of the lease. Should the lease be terminated under these provisions, in some
cases, the unamortized portion of any landlord allowances related to that property would be payable to the landlord.
Legal Proceedings and other Contingencies
In October 2005, three former employees filed a lawsuit in Mississippi federal court alleging they are owed
back wages for overtime because they were improperly classified as exempt salaried employees. They also allege
other wage and hour violations. The suit asks the court to certify the case as a collective action under the Fair Labor
Standards Act on behalf of all similarly situated employees. The Company disputes the allegations of wrongdoing in
this complaint and has vigorously defended itself in this matter. However, there are no assurances that we would be
successful in that defense on the merits or otherwise, and, if unsuccessful, the resolution(s) could have a material
adverse effect on our results of operations and our financial statements as a whole in the period of resolution. As such,
the parties have negotiated a verbal settlement that has not yet been perfected. At year ended February 3, 2007, we
- 46 -
estimated that the liability related to this matter is within the range of $750,000 and $960,000. Accordingly, we have
accrued $750,000 as a current liability on our Consolidated Balance Sheet. At year ended January 28, 2006, no loss
amount was accrued because a loss was not considered probable or estimable.
The Company is also party to other legal proceedings incidental to its business. The Company does not
believe that any of these matters will, individually or in the aggregate, have a material adverse effect on its business
or financial condition. The Company cannot give assurance, however, that one or more of these lawsuits will not have
a material adverse effect on our results of operations for the period in which they are resolved. As of February 3,
2007, no loss amount has been accrued because a loss is not considered probable or estimable.
From time to time, the Company enters into certain types of agreements that require the Company to
indemnify parties against third party claims under certain circumstances. Generally these agreements relate to: (a)
agreements with vendors and suppliers under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company’s request or otherwise on its behalf; (b)
agreements to indemnify vendors against trademark and copyright infringement claims concerning merchandise
manufactured specifically for or on behalf of the Company; (c) real estate leases, under which the Company may
agree to indemnify the lessors from claims arising from the Company’s use of the property; and (d) agreements with
the Company’s directors, officers and employees, under which the Company may agree to indemnify such persons
for liabilities arising out of their relationship with the Company. The Company has directors and officers liability
insurance, which, subject to the policy’s conditions, provides coverage for indemnification amounts payable by the
Company with respect to its directors and officers up to specified limits and subject to certain deductibles.
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain unaudited financial data for the quarters indicated:
Net sales
Gross profit
Operating income
Net income
Fiscal Year Ended February 3, 2007
(Dollar amounts in thousands, except per share amounts)
First
(13 Weeks)
126,914
$
44,140
18,125
11,523
$
Second
(13 Weeks)
104,363
32,692
6,425
4,020
Third
(13 Weeks)
$
129,658
43,066
15,612
9,926
$
Fourth
(14 Weeks)
151,159
53,233
21,576
12,604
Basic earnings per common share
Diluted earnings per common share
$
$
0.35
$
0.12
$
0.31
$
0.40
0.35
$
0.12
$
0.31
$
0.39
Net sales
Gross profit
Operating income
Net income
Fiscal Year Ended January 28, 2006
First
(13 Weeks)
114,823
$
39,540
16,803
10,701
$
Second
(13 Weeks)
94,024
29,582
7,241
4,859
Third
(13 Weeks)
$
110,594
37,109
12,663
8,168
$
Fourth
(13 Weeks)
120,827
40,671
15,013
9,895
Basic earnings per common share
Diluted earnings per common share
$
$
0.32
$
0.14
$
0.24
$
0.30
0.31
$
0.14
$
0.24
$
0.29
In the opinion of our management, this unaudited information has been prepared on the same basis as the
audited information presented elsewhere herein and includes all adjustments necessary to present fairly the
information set forth herein. The operating results from any quarter are not necessarily indicative of the results to be
expected for any future period.
- 47 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON SUPPLEMENTAL SCHEDULE
The Board of Directors and Stockholders
Hibbett Sports, Inc.:
Under date of April 4, 2007, we reported on the consolidated balance sheets of Hibbett Sports, Inc., (formerly
Hibbett Sporting Goods, Inc.) and subsidiaries as of February 3, 2007 and January 28, 2006, and the related
consolidated statements of operations, stockholders’ investment, and cash flows for each of the years in the three-year
period ended February 3, 2007, which are included in this Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited Schedule II–Valuation and Qualifying Accounts. This
consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.
Birmingham, Alabama
April 4, 2007
/s/ KPMG LLP
- 48 -
HIBBETT SPORTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
February 3,
2007
Fiscal Year Ended
January 28,
2006
January 29,
2005
Balance of allowance for doubtful accounts at
beginning of period
Charged to costs and expenses
Write-offs, net of recoveries
Balance of allowance for doubtful accounts at end
of period
45,000 $
$
-
(11,000)
20,000
(34,000)
59,000 $
107,000
-
(48,000)
$
34,000 $
45,000 $
59,000
- 49 -
Item 9. Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting
and Consolidated Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer
and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that
our disclosure controls and procedures were effective as of February 3, 2007.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of
our management, including our principal executive officer and principal financial officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting as of February 3, 2007, based on the Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of February 3, 2007.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of
February 3, 2007 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their
report herein.
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fourth quarter of fiscal 2007
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
- 50 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Hibbett Sports, Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting (Item 9A(b)), that Hibbett Sports Inc. (formerly Hibbett Sporting Goods, Inc.)
and subsidiaries (the Company) maintained effective internal control over financial reporting as of February 3, 2007,
based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management of the Company is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the
effectiveness of the internal control over financial reporting of the Company based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management’s assessment that Hibbett Sports, Inc. and subsidiaries maintained effective
internal control over financial reporting as of February 3, 2007, is fairly stated, in all material respects, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of February 3, 2007, based on the criteria established in Internal
Control – Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Hibbett Sports, Inc. and subsidiaries as of February 3, 2007 and
January 28, 2006, and the related consolidated statements of operations, stockholders’ investment, and cash flows
for each of the years in the three-year period ended February 3, 2007, and our report dated April 4, 2007 expressed
an unqualified opinion on those consolidated financial statements.
Birmingham, Alabama
April 4, 2007
/s/ KPMG LLP
- 51 -
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
The information required is incorporated by reference from the sections entitled “Directors and Executive
Officers”, “The Board of Directors”, “Code of Ethics”, “Annual Compensation of Executive Officers” and “Related Person
Transactions” in the Proxy Statement for the Annual Meeting of Stockholders to be held June 5, 2007 (the “Proxy
Statement”), which is to be filed with the Securities and Exchange Commission.
Item 11.
Executive Compensation.
The information required is incorporated by reference from the section entitled “Annual Compensation of
Executive Officers”, “Compensation Committee Report” and “Compensation Committee Interlocks and Insider
Participation” in the Proxy Statement.
Item 12.
Matters.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
The information required is incorporated by reference from the sections entitled “Security Ownership
of Certain Beneficial Owners”, “Compensation of Non-Employee Directors”, “Annual Compensation of Executive
Officers” and “Directors and Executive Officers” in the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
The information required is incorporated by reference from the section entitled “Related Person
Transactions” and “Governance Information” in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services.
The information required is incorporated by reference from the section entitled “Independent Registered Public
Accounting Firm” in the Proxy Statement.
- 52 -
Page
29
30
31
32
33
34
48
49
Item 15.
Exhibits and Consolidated Financial Statement Schedules.
PART IV
(a) Documents filed as part of this report:
1.
Financial Statements.
The following Financial Statements and Supplementary Data of the Registrant and Independent
Registered Public Accounting Firm’s Report on such Financial Statements are incorporated by
reference from the Company’s 2007 Annual Report to Stockholders, in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 3, 2007 and January 28, 2006
Consolidated Statements of Operations for the fiscal years ended February 3, 2007, January 28,
2006 and January 29, 2005
Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2007, January
28, 2006 and January 29, 2005
Consolidated Statements of Stockholders’ Investment for the fiscal years ended February 3,
2007, January 28, 2006 and January 29, 2005
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules.
The index to the Consolidated Financial Statement Schedule follows:
Report of Independent Registered Public Accounting Firm on Supplemental Schedule
Schedule II – Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are not
applicable, and therefore have been omitted.
3.
Exhibits.
The Exhibits listed below are the exhibits of Hibbett Sports, Inc. and its wholly owned
subsidiaries and are filed as part of, or incorporated by reference into, this report.
Number Description
Certificates of Incorporation and By-Laws
3.1 Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 of
the Company’s Form 8-K filed with the Securities and Exchange Commission on February 15,
2007.
3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Form
8-K filed with the Securities and Exchange Commission on February 15, 2007.
Material Contracts
10.1 Salary and incentives approval by Board of Directors to Company Named Executive Officers,
dated as of February 22, 2006; incorporated by reference as Exhibit 10.1 to the Registrant’s
Form 8-K filed with the Securities and Exchange Commission on March 1, 2006.
10.2 Approval by Company’s Board of Directors of award of restricted stock to Chief Executive Officer
and Chairman of the Board, Michael J. Newsome, dated as of March 8, 2006; incorporated by
reference as Exhibit 10.2 to the Registrant’s Form 8-K filed with the Securities and Exchange
Commission on March 13, 2006.
10.3 Approval by Company’s Board of Directors of provision for post-retirement health insurance
coverage to Chief Executive Officer and Chairman of the Board, Michael J. Newsome, and his
wife, dated as of March 8, 2006; incorporated by reference as Exhibit 10.3 to the Registrant’s
Form 8-K filed with the Securities and Exchange Commission on March 13, 2006.
10.4 Additional incentive approval by Board of Directors to Company Named Executive Officers,
dated as of March 24, 2006; incorporated by reference as Exhibit 10.4 to the Registrant’s Form
8-K filed with the Securities and Exchange Commission on March 29, 2006.
10.5 Adoption by Company’s Stockholders of Hibbett Sporting Goods, Inc. 2006 Non-Employee
Director Equity Plan, dated as of May 31, 2006; incorporated by reference as Exhibit 10.1 to the
- 53 -
Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 5, 2006.
10.6 Approval by Company’s Board of Directors of the Non-Employee Director Non-Qualified Option
Agreement, dated as of May 31, 2006; incorporated by reference as Exhibit 10.2 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 5, 2006.
10.7 Sub-Sub-Sublease Agreement between Hibbett Sporting Goods, Inc. and Books-A-Million, dated
April 23, 1996; incorporated by reference as Exhibit 10.3 to the Registrant’s Form 10-Q filed with
the Securities and Exchange Commission on September 7, 2006.
Increased authorization by Board of Directors of Hibbett Sporting Goods, Inc. for stock
repurchase program, dated as of August 17, 2006; incorporated by reference as Exhibit 10.1 to
the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 17,
2006.
10.8
10.9 Credit Agreement between the Company and Amsouth, dated as of November 7, 2006;
incorporated by reference as Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities
and Exchange Commission on November 8, 2006.
10.10 Approval by Company’s Board of Directors of the First Amendment to the 2006 Non-Employee
Director Equity Plan, dated as of November 16, 2006; incorporated by reference as Exhibit 10.1
to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November
21, 2006.
10.11 Approval by Company’s Board of Directors of the First Amendment to the 2005 Equity Incentive
Plan, dated as of November 16, 2006; incorporated by reference as Exhibit 10.2 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 21,
2006.
10.12 Approval by Company’s Board of Directors of the Second Amendment to the Amended and
Restated 1996 Stock Option Plan, dated as of November 16, 2006; incorporated by reference as
Exhibit 10.3 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on
November 21, 2006.
10.13 Approval by Company’s Board of Directors of the First Amendment to the 2005 Director Deferred
Compensation Plan, dated as of November 16, 2006; incorporated by reference as Exhibit 10.4
to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November
21, 2006.
10.14 Adoption of a resolution by the Company’s Board of Directors to correct and error to the 2005
Employee Stock Purchase Plan; incorporated by reference as Exhibit 10.5 to the Registrant’s
Form 8-K filed with the Securities and Exchange Commission on November 21, 2006.
Annual Report to Security Holders
13.1 Fiscal 2007 Annual Report to Stockholders.
Subsidiaries of the Registrant
21 List of Company’s Subsidiaries:
1) Hibbett Sporting Goods, Inc.
2) Hibbett Team Sales, Inc.
3) Sports Wholesale, Inc.
4) Hibbett Capital Management, Inc.
5) Sports Holding, Inc.
Consents of Experts and Counsel
23.1 Consent of Independent Registered Public Accounting Firm (filed herewith)
Certifications
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith)
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith)
32.1 Section 1350 Certification of Chief Executive Officer (filed herewith)
32.2 Section 1350 Certification of Chief Financial Officer (filed herewith)
56
57
58
59
60
- 54 -
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES.
Date: April 4, 2007
HIBBETT SPORTS, INC.
By:
/s/ Gary A. Smith
Gary A. Smith
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael J. Newsome
Michael J. Newsome
Chief Executive Officer and Chairman of the
Board (Principal Executive Officer)
April 4, 2007
/s/ Gary A. Smith
Gary A. Smith
/s/ Clyde B. Anderson
Clyde B. Anderson
/s/ Carl Kirkland
Carl Kirkland
/s/ Ralph T. Parks
Ralph T. Parks
/s/ Thomas A. Saunders, III
Thomas A. Saunders, III
/s/ Alton E. Yother
Alton E. Yother
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
April 4, 2007
Director
April 4, 2007
Director
April 4, 2007
Director
April 4, 2007
Director
April 4, 2007
Director
April 4, 2007
- 55 -
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Hibbett Sports, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-21299, 333-21303,
333-21305, 333-63094, 333-96755, 333-126316, 333-126313, 333-126311, and 333-135217) of Hibbett
Sports, Inc. (formerly Hibbett Sporting Goods, Inc.) and subsidiaries of our reports dated April 4, 2007, with
respect to (i) the consolidated balance sheets of Hibbett Sports, Inc. and subsidiaries as of February 3,
2007 and January 28, 2006, and the related consolidated statements of operations, stockholders’
investment, and cash flows for each of the years in the three-year period ended February 3, 2007 and the
related consolidated financial statement schedule; (ii) management’s assessment of the effectiveness of
internal control over financial reporting as of February 3, 2007; and (iii) the effectiveness of internal control
over financial reporting as of February 3, 2007, which reports appear in the February 3, 2007, Annual
Report on Form 10-K of Hibbett Sports, Inc. and subsidiaries.
Our report refers to the Company’s change in its method of accounting for share-based payments effective
January 29, 2006.
Birmingham, Alabama
April 4, 2007
/s/ KPMG LLP
- 56 -
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
I, Michael J. Newsome, certify that:
1. I have reviewed this annual report on Form 10-K of Hibbett Sports, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date
April 4, 2007
/s/ Michael J. Newsome
Michael J. Newsome
Chief Executive Officer and Chairman
of the Board (Principal Executive Officer)
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Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
I, Gary A. Smith, certify that:
1. I have reviewed this annual report on Form 10-K of Hibbett Sports, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date
April 4, 2007
/s/ Gary A. Smith
Gary A. Smith
Vice President and Chief Financial Officer
(Principal Financial Officer)
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Exhibit 32.1
Section 1350 Certification of Chief Executive Officer
In connection with the Annual Report on Form 10-K of Hibbett Sports, Inc. (the “Company”) for the fiscal
year ended February 3, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned officer certifies, to the best knowledge and belief of such officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(i)
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as
financial condition and results of operations of the Company.
(ii)
The information contained in the Report fairly presents, in all material respects, the
Date: April 4, 2007
/s/ Michael J. Newsome
Michael J. Newsome
Chief Executive Officer and Chairman of
the Board (Principal Executive Officer)
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Exhibit 32.2
Section 1350 Certification of Chief Financial Officer
In connection with the Annual Report on Form 10-K of Hibbett Sports, Inc. (the “Company”) for the fiscal
year ended February 3, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned officer certifies, to the best knowledge and belief of such officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(i)
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as
financial condition and results of operations of the Company.
(ii)
The information contained in the Report fairly presents, in all material respects, the
Date: April 4, 2007
/s/ Gary A. Smith
Gary A. Smith
Vice President and Chief Financial Officer
(Principal Financial Officer)
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C O R P O R A T E I N F O R M A T I O N
Corporate Offices
451 Industrial Lane
Birmingham, Alabama 35211
(205) 942-4292
(205) 912-7293 Fax
www.hibbett.com
Stock Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
Shareholders seeking information concerning stock transfers, change of
address, and lost certificates should contact Computershare directly.
Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3,
2007, as filed with the Securities and Exchange Commission, may be obtained without charge upon
written request to the Company’s Investor Relations department.
Annual Meeting
The 2007 Annual Meeting of Stockholders will be held at the principal executive offices of Hibbett Sports,
Inc., 451 Industrial Lane, Birmingham, Alabama, on Tuesday, June 5, 2007, at 10:00 A.M., local time.
Stock Market Information
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol
HIBB. The following table sets forth, for the periods indicated, the high and low sales prices of shares
of the common stock as reported by NASDAQ:
Fiscal 2007:
Quarter ended April 29, 2006
Quarter ended July 29, 2006
Quarter ended October 28, 2006
Quarter ended February 3, 2007
Fiscal 2006:
Quarter ended April 30, 2005
Quarter ended July 30, 2005
Quarter ended October 29, 2005
Quarter ended January 28, 2006
High
$34.54
$31.19
$28.16
$33.95
High
$20.76
$27.47
$26.97
$31.70
Low
$28.20
$18.95
$18.90
$27.00
Low
$17.20
$18.78
$20.95
$26.13
Independent Registered Public
Accounting Firm
KPMG LLP
Birmingham, Alabama
General Counsel
Williams Mullen Hofheimer Nusbaum, P.C.
Norfolk, Virginia
B O A R D O F D I R E C T O R S
Michael J. Newsome - Chairman of the Board and Chief Executive Officer, Hibbett Sports, Inc.
Clyde B. Anderson - Chairman of the Board, Books-A-Million, Inc.
Carl Kirkland - Chairman Emeritus, Kirkland’s, Inc.
Ralph T. Parks - President, RT Parks, Inc.
Thomas A. Saunders, III - Private Investor
Alton E. Yother - Senior Executive Vice President and Chief Financial Officer, Regions Financial Corporation
O F F I C E R S
Michael J. Newsome - Chairman of the Board and Chief Executive Officer
Brian N. Priddy - President
Gary A. Smith - Vice President, Principal Accounting and Chief Financial Officer
Cathy E. Pryor - Vice President of Store Operations
Jeffry O. Rosenthal - Vice President of Merchandising
H I B B E T T S p o r t s , I n c .
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