FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
For the Year
Net sales
Operating income
Earnings per basic share (1)
Earnings per diluted share (1)
Balance Sheet Data
Cash and cash equivalents
Average inventory per store
Working capital
Total assets
Long-term capitalized lease obligations
Stockholders’ investment
Treasury shares repurchased
Cost of treasury shares purchased
Fiscal 2019
Fiscal 2018
$ 1,008,682
37,541
$
1.52
$
1.51
$
$ 968,219
$ 56,678
1.72
$
1.71
$
61,756
$
241
$
$ 194,583
$ 546,065
$
1,994
$ 336,049
776
16,540
$
$ 73,544
235
$
$ 231,207
$ 461,846
$
2,522
$ 319,596
2,843
$ 54,506
NET SALES
(IN MILLIONS)
EARNINGS PER
DILUTED SHARE(1)
TOTAL STORES
7
.
8
0
0
1,
$
3
6
1
1
,
.
1
7
1
$
1
5
.
1
$
(1) Except for Fiscal 2018, which is
comprised of 53 weeks, all fiscal years
presented are comprised of 52 weeks.
No dividends were declared or paid.
1516171516171815161718$913.5$943.1$2.87$2.929881,044$973.0$2.721,07818$968.219191,07919
Letter to Stockholders
hile there were many accomplishments
and milestones during Fiscal 2019
that underscored the Company’s
strong performance, one that
especially stands out is crossing the
threshold of $1 billion in sales. What a
milestone! I want to thank all our
team members for their hard work and dedication in driving
toward this record level. Our omni-channel initiatives have
proven to be a “game-changer” by allowing customers to
shop seamlessly across all our sales channels, increasing the
quality of their experience and making them more aware than
ever of what we sell and how they can shop with us.
E-commerce sales as a percent of total sales improved
sequentially throughout the year, building to 10.6% of
total sales in the final quarter and 8.7% for the year. In
just 18 short months, we have reached over $100 million
in e-commerce sales, while continuing to add exciting
functionality to fuel future growth.
We also experienced improved trends in our stores
throughout the year, driven by major initiatives in our
omni-channel strategy. During the year, we implemented
BOPIS (buy online/pickup in store) and ROPIS (reserve
online/pay in store), launched a new mobile app,
implemented a new e-mail program, and grew our digital
marketing programs. These initiatives, combined with our
improved loyalty program and an expanded social media
presence, have put us strongly on offense after playing
defense for so many years.
While we seek to grow organically, we know the value
that acquisitions can add to our strategy when the right
opportunity arises. During the year, we acquired City
Gear, an athletic retailer located in 15 states that serves a
fashion-forward customer in underserved markets who
are driven by the “sneaker culture.” Both Hibbett Sports
and City Gear have unique brand characteristics that we
will leverage across the banners going forward. Hibbett’s
know-how with strong internal systems, omni-channel
capabilities, and real estate expertise will help grow City
Gear beyond its current footprint. On the other hand,
City Gear’s ability to connect with local communities
through social media and marketing will help Hibbett
Sports expand its customer base and communicate more
effectively than ever before. We’re excited for the growth
prospects we see ahead.
Fiscal 2019 net sales increased 4.2% to $1.0 billion
compared with $968 million for the 53-week prior year.
Comparable store sales increased 2.2% on a comparable
52-week basis. Footwear, which represents about 55%
of our sales, led our top-line growth in Fiscal 2019.
Branded apparel also showed great progress with positive
1,163
STORES
35
STATES
comparable store sales and a more fashion-forward
assortment. We do our best when we have strong
connectivity between our apparel and footwear lines, which
we look to enhance through our social media channels,
in-store displays, and digital platforms going forward.
Earnings per diluted share for the 52-week period ended
February 2, 2019 was $1.51 compared with $1.71 for the
53-week period ended February 3, 2018. Excluding non-
recurring items and the extra week in Fiscal 2018, adjusted
earnings per diluted share increased 13% to $1.77 in Fiscal
2019 from $1.56 in Fiscal 2018.
Our balance sheet remained strong at the end of Fiscal
2019, with $62 million of cash and cash equivalents. We
also ended the year with $35 million in borrowings from
our credit facilities used to finance last year’s City Gear
acquisition, which we plan to repay during the coming
year. We continued to return cash to shareholders during
the year by repurchasing 776,951 shares of common stock
for a total expenditure of almost $16.5 million. We intend
to continue our buyback program this coming year by
repurchasing an estimated $10-15 million of stock with
the approximately $188 million that remains under our
current authorization.
During Fiscal 2019, we opened 32 new stores, expanded 10
stores and closed 84 underperforming stores. We ended
the year with a total of 1,163 stores in 35 states, including
136 City Gear Stores that we acquired in the fourth quarter.
Still, we have room to grow our store base and plan to
open 10-15 new stores in Fiscal 2020. At the same time,
we are aware of the need to continually improve the
productivity of our store base and, as a result, we plan to
close 95 lower-volume stores this coming year, primarily in
smaller towns.
In closing, we have demonstrated our interest in
expanding organically through new channels and
through opportunistic acquisitions and will continue to
aggressively evaluate growth opportunities in the future. A
common denominator is the expansion of the reach of our
business and acquisition of new customers, unbounded by
geography. We are excited by these new opportunities.
On a personal note, after 20 years at Hibbett Sports, with
nine as Chief Executive Officer, I believe now is the right
time to set my retirement. Our team is strong, and we
have a good tailwind with the advances we have made in
developing an omni-channel business. When I joined the
Company, we had 110 stores and sales of $100 million.
Today, we have grown to a chain of more than 1,100 stores
(more than the number of employees we had 20 years
ago), a growing and profitable e-commerce business, and
a technology infrastructure that is best in class. Backed
by a dedicated team of associates, we have grown to a
billion-dollar brand. I am very proud of my time here. I plan
to remain as CEO until my successor is identified and will
remain for a time thereafter to assist with the leadership
transition. Also, I will continue as a member of the Board of
Directors and will always be involved and available to help
with the continued success of the business.
Thank you for your ongoing interest and confidence in
our company.
Sincerely,
Jeffry O. Rosenthal
Chief Executive Officer and President
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 2, 2019
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.)
2700 Milan Court, 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 Global Select Market
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.
Yes
X
No
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
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 whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files).
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.
__X__
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer X
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
_____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 $444,759,513 on August 4, 2018, based on the
closing sale price of $24.15 at August 3, 2018 for the common stock on such date on the NASDAQ Global Select
Market.
The number of shares outstanding of the Registrant’s common stock, as of April 2, 2019, was 18,384,835.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on May 23, 2019,
are incorporated by reference into Part III of this Annual Report on Form 10-K. Registrant’s definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before April 23, 2019.
- 2 -
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24
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40
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75
HIBBETT SPORTS, INC.
INDEX
PART I
Item
Item
Item
Item
Item
Item
Business.
1.
1A. Risk Factors.
1B. Unresolved Staff Comments.
2.
Properties.
Legal Proceedings.
3.
4. Mine Safety Disclosures.
PART II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item
Item
Item
Item
Item
Purchases of Equity Securities.
Selected Consolidated Financial Data.
6.
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
7A. Quantitative and Qualitative Disclosures About Market Risk.
8.
9.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Item
Item
9A. Controls and Procedures.
9B. Other Information.
PART III
Item
Item
Item
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
15.
Item
16.
Item
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
Signatures
- 3 -
Introductory Note
References to “we”, “our”, “us”, “Hibbett” and the “Company” used throughout this document refer to
Hibbett Sports, Inc. and its subsidiaries. Unless specifically indicated otherwise, any reference to the following
years or fiscal years relates to:
Year
2020 or Fiscal 2020
2019 or Fiscal 2019
2018 or Fiscal 2018
2017 or Fiscal 2017
Related Fiscal Year End
February 1, 2020
February 2, 2019
February 3, 2018
January 28, 2017
Weeks in
Fiscal Period
52
52
53
52
PART 1
Item 1. Business.
Cautionary Statement Regarding 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 and do not relate
strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to
be forward-looking statements. They include statements preceded by, followed by or including words such as
“believe,” “anticipate,” “could,” “expect,” “intend,” “may,” “outlook,” “forecast,” “guidance,” “continue,” “plan,”
“predict,” “should,” “will,” “target,” “estimate” or other similar words, phrases or expressions, whether in the negative
or affirmative. For example, our forward-looking statements include statements regarding:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our plans, expectations and estimates concerning the integration of City Gear, LLC (City Gear) and
related costs;
our ability to retain key personnel at Hibbett and City Gear;
our anticipated net sales, comparable store net sales changes, net sales growth, gross margins, expenses
and earnings;
our business strategy, omni-channel platform, logistics structure, target market presence and the expected
impact of such factors on our net sales growth;
our store growth, including our plans to add, expand, relocate or close stores, our markets’ ability to
support such growth, expected changes in total square footage, our ability to secure suitable locations for
new stores and the suitability of our wholesale and logistics facility;
our expectations regarding the growth of our online business and the role of technology in supporting
such growth;
our policy of leasing rather than owning stores and our ability to renew or replace store leases
satisfactorily;
the cost of regulatory compliance, including the costs and possible outcomes of pending legal actions and
other contingencies;
our cash needs, including our ability to fund our future capital expenditures, working capital requirements
and repurchases of Company common stock under our repurchase program;
our analysis of our risk factors and their possible effect on financial results;
our ability and plans to renew our credit facilities;
our expectations regarding our capital expenditures and dividend policy;
our seasonal sales patterns and assumptions concerning customer buying behavior;
our expectations regarding competition;
our estimates and assumptions as they relate to the fair value of assets acquired and liabilities assumed in
the purchase of City Gear, preferable tax and financial accounting methods, accruals, inventory
valuations, long-lived assets, store closure charges, carrying amount and liquidity of financial
instruments, fair value of options and other stock-based compensation, economic and useful lives of
depreciable assets and leases, income tax liabilities, deferred taxes and uncertain tax positions;
our expectations concerning future stock-based award types and the exercise of outstanding stock
options;
- 4 -
•
•
•
•
•
•
•
•
•
the possible effect of inflation, market decline and other economic changes on our costs and profitability;
our assessment of the materiality and impact on our business of recent accounting pronouncements
adopted by the Financial Accounting Standards Board;
the possible effects of uncertainty within the capital markets, on the commercial credit environment and
on levels of consumer confidence;
our analyses of trends as related to marketing, sales and earnings performance;
our ability to receive favorable brand name merchandise and pricing from key vendors;
the future reliability of, and cost associated with, our sources of supply, particularly imported goods;
our relationships with vendors and the loss of key vendor support;
our plans, expectations and abilities relating to cybersecurity; and
our ability to mitigate the risk of possible business interruptions.
A forward-looking statement is neither a prediction nor a guarantee of future results, events or circumstances.
You should not place undue reliance on forward-looking statements. Our forward-looking statements are all based on
currently available operating, financial and business information and speak only as of the date of this Annual Report on
Form 10-K. 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” as well as “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this report.
We cannot assure you that the results, events and circumstances reflected in the forward-looking statements
will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the
forward-looking statements. Moreover, new risks and uncertainties emerge from time to time and it is not possible for
us to predict all risks and uncertainties that could have an impact on our forward-looking statements.
We do not undertake to publicly update or revise any forward-looking statements after the date of this Form
10-K, whether as a result of new information, future events, or otherwise, and you should not expect us to do so.
Investors should also be aware that while we do, from time to time, communicate with securities analysts and
others, we do not, by policy, selectively disclose to them any material non-public information in connection 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.
Our Company
Our Company began in 1945 under the name Dixie Supply Company in Florence, Alabama. Although we
initially specialized primarily in the marine and small aircraft business, by 1960, we were solely in the sporting goods
business. In 1965, we opened our second store, Dyess & Hibbett Sporting Goods, in Huntsville, Alabama, and hired
Mickey Newsome, who is now Chairman of our Board. The following year, we opened another sporting goods store in
Birmingham and by the end of 1980, we had 12 stores in central and northwest Alabama with a distribution center
located in Birmingham and our central accounting office in Florence. We became a public company in October 1996.
In November 2018, we acquired City Gear, LLC (City Gear), a privately held city specialty retailer with over
130 stores. The City Gear acquisition provides us with substantially greater scale in the athletic specialty market and is
an extension of our strategy to provide high demand, branded products to underserved markets. Today, we are a
leading athletic-inspired omni-channel retailer operating stores primarily located in small and mid-sized
communities, and e-commerce websites under hibbett.com and citygear.com. As of February 2, 2019, we operated a
total of 1,163 stores consisting of 1,025 Hibbett stores and 138 City Gear stores in 35 states. Overall, our stores are
approximately 5,500 square feet and are located primarily in strip centers frequently influenced by a major chain
retailer.
- 5 -
Our primary merchandising strategy is to provide a broad assortment of quality brand name footwear, apparel,
accessories and athletic equipment at competitive prices in a conveniently located full-service environment. At the end
of the second quarter of Fiscal 2018, we successfully launched our e-commerce website. We will continue to grow our
online business aggressively, while continuing to enhance our stores to improve the overall customer experience. We
believe that the breadth and depth of our brand name merchandise consistently exceeds the product selection carried by
most of our competitors, particularly in our smaller markets. Many of these brand name products are highly technical
and require expert sales assistance. We continuously educate our sales staff on new products and trends through
coordinated efforts with our vendors.
Our Executive Officers
Our current executive officers and their prior business experience are as follows:
Jeffry O. Rosenthal, age 61, has been our Chief Executive Officer and President since March 2010. He
also currently serves on our Board of Directors. Formerly, he served as President and Chief Operating Officer from
February 2009 through March 2010 and as Vice President of Merchandising from August 1998 through February
2009. Prior to joining us, Mr. Rosenthal was Vice President and Divisional Merchandise Manager for Apparel with
Champs Sports, a division of Foot Locker, Inc., from 1981 to 1998.
Scott J. Bowman, age 52, was hired as our Senior Vice President and Chief Financial Officer in July 2012.
Prior to joining us, Mr. Bowman was Division Chief Financial Officer – Northern Division of The Home Depot, a
large home improvement retailer. Previously, Mr. Bowman served The Home Depot as their Senior Director,
Finance – IT for approximately three years. In prior retail experience, he has worked in various controller and
accounting management positions.
Jared S. Briskin, age 46, was appointed our Senior Vice President and Chief Merchant in September 2014.
Formerly, he served as Vice President/Divisional Merchandise Manager of Footwear and Equipment from March
2010 through September 2014 and Vice President/Divisional Merchandise Manager of Apparel and Equipment from
June 2004 through March 2010. Prior to his appointment to Vice President in 2004, Mr. Briskin held various
merchandising positions across multiple categories since joining the Company in April 1998.
Cathy E. Pryor, age 55, has been our Senior Vice President of Operations since 2012. Formerly, she
served as Vice President of Operations from 1995 to 2012. She joined our Company in 1988 serving in areas of
increasing responsibility including district manager and Director of Store Operations.
Our Employees
As of February 2, 2019, we employed approximately 10,600 employees, of which approximately 3,600 are
full-time employees. None of our employees are represented by a labor union. The number of part-time employees
fluctuates depending on seasonal needs. We consider our relationship with our employees to be good and have not
experienced significant interruptions of operations due to labor disagreements. 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.
Employee Development: We develop our training programs in a continuing effort to service the needs of
our customers and employees. These programs include online and DVD training in all stores for the latest in
technical detail of new products and new operational and customer service techniques. We also have an intensive,
five-day session designed specifically for new store managers. Periodically, we conduct shorter onsite training
sessions for all or a specific group of employees as needed. Because we primarily promote or relocate current
employees to serve as managers for new stores, training and assessment of our employees is essential to our
sustained growth.
- 6 -
Our Business Strategy
We target small to mid-sized markets with branded products and provide a high level of customer service.
This market strategy enables us to achieve significant cost benefits including lower corporate expenses, reduced
logistics costs and increased economies of scale from marketing activities. We use information systems to maintain
tight controls over inventory and operating costs and continually search for ways to improve efficiencies and the
customer experience through information system upgrades. In addition, we establish greater customer, vendor and
landlord recognition as a leading athletic specialty retailer in these communities. We believe our ability to align our
merchandising mix to local preferences and trends differentiates us from our national competitors.
We strive to hire enthusiastic sales people with an interest in sports and athletics-inspired fashion. Our
extensive training program focuses on product knowledge and selling skills and is conducted through the use of in-store
clinics, interactive group discussions and store associate training, self-study courses and Hibbett University designed
specifically for store management.
Our Store Banners
Hibbett Sports: As of February 2, 2019, we operated 1,007 Hibbett Sports stores. These stores average
approximately 5,700 square feet and are located primarily in strip centers, usually near a major chain retailer such as a
Wal-Mart store. We operated 809 Hibbett Sports stores in strip centers, which includes free-standing stores, and 198
stores in enclosed malls, the majority of which are the only enclosed malls in their county.
City Gear: In November 2018, we acquired 136 City Gear stores and as of February 2, 2019, operated 138
City Gear stores which average 5,000 square feet and are located primarily in strip centers. We operated 97 City Gear
stores in strip centers, which includes free-standing stores, and 41 stores in enclosed malls.
Sports Additions: We operate 18 Sports Additions (SA) stores, which average 2,500 square feet and are
located primarily in enclosed malls. Approximately 90% of the merchandise carried in our SA stores is athletic
footwear with the remainder consisting of headwear and apparel.
Team: In December 2017, we sold a portion of the assets and ceased the operations of Hibbett Team Sales,
Inc. (Team), a wholly-owned subsidiary of the Company. Team was a supplier of customized athletic apparel,
equipment and footwear primarily to school athletic programs in Alabama and parts of Georgia, Florida and
Mississippi. Team sold its merchandise directly to educational institutions and youth associations. The operations of
Team were independent of the operations of our retail stores.
In selecting retail locations, we consider the size, demographics, quality of real estate and competitive
conditions in each market. Our stores offer a core merchandising mix of localized footwear, apparel, accessories and
equipment designed to appeal to a wide range of customers within each market. We strive to meet the technical and
fashion demands of our consumer as well as respond quickly to major sporting events in college or professional team
sports of local interest within our markets.
None of our store concepts meets the quantitative or qualitative requirements of Accounting Standards
Codification (ASC) Topic 280, Segment Reporting.
Our Growth Strategy
We identify markets for our stores under a clustered expansion program. This approach primarily focuses on
opening new stores within a two-hour driving distance of existing locations, allowing us to take advantage of
efficiencies in logistics, marketing and regional management. It also aids us in building a better understanding of
appropriate merchandise selection for the local market. In addition to proximity to existing stores, we also consider
population, economic conditions, local competitive dynamics, availability of suitable real estate and potential for return
on investment when evaluating potential markets.
- 7 -
Omni-channel strategy: We recognize that our customer is evolving and looking to engage with us in
multiple ways. As a result, we continue to make investments that will enable us to engage our customer specifically in
the digital commerce channel. In addition to having store-to-store and store-to-home capability allowing us to use our
chain-wide inventory to satisfy a customer sale, we have an e-commerce website allowing customers to shop across
both channels. In Fiscal 2019, we completed development of our mobile app and rolled out Buy Online, Pickup in
Store (BOPIS) and Reserve Online, Pickup in Store (ROPIS). These developments complement our website and
provide our customers with even more advanced features such as shopping, loyalty and raffle capabilities.
Our Logistics
We maintain a full-line wholesale and logistics facility in Alabaster, Alabama (a suburb of Birmingham)
where we receive and ship most our merchandise. In addition, we utilize a third-party logistics facility in Memphis,
Tennessee and a third-party consolidation center in southern California to improve efficiencies and to improve time to
market. For key products, we maintain backstock at the Alabaster facility. This product is allocated and shipped to
stores through an automatic replenishment system based on inventory levels and sales. Merchandise is delivered to
stores via Company-operated vehicles, small package carriers or third-party logistics providers. We believe strong
logistics support for our stores is a critical element of our business strategy and that our current logistics structure will
support our growth over the next several years. See “Risk Factors.”
Our Merchandise
Our merchandising strategy is to provide a broad assortment of premium brand name footwear, apparel,
accessories and athletic equipment at competitive prices in a full service environment.
We believe that the assortment of brand name merchandise we offer consistently exceeds the merchandise
selection carried by most of our brick and mortar competitors, particularly in our smaller markets. Many of these brand
name products have limited availability and/or are technical in nature requiring 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 store, important demographic, local
and/or regional differences exist. Accordingly, our stores offer products that reflect preferences for particular
demographics as well as interests from each community. Our knowledge of these interests, combined with access to
leading vendors, enables our merchandising staff to react quickly to emerging trends or special events, such as fashion
shifts or athletic events.
Our merchandising staff, operations staff and management analyze current trends primarily through the lens of
our store typing strategy. Information is largely gathered and analyzed utilizing business intelligence tools. Other
strategic measures we utilize to recognize trends or changes in our industry include:
• maintaining close relationships with vendors and other retailers;
•
studying other retailers for best practices in merchandising;
•
attending various trade shows, both in our industry and outside as well as reviewing industry trade
publications;
actively participating in industry associations such as the National Sporting Goods Association (NSGA);
visiting competitor store locations;
•
•
• monitoring industry data sources and periodicals;
• monitoring product selection at competing stores and online; and
•
communicating with our regional vice presidents, district managers and store managers.
The merchandising staff works closely with store personnel to meet the requirements of individual stores for
appropriate merchandise in sufficient quantities. See “Risk Factors.”
- 8 -
Our Vendor Relationships
The athletic specialty retail business is brand name driven. Accordingly, we maintain positive relationships
with a number of well-known vendors to satisfy customer demand. We believe that our stores are among the primary
brick and mortar 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 of these products within our stores. In
addition, as we continue to increase our store base and enter new markets, our vendors increase their brand presence
within these regions. We also work with our vendors to establish favorable pricing and to receive cooperative
marketing funds. See “Risk Factors.”
Our Information Systems
We use technology as an enabler of our business strategies. We have implemented and maintained systems
targeted at improving financial control, cost management, inventory control, merchandise planning, logistics,
replenishment, and product allocation. Based on our evaluation of City Gear to-date, we believe that it followed a
similar approach to maintaining package and partner-based systems.
Our systems are designed to be flexible to meet the unique needs of each specific store location. In Fiscal
2018, we added our digital channel and in Fiscal 2019, we accomplished further channel integration and a more
seamless and frictionless set of capabilities aimed at enhancing our customers shopping experience in store, online
and through our mobile solutions. In Fiscal 2020, we expect to extend shipping options that our customers have
expressed great interest in and also decrease costs for shipping services. Additionally, we plan to co-brand our web
presence by including City Gear into our omni-channel experience.
Our communications networks send and receive critical business data to and from stores, third-party cloud
providers, and managed hosting facilities (data centers). Our company’s information is processed in a secure
environment to protect both the actual data and the physical assets. We attempt to mitigate the risk of cyber-security
threats and business interruptions by maintaining strong security protocols, threat monitoring, regular risk reviews,
and a detailed disaster recovery plan. While many of these same controls are utilized by City Gear, we plan to
update the City Gear systems where warranted to the above stated aspects of security to be more closely aligned
across all our operations.
We strive to maintain highly qualified and motivated third-party partners and teams of individuals to
support our information systems, which includes security, help desk, engineering, operations, quality assurance,
business analysis, solution development and project managers. Our systems are monitored 24 hours a day and
management believes that our current systems and practice of implementing regular updates will continue to support
current needs and future growth. We use a strategic information systems planning process that involves senior
management and is integrated into our overall business planning and enterprise risk management. Information
systems projects are prioritized based upon strategic, financial, regulatory and other business criteria.
Our Marketing and Promotion
We focus on marketing opportunities that drive traffic and sales to our stores and website. In Fiscal 2019,
digital marketing was the major growth area of our marketing budget, while direct mail continued to be an important
part of our marketing mix. Because these investments in digital marketing are yielding strong response, we expect to
continue to grow digital marketing in Fiscal 2020. We utilize our internal marketing team, as well as external digital
marketing agencies, to ensure execution and returns from these new programs.
We offer two customer loyalty programs, the Hibbett Rewards program and City Gear Reward Points,
whereby customers can earn awards that can be redeemed in our stores. Our Rewards programs represent a significant
portion of overall sales. In Fiscal 2018, we launched an improved Hibbett program that provided more value to our
customers and made it easier to use. Since then, we have significantly increased our member base as well as their
frequency of purchases. We continue to explore opportunities to further improve our Rewards programs to drive
member acquisition and sales.
- 9 -
Our Competition
The business in which we are engaged is highly competitive. The marketplace for athletic specialty
merchandise is highly fragmented as many different brick and mortar and online retailers compete for market share by
utilizing a variety of formats and merchandising strategies. We compete with department and discount stores,
traditional shoe stores, specialty sporting goods shops, local sporting goods stores, outlet centers, mass merchandisers,
e-commerce retailers and, in some of our large and mid-size markets, national sporting goods superstores. In addition,
we face competition from vendors that sell directly to consumers.
Although we face competition from a variety of competitors, we believe that our stores are able to compete
effectively by providing a premium assortment of footwear, apparel, accessories and team sports equipment.
Additionally, we differentiate our store experience through extensive product knowledge, customer service and
convenient locations. We believe we compete favorably with respect to these factors in the smaller markets
predominantly in the South, Southwest, Mid-Atlantic and Midwest regions of the United States. 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
• Hibbett, Registration No. 3275037
• City G.E.A.R, Registration No. 4398655
• City G.E.A.R., Registration No. 4413864
• CITY GEAR, Registration No. 4675462
• City GEAR, Registration No. 5008316
• DEVEROES, Registration No. 3479737
• GRINDHOUSE, Registration No. 5107399
• GRINDHOUSE DENIM, Registration No. 5107398
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (Exchange Act) are available free of charge through our website www.hibbett.com, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange
Commission (SEC). Our website is the primary source of publicly disclosed news about Hibbett Sports, Inc. In
addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K for
the fiscal year ended February 2, 2019, at no charge, by writing to: Investor Relations, Hibbett Sports, Inc., 2700
Milan Court, Birmingham, Alabama 35211.
In addition, we make available, through our website, the Company’s Code of Business Conduct and Ethics,
Corporate Governance Guidelines and the written charters of the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee. Information contained on our website is not included as part of,
or incorporated by reference into, this Annual Report.
- 10 -
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. The occurrence of one or more of the circumstances or events
described in this section could have a material adverse effect on our business, financial condition, results of operations,
cash flows or on the trading prices of our common stock. The risks and uncertainties described in this Annual Report
on Form 10-K are not the only ones facing us. Additional risks and uncertainties not known to us at this time or that
we currently believe are immaterial also may adversely affect our business and operations.
Risks Related to Our Business and Industry
Integrating City Gear’s operations with ours may be more difficult, costly or time consuming than expected and the
anticipated benefits, synergies and cost savings of the acquisition may not be realized.
The success of the City Gear acquisition (Acquisition), including anticipated benefits, synergies and cost
savings, will depend, in part, on our ability to successfully combine and integrate the businesses and cultures of City
Gear into our company. It is possible that the integration process will take longer than anticipated, and could result in
the loss of key employees, higher than expected costs, ongoing diversion of management attention, increased
competition, the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies
that adversely affect our ability to maintain relationships with customers, vendors and employees. If we experience
difficulties with the integration process, the anticipated benefits of the Acquisition may not be realized fully or at all, or
may take longer to realize than expected. In addition, the actual cost savings of the Acquisition could be less than
anticipated.
If we lose any of our key vendors or any of our key vendors fail to supply us with quality brand name
merchandise at competitive prices, we may not be able to meet the demand of our customers and our net sales
and profitability could decline.
We are a retailer of manufacturers’ branded items and are thereby dependent on the availability of key
products and brands. Our top three vendors accounted for approximately 80% of our total inventory purchases during
Fiscal 2019. Our business is dependent upon close relationships with vendors and our ability to purchase brand name
merchandise at competitive prices. As a retailer, we cannot control the supply, design, function or cost of many of the
products we offer for sale. Moreover, certain merchandise that is in high demand may be allocated by vendors based
upon the vendors’ internal criteria, which is beyond our control.
As a result, our sales could decline if we are not provided with a sufficient allocation of high demand
merchandise from one or more of our key vendors or if the vendor’s merchandise were to decline in quantity, quality or
desirability to our customers. Our profits could decline if we are unable to pass along any increases in the cost of brand
merchandise from our key vendors, including costs resulting from higher tariffs or taxes on imported merchandise. In
addition, many of our vendors provide us with return privileges, volume purchasing allowances and cooperative
marketing such that any changes to such benefits could have an adverse effect on our business.
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, the loss or decline of key vendor support could
have a material adverse effect on our business, financial condition and results of operations. There can be no
assurances that we will be able to acquire such merchandise at competitive prices or on competitive terms in the future.
We also rely on services and products from non-merchandise vendors. A disruption in these services or
products due to the financial condition or inefficient operations of these vendors could adversely affect our business
operations.
- 11 -
If we are unable to identify and capitalize on retail trends or provide an omni-channel experience for our
customers that is comparable to our competitors, we may not be able to compete effectively, and our sales and
profitability may be adversely affected.
Competition in the e-commerce market continues to intensify as the Internet continues to facilitate
competitive entry into the market and comparison shopping by consumers. As a result, a growing portion of total
consumer expenditures with retailers is occurring through digital platforms rather than traditional retail stores as
consumers increasingly embrace shopping online and through mobile commerce applications. Our future success
could be materially and adversely affected if we are unable to identify and capitalize on retail trends, including
technology, e-commerce and other process efficiencies, to gain market share and better service our customers, or if
we are unable to provide an omni-channel experience for our customers that is comparable to our competitors.
In Fiscal 2018, we successfully launched our omni-channel platform, which integrated digital commerce
with our stores to provide a seamless experience for our customers. In Fiscal 2019, we launched our new mobile
app, Buy Online Pickup in Store (BOPIS) and Reserve Online Pickup in Store (ROPIS) which complements our e-
commerce site and provides our customers with customized advanced features and shopping experiences. We
cannot give any assurances that our omni-channel platform, including our mobile app, BOPIS and ROPIS, will
perform in a manner that will give us the ability to attract and retain customers, increase sales and successfully
compete with other online retailers. If we do not successfully provide a relevant and up-to-date digital experience or
cannot attract online buyers through our omni-channel platform, our sales and profitability could be adversely
affected.
We are increasing the use of social media as a means of interacting and enhancing the shopping
experiences of our customers. If we are unable to attract and retain team members or contract third parties with the
specialized skills to support our omni-channel platform or are unable to implement improvements to our customer-
facing technology in a timely manner, our ability to compete and our results of operations could be adversely
affected. In addition, if our websites and our other customer-facing technology systems do not function as designed,
the customer experience could be negatively affected, resulting in a loss of customer confidence and satisfaction, as
well as lost sales, which could adversely affect our reputation and results of operations.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media
could adversely impact our business.
In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat
platforms, social media websites, and other forms of internet-based communications that allow individuals access to
a broad audience of consumers and other persons. The rising popularity of social media and other consumer-oriented
technologies has increased the speed and accessibility of information dissemination. The dissemination of negative
information via social media could harm our business, brand, reputation, marketing partners, financial condition, and
results of operations, regardless of the information’s accuracy.
In addition, we frequently use social media to communicate with consumers and the public in general. Failure
to use social media effectively could lead to a decline in brand value and revenue. Other risks associated with the use
of social media include improper disclosure of proprietary information, negative comments about our brand, exposure
of personally identifiable information, fraud, hoaxes or malicious dissemination of false information.
Pressure from our competitors may force us to reduce our prices or increase our spending on marketing and
promotion, which could lower our net sales, gross profit and operating income.
The business in which we are engaged is a highly competitive and evolving market. The marketplace for
athletic specialty merchandise is highly fragmented as many different brick and mortar and online retailers compete for
market share by utilizing a variety of formats and merchandising strategies. We compete with e-commerce retailers,
traditional shoe stores, department and discount stores, national sporting goods superstores, specialty sporting goods
shops, local sporting goods stores, outlet centers and mass merchandisers. In addition, we face competition from
vendors that sell directly to consumers. Direct sales by vendors may adversely affect our market share and reduce our
revenues.
- 12 -
Many of our competitors have greater financial, marketing and distribution resources than we do, which
enable them to spend significantly more on marketing and other initiatives. 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. Should our competitors increase spending on marketing and other initiatives such as additional
discounting, if our marketing funds decrease for any reason, or should our marketing, promotions or initiatives be less
effective than our competitors, there could be a material adverse effect on our results of operations and financial
condition. As a result, we may also need to spend more on marketing, promotions and initiatives than we anticipate.
Inadequate marketing that is less effective than our competitors could inhibit our ability to maintain relevance in the
market place and drive increased sales.
We cannot guarantee that we will continue to be able to compete successfully against existing or future
competitors. Expansion into markets served by our competitors, entry of new competitors or expansion of existing
competitors into our markets could be detrimental to our business, financial condition and results of operations.
Our inability to identify and anticipate changes in consumer demands and preferences and our inability to respond
to such consumer demands in a timely manner could reduce our net sales or profitability.
Our products appeal to a broad range of consumers whose preferences cannot be predicted with certainty and
are subject to rapid change. Our success depends on our ability to identify product trends as well as to anticipate and
respond to changing merchandise trends and consumer demand in a timely manner. We cannot assure you that we will
be able to continue to offer assortments of products that appeal to our customers or that we will satisfy changing
consumer demands in the future. Accordingly, our business, financial condition and results of operations could be
materially and adversely affected if:
• we are unable to identify and respond to emerging trends, including shifts in the popularity of certain
products;
• we miscalculate either the market for the merchandise in our stores or our customers’ purchasing habits;
or
consumer demand unexpectedly shifts away from athletic footwear or our more profitable apparel lines.
•
In addition, we may be faced with significant excess inventory of some products and missed opportunities
for other products, which could decrease our profitability.
We depend on key personnel, the loss of which may adversely affect our ability to run our business effectively and
our results of operations.
We benefit from the leadership and performance of our senior management team and other key employees.
If we lose the services of any of our principal executive officers or other skilled and experienced personnel, we may
not be able to fully implement our business strategy or run our business effectively and operating results could
suffer. The Compensation Committee of our Board of Directors reviews, on a regular basis, a succession plan
prepared by senior management that addresses the potential loss of key personnel positions. The goal of the
succession plan is to have a contingency plan that minimizes disruptions in the workplace until a suitable
replacement can be found, but no assurance can be given that we will be able to retain existing or attract additional
qualified personnel when needed.
On March 22, 2019, we announced the planned retirement of our Chief Executive Officer, Jeff Rosenthal.
Although we expect him to remain in his capacity as CEO until a successor is named and to assist in the leadership
transition, he is currently under no binding agreement to do so. No assurance can be given that Mr. Rosenthal will
remain through a satisfactory leadership transition or that we will be successful in finding a suitable replacement in a
timely manner.
Further, 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 associates and other
employees. Competition for qualified employees could require us to pay higher wages and benefits to attract a
sufficient number of qualified employees and increases in the minimum wage or other employee benefit costs could
increase our operating expense. An inability to attract and retain personnel as needed in the future could negatively
impact our net sales growth and operating results.
- 13 -
Security threats, including physical and cyber-security threats, and unauthorized disclosure of sensitive or
confidential information could harm our business and reputation with our consumers.
The protection of Company, customer and employee data is critical to us. Through our sales, marketing
activities and use of third-party information, we collect and retain certain personally identifiable information that our
customers provide to purchase products, enroll in promotional programs, register on our website, or otherwise
communicate and interact with us. This may include, but is not limited to, names, addresses, phone numbers, driver
license numbers, e-mail addresses, contact preferences, personally identifiable information stored on electronic
devices, and payment account information, including credit and debit card information. We also gather and retain
information about our employees in the normal course of business. Furthermore, our online operations depend upon
the secure transmission of confidential information over public networks, such as information permitting cashless
payments.
We have security measures designed to protect against the misappropriation or corruption of our systems,
intentional or unintentional disclosure of confidential information or disruption of our operations. Our risk
remediation procedures include an annual IT risk assessment based on the SANS Institute Critical Security Controls
framework which prioritizes security functions that are effective against the latest advanced targeted threats while
emphasizing security controls that have demonstrated real world effectiveness. While we maintain insurance
coverage that may, subject to policy terms and conditions, cover certain aspects of our cyber risks, such insurance
coverage may be insufficient to cover our losses or all types of claims that may arise in the continually evolving area
of cyber risk.
Even so, these security measures may be compromised as a result of third-party breaches, burglaries, cyber-
attacks, errors by employees or employees of third-party vendors, faulty password management, misappropriation of
data by employees, vendors or unaffiliated third-parties or other irregularity, and result in persons obtaining
unauthorized access to our data or accounts. Despite such safeguards for the protection of such information, we
cannot be certain that all of our systems and those of our vendors and unaffiliated third-parties are entirely free from
vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or
degrade service, or sabotage systems change frequently. During the normal course of our business, we have
experienced and we expect to continue to experience attempts to breach our systems, and we may be unable to
protect sensitive data and the integrity of our systems or to prevent fraudulent purchases. Moreover, an alleged or
actual security breach that affects our systems or results in the unauthorized release of personally identifiable
information could:
• materially damage our reputation and negatively affect customer satisfaction and loyalty;
•
expose us to negative publicity, individual claims or consumer class actions, administrative, civil or
criminal investigations or actions; and
cause us to incur substantial costs, including but not limited to, costs associated with remediation for
stolen assets or information, litigation costs, lost revenues resulting from unauthorized use of
proprietary information or the failure to retain or attract customers following an attack, and increased
cyber protection costs.
•
We plan to initiate a strategic realignment, which includes an accelerated store closure plan, that may not yield
the economic results expected.
As the retail environment continues to evolve, the Company is focused on improving the productivity of the
store base while continuing to grow its omni-channel business to serve customers where and when they want to
shop. In an effort to adapt to changing shopping patterns, the Company has decided to initiate a strategic
realignment that will include the closure of approximately 95 underperforming Hibbett stores in Fiscal 2020, while
opening approximately 10 to 15 new Hibbett Sports and City Gear stores. We cannot guarantee that this strategic
realignment will result in an economic benefit for the company. Our results of operations could be adversely
affected by the underperforming stores’ liquidation process through reduced gross margin rates and increased
operating costs.
- 14 -
We rely heavily on information systems to conduct our business. Problems with our information systems could
disrupt our operations and negatively impact our financial results and materially adversely affect our business
operations.
Our ability to manage and operate our business depends significantly on information technology systems.
Specifically, we rely on our information systems to effectively manage our sales, logistics, merchandise planning
and replenishment, to process financial information and sales transactions and to optimize our overall inventory
levels. We could experience adverse events relating to our information systems, including, among other things,
system failures, problems with integrating various data sources, challenges in transitioning to upgraded or
replacement systems or difficulty in integrating new systems. Although we attempt to mitigate the risk of possible
business interruptions through change control protocols and a disaster recovery plan, which includes storing critical
business information off-site, the failure of these systems to operate effectively and support growth and expansion
could materially adversely impact the operation of our business.
Most of our information system infrastructure is centrally located, and we rely on third-party service
providers for certain system applications that are hosted remotely or in cloud-based applications. There is a risk that
we may not have adequately addressed risks associated with using third-party providers or cloud-based applications.
Such risks include security issues such as adequate encryption and intrusion detection; user access control; data
separation; the impact of technical problems such as server outages; their disaster recovery capabilities; and exit
strategies. A service provider disruption or failure in any of these areas could have a material adverse effect on our
business.
Integration of technology and systems related to the acquired City Gear business could be more difficult or
costlier than anticipated.
In addition, insufficient investment in technology, inadequate preventive maintenance, investment in the
wrong technology, delayed replacement of obsolete equipment, shifts in technology, the failure to attract and retain
highly-qualified IT personnel and inadequate policies to identify our technology needs could have a material adverse
effect on our business.
Our failure to effectively manage our real estate portfolio may negatively impact our operating results.
Effective management of our real estate portfolio is critical to our omni-channel strategy. All of our stores are
subject to leases and, as such, it is essential that we effectively evaluate a range of considerations that may influence the
success of our long-term real estate strategy. Such considerations include but are not limited to:
•
•
•
•
•
•
•
changing patterns of customer behavior from physical store locations to online shopping in the context of
an evolving omni-channel retail environment;
the appropriate number of stores in our portfolio;
the formats, sizes and interior layouts of our stores;
the locations of our stores, including the demographics and economic data of each store;
the local competition in and around our stores;
the primary lease term of each store and occupancy cost of each store relative to market rents; and
distribution considerations for each store location.
If we fail to effectively evaluate these factors or negotiate appropriate terms or if unforeseen changes arise, the
consequences could include, for example:
•
•
•
•
having to close stores and abandon the related assets while retaining the financial commitments of the
leases;
incurring costs to remodel or transform our stores;
having stores or distribution channels that no longer meet the needs of our business; and
bearing excessive lease or occupancy expenses.
- 15 -
These consequences could have a materially adverse impact on our profitability, cash flows and liquidity. The
financial impact of exiting a leased location can vary greatly depending on, among other factors, the terms of the lease,
the condition of the local real estate market, demand for the specific property and our relationship with the landlord. It
is difficult for us to influence some of these factors, and the costs of exiting a property can be significant. In addition to
rent, we could still be responsible for the maintenance, taxes, insurance and common area maintenance charges for
vacant properties until the lease commitment expires or is terminated.
Our success depends substantially on the value and perception of the brand name merchandise we sell.
Our success is largely dependent on our consumers’ perception and connection to the brand names we carry,
such as Nike, Under Armour, Reebok, adidas, Easton, The North Face, etc. Brand value is based in part on our
consumer’s perception on a variety of subjective qualities so that even an isolated incident could erode brand value and
consumer trust, particularly if there is considerable publicity or litigation. Consumer demand for our products or
brands could diminish significantly in the event of erosion of consumer confidence or trust, resulting in lower sales
which could have a material adverse effect on our business, financial condition and results of operations.
We would be materially and adversely affected if all or a significant portion of our primary wholesale and
logistics facility were shut down.
Our primary wholesale and logistics facility is located in Alabaster, Alabama, a suburb of Birmingham, where
we receive and ship a significant portion of our merchandise. Any natural disaster or other serious disruption to this
facility would damage a portion of our inventory and could impair our ability to adequately stock our stores and
process returns of products to vendors and could adversely affect our net sales and profitability. In addition, we could
incur significantly higher costs and longer lead times associated with shipping our products to our stores during the
time it takes for us to reopen or replace the facility.
Further, because we rely heavily on our primary wholesale and logistics facility, our growth could be limited
if the facility reaches full capacity. Such restraint could result in a loss of market share and our inability to execute our
business strategy and could have a material adverse effect on our business, financial condition and operating results.
A disruption in the flow of imported merchandise or an increase in the cost of those goods could significantly
decrease our net sales and operating income.
Many of our largest vendors source a majority of their products from foreign countries. Imported goods are
generally less expensive than domestic goods and contribute significantly to our favorable profit margins. Our
ability to provide quality imported merchandise on a profitable basis may be subject to political and economic
factors and influences that we cannot control. National or international events, including changes in government
trade or other policies, could increase our merchandise costs and other costs that are critical to our operations. If
imported merchandise becomes more expensive, we may find it difficult to pass the increase on to customers. If
imported merchandise becomes 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 or may be of lesser quality than those our vendors currently import. Risks associated with reliance on
imported goods include:
•
increases in the cost of purchasing or shipping foreign merchandise resulting from, for example:
•
import tariffs, taxes or other governmental actions affecting trade, including the United States
imposing antidumping or countervailing duty orders, safeguards, remedies or compensation and
retaliation due to illegal foreign trade practices;
foreign government regulations;
rising commodity prices;
increased costs of oceanic shipping;
changes in currency exchange rates or policies and local economic conditions; and
trade restrictions, including import quotas or loss of “most favored nation” status with the United
States.
•
•
•
•
•
- 16 -
•
disruptions in the flow of imported goods because of factors such as:
•
•
raw material shortages, work stoppages, labor availability and political unrest;
problems with oceanic shipping, including blockages or labor union strikes at U.S. or foreign
ports; and
economic crises and international disputes.
•
In addition, to the extent that any foreign manufacturer from whom our vendors are associated may directly
or indirectly utilize labor practices that are not commonly accepted in the United States, we could be affected by any
resulting negative publicity.
Disruptions in the economy and in financial markets could adversely affect consumer purchases of discretionary
items, which could reduce our net sales.
In general, our sales represent discretionary spending by our customers. Discretionary spending is affected by
many factors that are outside our control, including, among others, general business conditions, interest rates, inflation,
household income, consumer debt levels, the availability of consumer credit, tax rates and tax refunds, sales tax
holidays, energy prices, unemployment trends, home values and other matters that influence consumer confidence and
spending. Disruptions in the U.S. economy, financial markets or other economic conditions affecting disposable
consumer income may adversely affect our business. A reduction in customer traffic to our stores or a shift in customer
spending to products other than those sold by us or to products sold by us that are less profitable could result in lower
net sales, decreases in inventory turnover or a reduction in profitability due to lower margins.
Increases in transportation or shipping costs, climate change regulation and other factors may negatively impact
our results of operations.
We rely upon various means of transportation, including ship and truck, to deliver products to our primary
wholesale and logistics facility, our stores and our customers. Consequently, our results can vary depending upon the
price of fuel. The price of oil has fluctuated significantly over the last few years. In addition, governmental efforts to
combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other
means. Any increases in fuel costs would increase our transportation costs.
In addition, general labor shortages or strikes in the transportation or shipping industries could negatively
affect transportation and shipping costs and our ability to supply our stores in a timely manner. We also rely on
efficient and effective operations within our primary wholesale and logistics facility to ensure accurate product delivery
to our stores. Failure to maintain such operations could adversely affect net sales.
We may face difficulties in meeting our labor needs to effectively operate our business.
We are heavily dependent upon our labor workforce in the geographic areas where we conduct our business.
Our compensation packages are designed to provide benefits commensurate with our level of expected service.
However, within our retail and logistics operations, we face the challenge of filling many positions at wage scales that
are appropriate to the industry and competitive factors. In addition, there is the risk that prevailing wage rates for our
labor workforce will increase in the future and that the costs of employee benefits will rise, resulting in increased
expenses that could adversely affect our profitability. We also face other risks in meeting our labor needs, including
competition for qualified personnel and overall unemployment levels. Changes in any of these factors, including a
shortage of available workforce in areas in which we operate, could interfere with our ability to adequately service our
customers or to open suitable locations and could result in increasing labor costs.
- 17 -
Our operating results are subject to seasonal and quarterly fluctuations. Furthermore, our quarterly operating
results, including comparable store net sales, will fluctuate and may not be a meaningful indicator of future
performance.
We experience seasonal fluctuations in our net sales and results of operations. We typically experience higher
net sales in early spring due to spring sports and annual tax refunds, late summer due to back-to-school shopping and
winter due to holiday shopping. In addition, our quarterly results of operations may fluctuate significantly as a result of
a variety of factors, including the timing of new store openings, the amount and timing of net sales contributed by new
stores, weather fluctuations, merchandise mix, demand for merchandise driven by local interest in sporting events, and
the timing of sales tax holidays and annual tax refunds. Any of these events, particularly in the fourth quarter, could
have a material adverse effect on our business, financial condition and operating results for the entire fiscal year.
Comparable store net sales vary from quarter to quarter, and an unanticipated decline in comparable store net
sales may cause the price of our common stock to fluctuate significantly. Factors which could affect our comparable
store net sales results include:
•
•
•
•
•
•
•
•
•
shifts in consumer tastes and fashion trends;
calendar shifts of holiday or seasonal periods;
the timing of income tax refunds to customers;
increases in personal income taxes paid by our customers;
calendar shifts or cancellations of sales tax-free holidays in certain states;
the success or failure of college and professional sports teams within our core regions;
changes in or lack of tenants in the shopping centers in which we are located;
pricing, promotions or other actions taken by us or our existing or possible new competitors; and
unseasonable weather conditions or natural disasters.
We cannot assure you that comparable store net sales will increase at the rates achieved in prior periods or that
rates will not decline.
We are subject to regional risks due to our stores within the South, Southwest, Mid-Atlantic and Midwest regions of
the United States.
Our stores are heavily concentrated in certain regions of the United States. We are subject to regional risks,
such as the regional economy, weather conditions and natural disasters, increasing costs of electricity, oil and natural
gas, as well as government regulations specific in the states and localities within which we operate. In addition, falling
oil prices may adversely affect employment and consumer spending in those states that are within our regions that rely
on oil revenues as a significant part of the economies of those states. We sell a significant amount of merchandise that
can be adversely affected by significant weather events that postpone the start of or shorten sports seasons or that limit
participation of fans and sports enthusiasts.
Unforeseen events, including public health issues and natural disasters such as earthquakes, hurricanes,
tornados, snow or ice storms, floods and heavy rains could disrupt our operations or the operations of our suppliers;
significantly damage or destroy our retail locations; prohibit consumers from traveling to our retail locations; or prevent
us from resupplying our stores or wholesale and logistics facility. We believe that we take reasonable precautions to
prepare for such events; however, our precautions may not be adequate to deal with such events in the future. If such
events occur in areas in which we have our wholesale and logistics facility or a concentration of retail stores, or if they
occur during peak shopping seasons, it could have a material adverse effect on our business, financial condition and
results of operations.
We sell a significant amount of licensed team sports merchandise, the sale of which may be subject to
fluctuations based on the success or failure of such teams. The poor performance by college and professional sports
teams within our core regions of operations, as well as professional team lockouts, could cause our financial results to
fluctuate year over year.
- 18 -
Risks Related to Our Capital Structure
We manage cash and cash equivalents beyond federally insured limits per financial institution and purchase
investments not fully guaranteed by the Federal Deposit Insurance Corporation (FDIC), subjecting us to investment
and credit availability risks.
We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per
institution, and we purchase investments not guaranteed by the FDIC. Accordingly, there is a risk that we will not
recover the full principal of our investments or that their liquidity may be diminished. In an attempt to mitigate this
risk, our investment policy emphasizes preservation of principal and liquidity. We cannot be assured that we will not
experience losses on our deposits or investments.
Our indebtedness could adversely affect our financial condition, limit our ability to obtain additional financing,
restrict our operations and make us more vulnerable to economic downturns and competitive pressures. In
addition, we face risk that financial institutions may fail to fulfill commitments under our credit facilities.
In connection with the acquisition of City Gear, we expanded our two credit facilities from $30 million each
to $50 million each and substantially increased our indebtedness, which could adversely affect our ability to fulfill our
obligations and have a negative impact on our financing options and liquidity position. As of February 2, 2019, our
indebtedness under our facilities was $35 million. This level of debt could have the following impacts:
•
•
•
•
limit our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions or other general corporate purposes;
require a substantial portion of our cash flows to be dedicated to debt service payments, instead of other
purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures,
acquisition or other general corporate purposes;
limit our ability to refinance our indebtedness on terms acceptable to us or at all;
place us at a competitive disadvantage to competitors carrying less debt or limit our ability to withstand
competitive pressure; and
• make us more vulnerable to economic downturns and interest rate increases.
In addition, our financial institutions are committed to providing loans under our credit facilities. There is a
risk that these institutions cannot deliver against these obligations in a timely matter, or at all. If the financial
institutions that provide these credit facilities were to default on their obligation to fund the commitments, these
facilities would not be available to us, which could adversely affect our liquidity and financial condition. For
discussion of our credit facilities, see “Liquidity and Capital Resources” in Item 7 and Note 6 to our consolidated
financial statements.
Risks Related to Ownership of Our Common Stock.
The market price of our common stock, like the stock market in general, is likely to be highly volatile.
Factors that could cause fluctuation in our common stock price may include, among other things:
actual or anticipated variations in quarterly operating results;
changes in financial estimates by investment analysts and our inability to meet or exceed those estimates;
additions or departures of key personnel;
•
•
•
• market rumors or announcements by us or by our competitors of significant acquisitions, divestitures or
joint ventures, strategic partnerships, large capital commitments or other strategic initiatives;
changes in retail sales data that indicate consumers may spend less on discretionary purchases; and
sales of our common stock by key personnel or large institutional holders.
•
•
Many of these factors are beyond our control and may cause the market price of our common stock to decline,
regardless of our operating performance.
- 19 -
Significant stockholders or potential stockholders may attempt to effect changes or acquire control over our
company, which could adversely affect our results of operations and financial condition.
Stockholders may from time to time attempt to effect changes, engage in proxy solicitations or advance
stockholder proposals. Responding to proxy contests and other actions by activist stockholders can be costly and
time-consuming, disrupting our operations and diverting the attention of our Board of Directors and senior
management from the daily operations of our business or pursuing our business strategies. As a result, activist
stockholder campaigns could adversely affect our results of operations and financial condition, and the perceived
uncertainty as to our future direction resulting from activist strategies could also affect the market price and
volatility of the Company’s common stock.
There can be no assurance that we will continue to repurchase our common stock or that we will repurchase our
common stock at favorable prices.
In November 2018, our Board of Directors authorized the continuation of our existing stock repurchase
program (Program) until January 29, 2022 under which we may purchase up to $300.0 million of our outstanding
common stock. The purchases may be made from time to time in the open market (including, without limitation, the
use of Rule 10b5-1 plans), depending on a number of factors, including our evaluation of general market and
economic conditions and the trading price of our common stock. The Program may be extended, modified,
suspended or discontinued at any time. We expect to fund the Program with existing cash on hand, cash generated
from operations, and/or borrowings under our credit facilities. A reduction in, or the completion or expiration of,
our Program could have a negative effect on our stock price. We can provide no assurance that we will repurchase
our common stock at favorable prices, or at all.
Risks Related to Governance, Regulatory, Legislative and Legal Matters.
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 common stockholders may only be called by the Board of Directors,
the Chairman of the Board of Directors or upon the demand of the holders of a majority of the total
voting power of all outstanding securities of the Company entitled to vote at any such special meeting;
and
call for a vote of the holders of not less than two-thirds of the shares entitled to vote in order to amend the
foregoing provisions and certain other provisions of our certificate of incorporation and bylaws.
In addition, our Board of Directors, without further action of the stockholders, is permitted to issue and fix the
terms of preferred stock, which may have rights senior to those of common stock. We are also subject to the Delaware
business combination statute, which may render a change in control of us more difficult. Section 203 of the Delaware
General Corporation Laws would be expected to have an anti-takeover effect with respect to transactions not approved
in advance by the Board of Directors, including discouraging takeover attempts that might result in a premium over the
market price for the shares of common stock held by stockholders.
- 20 -
Changes in federal, state or local laws, or our failure to comply with such laws, could increase our expenses and
expose us to legal risks.
Our Company is subject to numerous laws and regulatory matters relating to the conduct of our business. In
addition, certain jurisdictions have taken a particularly aggressive stance with respect to certain matters and have
stepped up enforcement, including fines and other sanctions. Such laws and regulatory matters include:
• The California Consumer Privacy Act (CCPA) and other emerging privacy laws;
• The Telephone Consumer Protection Act (TCPA) provisions that regulate telemarketing, auto-dialed and
pre-recorded calls as well as text messages and unsolicited faxes;
• Labor and employment laws that govern employment matters such as minimum wage, exempt
employment status, overtime, family leave mandates and workplace safety regulations, including the Fair
Labor Standards Act proposed rules;
• Securities and exchange laws and regulations;
• New or changing laws relating to cybersecurity, privacy, cashless payments and consumer credit,
protection and fraud;
• New or changing laws and regulations concerning product safety or truth in advertising;
• The Americans with Disabilities Act and similar state laws that give civil rights protections to individuals
with disabilities in the context of employment, public accommodations and other areas;
• New or changing federal and state immigration laws and regulations;
• The Patient Protection and Affordable Care Act provisions;
• New or changing environmental regulations, including measures related to climate change and
greenhouse gas emissions; and
• New or changing laws relating to state and local taxation and licensing, including sales and use tax laws,
withholding taxes and property taxes.;
Our operations will continue to be subject to federal, state and local governmental regulation. Uncertainty
with respect to the U.S. presidential administration and Congress and potential changes that may be made in laws,
regulations and policies could exacerbate the risks above. Changes in domestic policy, including significant changes in
tax, trade, healthcare and other laws and regulations could affect our operations. For example, tax proposals may
include changes, which could, if implemented, have an adverse or a beneficial impact on our operations, including a
“border adjustment tax” or new import tariffs, which could adversely affect us because we sell imported products.
Proposals to modify or repeal the Patient Protection and Affordable Care Act, if implemented, may also affect us.
Unknown matters, new laws and regulations or stricter interpretations of existing laws or regulations may affect our
business or operations in the future and could lead to government enforcement and resulting litigation by private
litigants. Increasing regulations could expose us to a challenging enforcement environment or to third-party liability
(such as monetary recoveries and recoveries of attorney’s fees) and could have a material adverse effect on our
business and results of operations.
Our corporate legal department monitors regulatory activity and is active in notifying and updating applicable
departments and personnel on pertinent matters and legislation. Our Human Resources (HR) Department leads
compliance training programs to ensure our field managers are kept abreast of HR-related regulatory activity that
affects their areas of responsibility. We believe that we are in substantial compliance with applicable environmental
and other laws and regulations, and although no assurances can be given, we do not foresee the need for any significant
expenditures in this area in the near future.
Changes in privacy laws could adversely affect our ability to market our products effectively.
We rely on a variety of direct marketing techniques, including email, text messages and postal mailings. Any
new or emerging restrictions in federal or state laws regarding marketing and solicitation or data protection laws that
govern these activities could adversely affect the continuing effectiveness of email, text messages and postal mailing
techniques and could force changes in our marketing strategies. If this occurs, we may need to develop alternative
marketing strategies, which may not be as effective and could impact the amount and timing of our revenues. Further,
any new or emerging privacy laws could include onerous and expensive compliance obligations regarding consent,
retention, deletion, and anti-discrimination that could lead to regulatory actions or litigation, and potentially fines and
damages for non-compliance.
- 21 -
Litigation may adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors, stockholders,
government agencies or others through private actions, class actions, administrative proceedings, regulatory actions or
other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess
or quantify. We may incur losses relating to these claims, and in addition, these proceedings could cause us to incur
costs and may require us to devote resources to defend against these claims that could adversely affect our results of
operations. For a description of current legal proceedings, see “Part I, Item 3, Legal Proceedings.”
Product liability claims or product recalls can adversely affect our business reputation, expose us to lawsuits or
increased scrutiny by federal and state regulators and may not be fully covered by insurance.
We sell products, particularly athletic equipment, which entails an inherent risk of product liability and
product recall and the resultant adverse publicity. We may be subject to significant claims if the purchase of a
defective product from any of our stores causes injury or death. Our merchandise could be subject to a product recall
which could reflect negatively on our business reputation. We cannot be assured that product liability claims will not
be asserted against us in the future. Any claims made may create adverse publicity that would have a material
adverse effect on our business, reputation, financial condition and results of operations.
We and our vendors maintain insurance with respect to certain of these risks, including product liability
insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain and no
assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient
amounts to protect us against losses due to any such events, or at all. Moreover, even though our insurance coverage
may be designed to protect us from losses attributable to certain events, it may not adequately protect us from
liability and expenses we incur in connection with such events.
We cannot be assured that we will not experience pressure from labor unions or become the target of labor union
campaigns.
While we believe we maintain good relations with our employees, we cannot provide any assurances that we
will not experience pressure from labor unions or become the target of labor union campaigns. The potential for
unionization could increase in the United States if federal legislation or regulatory changes are adopted that would
facilitate labor organization. Significant union representation would require us to negotiate wages, salaries, benefits
and other terms with many of our employees collectively and could adversely affect our results of operations by
increasing our labor costs or otherwise restricting our ability to maximize the efficiency of our operations.
Changes in rules related to accounting for income taxes, changes in tax laws in any of the jurisdictions in which we
operate or adverse outcomes from audits by taxing authorities could result in an unfavorable change in our effective
tax rate.
We operate our business in numerous tax jurisdictions. As a result, our effective tax rate is derived from a
combination of the federal rate and applicable tax rates in the various states in which we operate. Our effective tax rate
may be lower or higher than our tax rates have been in the past due to numerous factors, including the sources of our
income and the tax filing positions we take. We base our estimate of an effective tax rate at any given point in time
upon a calculated mix of the tax rates applicable to our Company and on estimates of the amount of business likely to
be done in any given jurisdiction. Changes in rules related to accounting for income taxes, changes in tax laws in any
of the jurisdictions in which we operate, expiration of tax credits formerly available, failure to manage and utilize
available tax credits, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which
we operate could result in an unfavorable change in our effective tax rate.
Item 1B. Unresolved Staff Comments.
None.
- 22 -
Item 2. Properties.
We own our corporate office building in Birmingham, Alabama and our wholesale and logistics facility in
Alabaster, Alabama. In addition, we lease administrative offices in Memphis, Tennessee and lease all our existing
1,163 store locations and expect that our policy of leasing rather than owning will continue as we continue to expand.
Our leases typically provide for terms of five to ten years with options on our part to extend. Most leases also contain a
kick-out clause if projected sales levels are not met and an early termination/remedy option if co-tenancy and
exclusivity provisions are violated. We believe this leasing strategy enhances our flexibility to pursue various
expansion opportunities resulting from changing market conditions and to periodically re-evaluate store locations. See
“Risk Factors.”
As current leases expire, we believe we will either be able to obtain lease renewals for present store locations
or to obtain leases for equivalent or better locations in the same general area. We believe our wholesale and logistics
facility is suitable and adequate to support our operations for many years. See “Risk Factors.”
Store Locations
As of February 2, 2019, we operated 1,163 stores in 35 contiguous states. Of these stores, 254 are in enclosed
malls, 33 are free-standing and 876 are in strip-shopping centers, which are frequently near a major chain retailer such
as Wal-Mart. The following shows the number of locations by state as of February 2, 2019:
Alabama
Arkansas
Arizona
California
Colorado
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
105
42
8
12
6
1
64
122
30
26
17
26
Kentucky
Louisiana
Maryland
Minnesota
Mississippi
Missouri
Nebraska
New Jersey
New Mexico
New York
North Carolina
Ohio
58
67
5
1
74
39
9
3
15
4
60
36
Oklahoma
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
West Virginia
Wisconsin
Wyoming
TOTAL
40
6
41
3
78
123
4
22
10
4
2
1,163
As of April 2, 2019, we operated 1,149 stores in 35 states.
Item 3. Legal Proceedings.
We are a party to various legal proceedings incidental to our business. Where we are able to reasonably
estimate an amount of probable loss in these matters based on known facts, we have accrued that amount as a
current liability on our balance sheet. We are not able to reasonably estimate the possible loss or range of loss in
excess of the amount accrued for these proceedings based on the information currently available to us, including,
among others, (i) uncertainties as to the outcome of pending proceedings (including motions and appeals) and (ii)
uncertainties as to the likelihood of settlement and the outcome of any negotiations with respect thereto. We do not
believe that any of these matters will, individually or in the aggregate, have a material effect on our business or
financial condition. We cannot give assurance, however, that one or more of these proceedings will not have a
material effect on our results of operations for the period in which they are resolved. At February 2, 2019 and
February 3, 2018, we estimated that the liability related to these matters was approximately $0.7 million and $0.5
million, respectively, and accordingly, we accrued $0.7 million and $0.5 million, respectively, as a current liability
in our consolidated balance sheets.
The estimates of our liability for pending and unasserted potential claims do not include litigation costs. It
is our policy to accrue legal fees when it is probable that we will have to defend against known claims or allegations
and we can reasonably estimate the amount of the anticipated expense.
- 23 -
From time to time, we enter into certain types of agreements that require us to indemnify parties against third-
party claims under certain circumstances. Generally, these agreements relate to: (a) agreements with vendors and
suppliers under which we may provide customary indemnification to our vendors and suppliers in respect to actions
they take at our request or otherwise on our behalf; (b) agreements to indemnify vendors against trademark and
copyright infringement claims concerning merchandise manufactured specifically for or on behalf of the Company; (c)
real estate leases, under which we may agree to indemnify the lessors from claims arising from our use of the property;
and (d) agreements with our directors, officers and employees, under which we may agree to indemnify such persons
for liabilities arising out of their relationship with us. We have director and officer liability insurance, which, subject to
the policy’s conditions, provides coverage for indemnification amounts payable by us with respect to our directors and
officers up to specified limits and subject to certain deductibles.
If we believe that a loss is both probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of ASC Topic 450, Contingencies. With respect to any matter, we could change our
belief as to whether a loss is probable or estimable, or its estimate of loss, at any time.
Item 4. Mine Safety Disclosures.
None.
- 24 -
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 under the symbol HIBB. As of April 2,
2019, we had 11 stockholders of record.
The graph below compares the cumulative five-year total shareholder return on our common stock with the
cumulative total returns of the NASDAQ Composite index and the NASDAQ Retail Trade index. The graph tracks
the five-year performance of a $100 investment in our common stock and in each index (with the reinvestment of all
dividends) on January 31, 2014.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hibbett Sports, Inc., the NASDAQ Composite Index
and the NASDAQ Retail Trade Index
$350
$300
$250
$200
$150
$100
$50
$0
1/14
1/15
1/16
1/17
1/18
1/19
Hibbett Sports, Inc.
NASDAQ Composite
NASDAQ Retail Trade
*$100 invested on 1/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending January 31.
1/14
1/15
1/16
1/17
1/18
1/19
Hibbett Sports, Inc.
NASDAQ Composite
NASDAQ Retail Trade
100.00
100.00
100.00
78.39
114.30
112.78
53.59
115.10
142.83
54.99
141.84
174.47
37.66
189.26
261.97
27.23
187.97
289.77
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
- 25 -
Dividend Policy
We have never declared or paid any dividends on our common stock. We currently intend to retain our future
earnings to finance the growth and development of our business and for our stock repurchase program, and therefore do
not anticipate declaring or paying cash dividends on our common stock for the foreseeable future. Any future decision
to declare or pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as our Board of Directors deems relevant.
Equity Compensation Plans
For information on securities authorized for issuance under our equity compensation plans, see “Part III, Item
12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Issuer Repurchases of Equity Securities
The following table presents our stock repurchase activity for the thirteen weeks ended February 2, 2019 (1):
Period
November 4, 2018 to December 1, 2018
December 2, 2018 to January 5, 2019
January 6, 2019 to February 2, 2019
Total
Total Number
of S hares
Purchased
3,900
-
-
3,900
Average
Price per
S hare
$
16.87
$
16.87
Total Number of
S hares
Purchased as
Part of Publicly
Announced
Programs
Approximate Dollar
Value of S hares that
may yet be
Purchased Under the
Programs (in
thousands)
3,900
-
-
3,900
$
$
$
$
188,000
188,000
188,000
188,000
(1) In November 2018, our Board authorized the continuation of our existing 2015 Stock Repurchase
Program (Program) until January 29, 2022 (Fiscal 2022). The 2015 Program had been scheduled to expire on
February 2, 2019. See Part II, Item 8. Consolidated Financial Statements Note 1, “Stock Repurchase Program.”
- 26 -
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 Supplementary
Data” and “Notes to Consolidated Financial Statements” thereto.
(In thousands, except per share amounts)
February 2,
2019
(52 weeks)
February 3,
2018
(53 weeks)
Fiscal Year Ended
January 28,
2017
(52 weeks)
January 30,
2016
(52 weeks)
January 31,
2015
(52 weeks)
$
1,008,682
679,947
328,735
$
968,219
655,502
312,717
$
972,960
634,364
338,596
$
943,104
610,389
332,715
$
913,486
586,702
326,784
264,142
27,052
37,541
(17)
37,558
9,137
28,421
$
231,832
24,207
56,678
231
56,447
21,417
35,030
$
$
$
1.72
1.71
20,347
20,450
222,785
19,047
96,764
268
96,496
35,421
61,075
$
203,673
17,038
112,004
292
111,712
41,184
70,528
$
192,648
15,990
118,146
293
117,853
44,269
73,584
$
$
$
2.75
2.72
22,240
22,427
$
$
2.95
2.92
23,947
24,129
$
$
2.90
2.87
25,369
25,620
S tatement of Operations Data:
Net sales
Cost of goods sold
Gross margin
Store operating, selling and administrative
expenses
Depreciation and amortization
Operating income
Interest (income) expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
1.52
1.51
18,644
18,826
Note: No dividends have been declared or paid.
- 27 -
(In thousands, except Other Data and Selected Store Data)
Other Data:
Net sales increase (decrease)
Comparable store sales
Gross margin (as a % to net sales)
Store operating, selling and administrative
expenses (as a % to net sales)
Depreciation and amortization (as a % to net
sales)
Provision for income taxes (as a % to net
sales)
Net income (as a % to net sales)
Balance S heet Data:
Cash and cash equivalents
Average inventory per store
Working capital
Total assets
Long-term capital lease obligations
Stockholders' investment
Treasury shares repurchased
Cost of treasury shares purchased
S elected S tore Data:
Stores open at beginning of period
Stores acquired
New stores opened
Stores closed
Stores open at end of period
Stores expanded during the period
Estimated square footage (in thousands)
February 2,
2019
(52 weeks)
February 3,
2018
(53 weeks)
Fiscal Year Ended
January 28,
2017
(52 weeks)
January 30,
2016
(52 weeks)
January 31,
2015
(52 weeks)
4.2%
2.2%
32.6%
-0.5%
-3.8%
32.3%
26.2%
23.9%
2.7%
0.9%
2.8%
2.5%
2.2%
3.6%
3.2%
0.2%
34.8%
22.9%
2.0%
3.6%
6.3%
3.2%
-0.4%
35.3%
21.6%
1.8%
4.4%
7.5%
7.2%
2.9%
35.8%
21.1%
1.8%
4.8%
8.1%
$
$
$
$
$
$
61,756
241
194,583
546,065
1,994
336,049
776
16,540
$
$
$
$
$
$
$
73,544
235
231,207
461,846
2,522
319,596
2,843
54,506
$
$
$
$
$
$
$
38,958
260
242,192
458,854
2,857
334,040
1,236
43,058
$
$
$
$
$
$
$
32,274
271
225,178
442,372
3,149
310,846
2,236
91,332
$
$
$
$
$
$
$
88,397
243
253,373
452,397
3,029
324,781
1,206
60,971
$
1,079
136
32
(84)
1,163
7
6,542
1,078
-
44
(43)
1,079
11
6,140
1,044
-
65
(31)
1,078
8
6,141
988
-
71
(15)
1,044
16
5,974
927
-
80
(19)
988
9
5,649
- 28 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As you read the MD&A, please refer to our consolidated financial statements, included in “Item 8. Financial
Statements and Supplementary Data” and “Item 6. Selected Consolidated Financial Data” of this Form 10-K. This
Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. See Part I. Item 1. “Cautionary Statement Regarding Forward-Looking Statements”
and Part I, Item 1A. “Risk Factors.”
Key Events and Recent Developments
In Fiscal 2019, we experienced key events that impacted our operations and for which we are still assessing
future impacts on our business. Included in those events are:
• The acquisition of City Gear;
• The launch of our new mobile app as well as Buy Online, Pick Up in Store (BOPIS) and Reserve in
Store (ROPIS);
• The expansion of our credit facilities to facilitate the purchase of City Gear; and
• The continuation of our Stock Repurchase Program through January 2022.
City Gear results and data are presented as of the November 4, 2018 acquisition closing date.
In addition, in Fiscal 2020, we expect to initiate a strategic realignment that will include the closure of
approximately 95 stores, while opening approximately 10 to 15 new Hibbett Sports and City Gear stores.
General Overview
Hibbett Sports, Inc. is a leading athletic-inspired fashion retailer primarily located in small and mid-sized
communities across the country. Founded in 1945, Hibbett stores have a rich history of convenient locations,
personalized customer service and access to coveted footwear, apparel and equipment from top brands like Nike,
Under Armour and Adidas. Consumers can browse styles, find new releases or shop looks by visiting their nearest
store or by visiting www.hibbett.com. Follow us @HibbettSports. We became a public company in October 1996.
As of February 2, 2019, we operated a total of 1,163 retail stores in 35 states composed of 1,007 Hibbett Sports stores,
138 City Gear stores and 18 Sports Additions athletic shoe stores.
Our Hibbett Sports stores average 5,700 square feet and are located primarily in strip centers which are
usually near a major chain retailer such as Wal-Mart. Our City Gear stores average 5,000 square feet and are located
primarily in strip centers. Our store base consisted of 876 stores located in strip centers, 33 free-standing stores and
254 enclosed mall locations as of February 2, 2019.
Hibbett operates on a 52- or 53-week fiscal year ending on the Saturday nearest to January 31 of each year.
The consolidated statements of operations for Fiscal 2019, Fiscal 2018 and Fiscal 2017 included 52 weeks, 53 weeks
and 52 weeks of operations, respectively. Fiscal 2020 will include 52 weeks of operations.
Executive Summary
Following is a highlight of our financial results over the last three fiscal years:
Net sales (in millions)
Operating income, percentage to net sales
Comparable store sales
Net income (in millions)
Net income, percentage decrease
Diluted earnings per share
Fiscal 2019
(52 weeks)
$
1,008.7
3.7%
2.2%
28.4
-18.9%
1.51
$
$
- 29 -
Fiscal 2018
(53 weeks)
$
968.2
5.9%
-3.8%
35.0
-42.6%
1.71
$
$
Fiscal 2017
(52 weeks)
$
973.0
10.0%
0.2%
61.1
-13.4%
2.72
$
$
During Fiscal 2019, Hibbett acquired 136 City Gear stores, opened 32 new stores and closed 84
underperforming stores, bringing the store base to 1,163 in 35 states as of February 2, 2019. Inventory on a per store
basis increased 2.6% compared to the prior fiscal year. Hibbett ended Fiscal 2019 with $61.8 million of available
cash and cash equivalents on the consolidated balance sheet. As of February 2, 2019, Hibbett had $35.0 million in
debt outstanding, mainly due to the acquisition of City Gear, and $65.0 million available under its unsecured credit
facilities.
Due to the 53rd week in Fiscal 2018, each quarter in Fiscal 2019 started one week later than the same quarter
in Fiscal 2018. The charts below present comparable store sales and net sales for Fiscal 2018 as originally reported and
as adjusted to represent the same 13-week period as the Fiscal 2019 quarters:
First
Quarter
Second
Quarter
Fiscal 2018
Third
Quarter
Fourth
Quarter Full Year
Comparable store sales increase (originally reported)
Comparable store sales increase (adjusted for week shift)
Impact of week shift
-4.9% -11.7% -1.3%
-4.8% -11.0% 0.3%
1.6%
0.7%
0.1%
1.6%
1.0%
-0.6%
-3.8%
-3.6%
0.2%
Net sales (originally reported)
Net sales (adjusted for week shift)
Impact of week shift
First
Quarter
Second
Quarter
Fiscal 2018
Third
Quarter
Fourth
Quarter Full Year
$
$
$
275.7
275.2
(0.5)
$
$
$
188.0
206.0
18.0
$
$
$
237.8
220.6
(17.2)
$
$
$
266.7
265.8
(0.9)
$
$
$
968.2
967.6
(0.6)
For Fiscal 2019, total company-wide square footage increased 6.6%. Our plan for Fiscal 2020 is to decrease
total company-wide square footage by approximately 7.0% as we continue to optimize our store base and maximize
return on invested capital. To supplement new store openings, we continue to expand high performing stores,
increasing the square footage in 7 existing stores in Fiscal 2019 for an average increase in square footage of 48.0%.
In Fiscal 2019, comparable store sales increased 2.2%. For Fiscal 2020, comparable store sales are expected
to be in the range of -1.0% to 1.0%. We expect overall gross margin rate to decrease in the range of 25 to 45 basis
points, driven by a lower gross margin in our City Gear stores, and a slight increase in logistics expenses as a
percentage of net sales due to increased fulfillment costs. We see an opportunity for improvement in gross margin as
we work through the City Gear integration. Store occupancy expenses are expected to be relatively flat as a percentage
of net sales.
We expect operating, selling and administrative expenses to increase in the range of 10 to 20 basis points as a
percentage of net sales in Fiscal 2020. This is primarily due to non-recurring costs related to store closures and
acquisition integration costs. We also expect to continue to generate sufficient cash to enable us to expand and remodel
our store base, to enable capital expenditures including technology upgrade projects and to repurchase our common
stock under our stock repurchase program.
As the retail environment continues to evolve, the Company is focused on improving the productivity of the
store base while continuing to grow its omni-channel business to serve customers where and when they want to
shop. As a result, subsequent to the year ended February 2, 2019, the Company has decided to close approximately
95 Hibbett stores in Fiscal 2020, while opening 10 to 15 new Hibbett and City Gear stores. This will result in non-
recurring impairment and store closure charges in the range of $0.15 to $0.20 per diluted share in Fiscal 2020.
Associates will be extended opportunities to transition to similar positions at other Hibbett stores wherever possible.
- 30 -
Comparable store sales data for the periods presented reflects sales for our traditional format Hibbett Sports
and Sports Additions stores open throughout the period and the corresponding period of the prior fiscal year, and e-
commerce sales. City Gear stores and e-commerce sales will not be presented in comparable store sales data until the
fourth quarter of Fiscal 2020. If a store remodel, relocation, or expansion results in the store being closed for a
significant period, its sales are removed from the comparable store sales base until it has been open a full 12 months.
In addition, re-branded stores will be treated as a new store and not presented in comparable store sales until they have
been open a full 12 months under the new banner.
About Non-GAAP Measures
This MD&A includes certain non-GAAP financial measures, including adjusted net income, earnings per
share, gross margin and SG&A expenses as a percentage of net sales. Management believes that non-GAAP net
income, earnings per share, gross margin and SG&A expenses as a percentage of net sales, which exclude the effects
of non-recurring expenses related to the acquisition of City Gear and our accelerated store closure plan, are useful
measures for providing more accurate comparisons of our current financial results to historical operations, forward
looking guidance and the financial results of peer companies. The non-recurring costs related to the acquisition of
City Gear include amortization of inventory step-up value and professional service fees and expenses consisting
primarily of investment banking, legal and accounting fees and expenses. In future periods, such acquisition-related
costs may include one or more of the following categories of expenses: (i) transition and integration costs, (ii)
professional service fees and expenses and (iii) acquisition-related adjustments. Future non-recurring costs related
to the accelerated store closure plan may include: (i) lease and equipment impairment costs, (ii) third party
liquidation fees, (iii) store exit costs, and (iv) residual lease costs.
While we use these non-GAAP financial measures as a tool to enhance our understanding of certain aspects
of our financial performance, our management does not consider these measures to be a substitute for, or superior to,
the information provided by GAAP financial statements. Consistent with this approach, we believe that disclosing
non-GAAP financial measures to the readers of our financial statements provides such readers with useful
supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the
review of our financial and operational performance. It should be noted as well that our non-GAAP information
may be different from the non-GAAP information provided by other companies.
Recent Accounting Pronouncements
See Note 2 of Item 8 of this Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for
information regarding recent accounting pronouncements.
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in our
consolidated statements of operations for the periods indicated.
Net sales
Cost of goods sold
Gross margin
Store operating, selling and administrative expenses
Depreciation and amortization
Operating income
Interest income (expense), net
Income before provision for income taxes
Provision for income taxes
Net income
Note: Columns may not sum due to rounding.
February 2,
2019
(52 weeks)
Fiscal Year Ended
February 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
100.0%
67.4
32.6
26.2
2.7
3.7
-
3.7
0.9
2.8%
100.0%
67.7
32.3
23.9
2.5
5.9
-
5.8
2.2
3.6%
100.0%
65.2
34.8
22.9
2.0
10.0
-
9.9
3.6
6.3%
- 31 -
Fiscal 2019 Compared to Fiscal 2018
Net sales. Net sales increased $40.5 million, or 4.2%, to $1.0 billion for Fiscal 2019 from $968.2 million
for Fiscal 2018. Furthermore:
• We acquired 136 City Gear stores, opened 32 Hibbett Sports or City Gear stores while closing 84
underperforming Hibbett Sports stores for a net addition of 84 stores in Fiscal 2019. We expanded 7
high performing stores.
• Comparable store net sales for Fiscal 2019 increased 2.2% compared to Fiscal 2018. Stores not in the
comparable store net sales calculation accounted for $97.1 million of net sales of which $49.1 million
was attributable to the acquisition of City Gear.
During Fiscal 2019, 950 stores were included in the comparable store sales comparison. Comparable store
net sales were driven by gains in footwear, activewear and cleats, offset by declines in licensed product and
equipment. Significant increases were achieved in lifestyle footwear, men’s and women’s activewear, and cleats.
Significant declines were experienced in college apparel, MLB apparel, socks, hydration, and football equipment.
In Fiscal 2019, we saw an increase in average ticket and a decrease in items per transaction.
Gross margin. Cost of goods sold includes the cost of merchandise, occupancy costs for stores, occupancy
and operating costs for our wholesale and logistics facility and ship-to-home freight. Gross margin was $328.7
million, or 32.6% of net sales, in Fiscal 2019, compared with $312.7 million, or 32.3% of net sales, in Fiscal 2018.
Furthermore:
• Merchandise gross margin increased 15 basis points as a percentage of net sales due to promotional
markdowns resulting from lower levels of aged inventory, and an approximate $0.9 million non-
recurring charge from last year related to our Team Division. This was partially offset by a higher
percentage of e-commerce sales and a non-recurring charge of approximately $1.9 million to amortize
an inventory step-up value related to the City Gear acquisition.
• Wholesale and logistics expense was relatively flat increasing two basis points as a percentage of net
sales.
• Store occupancy expense decreased 16 basis points as a percentage of net sales mainly due to the
closure of 84 lower volume stores and growth in e-commerce sales.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $264.1 million, or 26.2% of net sales, for Fiscal 2019, compared with $231.8 million, or 23.9% of net sales, for
Fiscal 2018. Furthermore:
• Total salary and benefit costs increased 70 basis points as a percentage of net sales due to increased
wages for store associates, increases in incentive compensation and health care costs, and severance
costs related to a workforce reduction.
• Expenses associated with our omni-channel initiative increased 98 basis points as a percentage of net
sales due to increased operational and marketing costs to support increased sales, and the development
and rollout of new functionality such as BOPIS, ROPIS and a new mobile app.
• Overall expenses increased 43 basis points due to non-recurring costs associated with the City Gear
acquisition and increased 30 basis points due to a $3.1 million non-recurring gain last year from the
sale of our Team Division.
• We expect overall store operating, selling and administrative expenses to increase slightly as a
percentage of net sales in Fiscal 2020 mainly due to non-recurring costs related to the integration of
City Gear.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.7% in
Fiscal 2019 and 2.5% in Fiscal 2018. In Fiscal 2019, depreciation expense increased mainly due to the
capitalization of omni-channel and other IT investments and the acceleration of depreciation for stores likely to
close. We expect depreciation expense to decline slightly as a percentage of net sales in Fiscal 2020.
- 32 -
Provision for income taxes. The combined federal, state and local effective income tax rate as a percentage
of pre-tax income was 24.3% for Fiscal 2019 and 37.9% for Fiscal 2018. The decrease in rate was primarily due to
the Tax Cuts and Jobs Act, which lowered the statutory federal income tax rate from 35% to 21%. We do not expect
major changes in our state and local income tax rates in Fiscal 2020.
Non-GAAP financial measures. The following table provides a reconciliation of our consolidated
statement of operations for the fifty-two weeks ended February 2, 2019, as reported on a GAAP basis, to a statement
of operations for the same period prepared on a non-GAAP basis. For more information regarding our non-GAAP
financial measures, see “Executive Summary – About Non-GAAP Measures” above.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands, except per share amounts)
Fifty-Two Weeks Ended February 2, 2019
Non-Recurring Costs
Net sales
Cost of goods sold
Gross margin
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
GAAP Basis
(As Reported)
$
1,008,682
679,947
328,735
264,142
27,052
37,541
(17)
37,558
9,137
28,421
$
Acquisition
Costs
$
-
1,911
1,911
4,299
-
6,210
-
6,210
(1,511)
4,699
$
S everance
Costs
$
-
-
-
289
-
289
-
289
(70)
219
$
Non-GAAP Basis
February 2,
2019
$
1,008,682
678,036
330,646
259,554
27,052
44,040
(17)
44,057
10,718
33,339
$
Basic earnings per share
Diluted earnings per share
$
$
1.52
1.51
$
$
0.25
0.25
$
$
0.01
0.01
$
$
1.79
1.77
Weighted average shares outstanding:
Basic
Diluted
18,644
18,826
18,644
18,826
18,644
18,826
18,644
18,826
Non-recurring acquisition costs represent costs incurred during the fifty-two weeks ended February 2,
2019, related to the acquisition of City Gear and consists primarily of amortization of inventory fair-market value
step-up and legal, accounting and professional fees. Non-recurring severance costs represent costs incurred during
the fifty-two weeks ended February 2, 2019, related to elimination of 30 positions to streamline operations.
Fiscal 2018 Compared to Fiscal 2017
Net sales. Net sales decreased $4.8 million, or 0.5%, to $968.2 million for Fiscal 2018 from $973.0 million
for Fiscal 2017. Furthermore:
• We opened 44 Hibbett Sports stores while closing 43 underperforming Hibbett Sports stores for net
addition of 1 store in Fiscal 2018. We expanded 11 high performing stores.
• Comparable store net sales for Fiscal 2018 decreased 3.8% compared to Fiscal 2017. Stores not in the
comparable store net sales calculation accounted for $53.4 million of net sales.
During Fiscal 2018, 968 stores were included in the comparable store sales comparison. Comparable store
net sales were driven by gains in footwear, offset by declines in apparel and equipment. Significant increases were
achieved in basketball and lifestyle footwear, while accessories, socks, hydration, college apparel, women’s
activewear and performance running footwear experienced significant declines. In Fiscal 2018, we saw an increase
in average ticket and a slight decrease in items per transaction.
- 33 -
Gross margin. Cost of goods sold included the cost of merchandise, occupancy costs for stores, occupancy
and operating costs for our wholesale and logistics facility and ship-to-home freight. Gross margin was $312.7
million, or 32.3% of net sales, in Fiscal 2018, compared with $338.6 million, or 34.8% of net sales, in Fiscal 2017.
Furthermore:
• Merchandise gross margin decreased 258 basis points as a percentage of net sales due to promotional
markdowns, the introduction of e-commerce sales and a one-time charge of approximately $0.9 million
to establish a reserve against the inventory of our Team business.
• Wholesale and logistics expense increased eight basis points as a percentage of net sales due to
increased data processing costs associated with our omni-channel initiative and increased
transportation costs.
• Store occupancy expense decreased 17 basis points as a percentage of net sales mainly due to savings
realized in utility costs resulting from cost savings initiatives.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $231.8 million, or 23.9% of net sales, for Fiscal 2018, compared with $222.8 million, or 22.9% of net sales, for
Fiscal 2017. Furthermore:
• Total salary and benefit costs increased 67 basis points as a percentage of net sales due to de-leverage
associated with lower comparable store sales and hiring to support our e-commerce business.
• Expenses associated with our omni-channel initiative increased 82 basis points as a percentage of net
sales due to the launch of our e-commerce business and on-going operational and marketing costs to
support the e-commerce business.
• Overall expenses decreased 32 basis points due to a $3.1 million one-time gain resulting from the sale
of the Company’s Team Division.
• Credit card fees decreased 21 basis points mainly due to the implementation of EMV chip technology
in our stores.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.5% of net
sales in Fiscal 2018 and 2.0% of net sales in Fiscal 2017. In Fiscal 2018, depreciation expense increased due to the
addition of new stores and the capitalization of omni-channel and other IT investments.
Provision for income taxes. The combined federal, state and local effective income tax rate as a percentage
of pre-tax income was 37.9% for Fiscal 2018 and 36.7% for Fiscal 2017. The increase in rate was primarily due to
an accounting standards change (ASU 2016-09) for stock-based compensation. This accounting standard stipulated
that the income tax effect of fluctuations in the value of stock-based awards between the grant date and vesting date
be recorded directly to income tax expense. In the past, this effect was recorded directly to equity. This change
primarily affected the first quarter of Fiscal 2018 due to timing of stock-based awards.
Liquidity and Capital Resources
Our capital requirements relate primarily to new store openings, stock repurchases, facilities and systems to
support company growth 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 credit facilities. We use excess cash on deposit to offset bank fees and to
invest in interest-bearing deposits and securities.
- 34 -
Our consolidated statements of cash flows are summarized as follows (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Operating Activities.
February 2,
2019
(52 weeks)
73,417
$
(103,871)
18,666
(11,788)
$
Fiscal Year Ended
February 3,
2018
(53 weeks)
111,926
$
(22,900)
(54,440)
34,586
$
January 28,
2017
(52 weeks)
78,675
$
(29,409)
(42,582)
6,684
$
Cash flow from operations is seasonal in our business. Typically, we use cash flow from operations to
increase inventory in advance of peak selling seasons, such as winter holidays, the spring sales period and late summer
back-to-school shopping. 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 $73.4 million for Fiscal 2019 compared with net cash provided
by operating activities of $111.9 million and $78.7 million in Fiscal 2018 and Fiscal 2017, respectively. Net cash
provided by operating activities for Fiscal 2019 compared to Fiscal 2018 and Fiscal 2017 was impacted by the
following:
• Net income provided cash of $28.4 million, $35.0 million and $61.1 million during Fiscal 2019, Fiscal
2018 and Fiscal 2017, respectively.
• Ending inventory per store increased 2.6% at February 2, 2019 and declined 9.9% at February 3, 2018,
compared to the prior year. Fiscal 2019 inventory increased on a per store basis mainly due to the
acquisition of City Gear. Fiscal 2018 inventory declined on a per store basis mainly due to vendor
returns, cancellations and markdowns taken to liquidate excess inventory. The change in inventory
provided cash of $16.8 million, $27.5 million and $2.4 million during Fiscal 2019, Fiscal 2018 and Fiscal
2017, respectively.
• The change in accounts payable used cash of $9.9 million in Fiscal 2019, provided cash of $16.4 million
in Fiscal 2018 and used cash of $11.4 million in Fiscal 2017. The decrease in Fiscal 2019 and increase in
Fiscal 2018 resulted mainly from the timing of receipts prior to our peak selling seasons.
• Non-cash charges included depreciation and amortization expense of $27.1 million, $24.2 million and
$19.0 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, and stock-based
compensation expense of $4.3 million, $3.9 million and $4.6 million during Fiscal 2019, Fiscal 2018 and
Fiscal 2017, respectively. Fluctuations in stock-based compensation generally result from the
achievement of performance-based equity awards at greater or lesser than their granted level, fluctuations
in the price of our common stock and levels of forfeitures in any given period. Depreciation expense has
increased in each fiscal year due to investments in facilities and information technology systems, and due
to accelerated depreciation taken in Fiscal 2019 resulting from an increase in store closures. Depreciation
is expected to decline slightly in Fiscal 2020.
Investing Activities.
Cash used in investing activities in Fiscal 2019, Fiscal 2018 and Fiscal 2017 totaled $103.9 million, $22.9
million and $29.4 million, respectively. The increase in Fiscal 2019 over previous years was due to the investment in
City Gear of $86.8 million. Gross capital expenditures used $17.7 million, $23.1 million and $29.7 million during
Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Capital expenditures in all periods primarily consisted of new
stores, relocations, remodels and expansions of existing stores and IT projects.
We acquired 136 stores through the acquisition of City Gear in the fourth quarter of Fiscal 2019. In addition,
we opened 32 new stores and expanded and/or relocated 10 existing stores in Fiscal 2019. We opened 44 new stores,
expanded 11 existing stores and relocated and/or remodeled six additional existing stores during Fiscal 2018. We
opened 65 new stores, expanded eight existing stores and relocated and/or remodeled two additional existing stores
during Fiscal 2017.
- 35 -
We estimate the cash outlay for capital expenditures in the fiscal year ending February 1, 2020 will be
approximately $18.0 million to $22.0 million, which relates to expenditures for:
• The opening of new stores, the remodeling, relocation or expansion of selected existing stores;
•
• Other departmental needs.
Information system infrastructure, projects, upgrades and security (including City Gear integration); and
Of the total budgeted dollars for capital expenditures for Fiscal 2020, we anticipate that approximately 51%
will be related to the opening new stores, store expansions and relocations and store remodels. Approximately 30%
will be related to information technology, consisting primarily of expenditures for projects and software, City Gear
integration, omni-channel, infrastructure and various system enhancements, upgrades and security. The remaining 19%
relates primarily to specific department expenditures and includes facility upgrades, transportation equipment,
automobiles, fixtures and security equipment for our stores.
Financing Activities.
Net cash provided by financing activities was $18.7 million in Fiscal 2019 and net cash used in financing
activities was $54.4 million and $42.6 million in Fiscal 2018 and Fiscal 2017, respectively. In Fiscal 2019, net cash
provided by financing activities resulted from borrowings against our credit facilities to facilitate the acquisition of City
Gear. Historically, the fluctuation in financing activity between years is primarily the result of repurchases of our
common stock. We expended $16.5 million, $54.5 million and $43.1 million on repurchases of our common stock
during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, which included cash used to settle net share equity
awards of $0.4 million, $0.7 million and $0.9 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
Financing activities also consisted of proceeds from stock option exercises and employee stock plan
purchases. As stock options are exercised and shares are purchased through our employee stock purchase plan, we will
continue to receive proceeds and expect a tax deduction; however, the amounts and timing cannot be predicted.
At February 2, 2019, we had two unsecured credit facilities that allow borrowings up to $50.0 million each,
and which expire in October 2021. Under the provisions of both facilities, we do not pay commitment fees.
However, both are subject to negative pledge agreements that, among other things, restrict liens or transfers of assets
including inventory, tangible or intangible personal property and land and land improvements. We plan to renew
these facilities as they expire and do not anticipate any problems in doing so; however, no assurance can be given
that we will be granted a renewal or terms which are acceptable to us. As of February 2, 2019, a total of $65.0
million was available to us from these facilities.
The following table lists the aggregate maturities of various classes of obligations and expiration amounts
of various classes of commitments related to Hibbett Sports, Inc. at February 2, 2019 (in thousands):
Contractual Obligations
Long-term debt obligations
Credit facilities
Capital lease obligations (1)
Interest on capital lease obligations (1)
Operating lease obligations (1)
Purchase obligations (2)
Other liabilities (3)
Total
Payment due by period
Less than 1
year
-
$
35,000
1,017
242
68,002
8,920
242
113,423
$
1 - 3 years
-
$
-
1,148
244
105,349
7,337
9,200
123,278
$
3 - 5 years
-
$
-
634
90
56,437
3,041
-
60,202
$
More than
5 years
-
$
-
212
5
40,181
-
2,540
42,938
$
Total
$
-
35,000
3,011
581
269,969
19,298
11,982
339,841
$
(1) See “Part II, Item 8, Consolidated Financial Statements. Note 7 – Leases.”
- 36 -
(2) Purchase obligations include all material legally binding contracts such as software license commitments and
service contracts. The table above also includes a stand-by letter of credit in conjunction with our self-
insured workers’ compensation and general liability insurance coverage. Contractual obligations that are not
binding agreements, including purchase orders for inventory, are excluded from the table above. Store utility
contracts, including waste disposal agreements, are also excluded.
(3) Other liabilities include amounts accrued for various deferred compensation arrangements and contingent
earnouts related to the City Gear acquisition. See “Part II, Item 8, Consolidated Financial Statements. Note 8
– Defined Contribution Benefit Plans” for a discussion regarding our employee benefit plans.
Non-current liabilities have been excluded from the above table to the extent that the timing and/or amount of
any cash payment are uncertain. Excluded from this table are approximately $1.2 million of unrecognized tax
benefits, which have been recorded as liabilities in accordance with ASC Topic 740, Income Taxes, as the
timing of such payments cannot be reasonably determined. See “Part II, Item 8, Consolidated Financial
Statements Note 1 – Deferred Rent” for a discussion on our deferred rent liabilities. See “Part II, Item 8,
Consolidated Financial Statements. Note 10 – Income Taxes” for a discussion of our unrecognized tax
benefits.
Off-Balance Sheet Arrangements
We have not provided any financial guarantees through February 2, 2019. 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 imported merchandise on a profitable basis may be subject to political and
economic factors and influences that we cannot control. National or international events, including changes in
government trade or other policies, could increase our merchandise costs and other costs that are critical to our
operations. Consumer spending could also decline because of economic pressures. See “Risk Factors.”
We do not believe that inflation has had a material impact on our financial position or results of operations
to date. A high rate of inflation or other increases in the cost of conducting our business in the future may have an
adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative
expenses as a percentage of net sales if the selling prices of our merchandise do not increase with these increased
costs.
Our Critical Accounting Policies
Our critical accounting policies reflected in the consolidated financial statements are detailed below.
Revenue Recognition. We recognize revenue in accordance with Accounting Standards Codification
(ASC) Topic 606, Revenue from Contracts with Customers, when control of the merchandise is transferred to our
customer. Sales are recorded net of expected returns at the time the customer takes possession of the merchandise.
Net sales exclude sales taxes because we are a pass-through conduit for collecting and remitting these taxes.
Retail Store Sales: For merchandise sold in our stores, revenue is recognized at the point of sale when
tender is accepted and the customer takes possession of the merchandise.
Retail Store Orders: Retail store customers may order merchandise available in other retail store locations
for pickup in the selling store at a later date. Customers make a deposit with the remaining balance due at pickup.
These deposits are recorded as deferred revenue until the transaction is completed and the customer takes possession
of the merchandise. Retail store customers may also order merchandise to be shipped to home. Payment is received
in full at the time of order and recorded as deferred revenue until delivery.
- 37 -
Layaways: Some of our stores offer a retail store program giving customers the option of paying a deposit
and placing merchandise on layaway. The customer may make further payments in installments, but the full
purchase price must be received by us within 30 days. The payments are recorded as deferred revenue until the
transaction is completed and the customer takes possession of the merchandise.
Digital Channel Sales: For merchandise shipped to home, customer payment is received when the order
ships. Revenue is deferred until control passes to the customer at delivery. Shipping and handling costs billed to
customers are included in net sales.
Customer Loyalty Programs: We offer two customer loyalty programs; the Hibbett Rewards program and
the City Gear Reward Points program. Upon registration and in accordance with the terms of the programs,
customers earn points on certain purchases. Points convert into rewards at defined thresholds. The short-term future
performance obligation liability is estimated at each reporting period based on historical conversion and redemption
patterns. The liability is included in other accrued expenses on our consolidated balance sheets and was $2.2 million
and $0.2 million at February 2, 2019 and February 3, 2018, respectively.
Gift Cards: Proceeds received from the issuance of our non-expiring 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 in accounts payable on our consolidated balance
sheet.
The net deferred revenue liability for gift cards, customer orders and layaways at February 2, 2019 and
February 3, 2018 was $7.5 million and $6.2 million, respectively, recognized in accounts payable on our
consolidated balance sheets. In Fiscal 2019, gift card breakage income was recognized in net sales in proportion to
the redemption pattern of rights exercised by the customer and was $0.6 million. During Fiscal 2018 and Fiscal
2017, income from unredeemed gift cards was recognized on our consolidated statements of operations as a
reduction to store operating, selling and administrative expenses when the likelihood of redemption was deemed
remote. Gift card breakage was not material in Fiscal 2018 or Fiscal 2017.
During the fiscal year ended February 2, 2019, $2.1 million of gift card deferred revenue from prior periods
was realized.
Return Sales: The liability for return sales is estimated at each reporting period based on historical return
patterns and is recognized at the transaction price. The liability is included in accounts payable on our consolidated
balance sheets. We also recognize a return asset and a corresponding adjustment to cost of goods sold for our right
to recover the merchandise returned by the customer. This right to recover the asset is included in net inventory on
our consolidated balance sheet at the former carrying value of the merchandise less any expected recovery costs
which was $0.8 million at February 2, 2019.
Inventories. Inventories are valued using the lower of weighted average cost or net realizable value
method. Items are removed from inventory using the weighted average cost method.
Lower of Cost and Net Realizable Value: We regularly review inventories to determine if the carrying
value exceeds net realizable value, and we record an accrual to reduce the carrying value to net realizable value as
necessary. We account for obsolescence as part of our lower of cost and net realizable value accrual based on
historical trends and specific identification. As of February 2, 2019 and February 3, 2018, the accrual was $4.5
million and $5.2 million, respectively. A determination of net realizable value requires significant judgment.
Shrink Reserves: We accrue for inventory shrinkage based on the actual historical results of our physical
inventory counts. These estimates are compared to actual results as physical inventory counts are performed and
reconciled to the general ledger. Physical inventory counts are performed on a cyclical basis. As of February 2,
2019 and February 3, 2018, the accrual was $1.6 million and $1.4 million, respectively.
- 38 -
Inventory Purchase Concentration: Our business is dependent to a significant degree upon close
relationships with our vendors. Our largest vendor, Nike, represented 65.4%, 57.9% and 57.0% of our purchases for
Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Our second largest vendor, adidas, represented 10.0%,
11.0% and 5.5% of our purchases for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Our third largest
vendor, Under Armour, represented 5.7%, 10.8% and 16.4% of our purchases for Fiscal 2019, Fiscal 2018 and
Fiscal 2017, respectively.
Income Taxes. We estimate the annual tax rate based on projected taxable income for the full year and
record a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we
refine the estimates of the year’s taxable income as new information becomes available, including year-to-date
financial results. This continual estimation process often results in a change to our expected effective tax rate for the
year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate
occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment is required in
determining our effective tax rate and in evaluating our tax position and changes in estimates could materially
impact our results of operations and financial position.
We account for uncertain tax positions in accordance with ASC Subtopic 740-10. The application of
income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.
As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures.
Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in
our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance
sheets and statements of operations. See “Part II, Item 8, Consolidated Financial Statements Note 10 – Income
Taxes” for additional detail on our uncertain tax positions.
Goodwill and Indefinite-Lived Intangible Assets. Goodwill and the City Gear tradename are indefinite-
lived assets which are not amortized but rather tested for impairment at least annually, or on an interim basis if
events and circumstances have occurred that indicate that is more likely than not that an asset is impaired. Such
events or circumstances could include, but are not limited to, significant negative industry or economic trends,
unanticipated changes in the competitive environment and a significant sustained decline in the market price of our
stock. If it is more likely than not that an asset is impaired, the amount that the carrying value exceeds the fair value
is recorded as an impairment charge to current income. No impairment of these assets existed as of February 2,
2019.
Long-Lived Assets. We continually evaluate whether events and circumstances have occurred that indicate
the carrying amount of long-lived assets may be may not be recoverable. If circumstances require a long-lived asset
or asset group be tested for possible impairment, our policy is to first compare undiscounted cash flows expected to
be generated by that asset or asset group over its remaining life to its carrying amount. If the carrying amount of the
long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is
recognized as a charge to current income to the extent that the carrying amount exceeds its fair value. Fair value is
determined through various valuation techniques including discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary. Assets or asset groups to be disposed of are reported at
the lower of their carrying value or fair value less any costs of disposition. Evaluation of asset impairment requires
significant judgment.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Investment and Credit Availability Risk
We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per
institution, and we may purchase investments not guaranteed by the FDIC. Accordingly, there is a risk that we will
not recover the full principal of our investments or that their liquidity may be diminished. In an attempt to mitigate
this risk, our investment policy emphasizes preservation of principal and liquidity.
We also have financial institutions that are committed to provide loans under our credit facilities. There is
a risk that these institutions cannot deliver against these obligations. See “Risk Factors.”
- 39 -
Interest Rate Risk
Our net exposure to interest rate risk results primarily from interest rate fluctuations on our credit facilities,
which bears interest at a rate which varies with LIBOR, prime or federal funds rates. At the end of Fiscal 2019, we
had $35.0 million outstanding on our credit facilities. At the end of Fiscal 2018, we had no borrowings outstanding
under any credit facility. A 125-basis point increase or decrease in the interest rate on borrowings under our credit
facilities would not result in a material impact to our results of operations at current borrowing levels.
There were 95 days during the 52 weeks ended February 2, 2019, where we incurred borrowings against
our credit facilities for an average and maximum borrowing of $45.4 million and $75.0 million, respectively, and an
average interest rate of 3.7%.
There were seven days during the 53 weeks ended February 3, 2018, where we incurred borrowings against
our credit facilities for an average and maximum borrowing of $4.1 million and $4.9 million, respectively, and an
average interest rate of 2.78%.
Quarterly and Seasonal Fluctuations
We experience seasonal fluctuations in our net sales and results of operations. We typically experience
higher net sales in early spring due to spring sports and annual tax refunds, late summer due to back-to-school
shopping and winter due to holiday shopping. In addition, our quarterly results of operations may fluctuate
significantly as a result of a variety of factors, including the timing of new store openings, the amount and timing of
net sales contributed by new stores, weather fluctuations, merchandise mix, demand for merchandise driven by local
interest in sporting events, and the timing of sales tax holidays and annual income tax refunds.
Although our operations are influenced by general economic conditions, we do not believe that, historically,
inflation has had a material impact on our results of operations as we are generally able to pass along inflationary
increases in costs to our customers. See “Inflation and Other Economic Factors” above.
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 2, 2019 and February 3, 2018
• Consolidated Statements of Operations for the fiscal years ended February 2, 2019, February
3, 2018 and January 28, 2017
• Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2019, February
3, 2018 and January 28, 2017
• Consolidated Statements of Stockholders’ Investment for the fiscal years ended February 2,
2019, February 3, 2018 and January 28, 2017
• Notes to Consolidated Financial Statements
All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
- 40 -
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Hibbett Sports, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hibbett Sports, Inc. and subsidiaries (the
Company) as of February 2, 2019 and February 3, 2018, the related consolidated statements of operations,
stockholders’ investment, and cash flows for each of the fiscal years in the three-year period ended February 2, 2019
and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s
internal control over financial reporting as of February 2, 2019, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of February 2, 2019 and February 3, 2018, and the results of its operations and
its cash flows for each of the fiscal years in the three-year period ended February 2, 2019, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of February 2, 2019, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
The Company acquired City Gear, LLC (City Gear) during fiscal year 2019, and management excluded from its
assessment of the effectiveness of the Company’s internal control over financial reporting as of February 2, 2019,
City Gear’s internal control over financial reporting associated with total assets of $123.8 million and net sales of
$49.1 million included in the consolidated financial statements of the Company as of and for the fiscal year ended
February 2, 2019. Our audit of internal control over financial reporting of the Company also excluded an evaluation
of the internal control over financial reporting of City Gear.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
- 41 -
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Birmingham, Alabama
April 18, 2019
- 42 -
Hibbett Sports, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share information)
ASSETS
Fe bruary 2, 2019
Fe bruary 3, 2018
Current Assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses and other
T otal current assets
Property and equipment, net
Goodwill
T rade name intangible asset
Deferred income taxes, net
Other assets, net
T otal Assets
LIABILITIES AND STO C KHO LDERS' INVESTMENT
Current Liabilities:
Accounts payable
Credit facilities
Capital lease obligations
Accrued payroll expenses
Deferred rent
Other accrued expenses
T otal current liabilities
Capital lease obligations
Deferred rent
Unrecognized tax benefits
Other liabilities
T otal liabilities
$
61,756
9,470
280,287
16,343
367,856
$
73,544
6,599
253,201
13,430
346,774
115,394
109,698
23,133
32,400
2,278
5,004
546,065
$
-
-
2,176
3,198
461,846
$
$
107,315
35,000
1,017
13,929
5,838
10,174
173,273
$
93,435
-
663
10,424
5,909
5,136
115,567
1,994
19,522
1,401
13,826
210,016
2,522
20,291
1,294
2,576
142,250
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,
38,983,232 and 38,862,929 shares issued at February 2, 2019 and
February 3, 2018, respectively
Paid-in capital
Retained earnings
T reasury stock, at cost, 20,686,242 and 19,910,291 shares repurchased
at February 2, 2019 and February 3, 2018, respectively
T otal stockholders' investment
T otal Liabilities and Stockholders' Investment
-
-
390
185,752
759,677
389
180,536
731,901
(609,770)
336,049
546,065
$
(593,230)
319,596
461,846
$
See accompanying notes to consolidated financial statements.
- 43 -
Hibbett Sports, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share information)
Net sales
Cost of goods sold
Gross margin
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
Provision for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Weighted average shares outstanding:
Basic
Diluted
February 2, 2019
(52 weeks)
$
1,008,682
679,947
328,735
Fiscal Year Ended
February 3, 2018
(53 weeks)
$
968,219
655,502
312,717
January 28, 2017
(52 weeks)
$
972,960
634,364
338,596
264,142
27,052
37,541
731
(714)
17
37,558
231,832
24,207
56,678
39
(270)
(231)
56,447
222,785
19,047
96,764
24
(292)
(268)
96,496
$
9,137
28,421
$
21,417
35,030
$
35,421
61,075
$
$
1.52
1.51
$
$
1.72
1.71
$
$
2.75
2.72
18,644
18,826
20,347
20,450
22,240
22,427
See accompanying notes to consolidated financial statements.
- 44 -
Hibbett Sports, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of inventory step-up
Deferred income taxes and unrecognized income tax benefit,
net
Loss on disposal and write-down of assets, net
Stock-based compensation
Other non-cash adjustments
Changes in operating assets and liabilities:
Receivables, net
Inventories, net
Prepaid expenses and other
Other assets
Accounts payable
Deferred rent
Accrued expenses and other
Net cash provided by operating activities
Cash Flows From Investing Activities:
Capital expenditures
Acquisition of City Gear
Proceeds from sale of property and equipment
Other
Net cash used in investing activities
Cash Flows From Financing Activities:
Cash used for stock repurchases
Borrowings under credit facilities, net
Payments on capital lease obligations
Excess tax benefit from stock option exercises
Cash used to settle net share equity awards
Proceeds from options exercised and purchase of shares under
the employee stock purchase plan
Net cash provided by (used in) financing activities
Fe bruary 2,
2019
(52 weeks)
Fiscal Ye ar Ende d
Fe bruary 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
$
28,421
$
35,030
$
61,075
27,052
1,911
244
940
4,316
(104)
1,422
16,804
(501)
(162)
(9,927)
(839)
3,840
73,417
(17,696)
(86,837)
330
332
(103,871)
(16,124)
35,000
(695)
-
(416)
901
18,666
24,207
-
3,488
597
3,880
-
2,303
27,500
(3,074)
185
16,389
(514)
1,935
111,926
(23,081)
-
288
(107)
(22,900)
(53,794)
-
(601)
-
(712)
667
(54,440)
19,047
-
1,418
238
4,592
(99)
(1,826)
2,398
(1,712)
351
(11,410)
3,623
980
78,675
(29,733)
-
154
170
(29,409)
(42,115)
-
(485)
99
(943)
862
(42,582)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(11,788)
73,544
61,756
$
34,586
38,958
73,544
$
6,684
32,274
38,958
$
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest
Income taxes, net of refunds
$
723
$
261
$
285
$
8,261
$
15,104
$
35,057
Supplemental Schedule of Non-Cash Activities:
Property and equipment additions under capital leases
$
773
$
352
$
342
See accompanying notes to consolidated financial statements.
- 45 -
Hibbett Sports, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Investment
(in thousands)
C ommon Stock
Tre asury Stock
Re taine d
Earnings
636,583
$
61,075
Numbe r of
Share s
15,832
-
Balance -January 30, 2016
Net income
Issuance of shares through the
Company's equity plans
Adjustment to income tax benefit
from exercises of employee stock
options
Purchase of shares under the
stock repurchase program
Settlement of net share equity
awards
Stock-based compensation
Balance -January 28, 2017
Net income
Issuance of shares through the
Company's equity plans
Adjustment for adoption of
accounting standard
Purchase of shares under the
stock repurchase program
Settlement of net share equity
awards
Stock-based compensation
Balance -Fe bruary 3, 2018
Net income
Issuance of shares through the
Company's equity plans
Adjustment for adoption of
accounting standard
Purchase of shares under the
stock repurchase program
Settlement of net share equity
awards
Stock-based compensation
Balance -Fe bruary 2, 2019
Numbe r of
Share s
38,628
-
Amount
386
$
-
111
1
-
-
-
-
38,739
-
124
-
-
-
-
38,863
-
120
-
-
-
-
-
-
387
-
2
-
-
-
-
389
-
1
-
-
Paid-In
C apital
$
169,543
-
960
(376)
-
-
4,592
174,719
-
665
-
-
3,880
180,536
-
900
-
-
-
-
38,983
-
-
390
$
-
4,316
185,752
$
-
-
-
-
-
697,658
35,030
-
-
-
-
731,901
28,421
-
(645)
-
-
-
$
759,677
1,272
(787)
Total
Stockholde rs'
Inve stme nt
310,846
$
61,075
961
(376)
Amount
$
(495,666)
-
-
-
-
-
1,209
(42,115)
(42,115)
26
-
17,067
-
-
-
(943)
-
(538,724)
-
-
-
(943)
4,592
334,040
35,030
667
485
2,818
(53,794)
(53,794)
25
-
19,910
-
-
-
(712)
-
(593,230)
-
-
-
(712)
3,880
319,596
28,421
901
(645)
757
(16,124)
(16,124)
19
-
20,686
(416)
-
$
(609,770)
(416)
4,316
336,049
$
See accompanying notes to consolidated financial statements.
- 46 -
Hibbett Sports, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Summary of Critical and Significant Accounting Policies
Business
Hibbett Sports, Inc. is a leading athletic-inspired fashion retailer primarily located in small and mid-sized
communities across the country. References to “we,” “our,” “us”, “Hibbett” and the “Company” refer to Hibbett
Sports, Inc. and its subsidiaries as well as its predecessors. Our fiscal year ends on the Saturday closest to January
31 of each year. The consolidated statements of operations for Fiscal 2019, Fiscal 2018 and Fiscal 2017 include 52
weeks, 53 week and 52 weeks of operations, respectively. Our merchandise assortment features a core selection of
brand name merchandise emphasizing athletic footwear, athletic and fashion apparel, team sports equipment and
related accessories. We complement this core assortment with a selection of localized footwear, apparel and
accessories designed to appeal to a wide range of customers within each market.
Acquisition
We acquired City Gear, LLC (City Gear) on November 5, 2018 with an effective date of November 4, 2018
for approximately $88.0 million, including $86.8 million of cash paid. (See Note 3 – Acquisition)
Principles of Consolidation
The consolidated financial statements of our Company include its accounts and the accounts of all wholly-
owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Occasionally, certain reclassifications are made to conform previously reported data to the current presentation.
Such reclassifications have no impact on total assets, total liabilities, net income or stockholders’ investment in any
of the years presented.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted
Accounting Principles (U.S. GAAP) requires management to make certain estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses, and the disclosure of intangible assets and
intangible and contingent liabilities at the date of the financial statements. We believe our estimates are reasonable;
however, the assumptions used by management could change significantly in future estimates due to changes in
circumstances and actual results could differ materially from those estimates.
Reportable Segments
Hibbett Sports, Inc., through its subsidiaries, is a leading athletic-inspired fashion retailer with more than
1,100 stores operating under the Hibbett Sporting Goods and City Gear banners and an omni-channel platform. We
identify our operating segments according to how our business activities are managed and evaluated by our chief
executive officer who is our chief operating decision maker. Our shopping channels primarily include store
locations and websites or apps. Store sales are primarily filled from the store’s inventory but may also be shipped
from a different store location or our logistics network if an item is not available at the original store. Direct-to-
consumer orders are generally shipped to our customers from a store, our logistics network or some combination
thereof depending on the availability of the desired item.
Given the economic similarity of the store formats, the products offered for sale, the type of customers, the
methods of distribution and how our Company is managed, our operations constitute only one reportable segment.
- 47 -
Vendor Arrangements
We enter into arrangements with some of our vendors that entitle us to a partial refund of the cost of
merchandise purchased during the year or reimbursement of certain costs we incur to advertise or otherwise promote
their product. Volume-based rebates, supported by vendor agreements, are estimated throughout the year and
reduce the cost of inventories and cost of goods sold during the year. This estimate is regularly monitored and
adjusted for current or anticipated changes in purchase levels and for sales activity.
We also receive consideration from vendors through a variety of other programs, including markdown
reimbursements, vendor compliance charges and defective merchandise credits. If the payment is a reimbursement
for costs incurred, it is recognized as an offset against those related costs; otherwise, it is treated as a reduction to the
cost of merchandise. Markdown reimbursements related to merchandise that has been sold are negotiated by our
merchandising teams and are credited directly to cost of goods sold in the period received. If vendor funds are
received prior to merchandise being sold, they are recorded as a reduction of merchandise cost. Vendor compliance
charges and defective merchandise credits reduce the cost of inventories.
Marketing
We expense marketing costs when incurred. We participate in various marketing cooperative programs
with our vendors, who, under these programs, reimburse us for certain costs incurred. A receivable for cooperative
marketing to be reimbursed is recorded as a decrease to expense as advertisements are run.
The following table presents the components of our marketing expense (in thousands):
February 2,
2019
(52 weeks)
Fiscal Year Ended
February 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
Gross marketing costs
M arketing reimbursements
Net marketing costs
Cost of Goods Sold
$
$
$
17,608
(2,850)
14,758
13,356
(3,010)
10,346
10,382
(3,319)
7,063
$
$
$
We include merchandise costs, store occupancy costs, logistics-related occupancy and operating costs and
ship-to-home freight in cost of goods sold.
Stock Repurchase Program
In November 2018, our Board authorized the continuation of our existing Stock Repurchase Program (2018
Program) established in November 2015 (2015 Program) until January 29, 2022. The Program authorizes
repurchases of our common stock in open market or negotiated transactions, with the amount and timing of
repurchases dependent on market conditions and at the discretion of our management. In addition to the 2018
Program, we also acquire shares of our common stock from holders of restricted stock unit awards to satisfy tax
withholding requirements due at vesting.
Under the 2015 Program, the Board of Directors authorized up to $300.0 million to repurchase our
common stock through February 2, 2019. The 2015 Program replaced an existing plan that was adopted in
November 2012 (2012 Program).
Under the 2018 Program and 2015 Program, we repurchased 0.8 million shares of our common stock
during Fiscal 2019 at a cost of $16.5 million, including 18,765 shares acquired from holders of restricted stock to
satisfy tax withholding requirements of $0.4 million. Under the 2015 Program, we repurchased 2.8 million shares of
our common stock during Fiscal 2018 at a cost of $54.5 million, including 24,432 shares acquired from holders of
restricted stock to satisfy tax withholding requirements of $0.7 million.
- 48 -
Historically, under all stock repurchase authorizations, we have repurchased a total of 20.7 million shares
of our common stock at an approximate cost of $609.8 million as of February 2, 2019 and had approximately $188.0
million remaining under the 2018 Program for stock repurchases. Shares acquired from holders of restricted stock
unit awards to satisfy tax withholding requirements do not reduce the authorization.
Cash and Cash Equivalents
We consider all short-term, highly liquid investments with original maturities of 90 days or less, including
commercial paper and money market funds, to be cash equivalents. 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 2, 2019 and February 3, 2018 were $5.5 million and $3.9 million, respectively.
Investments
We hold certain trading securities as investments in trust for the Hibbett Sports, Inc. Supplemental 401(k)
Plan (Supplemental Plan) and the Hibbett Sports, Inc. Executive Voluntary Deferral Plan (Deferral Plan). At
February 2, 2019, we had $2.5 million of investments of which $0.1 million was included in prepaid expenses and
other and $2.4 million was included in other assets, net. At February 3, 2018, we had $2.9 million of investments of
which $0.5 million was included in prepaid expenses and other and $2.4 million was included in other assets, net.
Net unrealized holding losses for Fiscal 2019 were $0.3 million and net unrealized holding gains for Fiscal 2018
were $0.3 million.
Purchase Price Allocation
For the City Gear acquisition, we allocated the purchase price to the various tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values, which are preliminary as of February 2, 2019.
Determining the fair value of certain assets and liabilities is subjective in nature and often involves the use of
significant estimates and assumptions, which are inherently uncertain. We engaged third party experts to assist in
the determination of fair value for complex assets and liabilities. Many of these estimates and assumptions used to
determine fair value, such as those used for intangible assets are made based on forecasted information and discount
rates. In addition, the judgments made in determining the estimated fair value assigned to each class of assets
acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.
The final purchase price allocation will be completed after asset and liability valuations are finalized. This
final valuation will be based on the actual assets and liabilities of City Gear that exist as of the acquisition date and
goodwill may be different than the balance reflected in the consolidated balance sheet. Any final adjustments may
change the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and
could result in significant changes to the consolidated financial data.
Goodwill represents the excess of the actual purchase price of City Gear over the estimated fair value of
City Gear’s net assets as of the date of acquisition. The computations require management to make estimates and
assumptions.
Intangible assets consist of trademarks and below-market leases resulting from the acquisition of City Gear.
The fair value of trademarks was determined using the “income approach”, which requires a forecast of all expected
future cash flows. The fair value of the below-market lease intangible was measured based on the present value of
the difference between the contractual amounts to be paid pursuant to the lease and an estimate of current fair
market lease rates measured over the non-cancelable remaining term of the lease. Amortization of the acquired
below-market lease intangible is recognized as amortization expense within the consolidated statement of
operations.
Intangible liabilities consist of above-market leases resulting from the acquisition of City Gear. The fair
value of the above-market lease intangible was measured based on the present value of the difference between the
contractual amounts to be paid pursuant to the lease and an estimate of current fair market lease rates measured over
the non-cancelable remaining term of the lease. Amortization of the acquired above-market lease intangible is
recognized as amortization expense within the consolidated statement of operations.
- 49 -
The below-market and above-market lease intangibles consist of short-term and long-term portions. Their
presentation on the consolidated balance sheet and balance (in thousands) as of February 2, 2019 are as follows:
Account
Short-term below-market lease intangible Current asset
Balance Sheet Presentation
Long-term below-market lease intangible Non-current asset
Short-term above-market lease intangible Current liability
Long-term above-market lease intangible Non-current liability
The net amortization recognized in Fiscal 2019 was immaterial.
Receivables
Prepaid expenses and
other
Other assets, net
Other accrued expenses
Other liabilities
Balance
2/2/2019
$320
$1,201
$605
$1,966
Receivables consist primarily of tenant allowances due from landlords and cooperative marketing and other
amounts due from vendors. We analyze receivables for collectability based on aging of individual components,
underlying contractual terms and economic conditions. Recorded amounts are deemed to be collectible.
Inventories
Inventories are valued using the lower of weighted average cost or net realizable value method. Items are
removed from inventory using the weighted average cost method.
Lower of Cost and Net Realizable Value: We regularly review inventories to determine if the carrying
value exceeds net realizable value, and we record an accrual to reduce the carrying value to net realizable value as
necessary. We account for obsolescence as part of our lower of cost and net realizable value accrual based on
historical trends and specific identification. As of February 2, 2019 and February 3, 2018, the accrual was $4.5
million and $5.2 million, respectively. A determination of net realizable value requires significant judgment.
Shrink Reserves: We accrue for inventory shrinkage based on the actual historical results of our physical
inventory counts. These estimates are compared to actual results as physical inventory counts are performed and
reconciled to the general ledger. Physical inventory counts are performed on a cyclical basis. As of February 2,
2019 and February 3, 2018, the accrual was $1.6 million and $1.4 million, respectively.
Inventory Purchase Concentration: Our business is dependent to a significant degree upon close
relationships with our vendors. Our largest vendor, Nike, represented 65.4%, 57.9% and 57.0% of our purchases for
Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Our second largest vendor, adidas, represented 10.0%,
11.0% and 5.5% of our purchases for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Our third largest
vendor, Under Armour, represented 5.7%, 10.8% and 16.4% of our purchases for Fiscal 2019, Fiscal 2018 and
Fiscal 2017, respectively.
- 50 -
Property and Equipment
Property and equipment are recorded at cost and include assets acquired through capital leases. Property
and equipment as of February 2, 2019 and February 3, 2018 consists of the following (in thousands):
Land
Buildings
Buildings under capital lease
Equipment
Equipment under capital lease
Automobiles under capital lease
Furniture and fixtures
Leasehold improvements
Construction in progress
Total property and equipment
Less: accumulated depreciation and amortization
Total property and equipment, net
Fe bruary 2,
2019
$
Fe bruary 3,
2018
$
7,277
21,311
3,363
96,402
678
1,829
36,980
101,572
2,080
271,492
156,098
115,394
7,277
21,311
3,652
93,163
-
1,702
34,892
91,218
4,795
258,010
148,312
109,698
$
$
Depreciation on property and equipment is principally provided using the straight-line method over the
following estimated service lives:
Buildings
Leasehold improvements
Furniture and fixtures
Equipment
39 years
3 – 10 years
7 years
3 – 7 years
In the case of leasehold improvements, we calculate depreciation using the shorter of the term of the
underlying leases or the estimated economic lives of the improvements. The term of the lease includes renewal
option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to
exercise such option would result in an economic penalty. We continually reassess the remaining useful life of
leasehold improvements in light of store closing plans.
Construction in progress has historically been comprised primarily of property and equipment related to
unopened stores and amounts associated with technology upgrades at period-end. At February 2, 2019,
approximately 69% of the construction in progress balance was comprised of costs associated with stores. The
remaining balance consisted of costs associated with our technology initiatives.
Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of
assets sold, retired or otherwise disposed of are removed from property and equipment and the related gain or loss is
credited or charged to net income, net of proceeds received.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and the City Gear tradename are indefinite-lived assets which are not amortized but rather tested
for impairment at least annually, or on an interim basis if events and circumstances have occurred that indicate that
is more likely than not that an asset is impaired. Such events or circumstances could include, but are not limited to,
significant negative industry or economic trends, unanticipated changes in the competitive environment and a
significant sustained decline in the market price of our stock. If it is more likely than not that an asset is impaired,
the amount that the carrying value exceeds the fair value is recorded as an impairment charge to current income. No
impairment of these assets existed as of February 2, 2019.
- 51 -
Long-Lived Assets
We continually evaluate whether events and circumstances have occurred that indicate the carrying amount
of long-lived assets may be may not be recoverable. If circumstances require a long-lived asset or asset group be
tested for possible impairment, our policy is to first compare undiscounted cash flows expected to be generated by
that asset or asset group over its remaining life to its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized as a charge to
current income to the extent that the carrying amount exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow models, quoted market values and third-party
independent appraisals, as considered necessary. Assets or asset groups to be disposed of are reported at the lower
of their carrying value or fair value less any costs of disposition. Evaluation of asset impairment requires significant
judgment.
Capitalized Interest
We capitalize interest on borrowed funds during the construction of certain property and equipment. No
interest costs were capitalized in Fiscal 2019, Fiscal 2018 or Fiscal 2017.
Deferred Rent
Deferred rent primarily consists of step rent and allowances from landlords related to our leased properties.
Step rent represents the difference between actual operating lease payments due and straight-line rent expense,
which we record over the term of the lease, including the build-out period. This amount is recorded as deferred rent
in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced
in the later years of the lease when payments begin to exceed the straight-line rent expense. Landlord allowances
are generally comprised of amounts received and/or promised to us by landlords and may be received in the form of
cash or free rent. For the cash component, we record a receivable from the landlord in accordance with the terms of
the lease and a deferred rent liability. This deferred rent is amortized into net 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 realized from the landlord.
In our consolidated statements of cash flows, the current and long-term portions of landlord allowances are
included as changes in cash flows from operations. The liability for the current portion of unamortized landlord
allowances was $4.9 million and $5.1 million at February 2, 2019 and February 3, 2018, respectively. The liability
for the long-term portion of unamortized landlord allowances was $14.8 million and $15.1 million at February 2,
2019 and February 3, 2018, respectively. We estimate the non-cash portion of landlord allowances was $0.1 million
and $1.2 million at February 2, 2019 and February 3, 2018, respectively.
Revenue Recognition
In Fiscal 2019, we recognize revenue in accordance with Accounting Standards Codification (ASC) Topic
606, Revenue from Contracts with Customers when control of the merchandise is transferred to our customer. Sales
are recorded net of expected returns at the time the customer takes possession of the merchandise. Net sales exclude
sales taxes because we are a pass-through conduit for collecting and remitting these taxes.
Retail Store Sales: For merchandise sold in our stores, revenue is recognized at the point of sale when
tender is accepted and the customer takes possession of the merchandise.
Retail Store Orders: Retail store customers may order merchandise available in other retail store locations
for pickup in the selling store at a later date. Customers make a deposit with the remaining balance due at pickup.
These deposits are recorded as deferred revenue until the transaction is completed and the customer takes possession
of the merchandise. Retail store customers may also order merchandise to be shipped to home. Payment is received
in full at the time of order and recorded as deferred revenue until delivery.
Layaways: We offer a retail store program giving customers the option of paying a deposit and placing
merchandise on layaway. The customer may make further payments in installments, but the full purchase price must
be received by us within 30 days. The payments are recorded as deferred revenue until the transaction is completed
and the customer takes possession of the merchandise.
- 52 -
Digital Channel Sales: For merchandise shipped to home, customer payment is received when the order
ships. Revenue is deferred until control passes to the customer at delivery. Shipping and handling costs billed to
customers are included in net sales.
Customer Loyalty Programs: We offer two customer loyalty programs; the Hibbett Rewards program and
the City Gear Reward Points program. Upon registration and in accordance with the terms of the programs,
customers earn points on certain purchases. Points convert into rewards at defined thresholds. The short-term future
performance obligation liability is estimated at each reporting period based on historical conversion and redemption
patterns. The liability is included in other accrued expenses on our consolidated balance sheets and was $2.2 million
and $0.2 million at February 2, 2019 and February 3, 2018, respectively.
Gift Cards: Proceeds received from the issuance of our non-expiring 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 in accounts payable on our consolidated balance
sheet.
The net deferred revenue liability for gift cards, customer orders and layaways at February 2, 2019 and
February 3, 2018 was $7.5 million and $6.2 million, respectively, recognized in accounts payable on our
consolidated balance sheets. In Fiscal 2019, gift card breakage income was recognized in net sales in proportion to
the redemption pattern of rights exercised by the customer and was $0.6 million. During Fiscal 2018 and Fiscal
2017, income from unredeemed gift cards was recognized on our consolidated statements of operations as a
reduction to store operating, selling and administrative expenses when the likelihood of redemption was deemed
remote. Gift card breakage was not material in Fiscal 2018 or Fiscal 2017.
During the fiscal year ended February 2, 2019, $2.1 million of gift card deferred revenue from prior periods
was realized.
Return Sales: The liability for return sales is estimated at each reporting period based on historical return
patterns and is recognized at the transaction price. The liability is included in accounts payable on our consolidated
balance sheets. We also recognize a return asset and a corresponding adjustment to cost of goods sold for our right
to recover the merchandise returned by the customer. This right to recover the asset is included in net inventory on
our consolidated balance sheet at the former carrying value of the merchandise less any expected recovery costs
which was $0.8 million at February 2, 2019.
Revenues disaggregated by major product categories are as follows (in thousands):
Fiscal 2019
(52 weeks)
Fiscal 2018
(53 weeks)
Fiscal 2017
(52 weeks)
Footwear
Apparel
Equipment
$
$
$
579,766
276,731
152,185
1,008,682
531,552
269,512
167,155
968,219
505,939
282,158
184,862
972,960
$
$
$
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. These costs were not significant in Fiscal 2018, Fiscal 2017 or Fiscal 2016.
- 53 -
Insurance Accrual
We are self-insured for a significant portion of our health, workers’ compensation and other business
insurance. Liabilities associated with the risks that are retained by us are estimated, in part, by considering our
historical claims experience. The estimated accruals for these liabilities could be affected if future occurrences and
claims differ from our assumptions. To minimize our potential exposure, we carry stop-loss insurance that
reimburses us for losses over prescribed amounts per covered person per year. As of February 2, 2019 and February
3, 2018, the accrual for these liabilities was not material.
Sales Returns
Net sales returns were $47.7 million for Fiscal 2019, $43.8 million for Fiscal 2018 and $37.8 million for
Fiscal 2017 and. The accrual for the effect of estimated returns was not material as of February 2, 2019 and
February 3, 2018.
Note 2. Recent Accounting Pronouncements
Standards that were adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard related to revenue
recognition. Under ASU 2014-09, Revenue from Contracts with Customers (Topic 606), revenue is recognized
when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity
expects to receive for those goods or services. The standard requires disclosure of the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers. On February 4, 2018, we adopted
ASU 2014-09 using the modified retrospective transition method. Results for reporting periods beginning after
February 3, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under Topic 605.
In preparation for implementation of the standard, we identified the revenue streams that would be affected.
We then designed and implemented processes and internal controls to appropriately recognize and present the
associated financial information. Based on these efforts, we determined that the adoption of ASU 2014-09 changed
the recognition and presentation of:
• The stand-alone benefit received by customers through the Hibbett Rewards customer loyalty program
recorded as a separate performance obligation,
• Gift card breakage income recognized in net sales in proportion to the customer redemption pattern,
and
• The liability for net sales returns recognized on a gross basis including a right to recover asset
measured at the former carrying value of the inventory less any expected recovery costs.
We applied ASU 2014-09 only to contracts that were not completed prior to Fiscal 2019. The cumulative
effect of initially applying ASU 2014-09 was a $0.6 million decrease to the opening balance of retained earnings as
of February 4, 2018. We expect the adoption to be immaterial to our financial position, results of operations and
cash flows on an ongoing basis.
The effect of the adoption of ASU 2014-09 on our consolidated balance sheet as of February 2, 2019 was
(in thousands):
Inventories, net
Prepaid expenses and other
Accounts payable
Other accrued expenses
As Reported
$
280,287
$
16,343
$
107,315
$
10,174
ASU 2014-09
Effect (1)
$
$
$
$
(130)
(252)
693
(49)
Excluding ASU
2014-09 Effect
$
280,417
$
16,595
$
106,622
$
10,223
(1) Does not include the cumulative effect of initially adopting ASU 2014-09 to our consolidated balance sheet as
adjusted as of February 4, 2018.
- 54 -
The effect of the adoption of ASU 2014-09 on our consolidated statement of operations for the fifty-two
weeks ended February 2, 2019 was (in thousands, except per share amounts):
Net sales
Cost of goods sold
Gross margin
Store operating, selling and administrative expenses
Income before provision for income taxes
Provision for income taxes
Net income
Diluted earnings per share
Standards that are not yet adopted
As Reported
$
1,008,682
$
679,947
$
328,735
$
264,142
$
37,558
$
9,137
$
28,421
$
1.51
ASU 2014-09
Effect
$
$
$
$
$
$
$
$
(977)
(110)
(867)
(68)
(800)
(194)
(606)
(0.03)
Excluding ASU
2014-09 Effect
$
1,009,659
$
680,057
$
329,602
$
264,210
$
38,358
$
9,331
$
29,027
$
1.54
In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires
lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842
was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU
2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new
standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability
on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or
operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for us on February 3, 2019, and we will adopt it as of that date. A modified
retrospective transition approach is required, applying the new standard to all leases existing at the date of initial
application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. We will to use the effective date as our
date of initial application. Consequently, financial information will not be restated, and the disclosures required
under the new standard will not be provided for dates and periods prior to February 3, 2019. We have completed the
upgrade of our existing lease accounting system to facilitate the adoption.
The new standard provided for optional practical expedients in transition. We expect to elect the “package
of practical expedients”, which permits us not to reassess our prior conclusions about lease identification, lease
classification and initial direct costs under the new standard. We will not elect the use-of-hindsight or the practical
expedient pertaining to land easements; the latter not being applicable to us.
On adoption, we will recognize additional operating liabilities of approximately $230.0 million, with
corresponding ROU assets of approximately $210.0 million. The new standard provides practical expedients for an
entity’s ongoing accounting. We will elect the short-term lease recognition exemption for certain classes of
underlying assets. In doing so, for those leases that qualify, we will not recognize ROU assets or lease liabilities,
including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.
We will elect to combine lease and non-lease components for certain classes of underlying assets.
Adoption will result in the elimination of the below-market and above-market lease intangible balances
acquired during Fiscal 2019, as these amounts will be included in the ROU assets balance at implementation date.
We continuously monitor and review all current accounting pronouncements and standards from the FASB
of U.S. GAAP for applicability to our operations. As of February 2, 2019, there were no other new pronouncements
or interpretations that had or were expected to have a significant impact on our operations.
- 55 -
Note 3. Acquisition
On November 5, 2018, through our wholly-owned subsidiary, Hibbett Sporting Goods, Inc., we acquired
City Gear, a Tennessee limited liability company. Under the Purchase Agreement, which was unanimously
approved by our Board of Directors, we agreed to acquire all the outstanding warrants and equity interests, other
than certain preferred membership interests, of City Gear, a privately held city specialty retailer.
The purchase price was $88.0 million (Purchase Price) in cash payable at the closing of the transaction
(Closing), subject to customary adjustments for City Gear’s cash on hand and net working capital as of the Closing
date. The Purchase Agreement provided that a portion of the Purchase Price be used at Closing to pay off and
redeem the outstanding preferred membership interests in City Gear as well as certain other outstanding
indebtedness. In addition, the aggregate consideration payable to the Sellers in connection with the transaction
includes two contingent payments (Earnout) based on City Gear’s achievement of certain EBITDA thresholds (as
defined in the Purchase Agreement) for the 52-week periods ended February 1, 2020 and January 30, 2021,
respectively. The aggregate amount of the Earnout, if any, will not exceed $25.0 million. The preliminary fair
value of the Earnout is recorded in other liabilities on our consolidated balance sheet.
With over 130 stores, the acquisition provides us with substantially greater scale in the athletic specialty
market and is an extension of our strategy to provide high demand, branded products to underserved markets. We
incurred $4.3 million in acquisition-related expenses through Fiscal 2019, excluding acquisition-related interest
expense, recorded in store operating, selling and administrative expenses.
The following table summarizes the preliminary estimates of the fair values of the identifiable assets
acquired and liabilities assumed as of the acquisition date of November 4, 2018. The preliminary estimates of the
fair value of identifiable assets acquired and liabilities assumed are based on estimates and assumptions and are
subject to revisions, which may result in adjustments to the preliminary values presented below, when
management’s estimates are finalized (in thousands):
Assets Acquired:
Current assets:
Receivables
Inventories
Prepaid expense, other current and intangible assets
Total current assets
Goodwill
Property and equipment
Long-term intangible assets
Deposits and other assets
Deferred tax asset
Total assets
3,168
44,807
2,716
50,691
23,133
16,530
33,601
567
24
124,546
$
Liabilities Assumed:
Current liabilities:
Accounts payable
Other accrued expenses and intangible liabilities
Total current liabilities
Other long-term liabilities and intangible liabilities
Total liabilities
Total purchase price
Cash paid at closing
Fair value of contingent earnout
Net working capital and debt-like items adjustment
- 56 -
$
23,615
3,366
26,981
2,613
29,594
94,952
$
$
86,837
9,200
(1,085)
$
94,952
We are still in the process of completing our fair market valuations and the purchase price allocation. As
such, the amounts above are preliminary, pending the completion of procedures related to intangible assets and
liabilities, inventory, property and equipment, contingent earnout payments, lease-related matters and the tax effect
of any identified changes.
Goodwill is calculated as the excess of the purchase price over the net assets acquired and represents the
value of City Gear’s brand, our expansion in the city specialty market and expected synergies resulting from the
acquisition. Goodwill is amortized for tax purposes.
Intangible assets and liabilities represent two separately identified assets and one liability. First, we
identified the City Gear tradename as an indefinite-lived intangible asset with a fair value of $32.4 million. The
tradename is not subject to amortization but will be evaluated at least annually for impairment. Second, we
recognized an intangible asset of $1.5 million for favorable City Gear leases and a liability of $2.6 million for
unfavorable City Gear leases (as compared to prevailing markets). Under ASU Topic 842, these intangible assets
and liabilities will become a component of the ROU asset (See Note 2, Recent Accounting Pronouncements). Net
amortization of $0.1 million was recognized in Fiscal 2019.
The results of operations of City Gear are included in our results of operations beginning on November 5,
2018. From November 5, 2018 through February 2, 2019, City Gear generated net sales of $49.1 million and net
loss of $0.4 million. These results included $1.9 million related to the amortization of the step-up of the inventory
value related to purchase accounting.
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company’s
historical data to give effect to the City Gear acquisition as if it had occurred on January 29, 2017 (the beginning of
Hibbett’s fiscal year ended February 3, 2018). Both Hibbett and City Gear’s fiscal year statements of operations for
the fiscal years ended February 2, 2019 and February 3, 2018 contained 52 weeks and 53 weeks of operations,
respectively.
(in thousands, except per share data)
Net sales
Net income
Basic earnings per share
Diluted earnings per share
Pro Forma - Unaudited
Fiscal Year Ended
February 2,
2019
1,152,628
27,265
1.46
1.45
$
$
$
$
February 3,
2018
1,158,701
31,673
1.56
1.55
$
$
$
$
The results for Fiscal 2019 and Fiscal 2018 have been primarily adjusted to include;
•
•
•
•
the pro forma impact of amortization of intangible assets;
the depreciation of property and equipment, based on purchase price allocations;
the pro forma impact of additional interest expense relating to the acquisition;
the pro forma impact of acquisition-related costs incurred by the Company directly attributable to the
transaction; and
the pro forma tax effect of income taxes on the above adjustments.
•
For Fiscal 2019, results have been adjusted to exclude the impact of acquisition-related expenses and
purchase accounting adjustments incurred by the Company that are directly attributable to the transaction.
The pro forma financial information has been prepared for comparative purposes only and includes certain
adjustments, as noted above. The adjustments are based on estimates based on currently available information and
actual amounts may differ materially from these estimates. They do not reflect the effect of costs or synergies that
would have been expected to result from the integration of the City Gear acquisition.
- 57 -
Note 4. Stock-Based Compensation
At February 3, 2018, we had four stock-based compensation plans:
(a) The 2015 Equity Incentive Plan (EIP) provides that the Board of Directors (Board) may grant equity
awards to certain employees of the Company at its discretion. The EIP was adopted effective July 1,
2015 and authorizes grants of equity awards of up to 1,000,000 authorized but unissued shares of
common stock. At February 2, 2019, there were 534,918 shares available for grant under the EIP.
(b) The 2015 Employee Stock Purchase Plan (ESPP) allows for qualified employees to participate in the
purchase of up to 300,000 shares of our common stock at a price equal to 85% of the lower of the
closing price at the beginning or end of each quarterly stock purchase period. The ESPP was adopted
effective July 1, 2015. At February 2, 2019, there were 228,718 shares available for purchase under
the ESPP.
(c) The 2015 Director Deferred Compensation Plan (Deferred Plan) allows non-employee directors an
election to defer all or a portion of their fees into stock units or stock options. The Deferred Plan was
adopted effective July 1, 2015 and authorizes grants up to 150,000 authorized but unissued shares of
common stock. At February 2, 2019, there were 130,465 shares available for grant under the Deferred
Plan.
(d) The 2012 Non-Employee Director Equity Plan (DEP) provides for grants of equity awards to non-
employee directors. The DEP was adopted effective May 24, 2012 and authorizes grants of equity
awards of up to 500,000 authorized but unissued shares of common stock. At February 2, 2019, there
were 262,315 shares available for grant under the DEP.
Our plans allow for a variety of equity awards including stock options, restricted stock awards, stock
appreciation rights and performance awards. As of February 2, 2019, we had only granted awards in the form of
stock options, restricted stock units (RSUs) and performance-based units (PSUs) to our employees. The annual
grants made for Fiscal 2019, Fiscal 2018 and Fiscal 2017 to employees consisted solely of RSUs. We have also
awarded PSUs to our Named Executive Officers (NEOs) and expect the Compensation Committee of the Board will
continue to grant PSUs to our NEOs in the future.
As of February 2, 2019, we had only granted awards in the form of stock, stock options and deferred stock
units (DSUs) to our Board members. Under the DEP, Board members currently receive an annual value of $75,000
worth of equity in the form of stock options or RSUs upon election to the Board and a value of $100,000 worth of
equity in any form allowed within the DEP, for each full year of service, pro-rated for Directors who serve less than
one full year. The Chairman of the Board receives an annual value of $150,000 of equity in any form allowed
within the DEP.
The terms and vesting schedules for stock-based awards vary by type of grant and generally vest upon
time-based conditions. Under the DEP, Directors have the option with certain equity forms to set vesting dates.
Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock. All of
our awards are classified as equity awards.
- 58 -
The compensation cost for these plans was as follows (in thousands):
February 2,
2019
(52 weeks)
Fiscal Year Ended
February 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
Stock-based compensation expense by type:
Stock options
Restricted stock units
Employee stock purchases
Director deferred compensation
Total stock-based compensation expense
Income tax benefit recognized
Stock-based compensation expense, net of income tax
$
$
$
185
3,932
105
94
4,316
958
3,358
224
3,536
96
24
3,880
1,363
2,517
384
4,010
104
94
4,592
1,655
2,937
$
$
$
Stock-based and deferred stock compensation expenses are included in store operating, selling and
administrative expenses. There is no capitalized stock-based compensation cost.
The income tax benefit recognized in our consolidated financial statements, as disclosed above, is based on
the amount of compensation expense recorded for book purposes. The actual income tax benefit realized in our
income tax return is based on the intrinsic value, or the excess of the market value over the exercise or purchase
price, of stock options exercised and restricted stock unit awards vested during the period. The actual income tax
benefit realized for the deductions considered on our income tax returns for Fiscal 2019, Fiscal 2018 and Fiscal 2017
was from option exercises and restricted stock unit releases and totaled $0.4 million, $0.9 million and $1.2 million,
respectively.
Stock Options
Stock options are granted with an exercise price equal to the closing market price of our common stock on
the date of grant. Vesting and expiration provisions vary between equity plans, but options granted to employees
under the EIP typically vest over a four or five-year period in equal installments beginning on the first anniversary
of the grant date and typically expire on the eighth or tenth anniversary of the date of grant. Grants awarded to
outside directors under the DEP and Deferred Plan vest immediately upon grant and expire on the tenth anniversary
of the date of grant.
During Fiscal 2019, we had two stock option grants dated March 27, 2018 to directors. A total of 19,994
stock options was granted at an exercise price of $22.55. The fair value of the grants was $7.15 which was
estimated on the date of grant using the Black-Scholes pricing model assuming an expected life of 3.98 years,
expected volatility of 36.09%, a risk-free interest rate of 2.45% with no dividend yield.
We calculate the expected term for our stock options based on the historical exercise behavior of our
participants. 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 provisions of ASC
Topic 718, Stock Compensation. In accordance with ASC Topic 718, we base the risk-free interest rate on the
annual continuously compounded risk-free rate with a term equal to the option’s expected term. The dividend yield
is assumed to be zero since we have no current plan to declare dividends.
- 59 -
Activity for our option plans during Fiscal 2019 was as follows:
Options outstanding at February 3, 2018
Granted
Exercised
Forfeited, cancelled or expired
Options outstanding at February 2, 2019
Number of
S hares
288,150
19,994
(27,625)
(1,097)
279,422
Weighted
Average
Remaining
Contractual
Term
(Years)
5.12
Aggregate
Intrinsic
Value
($000's)
$
324
4.91
$
55
Weighted
Average
Exercise
Price
$
36.15
22.55
17.46
20.02
37.08
$
Exercisable at February 2, 2019
279,422
$
37.08
4.91
$
55
The weighted average grant-date fair value of options granted during Fiscal 2019, Fiscal 2018 and Fiscal
2017 was $7.15, $6.42 and $10.56, respectively.
The total intrinsic value of stock options exercised during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was
$0.2 million, $0.1 million and $0.6 million, respectively. The total cash received from these stock option exercises
during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $0.5 million, $0.3 million and $0.4 million, respectively. For
Fiscal 2017, excess income tax benefits from the exercise of stock option are included in cash flows from financing
activities as required by ASC Topic 230, Statement of Cash Flows. Beginning in Fiscal 2018, with the adoption of
ASU 2016-09, excess tax benefits are included in earnings. As of February 2, 2019, there was no unamortized
unrecognized compensation cost related to stock options.
Restricted Stock and Performance-Based Units
RSUs and PSUs are granted with a fair value equal to the closing market price of our common stock on the
date of grant. All PSUs have been awarded in the form of restricted stock units. Compensation expense is recorded
straight-line over the vesting period and, in the case of PSUs, at the estimated percentage of achievement. Restricted
stock unit awards to our employees generally cliff vest in four years from the date of grant for those awards that are
not performance-based. If a Director chooses to receive their annual equity award in stock and defers the vesting
date, then the form of stock is a DSU. PSUs provide for awards based on achievement of certain predetermined
corporate performance goals and cliff vest in three to five years from the date of grant after achievement of stated
performance criterion and upon meeting stated service conditions.
The following table summarizes the restricted stock unit awards activity under all our plans during Fiscal
2019:
RSUs
PSUs
Totals
We ighte d
Ave rage
Grant-Date
Fair Value
Numbe r of
Awards
W e ighte d
Ave rage
Grant-Date
Fair Value
We ighte d
Ave rage
Grant-Date
Fair Value
Numbe r of
Awards
Numbe r of
Awards
313,611
174,007
-
(60,658)
(22,583)
$
40.10
22.55
-
51.47
33.31
132,370
44,700
(13,725)
(5,025)
(14,650)
$
37.55
22.55
29.30
54.06
50.48
445,981
218,707
(13,725)
(65,683)
(37,233)
$
39.34
22.55
40.24
51.67
40.07
404,377
$
31.22
143,670
$
31.78
548,047
$
31.37
Restricted stock unit awards
outstanding at February 3, 2018
Granted
PSU adjustment (1)
Vested
Forfeited, cancelled or expired
Restricted stock unit awards
outstanding at February 2, 2019
- 60 -
(1) PSU adjustment represents the net RSUs awarded to our NEOs above and below their target grants
resulting from the achievement of performance goals above or below the performance targets established at grant.
One grant goal was achieved at 50% and another grant goal was forfeited for performance equity awards whose final
achievement was based on Fiscal 2017 through Fiscal 2019 financial results; therefore, the adjustment was negative.
The weighted average grant date fair value of our RSUs granted was $22.55, $29.60 and $35.12 for Fiscal
2019, Fiscal 2018 and Fiscal 2017, respectively. There were 218,707, 166,690 and 163,643 RSUs awarded during
Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
During Fiscal 2019, 65,683 RSU awards, including 5,025 PSU awards, vested with an intrinsic value of
$1.4 million. The total intrinsic value of our RSU awards outstanding and unvested at February 2, 2019, February 3,
2018 and January 28, 2017 was $8.9 million, $9.9 million and $12.9 million, respectively. As of February 2, 2019,
there was approximately $5.0 million of total unamortized unrecognized compensation cost related to RSU awards.
This cost is expected to be recognized over a weighted average period of 2.8 years.
Employee Stock Purchase Plan
The Company’s ESPP allows eligible employees the right to purchase shares of our common stock, subject
to certain limitations, at 85% of the lesser of the market value at the end of each calendar quarter (purchase date) or
the beginning of each calendar quarter. Our employee purchases of common stock and the average price per share
through the ESPP were as follows:
Fiscal Year Ended
February 2, 2019
February 3, 2018
January 28, 2017
S hares
Purchased
26,077
23,555
14,890
Average Price
Per S hare
$
$
$
15.96
16.36
28.48
The assumptions used in the option pricing model were as follows:
Weighted average fair value at date of grant
Expected life (years)
Expected volatility
Risk-free interest rate
Dividend yield
February 2,
2019
$4.75
0.25
34.8% - 36.1%
3.26% - 5.21%
None
Fiscal Year Ended
February 3,
2018
$4.06
0.25
30.2% - 36.2%
1.19% - 2.48%
None
January 28,
2017
$6.98
0.25
30.1% - 32.0%
0.37% - 0.68%
None
The expense related to the ESPP was determined using the Black-Scholes option pricing model and the
provisions of ASC Topic 718 as it relates to accounting for certain employee stock purchase plans with a look-back
option. The compensation expense included in store operating, selling and administrative expenses and recognized
during each of Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $0.1 million.
Director Deferred Compensation
Under the Deferred Plan, non-employee directors can elect to defer all or a portion of their Board and
Board Committee fees into cash, stock options or deferred stock units. Those fees deferred into stock options are
subject to the same provisions as provided for in the DEP and are expensed and accounted for accordingly. Director
fees deferred into stock units are calculated and expensed each calendar quarter by taking deferred fees earned
during the calendar quarter and dividing by the closing price of our common stock 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 4,888, 1,195 and 2,542 stock
units were deferred under this plan in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Two directors have
elected to defer all or a portion of their compensation into stock units in calendar 2019.
- 61 -
Note 5. Earnings Per Share
The computation of basic earnings per share (EPS) is based on the number of weighted average common
shares outstanding during the period. The computation of diluted EPS is based on the weighted average number of
shares outstanding plus the incremental shares that would be outstanding assuming exercise of dilutive stock options
and issuance of restricted stock. The number of incremental shares is calculated by applying the treasury stock
method. The following table sets forth the computation of basic and diluted earnings per share in thousands:
Net income
Weighted average number of common shares
outstanding
Dilutive stock options
Dilutive restricted stock units
Weighted average number of common shares
outstanding and dilutive shares
February 2,
2019
(52 weeks)
$
28,421
Fiscal Year Ended
February 3,
2018
(53 weeks)
$
35,030
January 28,
2017
(52 weeks)
$
61,075
18,644
3
179
18,826
20,347
5
98
20,450
22,240
40
147
22,427
Basic earnings per share
Diluted earnings per share
$
$
1.52
1.51
$
$
1.72
1.71
$
$
2.75
2.72
In calculating diluted earnings per share 260,845, 235,232 and 104,091 options to purchase shares of
common stock outstanding as of the end of the period were excluded in the computations of diluted earnings per
share due to their anti-dilutive effect in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
We excluded 49,800 nonvested stock awards granted to certain employees from the computation of diluted
weighted average common shares and common share equivalents outstanding, because they are subject to
performance-based annual vesting conditions which had not been achieved by the end of Fiscal 2019. Assuming the
performance criteria had been achieved at target as of February 2, 2019, the incremental dilutive impact would have
been 39,190 shares.
NOTE 6. DEBT
In October 2018, we entered into amended agreements with Bank of America, N.A. and Regions Bank
providing for an increase in the aggregate amount of credit available to us under each line of credit from $30.0
million to $50.0 million for the purpose of financing a portion of the cash purchase price payable in the acquisition
of City Gear.
The terms of the Bank of America facility allow for borrowings up to $50.0 million with an interest rate
agreed upon between the lender and us at the time a loan is made. The terms of the Regions Bank facility allow for
borrowings up to $50.0 million with an interest rate at one-month LIBOR plus 1.5%. Both facilities are unsecured,
due on demand and expire in October 2021. Under the provisions of both facilities, we do not pay commitment fees.
However, both are subject to negative pledge agreements that, among other things, restrict liens or transfers of assets
including inventory, tangible or intangible personal property and land and land improvements.
There were 95 days during the 52 weeks ended February 2, 2019, where we incurred borrowings against
our credit facilities for an average and maximum borrowing of $45.4 million and $75.0 million, respectively, and an
average interest rate of 3.70%. At February 2, 2019, a total of $65.0 million was available to us from these facilities.
- 62 -
At February 3, 2018, we had two unsecured credit facilities, which were renewable in March and April
2018. The March facility allowed for borrowings up to $30.0 million with an interest rate agreed upon between
lender and borrower at the time a loan was made. The April facility allowed for borrowings up to $30.0 million at a
rate of one-month LIBOR plus 2.5%. Under the provisions of both facilities, we did not pay commitment fees and
were not subject to covenant requirements. There were seven days during the 53 weeks ended February 3, 2018,
where we incurred borrowings against our credit facilities for an average and maximum borrowing of $4.1 million
and $4.9 million, respectively, and an average interest rate of 2.78%. At February 3, 2018, a total of $60.0 million
was available to us from these facilities.
NOTE 7. LEASES
We have entered into capital leases for certain property and transportation equipment. At February 2, 2019,
total capital lease obligations were $3.0 million, of which $1.0 million was classified as a short-term liability and
included in capital lease obligations and $2.0 million was classified as a long-term liability and included in capital
lease obligations in our consolidated balance sheet. At February 3, 2018, total capital lease obligations were $3.2
million, of which $0.7 million was classified as a short-term liability and included in capital lease obligations and
$2.5 million was classified as a long-term liability and included in capital lease obligations in our consolidated
balance sheet. The cost basis of total assets under capital leases at February 2, 2019 and February 3, 2018 was $5.9
million and $5.4 million, respectively, with accumulated amortization at February 2, 2019 and February 3, 2018 of
$3.3 million and $2.7 million, respectively. Amortization expense related to assets under capital leases was $0.7
million, $0.6 million and $0.6 million in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
We lease the majority of our stores under operating leases. The leases typically provide for terms of five to
ten years with options to extend at our discretion. Many of our leases contain scheduled increases in annual rent
payments and the majority of our leases also require us to pay maintenance, insurance and real estate taxes.
Additionally, many of the lease agreements contain tenant improvement allowances, rent holidays and/or rent
escalation clauses (contingent rentals) based on net sales for the location. For purposes of recognizing incentives and
minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to
begin amortization, which is generally when we enter the space and begin to make improvements in preparation of our
intended use.
Most of our store leases contain provisions that allow for early termination of the lease 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.
We also lease certain office equipment and transportation equipment under operating leases having initial
terms of more than one year.
During Fiscal 2019, we acquired 136 stores, opened 32 new stores and increased our lease commitments by
a net of 84 stores and one administrative office lease. Of the new lease commitments, the initial lease termination
dates were between May 2023 and March 2029. At February 2, 2019, the future minimum lease payments under
capital leases and the present value of such payments, and the future minimum lease payments under our operating
leases, excluding maintenance, insurance and real estate taxes, were as follows (in thousands):
Capital
Operating
Total
$
$
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
Total minimum lease payments
Less amount representing interest
1,259
951
451
408
306
217
3,592
581
3,011
$
68,002
58,666
46,683
34,011
22,426
40,181
269,969
-
$
269,969
69,261
59,617
47,134
34,419
22,732
40,398
273,561
581
272,980
$
$
- 63 -
Rental expense for all operating leases consisted of the following (in thousands):
M inimum rentals
Contingent rentals
February 2,
2019
(52 weeks)
55,755
$
4,397
60,152
$
Fiscal Year Ended
February 3,
2018
(53 weeks)
54,337
$
4,931
59,268
$
January 28,
2017
(52 weeks)
54,910
$
4,744
59,654
$
NOTE 8. DEFINED CONTRIBUTION BENEFIT PLANS
We maintain the Hibbett Sports, Inc. 401(k) Plan (401(k) Plan) for the benefit of our employees. The
401(k) Plan covers all employees who have completed one year of service. Participants of the 401(k) Plan may
voluntarily contribute from 1% to 100% of their compensation subject to certain yearly dollar limitations as allowed
by law. These elective contributions are made under the provisions of Section 401(k) of the Internal Revenue Code
which allows deferral of income taxes on the amount contributed to the 401(k) Plan. Effective Fiscal 2016, the
Board adopted the Safe Harbor provisions for our 401(k) Plan. For Fiscal 2019, Fiscal 2018 and Fiscal 2017, we
matched 100% of the first 3% of eligible compensation and 50% of the next 3% of eligible compensation for a total
possible match of 4.5% of the first 6% of eligible compensation. Contribution expense incurred under the 401(k)
Plan for Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $1.3 million, $1.4 million and $1.4 million, respectively.
We maintain the Hibbett Sports, Inc. Supplemental 401(k) Plan (Supplemental Plan) for the purpose of
supplementing the employer matching contribution and salary deferral opportunity available to highly compensated
employees whose ability to receive Company matching contributions and defer salary under the 401(k) Plan was
limited because of certain restrictions applicable to qualified plans. The non-qualified deferred compensation
Supplemental Plan allows participants to defer up to 40% of their compensation. Contributions to the Supplemental
Plan are not subject to matching provisions, therefore no contribution expense was incurred under the Supplemental
Plan for Fiscal 2019, Fiscal 2018 and Fiscal 2017. The Supplemental Plan is intended to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
We maintain the Hibbett Sports, Inc. Executive Voluntary Deferral Plan (Voluntary Plan) that provides key
executives of the Company an opportunity to defer, on a pre-tax basis, up to 50% of their base salary and up to
100% of any bonus earned. Participants, at election, determine the date payout is to be made with payout options as
either a lump-sum payout or installment payments over 2 to 10 years. The Voluntary Plan is subject to the
Employee Retirement Income Security Act of 1974, as amended (ERISA) and was effective February 1, 2010 and is
also intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
We maintain a Flexible Spending Account Plan (FSA) that allows employees to set aside pre-tax amounts
for out-of-pocket health care and dependent care expenses. The health care FSA is subject to ERISA, whereas the
dependent care FSA is not. Employees are eligible to participate in the FSA upon meeting eligibility requirements
or upon a defined qualifying event, and may enroll annually during an open enrollment period. Plan amounts are
determined annually by the employee in advance and are subject to IRS dollar limitations. Employee elections, in
general, cannot be increased, decreased or discontinued during the election period. Under the health care FSA,
participants can rollover up to $500 of unused amounts at the end of the plan year. Under the dependent care FSA,
unused amounts at the end of the plan year are subject to forfeiture and such forfeitures can be used to offset
administrative expenses.
NOTE 9. RELATED-PARTY TRANSACTIONS
The Company leases one store under a lease arrangement with AL Florence Realty Holdings 2010, LLC, a
wholly-owned subsidiary of Books-A-Million, Inc., (BAMM). One of our Directors, Terrance G. Finley is an
executive officer of BAMM. Minimum annual lease payments are $0.1 million, if not in co-tenancy, and the lease
termination date is February 2022. In Fiscal 2019, Fiscal 2018 and Fiscal 2017, minimum lease payments were $0.1
million. Minimum lease payments remaining under this lease at February 2, 2019 were $0.3 million.
- 64 -
NOTE 10. INCOME TAXES
A summary of the components of the provision/(benefit) for income taxes is as follows (in thousands):
February 2,
2019
(52 weeks)
$
7,375
339
7,714
1,625
(202)
1,423
9,137
$
Fiscal Year Ended
February 3,
2018
(53 weeks)
$
16,154
3,257
19,411
1,668
338
2,006
21,417
$
January 28,
2017
(52 weeks)
$
31,007
1,359
32,366
3,042
13
3,055
35,421
$
Federal:
Current
Deferred
State:
Current
Deferred
Provision for income taxes
A reconciliation of the statutory federal income tax rate to the effective tax rate as a percentage of income
before provision for income taxes follows:
Tax provision computed at the federal statutory rate
Effect of state income taxes, net of federal benefits
Enactment of the Tax Cuts and Jobs Act
Federal income tax credits
Equity compensation tax deficiencies
Other, net
February 2,
2019
(52 weeks)
Fiscal Year Ended
February 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
21.00%
2.86
-
(1.36)
1.30
0.53
24.33%
33.72%
2.50
1.39
(0.32)
1.23
(0.58)
37.94%
35.00%
2.22
-
(0.45)
-
(0.06)
36.71%
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduced the federal
corporate income tax rate to 21% from 35%. As of the enactment date, we remeasured our deferred tax assets and
liabilities based on the rates at which they were expected to reverse in the future (which was generally 21% for
federal income tax purposes).
- 65 -
Deferred income taxes on the consolidated balance sheets result from temporary differences between the
amount of assets and liabilities recognized for financial reporting and income tax purposes. The components of the
deferred income taxes, net, are as follows (in thousands):
Deferred rent
Inventories
Accruals
Stock-based compensation
Other
Total deferred tax assets
Accumulated depreciation and amortization
Prepaid expenses
Other
State taxes
Total deferred tax liabilities
Deferred income taxes, net
February 2,
2019
(52 weeks)
6,333
$
3,442
5,080
3,681
328
18,864
(15,089)
(1,420)
-
(77)
(16,586)
2,278
$
February 3,
2018
(53 weeks)
6,971
$
3,209
3,616
3,714
49
17,559
(14,395)
(644)
(224)
(120)
(15,383)
2,176
$
Deferred tax assets represent items that will be used as a tax deduction or credit in future tax returns or are
items of income that have not been recognized for financial statement purposes but were included in the current or
prior tax returns for which we have already properly recorded the tax benefit in the consolidated statements of
operations. At least quarterly, we assess the likelihood that the deferred tax assets balance will be recovered. We take
into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods and
tax strategies that could potentially enhance the likelihood of a realization of a deferred tax asset. To the extent
recovery is not more likely than not, a valuation allowance is established against the deferred tax asset, increasing our
income tax expense in the year such determination is made. We have determined that no such allowance is required.
We apply the provisions of ASC Subtopic 740-10 in accounting for uncertainty in income taxes. In
accordance with ASC Subtopic 740-10, we recognize a tax benefit associated with an uncertain tax position when, in
our judgment based on technical merits, it is more likely than not that the position will be sustained upon
examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we
initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with
unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits,
case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in
which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized
tax benefits and subsequent adjustments as considered appropriate by management.
We file income tax returns in the U.S. federal and various state jurisdictions. A number of years may
elapse before a particular matter for which we have recorded a liability related to an unrecognized tax benefit is
audited and finally resolved. Generally, we are not subject to changes in income taxes by the U.S. federal taxing
jurisdiction for years prior to Fiscal 2016 or by most state taxing jurisdictions for years prior to Fiscal 2015. While
it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe
our liability for unrecognized tax benefits is adequate. Favorable settlement of an unrecognized tax benefit could be
recognized as a reduction in our effective tax rate in the period of resolution. Unfavorable settlement of an
unrecognized tax benefit could increase the effective tax rate and may require the use of cash in the period of
resolution. Our liability for unrecognized tax benefits is generally presented as non-current. However, if we
anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current.
- 66 -
A reconciliation of the unrecognized tax benefit, excluding estimated interest and penalties, under ASC
Subtopic 740-10 follows (in thousands):
Unrecognized tax benefits - beginning of year
Gross increases - tax positions in prior period
Gross decreases - tax positions in prior period
Gross increases - tax positions in current period
Settlements
Lapse of statute of limitations
Unrecognized tax benefits - end of year
February 2,
2019
(52 weeks)
1,156
$
246
(10)
107
-
(254)
1,245
$
February 3,
2018
(53 weeks)
1,267
$
140
(7)
70
-
(314)
1,156
$
January 28,
2017
(52 weeks)
1,242
$
158
(26)
121
-
(228)
1,267
$
We classify interest and penalties recognized on unrecognized tax benefits as income tax expense. We
have accrued interest and penalties in the amount of $0.2 million, $0.1 million and $0.1 million as of February 2,
2019, February 3, 2018 and January 28, 2017, respectively. During Fiscal 2019, Fiscal 2018 and Fiscal 2017, we
recorded $18,000, $4,000 and $21,000, respectively, for the accrual of interest and penalties in the consolidated
statement of operations.
Of the unrecognized tax benefits as of February 2, 2019, February 3, 2018 and January 28, 2017, $1.0
million, $1.0 million and $0.9 million, respectively, if recognized, would affect our effective income tax rate.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Annual Bonuses and Equity Incentive Awards
Specified officers and corporate employees of our Company are entitled to annual bonuses, primarily based on
measures of Company operating performance. At February 2, 2019 and February 3, 2018, there was $3.9 million and
$1.9 million, respectively, of annual bonus-related expense included in accrued payroll expenses.
In addition, the Compensation Committee (Committee) of the Board of Directors places performance criteria
on awards of PSUs made in the form of RSUs to our NEOs under the EIP. The performance criteria are tied to
performance targets with respect to future sales and operating income over a specified period of time. These PSUs are
expensed under the provisions of ASC Topic 718 and are evaluated each quarter to determine the probability that the
performance conditions set within will be met. We expect the Committee to continue to place performance criteria on
awards of RSUs to our NEOs in the future.
Legal Proceedings and Other Contingencies
We are a party to various legal proceedings incidental to our business. Where we are able to reasonably
estimate an amount of probable loss in these matters based on known facts, we have accrued that amount as a
current liability on our balance sheet. We are not able to reasonably estimate the possible loss or range of loss in
excess of the amount accrued for these proceedings based on the information currently available to us, including,
among others, (i) uncertainties as to the outcome of pending proceedings (including motions and appeals) and (ii)
uncertainties as to the likelihood of settlement and the outcome of any negotiations with respect thereto. We do not
believe that any of these matters will, individually or in the aggregate, have a material effect on our business or
financial condition. We cannot give assurance, however, that one or more of these proceedings will not have a
material effect on our results of operations for the period in which they are resolved. At February 2, 2019 and
February 3, 2018, the estimated liability is immaterial.
The estimates of our liability for pending and unasserted potential claims do not include litigation costs. It
is our policy to accrue legal fees when it is probable that we will have to defend against known claims or allegations
and we can reasonably estimate the amount of the anticipated expense.
- 67 -
From time to time, we enter into certain types of agreements that require us to indemnify parties against third-
party claims under certain circumstances. Generally, these agreements relate to: (a) agreements with vendors and
suppliers under which we may provide customary indemnification to our vendors and suppliers in respect to actions
they take at our request or otherwise on our behalf; (b) agreements to indemnify vendors against trademark and
copyright infringement claims concerning merchandise manufactured specifically for or on behalf of the Company; (c)
real estate leases, under which we may agree to indemnify the lessors from claims arising from our use of the property;
and (d) agreements with our directors, officers and employees, under which we may agree to indemnify such persons
for liabilities arising out of their relationship with us. We have director and officer liability insurance, which, subject to
the policy’s conditions, provides coverage for indemnification amounts payable by us with respect to our directors and
officers up to specified limits and subject to certain deductibles.
If we believe that a loss is both probable and estimable for a particular matter, the loss is accrued in
accordance with the requirements of ASC Topic 450, Contingencies. With respect to any matter, we could change our
belief as to whether a loss is probable or estimable, or its estimate of loss, at any time.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain unaudited consolidated financial data for the quarters indicated (dollar
amounts in thousands, except per share amounts):
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Fiscal Year Ended February 2, 2019
First
(13 weeks)
$
274,707
$
96,773
$
28,621
$
21,509
S econd
(13 weeks)
$
211,123
$
66,351
$
(1,885)
$
(1,222)
Third
(13 weeks)
$
216,888
$
70,512
$
1,842
$
1,499
Fourth
(13 weeks)
$
305,964
$
95,099
$
8,963
$
6,634
Basic earnings (loss) per share
$
1.13
$
(0.06)
$
0.08
$
0.36
Diluted earnings (loss) per share
$
1.12
$
(0.06)
$
0.08
$
0.36
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Fiscal Year Ended February 3, 2018
First
(13 weeks)
$
275,688
$
98,218
$
34,168
$
20,910
S econd
(13 weeks)
$
187,958
$
54,408
$
(5,162)
$
(3,176)
Third
(13 weeks)
$
237,834
$
76,113
$
11,787
$
7,564
Fourth
(14 weeks)
$
266,738
$
83,977
$
15,884
$
9,733
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
0.98
0.97
$
$
(0.15)
(0.15)
$
$
0.37
0.37
$
$
0.51
0.51
In the opinion of our management, this unaudited information has been prepared on the same basis as the
audited information. The operating results from any quarter are not necessarily indicative of the results to be
expected for any future period.
NOTE 13. FAIR VALUE MEASUREMENTS
ASC Topic 820, Fair Value Measurement, establishes a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
• Level I – Quoted prices in active markets for identical assets or liabilities.
• Level II – Observable inputs other than quoted prices included in Level I.
• Level III – Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
- 68 -
The table below segregates all financial assets and liabilities that are measured at fair value on a recurring
basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to
determine the fair value (in thousands):
Short-term investments
Long-term investments
Long-term contingent earnout
Total investments
Level I
158
$
2,377
-
2,535
$
February 2, 2019
Level II
-
$
-
-
$
-
Level III
-
$
-
9,200
9,200
$
February 3, 2018
Level II
-
$
-
-
$
-
Level III
-
$
-
-
$
-
Level I
463
$
2,418
-
2,881
$
Short-term investments are reported in prepaid expenses and other while long-term investments are
reported in other assets, net, in our consolidated balance sheets.
The long-term contingent Earnout represents the fair value of potential additional payments outlined in the
Purchase Agreement to the members and warrant holders of City Gear if certain financial goals are achieved over
the next two fiscal years (Fiscal 2020 and Fiscal 2021). The Earnout was valued using a Monte Carlo simulation
analysis in a risk-neutral framework with assumptions for volatility, risk-free rate and dividend yield. The Earnout
will be re-valued each quarter and any change in valuation will flow through our statements of operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including the Chief Executive Officer and President (principal executive officer)
and Senior Vice President and Chief Financial Officer (principal financial officer), as appropriate, to allow timely
decisions regarding the required disclosures.
As of February 2, 2019, our management, under the supervision and with the participation of our principal
executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure
controls and procedures (as such term is defined in Rule 13a and 15d-15(e) under the Exchange Act). Based upon
this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of February 2, 2019.
(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 Rule 13a-15(f) under the Exchange Act). 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 2, 2019, based on the
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control – Integrated
Framework (2013), our management concluded that our internal control over financial reporting was effective as of
February 2, 2019.
On November 4, 2019, we acquired City Gear. As permitted by SEC guidance for newly acquired businesses,
we excluded City Gear from our assessment of internal control over financial reporting, which represented total assets
of $123.8 million and net sales of $49.1 million for the fiscal year ended February 2, 2019. We are in the process of
integrating the City Gear operations into our internal control structure and expect that this effort will be completed in
Fiscal 2020.
- 69 -
KPMG LLP, our independent registered public accounting firm, has issued an audit report on the Company’s
internal control over financial reporting as of February 2, 2019 included in Item 8 herein.
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fourth quarter of Fiscal
2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting. Although additional controls were introduced during the fourth quarter of Fiscal 2019 related to the opening
balance sheet and consolidation of City Gear financial activity, we primarily used our existing internal control over
financial reporting in connection with the consolidation of our financial statements for Fiscal 2019.
Item 9B. Other Information.
None.
PART III
With the exception of the information specifically incorporated by reference from our Proxy Statement for
the 2019 Annual Meeting of Stockholders (2019 Proxy Statement) in Items 10, 11, 12, 13 and 14 of Part III of this
Annual Report on Form 10-K, our 2019 Proxy Statement shall not be deemed to be a part of, or incorporated by
reference into, this Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance.
The following information required by this Item is incorporated by reference from the 2019 Proxy Statement,
which will be filed on or around April 23, 2019:
• Information regarding our directors is found under the heading “The Board of Directors.”
• Information regarding compliance with Section 16 of the Securities Exchange Act of 1934, as amended, is
found under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”
• Information regarding the Company’s Audit Committee financial expert(s) is found under the heading
“Committees of the Board of Directors - Audit Committee - Audit Committee Financial Experts.”
• Information regarding the members of the Audit Committee is found under the heading “Committees of the
Board of Directors - Audit Committee.”
We have adopted a Code of Business Conduct and Ethics (Code) for all Company employees, including our
Named Executive Officers as determined for our 2019 Proxy Statement. We have also adopted a set of Corporate
Governance Guidelines (Guidelines) and charters for all of our Board Committees, including the Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee. We intend to make all required
disclosures regarding any amendment to, or a waiver of, a provision of the Code for senior executive and financial
officers as well as any change or amendments to our Guidelines or committee charters by posting such information on
our website. The Code, Guidelines and charters are posted on our website, www.hibbett.com under “Investor
Relations.”
The information concerning our executive officers required by this Item is included in Part I, Item 1 of this
Form 10-K under the heading “Our Executive Officers.” Each of our executive officers is elected annually.
Item 11. Executive Compensation.
The following information required by this Item is incorporated by reference from the 2019 Proxy Statement:
• Information regarding executive compensation is found under the headings “Compensation Discussion and
Analysis” and “Annual Compensation of Executive Officers.”
• Information regarding the report of the Compensation Committee on executive compensation is found
under the heading “Compensation Committee Report.”
- 70 -
• Information regarding Compensation Committee interlocks is found under the heading “Compensation
Committee Interlocks and Insider Participation.”
• Information regarding director compensation is found under the heading “Compensation of Non-Employee
Directors.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item regarding the stock ownership of directors, executive officers and five
percent beneficial owners is found under the heading “Security Ownership of Certain Beneficial Owners and
Management” in the 2019 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information on the equity securities of the Company that are authorized for
issuance under its equity compensation plans as of February 2, 2019:
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(1)
Weighted
average
exercise price
of outstanding
options
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) (2)
837,486
-
837,486
$37.11
-
$37.11
1,156,416
-
1,156,416
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
TOTAL
(1) Includes 404,377 RSUs and 148,200 PSUs that may be awarded if specified targets and/or service periods
are met. It also includes 5,487 DSUs. The weighted average exercise price of outstanding options does
not include these awards.
(2) Includes 228,718 shares remaining under our ESPP and 130,465 shares remaining under our Deferred
Plan without consideration of shares subject to purchase in the purchasing period ending March 31, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information regarding related party transactions and director independence required by this Item is
found under the headings “Related Person Transactions” and “Our Board of Directors and Corporate Governance
Matters - Director Independence” in the 2019 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information regarding principal accountant fees and services required by this Item is found under the
headings “Audit Matters - Fees Paid to KPMG LLP” and “Audit Matters - Policy on Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm” in the 2019 Proxy
Statement and is incorporated herein by reference.
- 71 -
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents filed as part of this report:
Number
Description
1. Financial Statements.
Page
The following Consolidated Financial Statements and Supplementary Data of the Company
and Independent Registered Public Accounting Firm’s Report on such Consolidated
Financial Statements are included in Part II, Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 2, 2019 and February 3, 2018
Consolidated Statements of Operations for the fiscal years ended February 2, 2019, February
3, 2018 and January 28, 2017
Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2019,
February 3, 2018 and January 28, 2017
Consolidated Statements of Stockholders’ Investment for the fiscal years ended February 2,
2019, February 3, 2018 and January 28, 2017
Notes to Consolidated Financial Statements
41
43
44
45
46
47
2. Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are
not applicable, and therefore have been omitted.
3. Exhibits.
The Exhibits listed below are the exhibits of Hibbett Sports, Inc. and its wholly owned
subsidiaries and are filed as part of, or incorporated by reference into, this report.
Certificates of Incorporation and By-Laws
3.1 Certificate of Incorporation of the Registrant; incorporated herein by reference to Exhibit 3.1
of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May
31, 2012.
3.2 Bylaws of the Registrant, as amended; incorporated herein by reference to Exhibit 3.2 of
the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May
31, 2012.
Form of Stock Certificate
4.1 Form of Stock Certificate; attached as Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K filed on September 26, 2007.
Material Contracts
10.1 Membership Interest and Warrant Purchase Agreement; incorporated herein by reference
to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 30, 2018.
- 72 -
Number
Description
Page
10.2 Second Amended and Restated Demand Note with Bank of America, N.A.; incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 30, 2018.
10.3 Amended and Restated Demand Note with Regions Bank; incorporated herein by
reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 30, 2018.
10.4 Hibbett Sports, Inc. 2012 Non-Employee Director Equity Plan; incorporated herein by
reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 31, 2012.
10.5 Hibbett Sports, Inc. Non-Employee Director Non-Qualified Option Agreement (Initial
Grant, Service Requirement); incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 17, 2012.
10.6 Hibbett Sports, Inc. Non-Employee Director Restricted Stock Unit Award Agreement
(Initial Grant, Service Requirement); incorporated herein by reference to Exhibit 10.3 to
the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 17, 2012.
10.7 Hibbett Sports, Inc. Non-Employee Director Non-Qualified Option Agreement (Annual
Grant; Fully Vested); incorporated herein by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 17, 2012.
10.8 Hibbett Sports, Inc. Non-Employee Director Restricted Stock Unit Award Agreement
(Annual Grant; Fully Vested); incorporated herein by reference to Exhibit 10.5 to the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 17, 2012.
10.9 Amended and Restated Agreement of Lease between Hibbett Sporting Goods, Inc. and
AL Florence Realty Holdings 2010, LLC, dated October 3, 2011; incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 26, 2012.
10.10 Change in Control Severance Agreement; incorporated herein by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 24, 2008.
10.11 Executive Restricted Stock Unit Award Agreement; incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 11, 2008.
10.12 Hibbett Sports, Inc. 2015 Equity Incentive Plan; incorporated herein by reference to
Appendix A to the Registrant’s Definitive Proxy Statement filed with the Securities and
Exchange Commission of April 23, 2015.
10.13 Hibbett Sports, Inc. 2016 Executive Officer Cash Bonus Plan; incorporated herein by
reference to Appendix A to the Registrant’s Definitive Proxy Statement for the 2016
Annual Meeting of Stockholders filed with the Securities and Exchange Commission on
April 21, 2016.
10.14 Hibbett Sports, Inc. Executive Voluntary Deferral Plan; incorporated herein by reference
to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 20, 2009.
10.15 Hibbett Sports, Inc. 2015 Employee Stock Purchase Plan; incorporated herein by
reference to Appendix B to the Registrant’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 23, 2015.
10.16 Hibbett Sports, Inc. 2015 Director Deferred Compensation Plan; incorporated herein by
reference to Appendix C to the Registrant’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 23, 2015.
- 73 -
Number
Description
Page
10.17 Standard Restricted Stock Unit Award Agreement; incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on December 7, 2016.
10.18 Executive Restricted Stock Unit Award Agreement; incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on June 13, 2018.
Subsidiaries of the Registrant
21 List of Company’s Subsidiaries:
1) Hibbett Sporting Goods, Inc., a Delaware Corporation
2) City Gear, LLC, a Tennessee Limited Liability Company
3) Hibbett Digital Management, LLC, an Alabama Limited Liability Company
4) Gift Card Services, LLC., a Virginia Limited Liability Company
5) Hibbett Wholesale, Inc., an Alabama Corporation
6) Hibbett Holdings, LLC, an Alabama Limited Liability Company
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 Principal Executive Officer (filed herewith)
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
67
68
69
70
Interactive Data Files
The following financial information from the Annual Report on Form 10-K for the fiscal
year ended February 2, 2019, formatted in XBRL (eXtensible Business Reporting
Language) and submitted electronically herewith: (i) the Audited Consolidated Balance
Sheets at February 2, 2019 and February 3, 2018; (ii) the Audited Consolidated Statements
of Operations for the fiscal years ended February 2, 2019, February 3, 2018 and January 28,
2017; (iii) the Audited Consolidated Statements of Cash Flows for the fiscal years ended
February 2, 2019, February 3, 2018 and January 28, 2017; (vi) the Audited Statements of
Stockholders’ Investment for the fiscal years ended February 2, 2019, February 3, 2018 and
January 28, 2017; (v) the Notes to Audited Consolidated Financial Statements.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
* XBRL Instance Document
* XBRL Taxonomy Extension Schema Document
* XBRL Taxonomy Extension Calculation Linkbase Document
* XBRL Taxonomy Extension Definition Linkbase Document
* XBRL Taxonomy Extension Label Linkbase Document
* XBRL Taxonomy Extension Presentation Linkbase Document
* Filed Within
Item 16. Form 10-K summary.
Not applicable.
- 74 -
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
HIBBETT SPORTS, INC.
Date: April 18, 2019
By:
/s/ Scott J. Bowman
Scott J. Bowman
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jeffry O. Rosenthal
Jeffry O. Rosenthal
/s/ Scott J. Bowman
Scott J. Bowman
/s/ Michael J. Newsome
Michael J. Newsome
/s/ Anthony F. Crudele
Anthony F. Crudele
/s/ Jane F. Aggers
Jane F. Aggers
/s/ Karen S. Etzkorn
Karen S. Etzkorn
/s/ Terrance G. Finley
Terrance G. Finley
/s/ James A. Hilt
James A. Hilt
/s/ Ralph T. Parks
Ralph T. Parks
/s/ Alton E. Yother
Alton E. Yother
Chief Executive Officer, President and
Director (Principal Executive Officer)
April 18, 2019
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
April 18, 2019
Chairman of the Board
April 18, 2019
Lead Director
April 18, 2019
April 18, 2019
April 18, 2019
April 18, 2019
April 18, 2019
April 18, 2019
April 18, 2019
Director
Director
Director
Director
Director
Director
- 75 -
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CORPORATE INFORMATION
Corporate Offices
2700 Milan Court
Birmingham, Alabama 35211
(205) 942-4292
www.hibbett.com
Stock Transfer Agent and Registrar
Computershare Investor Services
P.O. Box 505000
Louisville, Ky 40233-5000
(800) 368-5948
Stockholders seeking information concerning stock
transfers, change of address, and lost certificates should
contact Computershare directly.
Annual Meeting
The 2019 Annual Meeting of Stockholders will be held at the
principal executive offices of Hibbett Sports, Inc., 2700 Milan
Court, Birmingham, Alabama, on Thursday, May 23, 2019, at
11:00 A.M., local time.
Company Counsel
Williams Mullen
Washington, D.C.
Independent Registered Public Accounting Firm
KPMG LLP
Birmingham, Alabama
Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K for
the fiscal year ended February 2, 2019, as filed with the
Securities and Exchange Commission, may be obtained
without charge upon written request to the Company’s
Investor Relations department.
BOARD OF DIRECTORS
Michael J. Newsome
Chairman of the Board,
Hibbett Sports, Inc.
Alton E. Yother
Senior Executive Vice President and
Chief Financial Officer (Retired),
Regions Financial Corporation
Jane F. Aggers
Consultant
OFFICERS
Anthony F. Crudele
Lead Director
Executive Vice President, Chief
Financial Officer and Treasurer
(Retired),
Tractor Supply Company
Karen S. Etzkorn
Chief Information Officer,
Qurate Retail Group
Terrance G. Finley
Chief Executive Officer and President,
Books-A-Million, Inc.
James A. Hilt
President- Consumer Division,
Shutterfly, Inc.
Ralph T. Parks
President,
RT Parks, Inc.
Jeffry O. Rosenthal
Chief Executive Officer, President
and Principal Executive Officer,
Hibbett Sports, Inc.
Jeffry O. Rosenthal
Chief Executive Officer, President and
Principal Executive Officer
Jared Briskin
Senior Vice President and
Chief Merchant
Scott J. Bowman
Senior Vice President, Chief Financial
and Principal Accounting Officer
Cathy E. Pryor
Senior Vice President of Operations
2700 MILAN COURT | BIRMINGHAM, AL 35211
205.942.4292 | WWW.HIBBETT.COM