Hibbett, Inc.

Hibbett, Inc.

$87.49
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NASDAQ Global Select
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Apparel - Retail

Hibbett, Inc. (HIBB) Q4 2016 Earnings Call Transcript

Published at 2016-03-11 14:33:10
Executives
Patrick J. Watson - Senior Vice President & Principal, Corporate Communications, Inc. Jeffry O. Rosenthal - President, Chief Executive Officer & Director Jared Briskin - Chief Merchant & Senior Vice President Scott J. Bowman - SVP, Chief Financial & Accounting Officer
Analysts
Stephen Tanal - Goldman Sachs & Co. Rafe Jason Jadrosich - Bank of America Merrill Lynch Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker) Dan R. Wewer - Raymond James & Associates, Inc. David G. Magee - SunTrust Robinson Humphrey, Inc. Anthony C. Lebiedzinski - Sidoti & Co. LLC Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker) Camilo Lyon - Canaccord Genuity, Inc. N. Richard Nelson - Stephens, Inc. Sam Poser - Sterne Agee CRT Mark E. Smith - Feltl & Co. Christopher Svezia - Susquehanna Financial Group LLLP Mike Baker - Deutsche Bank Securities, Inc. Mitch Kummetz - B. Riley & Co. LLC
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports fourth quarter and year-end 2016 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Friday, March 11, 2016. I would now like to turn the conference over to Pat Watson with Corporate Communications. Please go ahead, sir. Patrick J. Watson - Senior Vice President & Principal, Corporate Communications, Inc.: Thank you everyone for joining Hibbett Sports to review the company's financial and operating results for the fourth quarter and fiscal year 2016, which ended on January 30, 2016. Before we begin, I would like to remind everyone that management's comments in this conference call that are not based on historical facts are forward-looking statements. Management may make additional forward-looking statements in response to your questions. These statements, which reflect the company's current views with respect to future events and financial performance are made in the reliance on the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company's future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued earlier this morning in the company's Annual Report on Form 10-K, and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information. I'd now like to turn the call over to Jeff Rosenthal, Chief Executive Officer. Please go ahead, Jeff. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you, and good morning everyone, Welcome to the Hibbett Sports fourth quarter earnings call. I have with me this morning Scott Bowman, Senior VP and CFO; Jared Briskin; Senior VP and Chief Merchant, and Cathy Pryor, Senior VP of Store Operations. Fourth quarter comparable store sales decreased 0.6%. We were very pleased with our holiday sales, driven by improved assortments, new items and our improved replenishment capabilities. Our sales softened in January as we experienced significant difficulties with weather, which caused store closures and also impacted by the delays and tax refund activity. Looking forward, we are confident that our merchandise initiatives will continue to provide benefits as we enter into the important spring season. For the year, Hibbett opened 71 new stores, expanded 16 high-performing stores, and closed 15 underperforming stores, bringing the store base to 1,044 in 33 states as of January 30, 2016. Our real estate strategy which is to go to small markets and to go where we are needed, continues to prove that we have a unique niche in the marketplace. There are many markets throughout the U.S. that we can open stores and keep to our model of small market. We have the opportunity to grow to 1,500 stores in the 33 states that we currently operate in, and much more than 1,500 stores as we expand to other states. Sales thus far in the first quarter are up mid-single digits. This is very encouraging as we start the new year. Our footwear business continues to be very good and look forward to growing that throughout this year. We will no longer give guidance on where we are quarter to date after this conference call. We feel that there are so many volatilities between launch products, holiday shifts, and things that are out of our control to give us a good read to make judgment on the quarter. We are very excited about hiring Bill Quinn as our VP of Digital Commerce. He will provide leadership and guidance necessary to drive our ongoing omni-channel initiative. Bill has approximately 20 years of diverse work experience including digital marketing, merchandising, sales, customer service, and process improvement. He brings more than 11 years of experience in growing e-commerce business across a wide variety of industries and platforms. We have been laying the foundation for this, and we are excited to be able to move forward faster on this major initiative. I would like to thank all our associates for their hard work and dedication to Hibbett's. And now, I'll turn the call over to Jared Briskin, Senior VP of Merchandise, to talk about our merchandise trends. Jared Briskin - Chief Merchant & Senior Vice President: Good morning. Thank you, Jeff. During the fourth quarter, demand for seasonally-relevant product was significantly impacted by the warm weather. These impacts were felt in our equipment and accessory business, but had the largest impact in apparel, affecting both branded and licensed apparel. Significant investments and assortment changes were made in seasonal categories. Early reads on this assortment were encouraging, and we felt that when we did see the cold weather, we were in a great position. But unfortunately, the weather seemed to never cooperate and the business was impacted. Declines in seasonal product impacted our comp performance by 230 basis points. Apparel was down high-single digits due to the seasonal impacts. While still not performing to acceptable levels, the changes in assortment focusing on more premium fashion styles absolutely performed better than the balance of our assortment, and continue to give us confidence in our future direction for the apparel category. Bottoms were the bright spot for the category as Nike, adidas and Levi's performed well. Accessories were challenged by the weather, as gloves, scarves and winter hats struggled. The sock category also has seen continued challenges stemming from a fashion change. The team did a great job of finding some hot items such as YETI cups and coolers to offset some of the losses. The licensed business was down mid-single digits. Our team did an excellent job of executing some significant events during the quarter, including the Royals World Series win, the Panthers NFC Championship and Super Bowl appearance and the Alabama National Championship. While these events were significant, they were not enough to offset less demand for the category as a whole and the seasonal issues. The team sports business was down low single digits. Cleated business was positive, but equipment lagged due to selling less seasonal items like receiver's gloves, hand warmers and skull caps. We continue to see significant upside and potential in our footwear business. Footwear had a very strong quarter, up mid-single digits. All genders were positive, led by our women's business up high-single digits. At the end of the quarter, we did see a significant impact to our business due to delays in tax refunds which drive a large part of our sneaker business in the latter part of January and in February. From a category perspective, our lifestyle and casual businesses were the healthiest, posting double-digit growth. Basketball was up mid-single digits and performance running was down low-single digits. The consumer is clearly choosing running products that are more lifestyle-influenced over traditional performance running shoes. Strong performances from brand Jordan to Nike, Timberland, Under Armour and a resurgence from adidas drove our footwear growth. From an inventory perspective, we are more elevated than we would like, and we are working very hard to bring the sales and inventory relationship closer. The majority of the overage is due to investments in our sneaker business and to ensure we were prepared with inventory for the important tax refund season. The balance of the overage is the result of the difficult January sales, as well as poor performing categories and seasonal apparel. Our partners have been fantastic in helping us manage the inventory levels in-season through cancellations and returns. During first quarter, we have additional work to accomplish regarding returns, and we are confident the seasonal inventory will not have a meaningful impact on our results. Due to the investments in our sneaker business, we will continue to have an elevated inventory level. First quarter inventory levels will be elevated as compared to last year than were closely aligned with sales growth than at the end of our last fiscal year. Q2 inventory levels will be significantly higher as we not only invest in the sneaker business, but also ensure the timing of delivery to capitalize on the back-to-school business. We expect the back half of the year to be more normalized as we take advantage of our save-the-sale opportunities and rebalance some of the category investment. Our results thus far in the first quarter give us continued confidence in our strategy. Challenges do persist around some of our businesses, and we are taking a more strategic approach at the management and investment levels in these businesses. Our primary growth driver remains footwear, and we have made significant investments trying to leverage this opportunity. I'll now turn the call over to Scott Bowman to discuss our financial results. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thanks, Jared, and good morning. For the fourth quarter, total sales increased $6.4 million to $245.7 million, an increase of 2.7% over the prior year. Comp sales were down 0.6%. By month, comps were down 9.7% in November, positive 7.8% in December, and negative 9.9% in January. Gross profit rate decreased 74 basis points in the quarter. Product margin decreased 41 basis points, mainly due to markdowns associated with liquidating seasonal and aged inventory. Warehouse and store occupancy increased 33 basis points as a percent of sales, which was due to deleverage of these expenses associated with lower comp sales. SG&A expenses increased 9.4% in the quarter and increased 134 basis points as a percent of sales. This was partially due to deleverage associated with lower comp sales as well as overlapping a very favorable fourth quarter from last year. Depreciation and amortization increased two basis points as a percent of sales in the quarter, mainly due to capitalization of IT projects and the addition of new stores. The income tax rate for the quarter was 36.8%, which compared to last year's rate of 37.5%. Operating income of $27.6 million decreased 13.5% from last year and was 11.2% of sales versus 13.4% last year, a decrease of 211 basis points. Diluted earnings per share came in at $0.76 per share versus $0.79 per share last year, a decrease of 3.8%. For the full year, I'd also like to mention a few highlights. Total sales were up 3.2%, while comp store sales decreased 0.4%. Gross profit rate was down 50 basis points, while SG&A expenses increased 51 basis points as a percent to sales. Operating income decreased 106 basis points to 11.9%, and earnings per diluted share of $2.92 increased 1.7%. From a balance sheet perspective, the company ended the quarter with $32.3 million in cash versus $88.4 million last year, with no borrowings outstanding on our revolving credit facilities. Inventories increased 17.8% over last year and were 11.4% higher on a per-store basis. We spent $8.3 million in CapEx for the quarter. Also for the quarter, the company bought back 99,000 shares for a total of $3.4 million. The company's Board of Directors approved a new authorization of $300 million in November 2015, and the total authorization was available for future repurchases as of January 30, 2016. As we turn our focus to fiscal 2017, I would like to provide some highlights related to our guidance. I would like to start with some assumptions in our guidance related to our omni-channel initiative and will then provide details on our consolidated financials. For fiscal 2017, we expect to roll out our new POS system, which will enable phase one of our omni-channel initiative. This phase will provide inventory visibility across the chain and will facilitate store-to-store transfers to complete a customer sale. This functionality is expected to be operational in the third quarter. This phase will also include a new CRM capability, which will allow us to more effectively communicate and market to our database of over 5 million loyalty members. Phase two will include a store-to-home capability, and is expected to be in pilot by the end of fiscal 2017. This phase will allow us to use our chain-wide inventory to satisfy a customer sale by shipping directly to the customer's home. Phase three will enable digital commerce and is expected to launch in the back half of fiscal 2018. Once implemented, digital will be fully integrated with our brick-and-mortar stores and will provide the seamless omni-channel experience for our customers. Based on this timeline, I will now provide some financial estimates for this initiative. For fiscal 2017, we expect to spend $16 million to $18 million in capital for this initiative. This will include the rollout of our new POS system across all of our stores, preparation for our store-to-home capability, and early design and development work for digital commerce. We expect to incur an incremental impact of approximately $0.14 to $0.16 per share for this initiative in fiscal 2017. Depreciation will comprise approximately $0.08 of this impact, which will be concentrated in the back half of the year. Now that I have provided context on our omni-channel initiative, I would now like to provide details on our consolidated guidance for fiscal 2017. For the year, we expect comparable store sales to increase in the low single-digit range. We plan to add 40 to 50 net new stores and expand 10 to 15 existing stores. We expect earnings per diluted share to be in the range of $2.90 to $3.04. Keep in mind that the overlap of last year's favorable legal settlement will reduce EPS by $0.05 compared to last year. For gross margin, we expect product margin to be approximately flat, and logistics and store occupancy expenses to increase by approximately 10 basis points. With respect to SG&A, we expect that our omni-channel initiative will negatively impact SG&A by approximately 45 basis points. Additionally, increased healthcare cost and other IT initiatives will increase SG&A by an additional five to 10 basis points. And the overlap of last year's legal settlement will result in a 20 basis point increase. Depreciation is expected to increase 30 to 35 basis points, mainly due to the capitalization of our new POS system, which is expected in the second quarter. We expect our tax rate to be in the range of 37% to 37.2% for the year. Our earnings per share guidance reflects the continuation of our share buyback program, and we expect a weighted average share count of 22.5 million to 22.7 million at the end of the year. For capital expenditures, we expect to spend $35 million to $40 million, as we invest in our omni-channel initiative, grow our store base, and execute on our strategic initiatives to improve the business. With that preview of fiscal 2017, operator, we are now ready for questions.
Operator
Thank you. The first question is from the line of Steve Tanal with Goldman Sachs. Please go ahead. Steve Tanal, your line is open. Stephen Tanal - Goldman Sachs & Co.: Thanks, can you guys hear me? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Yes. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Yes. Stephen Tanal - Goldman Sachs & Co.: All right, thanks a lot. So I guess the first thing I'd ask, could you just give us a sense on traffic and ticket during the quarter? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: It's really a similar trend as what we've seen over the last few quarters. Ticket was up in mid-single digits and traffic was down mid-single. In traffic, we just use transactions as a proxy to that. Stephen Tanal - Goldman Sachs & Co.: Sure, got it. Okay, and then one thing we noticed. I guess the new store productivity, at least by our math, seems to come in a little bit light. Is there anything weird in the timing of openings here, or is there something to call out in new stores? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: No, I think what we're seeing, Stephen, is just a little bit of drop-off in productivity, mainly due to lower comps that we've seen, and that's typically what we see over time. With the mid-single comp that we're running so far quarter to date, we've seen those new stores pick up, so it has gotten better just within the last few weeks. Stephen Tanal - Goldman Sachs & Co.: Okay, makes sense. And then just lastly here, if you could, comment maybe on what your initial thinking for investments will look like in 2017 and maybe 2018 too. Obviously, more of the omni-channel kind of push happens later. Any sense for how you're thinking about that? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I have some limited sense, yes, but not a lot of details at this point. I think the way to think about it for calendar 2017 and beyond is – this year, I kind of laid it out in good detail. For the next year, what I would anticipate is that the overall impact to the P&L would be about the same or maybe slightly less. But, what we'll see over time is the depreciation will continue to be an impact. SG&A will still be there, but we'll start to get some revenue to offset some of those increases. But, net-net, I would expect it to be flat to slightly down for total P&L impact. Stephen Tanal - Goldman Sachs & Co.: In terms of like the year-on-year step up as in like what we got this year, $0.14 to $0.16 stays in the base, and then maybe it's something less than $0.14 to $0.16 step up. Did I understand that right? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Exactly right. Stephen Tanal - Goldman Sachs & Co.: Got it. Okay. And I guess just lastly, sort of, before we move on, just the 40 to 50 net new stores, little bit lower than we'd modeled. Is that kind of the right pace to think about going forward? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Right now we're just looking at making sure that we have good quality doors. And that's just a range that we're looking at. It could be higher. But we're just looking to make sure that we're opening good quality stores, but that's a pretty good range to base it off of. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: We want to be a little on the conservative side there, but if we do find more stores that are attractive, we'll certainly open them. Stephen Tanal - Goldman Sachs & Co.: All right, thanks a lot, guys. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you.
Operator
The next question is from the line of Rafe Jadrosich with Bank of America Merrill Lynch. Please go ahead. Rafe Jason Jadrosich - Bank of America Merrill Lynch: Hi, good morning. Thanks for taking my question. I just wanted to dig in on the same-store sales guidance for the year. I think in the past, you've usually kind of guided to low to mid-single digits to start the year. You're running at a mid-single-digit rate quarter to date. It sounds like some of the new merchandising is working. I just wanted to get some color on sort of your assumptions that get you to the low-single digit comps for the year. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: We're just being conservative with some of the tax refund shifting in to February and some of the difference in weather and stuff. We're just being conservative. Hopefully, we can run higher, but we're just making sure that we can hit the numbers and being a little bit more conservative. Rafe Jason Jadrosich - Bank of America Merrill Lynch: Thank you, that's helpful. And then just in terms of the gross margin outlook, just can you talk about sort of the impact of the inventory clearance? How you expect that to play out? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I think from an inventory and clearance and age perspective, we feel very good about our inventory. We're certainly concerned about the elevation, and we have plans to address that through a lot of initiatives particularly returns. So, we don't see a significant markdown pressure coming from the elevation of the inventory. Some of it is timing and some of it is the investments that we're doing purposely within our sneaker business and making sure that we time those investments properly. From a markdown perspective, we feel very good about some of the results that we saw from our markdown optimization system last year. And we feel like those will continue as we go forward into this year. So, again, we feel comfortable with where we guided on the rates, but don't expect the elevation of inventory to have a meaningful impact to the margin. Rafe Jason Jadrosich - Bank of America Merrill Lynch: And then last question, can you just talk about the potential benefit of the Sports Authority store closures? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I can start off. I don't think, as you look at where those stores are located, I don't think we'll see a meaningful benefit there. So we're really not modeling anything for that. If we get a little bit, fine, but it's really just a handful of our stores that would be close enough to have a meaningful impact. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: From a real estate perspective, it may open some opportunities in some markets that there may be a need for us somewhere. But overall, I agree with Scott, it's not very impactful. Rafe Jason Jadrosich - Bank of America Merrill Lynch: Great, thank you.
Operator
The next question is from the line of Seth Sigman with Credit Suisse. Please go ahead. Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker): Thanks a lot and good morning. I just wanted to follow up on the store growth question. So the 40 to 50 stores, I think you said you're being conservative, but the messaging does seem to be a little bit different than in the past. So can you just help us understand that a little bit more? Is the implication that you're just not seeing as many opportunities for stores or should we interpret it as may be a shift in the capital allocation strategy just given that you've been buying back a lot more stock also and clearly have a big investment in e-commerce currently? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I'll provide a little color on that. I think, if you look at this year, we are raising the bar a little bit as far as the hurdle rate just to make sure that we do get quality stores. And I think what you'll see too is as we look at California more intently, we may see some opportunity there. We've done some work there already and see some pretty good opportunity. And so really, it's more of that just being a little bit more conservative in trying to raise the bar a little bit on the volume of those new stores, especially with the work we're doing on omni-channel. So it's a combination of those two things. Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker): Okay, got it. And then, just back on the question regarding investments for 2017, thanks for the color there. I guess one follow-up would be, this year you're expecting net income to be down. Would you be thinking that net income would be down again in FY 2018 – 2017? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: It's a little too early to tell. I think it will be much closer. I think it will be better in the following year. And as we go throughout the year, we'll have a better vision of that. But, the way that I look at it is that this year should be the peak as far as the P&L impact and then it should moderate some next year and even more so the following year. Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker): Okay. And just a follow-up on that point, even though investments should peak, I guess as you prepare for e-commerce, how do you think about the actual implications from operating an e-commerce business, I guess the actual dilution that you could potentially see from running that business versus what's been pretty high store operating margins? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I think what you'll see is you'll see acceleration in sales. And I think, as you look at the percentage gross margin and percentage operating income, that will grow more slowly, because the additional sales that we'll get from an e-commerce business will be very beneficial to the topline, but the margin will be somewhat less mainly due to freight cost. Over time, I think we will be able to mitigate those freight costs somewhat, but it will be a lower percentage than our brick and mortar stores. Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker): Okay. Thanks, Scott. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Sure.
Operator
The next question is from the line of Dan Wewer with Raymond James. Please go ahead. Dan R. Wewer - Raymond James & Associates, Inc.: Jared, I want to follow up with you on the inventory commentary. So we finished the year up 11% per store. Can you quantify how much that 11 percentage points is just getting caught with too much inventory because of the sales results in the fourth quarter? Jared Briskin - Chief Merchant & Senior Vice President: Yeah. It would in the 3% to 3.5% range from an inventory perspective from the sales. And then again we did make some pretty significant planned investments that would be the balance of it. Dan R. Wewer - Raymond James & Associates, Inc.: So if sales had met plan, you still would have planned for inventory to be entering the new year up 8% year over year even though same-store sales are projected to be up low single digit? Jared Briskin - Chief Merchant & Senior Vice President: That's correct. And I think a lot of it is the timing to ensure that the right level of inventory was there for the tax refund season in February and then trying to balance the rest of the inventory throughout the balance of the quarter. Last year, as an example of the balance of the inventory didn't peak when the inventory needed to peak based off the selling season. So we're trying to ensure that our inventory is peaking at the right time from when we expect to realize the sales opportunity. Dan R. Wewer - Raymond James & Associates, Inc.: Did I hear correctly that you plan for a further acceleration in the second quarter? Jared Briskin - Chief Merchant & Senior Vice President: We do. And again, that really revolves around those peaks as well and in particular with our footwear business. Outside of the December month of holiday, which I think everyone is familiar with, our two peaks or the first month of our first quarter and the first month of our third quarter, and they're early in those months. So it does put some pressure on the end-of-quarter inventory number just to ensure that we've got the right level of inventory to maximize those peaks along with the investments that we're making. Dan R. Wewer - Raymond James & Associates, Inc.: But, given that, we talk about this year over year, is there a change in strategy with the allocation of inventory? Jared Briskin - Chief Merchant & Senior Vice President: Yes, there is. First and foremost, the change in the strategy, number one, is to ensure that we have the right level of inventory based off of the forward sales that we're looking at and time it properly, so that would be one thing. We do have some offsets planned to the investments that we're making in the footwear business and some of the other poor-performing categories, some being retraction of some categories and some being operating some of those categories in the lower store base based off the consumer that's shopping in those stores. So lot of work being done on the inventory line, but first and foremost, to ensure that we've got the most impactful product at the right time when the consumer is coming in to shop. Dan R. Wewer - Raymond James & Associates, Inc.: And then a question for either Scott or Jeff as it relates to the POS rollout. When does that begin to pilot? And is the rollout later than what you were scheduling past year? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: It's a little bit later than what we originally anticipated. Right now, we think that it will be piloted in the second quarter. And so it's slightly later for a variety of reasons, but I think the important thing is that, as we look at it now, we're on track, and as time goes by, there's fewer and fewer hurdles to get over. And so we feel pretty comfortable that we'll be able to pilot in the second quarter. Dan R. Wewer - Raymond James & Associates, Inc.: And you're thinking the ship-to-home capability would be in place by the holiday season of this year or does that fall into calendar 2017? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: That would be great if we can get it in place for holidays, so we will definitely push for that. Originally, we had targeted more towards the end of the year, but some of the work we've done to this point has given us a little bit of a head start there. So we would really like to get it in for holiday if possible. Dan R. Wewer - Raymond James & Associates, Inc.: Okay, great. Thank you. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you. Jared Briskin - Chief Merchant & Senior Vice President: Thanks, Dan. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you.
Operator
The next question is from the line of David Magee with SunTrust. Please, go ahead. David G. Magee - SunTrust Robinson Humphrey, Inc.: Yeah. Hi, good morning. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Good morning, David. Jared Briskin - Chief Merchant & Senior Vice President: Good morning, David. David G. Magee - SunTrust Robinson Humphrey, Inc.: The business being better so far in the first quarter, mid-single digits. So which of the metrics drives that? Is it traffic that's the primary variable that gets better or ticket or both? Jared Briskin - Chief Merchant & Senior Vice President: It's a little bit of both. I mean, the traffic gets better. There certainly is more cash in the marketplace due to tax refunds, which is a big driver. And the composition of the sales during the early part of first quarter is leaning significantly towards footwear, which is our strength and is certainly driven by that tax refund consumer. David G. Magee - SunTrust Robinson Humphrey, Inc.: Okay, thanks, Jared. And then you mentioned merchandise opportunities on the apparel side by having more premium product. Do you see as much opportunity on the equipment side or footwear? Jared Briskin - Chief Merchant & Senior Vice President: We do. I think the strategy overall for all categories is to focus on premium. That's been our strategy and we will continue to try and leverage that throughout this year. We feel like that's where we can do the best job of bringing that most important premium product into underserved isolated markets. So we want to assure that the merchandising strategy aligns with the real estate strategy. That is where we're the most successful. So we have those opportunities everywhere. We're a little bit further developed with regard to premium positioning in equipment and in our cleated area than we are at apparel today. So I think that's where the most upside in executing that strategy based off of where we are remains in apparel. But we're further along with that strategy on the equipment side. David G. Magee - SunTrust Robinson Humphrey, Inc.: Thank you. And just lastly, phase one, I guess it's the store-to-store shipping, and phase two, how impactful could that be to sales, do you think? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: For the store-to-store, we're not counting on a big impact there. I think there will be some benefit as the stores are able to see that inventory across the chain. And so we may pick up some sales resulting from that. We think the bigger inflection point will be when we are able to ship to a customer's home. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: And we also feel the CRM capabilities which we'll have, will also help us drive footsteps to our stores. So hopefully from that, we'll be more targeted marketing. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: And that's one of the areas where the IT team has done a very good job and actually accelerated that piece of it, because it can be very impactful for us and the old system that we had was very antiquated and so there is a lot of work that has been done to get that CRM capability moved up a bit and we feel like there's definitely some opportunity there. David G. Magee - SunTrust Robinson Humphrey, Inc.: Great. Thanks, guys. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you. Jared Briskin - Chief Merchant & Senior Vice President: Thanks, David.
Operator
The next question is from the line of Anthony Lebiedzinski with Sidoti & Company. Please go ahead. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Good morning. Thank you for taking the questions. So first, could you perhaps quantify what you thought is the estimated impact of the later tax refunds in the fourth quarter? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: What I would say, Anthony, is as you look at the tax refunds and some of the store closure rolled into that, we're up mid-single digits, and I think that's the main driver, the shift to those tax refund. If you just look at the negative 10% or so that we did in January, main driver of that and as that flowed into February, it gave us the benefit. So had we not had that shift, that mid-single, I think we'd be closer to a lower single-digit kind of run rate. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Okay, that's helpful. Okay, and then can you tell us how many members do you have in your MVP Rewards program? And do you expect to make any changes as to the rewards that those customers get? If there's any kind of update on that, that would be great. Jared Briskin - Chief Merchant & Senior Vice President: I think our marketing team has done an exceptional job of driving – along with our operations team, driving growth not only in our loyalty program, but also our mobile program as well as all of our social programs. We see significant year-over-year growth in all of those. I think the biggest opportunity that we have is how we utilize that information with the new CRM tool. There are significant advancements that we can make with regard to how we communicate and how we personalize, as well as how we reward our consumers. So the buildup in the base of all those initiatives has been very substantial, but we haven't fully been able to leverage the opportunity with the information. So that's an exciting thing we can do with the new CRM tool, as we really communicate better, personalize, and hopefully drive business utilizing the rewards. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Got it. And what's the number of reward members do you have currently? Jared Briskin - Chief Merchant & Senior Vice President: It's over 5 million. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Over 5 million. Got it. Okay. And lastly on the store expansion, so I think you're planning 10 to 15 this year after 2016 in this last fiscal year. So can you just tell us about the results that you're seeing from those, and what's the opportunity going forward for additional store expansions in the long run? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: We continue to look at that. Those stores have been performing at a much higher rate. And we have to make sure that we get the right real estate and its availability, so it's really a moving target as we go. There are over 100 stores that we'd love to expand on if the right real estate became available or the store next door closed. So it's still a huge opportunity for us, and we think that we'll continue to do that. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Okay, thank you. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you.
Operator
The next question is from the line of Peter Benedict with Robert Baird. Please go ahead. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): All right, guys. Thanks. First, Jeff, you had mentioned when you were discussing Bill coming on board being able to move forward faster on some things. So I know you guys laid out some of the timing of phase two, phase three. With respect to phase two, do you think you'll have it up and running by holiday 2016? And with respect to the e-commerce or phase three, do you think that will be functional by holiday 2017? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Phase one, we hope to have it for back-to-school. The ship-to-home to a customer, we hope to have it by holiday. And then hopefully, we have planned second half; hopefully it can be sooner of calendar 2017. So we are starting to really pick up the pace as we speak, and so we do think it will be in hopefully back-to-school of 2017. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): Okay, that would certainly be good. What's your latest thoughts on owning the e-commerce business outright versus maybe partnering with a third party? And how would that decision influence maybe the timing of being up and running? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: That's one of the reasons why we think we can accelerate it a bit, because as we've done more research and as Bill has come on board, we're pretty well aligned with the fact that it would be best for us to outsource it as more of a software-as-a-service type of model. And I think where we are, that would be the best way to do it from a complexity standpoint and from a speed standpoint. And so that's the path that we're going down, and we feel very comfortable with that. And so we'll see how it goes. The website is one piece of it. There are some DC modifications that we need to make and some other things that we have to also bring up to speed to go live. And so we're going as fast as we can, and Bill is certainly going to be a big part of that. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): All right, that's good. Scott, have you guys chosen a partner yet, or are you still evaluating? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: We're still evaluating, but we're getting close. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): Okay. And just back to D&A, I think just the numbers you laid out, Scott, it implies a $20 million to $21 million D&A number for 2016. Is our math right there? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: It is. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): Okay. And then lastly just for Jared, can you talk a little bit about the footwear ASP trends? What have you been seeing, particularly at the higher ends? What's been happening in terms of footwear ASPs? Jared Briskin - Chief Merchant & Senior Vice President: Our overall ASPs continue to rise. There are still some things performing very well at the high that are certainly exceeding expectations and other things that have gotten a little bit softer. Category by category overall, we are seeing ASPs grow in virtually all of our footwear categories. And we're certainly working very closely with our vendors to ensure that the product that is coming to market does have a good price-to-value component to it and particularly at that high end. But there are a significant number of products that I would consider to be at the high end of the spectrum that are performing exceptionally well at this moment, so we still see room as we continue to develop our premium positioning. We still see some room to increase our average price points. Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker): Okay, great. Thank you, guys. Jared Briskin - Chief Merchant & Senior Vice President: Thank you. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you.
Operator
The next question is from the line of Camilo Lyon with Canaccord Genuity. Please go ahead. Camilo Lyon - Canaccord Genuity, Inc.: Thanks. Good morning, guys. Jared Briskin - Chief Merchant & Senior Vice President: Good morning. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Good morning. Camilo Lyon - Canaccord Genuity, Inc.: Scott, just going back on your comments around outsourcing e-com, so it sounds like not only are you going to have natural gross margin compression just by the mere fact of what e-commerce and the investment that it undertakes, but now with the likely fees that you'll have to pay a third party to run that business, how much lower do you expect e-commerce EBIT margins to be versus your store-based EBIT margins? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I think right now it could be eight to 10 points, but it's really too early to tell exactly. I think there definitely will be some headwinds with freight cost and things like that. But we also see some good leverage on our fixed cost with store occupancy and things like that as well as some potential benefit on gross margin in the stores as we're able to get that inventory visibility across the chain and clear some of that aged inventory much more efficiently than we have in the past. Also with our markdown optimization system, that continues to show promise. If you look sequentially throughout last year quarter by quarter, our product margin improved versus the prior year. Q4 was the exception to that, but that was mainly because we cleared some aged inventory. So that will also help us mitigate that as we go forward. Camilo Lyon - Canaccord Genuity, Inc.: Okay, great. Thanks for the color. And then, Jared, just going back to the product discussion, could you dig in a little bit into what has been working and what's not been working well in basketball? And similarly, on the performance running piece, what has been working and what hasn't been working? Is there a shift within the product categories that's more dictated by consumers just going away from a particular brand or a particular product, or is this just a much more casually driven shift that's going away from the performance piece? Jared Briskin - Chief Merchant & Senior Vice President: I think first, to answer your question with regard to the performance product, we absolutely see a shift from a consumer standpoint to a more casual-based product versus the performance product, particularly in the running category. A lot of the retro product or a product that has retro DNA to it or is more based from a comfort perspective seems to be really resonating with the consumer versus the performance running category. So we're trying to look at all the categories, in particular, running and all the different pieces of running again just to ensure that as we look at those lines and we put that assortment together, that we are trying to cater to all of our consumers, which is very important. But, in particular, the teenage consumer that drives a lot of the sneaker businesses very interested in more of that casual running versus the performance running. From a basketball perspective, I mentioned earlier the Jordan business continues to be excellent. I mean, we continue to see significant upside there. And certainly, a lot of that product is at very high price points when you look at the whole market, and it's performing exceptionally well. Some of the other basketball products, some athletes are performing very well such as Kyrie Irving, such as Steph Curry, and some of the athletes, maybe a KD. or a LeBron aren't performing as well right now. Some of that, we do believe, is a product issue, it's not necessarily as much of a consumer issue, but the value component isn't there in some of those products. So we expect to get that better over time. Basketball, holistically was a mid single-digit gainer for us and was actually trending above that until we got to the last couple of weeks of the quarter. So we still feel very confident in the basketball category. It is changing some, but we certainly feel very confident in it. Camilo Lyon - Canaccord Genuity, Inc.: So just to be clear, it sounds like it's much more of a product issue within basketball versus a category issue? Jared Briskin - Chief Merchant & Senior Vice President: That's correct. Camilo Lyon - Canaccord Genuity, Inc.: That describes your deceleration? Jared Briskin - Chief Merchant & Senior Vice President: Absolutely. Camilo Lyon - Canaccord Genuity, Inc.: And as far as you can tell, is there any sort of visibility that you have into the product that you've seen that would point to a resumption of those athlete shoes that could rebound in the back half, or is it too soon to call for a product improvement in 2016? Jared Briskin - Chief Merchant & Senior Vice President: I think it's a little too soon at this point. But certainly the price value relationship of some of the products is a very large conversation right now in ensuring that that value prop is there even at some of the high. So I think it's a little bit early to tell, but again, we still feel very confident in the overall basketball business. Camilo Lyon - Canaccord Genuity, Inc.: Okay. And then with respect to some other brands in the casual category, like adidas has been doing phenomenally well with some of its more classic casual styles. Is that an example of a brand that you are expecting to have increased shelf space allocation to as the year progresses? Is that clearly where, as you said, a lot of your consumers are taking the business? Jared Briskin - Chief Merchant & Senior Vice President: The adidas Original's business that you mentioned, we manage that through our lifestyle category. So we certainly see that as a driver for us as we go throughout this year. Without getting into significant detail, we did have a resurgence in a lot of their product for fourth quarter. So we feel very good about where it's going for the balance of this year. But a lot of our brand partners have some very, very strong product that caters directly to that customer and looking for more of that casual, running or retro casual business. So we feel very good about the entire offering that's out there from a lot of our partners currently. Camilo Lyon - Canaccord Genuity, Inc.: Great. And then just I had one final one for Scott or Jeff. Just in – if you step back and you think about over the next few year period when e-comm really comes on and becomes a top line contributor, is there any thought as to how that might impact your store opening plans? Jeff, at the outset, you said that you had 1,500 store opportunities in the existing states. Is there any thought to what e-comm could account for that opportunity from a store base volume perspective that might change the actual physical roll-out of the stores? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: We look at that pretty good. Especially, we still go where we're needed and there's still an opportunity to do your physical stores and we still think that there's a lot of opportunity. And especially based off of our opening cost and what it takes to open a store is still very, very profitable. We think we're going to have a huge advantage once we get there. And that's why we're so excited about is the whole omni-channel and be able to pickup in store, returns in the stores, ship from stores, so that we'll have stores very close, so we should be able to get products to customers in a much shorter period of time which we think will play in to our favor and make us much quicker to market with some of the customers. So we really feel that the store base is really going to add to our value, and it doesn't cost us a ton of money to open a store. We will get a high return. So we really feel the reason to do this is for customer service, when we do a good job in the stores with it. But if we don't have their size, how do we take care of them. And also be able to expand our assortments with the 5,000 square foot store, sometimes you can't put the full assortments in where now we'll have that availability to be able to do that also. So we think it really enhances our customer service overall, and that's what our customers are expecting from us. Camilo Lyon - Canaccord Genuity, Inc.: Do you have any sense as to who they're going online to shop for product that they can't get in the store right now? Like who is your online competition that you see? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: I would think with all the search engines as you know, if you they want a particular thing, there's probably various people that they want to. But with our loyalty membership and others, we have a very loyal customer, and I think they prefer to shop with us if they have that opportunity. We did a lot of research and we had a research company come in and help us look at that. And the majority of those people really want to shop with us even online too. So we feel, even though we're a little bit late to the game on this, we feel like we'll catch up especially that we already have a very, very loyal customer base. Camilo Lyon - Canaccord Genuity, Inc.: Great. Thanks very much for the information and the color. Good luck, guys. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you. Jared Briskin - Chief Merchant & Senior Vice President: Thank you.
Operator
The next question is from the line of Rick Nelson with Stephens. Please, go ahead. N. Richard Nelson - Stephens, Inc.: Thanks and good morning. I'd like to follow up on the ship-to-home. It was initiated at the store level, right? It's aimed at converting existing store traffic to sales, when you're out of stock, et cetera? Jared Briskin - Chief Merchant & Senior Vice President: Yes. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Absolutely. Jared Briskin - Chief Merchant & Senior Vice President: That's correct. N. Richard Nelson - Stephens, Inc.: And are you going to be able to provide this broader merchandise assortment potentially for holiday if you get the ship-to-home capabilities up and running? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: They will have the ability to look up inventory and see what inventory is at other stores. Absolutely. N. Richard Nelson - Stephens, Inc.: But not a broader inventory beyond what's currently in the store base, or... Jeffry O. Rosenthal - President, Chief Executive Officer & Director: No, not at the moment. Once we get into the digital space. N. Richard Nelson - Stephens, Inc.: And have you factored this into the comp guide, or is it assumed you're not up and running with ship-to-home? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: We're not building really anything in the model to speak of for this year. We may see just some marginal improvement on the store-to-store capability with the inventory visibility, but really no impact from store-to-home this year built in. N. Richard Nelson - Stephens, Inc.: And if you do get it up and running for the holiday, how do you size up the potential opportunity that that would bring? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: It's difficult to say at this point in time, so stay tuned. But just based on the research we've done, we think it to be meaningful, but it's really too early to tell right now. N. Richard Nelson - Stephens, Inc.: Okay, thanks a lot and good luck. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you. Jared Briskin - Chief Merchant & Senior Vice President: Thank you.
Operator
The next question is from the line of Sam Poser with Sterne, Agee. Please go ahead. Sam Poser - Sterne Agee CRT: Hi. Good morning, everybody. Thanks for taking my call. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Hi. Sam Poser - Sterne Agee CRT: Just, the breakout of the inventory, Jared, I assume last year you were also negatively impacted by port delays, which may have done some weird things with your inventory last year. Is that a fair statement, number one? Jared Briskin - Chief Merchant & Senior Vice President: It is. You'll be correct. Sam Poser - Sterne Agee CRT: And then the inventory, just the elevated inventory, can you break it up by percentage for us? And I just want to understand when, I mean, because it looks to me like it's about 20 weeks forward supply right now. So can you just walk through when this is going to be more in line with, let's say, 13 weeks' forward supply, which is probably more normalized? Jared Briskin - Chief Merchant & Senior Vice President: I really strongly feel that at the end of the first quarter it will be much closer than it was at the end of the year. I mean, some of the port delays from a year ago did impact that along with our investment in footwear. But, again, a significant amount of the inventory was bought for footwear to try and ensure that we were able to capitalize on tax refund season. So a number of our deliveries from last year that were planned for December and January, some hit in February, some hit in March, some hit all the way out until April. So we feel like we're flowing the inventory better than we have in the past to try and achieve those peaks. And on the footwear side, we're getting in the returns for the elevation of inventory that we've been looking for. Our challenges on the other side of the business where we had some difficult categories during the fourth quarter, we had some tough weather comparisons, and we've got to get the rest of that inventory re-balanced and making sure that it's appropriate for the forward looking sales. Sam Poser - Sterne Agee CRT: So when you're looking at those forward looking – those other categories, I assume it's apparel and outerwear, or most of it is apparel and outerwear. How much of that – I mean, are you returning goods to vendors because you're not going to – sitting on coats or base layer or whatever right now, probably doesn't do you a whole lot of good. Jared Briskin - Chief Merchant & Senior Vice President: No. We've got some significant return plans to make sure that that inventory level gets achieved as far as what we're looking for. And the balance of inventory, again, we'll really look at as how do we end a particular month with the proper amount of inventory to drive the sales in the following month while we achieve the rate of sale that we're looking for. We're doing a better job of achieving that currently in footwear, and we are getting the impact and return from the investment. We have some work to do in the other categories to get that more in balance. But again, do feel very confident in those other categories that we'll have the vast majority of that rectified in the first quarter of this year. Sam Poser - Sterne Agee CRT: Okay. Thank you. And then, just, because I was going real quick, the footwear, apparel and equipment business in the quarter, what were the increases, decreases? Jared Briskin - Chief Merchant & Senior Vice President: Footwear was up mid-single digits. Apparel was down high-single digits, and the equipment side was down mid-single digits. Sam Poser - Sterne Agee CRT: Okay. And then lastly, just – because people keep jumping around, the store-to-store shipments should start around back-to-school this year with the CRM capability coming in on top of that. The ship-to-home should be sometime hopefully by the end of the year, but probably beginning of next year. And then by the middle of next year, you hope to have an e-commerce capability up. Did I get that correct? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Yeah. The e-commerce capability in the middle of the year will be – that's definitely on the aggressive side. We were hoping to get it in by holidays is probably a little bit more realistic timeline. But at the same time, we'll look to accelerate where we can. Sam Poser - Sterne Agee CRT: And this third party, somebody mentioned the third – using a third party, I just want a clarification on what you mean. You're going to own your e-commerce business, correct? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Correct. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Correct. Yeah, the difference, Sam, is that we won't invest in a ton of capital to bring that e-commerce to life. That will be outsourced and it will be more on a subscription basis we think versus buying a bunch of capital. So I think what you'll find is that initially, when we do that, we will see some expense drag on that. But as we continue to build that business, you'll see more and more leverage against your store occupancy as well as your depreciation cost, because we won't be investing as much capital as we grow. Sam Poser - Sterne Agee CRT: Okay, very good. Thanks for the clarification. Good luck. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you, Sam. Jared Briskin - Chief Merchant & Senior Vice President: Thank you.
Operator
The next question is from the line of Mark Smith with Feltl & Company. Please go ahead. Mark E. Smith - Feltl & Co.: Hi. Good morning, guys. Jared Briskin - Chief Merchant & Senior Vice President: Good morning. Mark E. Smith - Feltl & Co.: First off, can you just walk through new shoe launches quarter to date so far, and how much, if any, impact that's had on the comps? Jared Briskin - Chief Merchant & Senior Vice President: Yeah. The launches thus far in the quarter have been fairly consistent with the year-ago period. So certainly the investment in some of that product is definitely having a positive impact. But the impact is not due to shifts from a launch standpoint thus far in the quarter. We're certainly working very diligently to try and invest in more of that and ensure that we can get some of that key premium product out to additional stores. We feel like that's a significant opportunity for us. So that's having the bigger impact. The comps so far is not relative to a shift in launches. Mark E. Smith - Feltl & Co.: Okay, perfect. And then can you guys just give an update on stores in new states, and kind of the new geographies, how those stores are performing compared to kind of the rest of the base? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I think some states are doing very well. We started to get into New York and New Jersey, and those stores are doing fairly well. Other states up in the northern part of our geography typically start out a little bit slower, so it's kind of a mixed bag. Some are doing really well, and some not so well, but not really any different than what we've seen in the past. In some cases, we go into these markets and it does take a little bit of a time to get the awareness level up of who we are. So we continue to work through that and look at the assortments, but I wouldn't say there's been any major changes than we've seen in the recent past. Mark E. Smith - Feltl & Co.: Okay. And then big picture, can you guys just talk about how you really compete as we see more direct sales to customers from manufacturers, how you compete against that? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: I think most of what we sell is premium product. A lot of – especially footwear is limited supply, so there isn't a lot that is out there. We really look at having our assortments be premium, which leads to hopefully things sell through from that standpoint. Limited supply is really a big thing in distribution. Strategy from our vendors is very key, and we make sure that we buy around that. Jared Briskin - Chief Merchant & Senior Vice President: I also think we've got a pretty significant opportunity with regard to the basket. A lot of the full needs for the consumer or the products that they could be looking for, we're the one-stop shop, or some of the direct-to-consumer businesses, it couldn't entail to have multiple transactions if you're looking to buy multiple shoes or multiple pieces of apparel and equipment. We could be the one-stop shop, and I think that's where we have a little bit of an advantage. It's a little bit more convenient to make the one purchase than making four or five purchases. Mark E. Smith - Feltl & Co.: Okay. And then last question from me, just as we look at some Walmart closures, can you talk about any markets where maybe you've seen Walmart's close as you follow them into some smaller markets and any potential impact? Jared Briskin - Chief Merchant & Senior Vice President: We really haven't seen – from Walmart it's really been their really, really small stores that we really don't even have stores in. So supercenters and those type things, we really haven't seen any impact at all. Mark E. Smith - Feltl & Co.: Okay, perfect. Thank you. Jared Briskin - Chief Merchant & Senior Vice President: Thank you. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you.
Operator
The next question is from the line of Chris Svezia with Susquehanna Financial Group. Please go ahead. Christopher Svezia - Susquehanna Financial Group LLLP: Good morning, everyone. Thanks for taking my questions. I guess, first, just on the comp, you're up mid-single digits so far in the first quarter. You're assuming low single digits for the year. I guess you're just thinking as the refund checks roll off some moderation into the first quarter, or just any thoughts about that? Jared Briskin - Chief Merchant & Senior Vice President: That's how we're looking at it. Hopefully, it will be better than that, but we're just making sure that we take a conservative approach to it. Christopher Svezia - Susquehanna Financial Group LLLP: Okay. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Most of the outperformance we're seeing right now is the tax refund shift, and the offset to that is in January. So we think that will normalize. Christopher Svezia - Susquehanna Financial Group LLLP: And then when you think about low single digits for the balance of the year, any color – I don't know, Jared, if you want to answer this, just between categories? It seems like you're making a bigger push on footwear, apparel, maybe a little bit more challenges. Just how we think about each one of those buckets as it pertains to that low single digit comp? Jared Briskin - Chief Merchant & Senior Vice President: I think you're very accurate. We certainly see the driver of the growth being footwear. We certainly have opportunities in the other categories, and we're certainly going to pursue all of those opportunities. But those categories are not performing at the same level currently. So we're going to be very aggressive with where we're performing right now, which is in footwear, and do everything we can do in the other categories to try and improve our profitability and find those opportunities. When the opportunities are there, we will certainly go and get them. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: And where does something like Roshe and Free and Boost fall in between technical run and I guess lifestyle running, if you want to call that? Where does that fall in those buckets? Jared Briskin - Chief Merchant & Senior Vice President: It's a little bit of a mixed bag. Roshe for us falls in our lifestyle category. Some of the Boost propositions fall into running, performance running. Some of the Boost propositions fall into lifestyle. It really just depends on where do we think – who the consumer is. And that's where we're looking to place the product from a category perspective, because that's the distribution path we use from a store standpoint. So very important to ensure that every product that we look at, who is the end user in mind, so we get that product in the right store. Christopher Svezia - Susquehanna Financial Group LLLP: So something like a Mizuno and ASICS are really the more technical pieces that are more challenged, correct? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Those would be in our performance running category. The performance running – and some of it is a shift of a 17-year-old and we sold a lot of performance running shoes over the years that weren't worn to run in. They were just worn for fashion. And that consumer today is looking for more lightweight comfort-based casual options within the running category. So we're just ensuring that every line we look at, every time period that we have to ensure that we're servicing the customer properly. Christopher Svezia - Susquehanna Financial Group LLLP: And just, Scott, for you. Just on the product margin, just after markdown optimization has been in place for a little bit, you're obviously ramping up and learning a lot from that. Why is it still flat? Does that have anything to do with just the fact that running – excuse me, footwear growing faster than maybe apparel puts some mix pressure on it, or just any color about how you think about that? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: There may be a little bit of a mix pressure as footwear ticks up a little bit on penetration. So part of it is that. And with our inventory, if we have to use some markdowns to clear some of the inventory left a little bit of room there, we don't think that will be a real meaningful impact, but just left a little room for that activity if needed. Christopher Svezia - Susquehanna Financial Group LLLP: Okay. Final question, just real quick here, I think in one of the first questions or earlier questions, Scott, you had just mentioned potentially that $0.14 to $0.16 hit that you're seeing in the current fiscal year could be potentially a little bit less as you go into calendar 2017. But I guess the question is, as you start to transact online and the incremental dilution that that brings on, is that taken into account when you think about that, or are you seeing just the fact you get some leverage on fixed cost offset that so that the fact that you're transacting online and the dilution there doesn't add any incremental negative impact to the P&L? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: I think that's it. Really the way to think about it is for the next year, expenses will increase a little bit and depreciation will increase a little bit, but we'll start to get some revenue to offset that. So the net effect on the P&L for the following year should be a little bit less all combined. But you will see the expenses increase, but the revenue will be more than enough to offset that. Christopher Svezia - Susquehanna Financial Group LLLP: Okay, all right. Got it, thank you very much and all the best. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Thank you.
Operator
The next question is from the line Mike Baker with Deutsche Bank. Please go ahead. Mike Baker - Deutsche Bank Securities, Inc.: Hi. So forgive my dunceness, I suppose, but I guess I don't understand exactly, if you could explain again what in the e-commerce business is being outsourced. When you say capital, do you mean systems? But it seems to me that if you're investing in a lot of systems now or distribution capabilities, but I thought you were making those investments as well. So I guess I'm just not exactly sure what you're doing in house and what is being outsourced. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Sure, I can clarify. So there are definitely a lot of pieces that you have to put together to bring the omni-channel capability alive. So the actual website that we will launch will be outsourced. And so we are not going to buy IT hardware and operate our website internally. We will outsource that, and it will be more of a subscription model. There are other things, however, like build-out of the warehouse to enable picking eaches and picking orders out of our warehouse distribution center that will need some capital to enable that capability. So that is probably the two biggest pieces over the next several quarters that we will be working on. So part of it will be capital with the internal build-out, but the actual operation of the website will be outsourced. Mike Baker - Deutsche Bank Securities, Inc.: So the warehouse, that build out, that's what you guys are going to own, and you own the distribution, you own the product, et cetera? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: That's correct. Mike Baker - Deutsche Bank Securities, Inc.: Okay. Great. Thanks for that clarification. One other clarification just to be clear and make sure I was thinking about it the right way, so $0.14 to $0.16 this coming year, call that $5 million. I know you said that it will repeat the next year maybe a little bit less, but let's call it, $4 million or so. That's an incremental $4 million above and beyond the $5 million invested year. In other words, if it were just the same $5 million or $4 million each year, you would leverage it in calendar 2017. But that's not what you're saying. We're saying it's going to be an incremental step up in the investment in 2017. I think that's what you said. I just want to be clear. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: No. From a total P&L standpoint, the incremental impact should be flat to slightly positive. The actual expenses will increase somewhat, but the revenue that we will generate will more than offset that increase, okay? So year over year, in calendar 2017, the net impact to the P&L should be flat to slightly positive. Mike Baker - Deutsche Bank Securities, Inc.: Okay. So it won't be a drag that year? Scott J. Bowman - SVP, Chief Financial & Accounting Officer: That's correct. Mike Baker - Deutsche Bank Securities, Inc.: Okay. Okay. I think that clears it up. Thanks. Scott J. Bowman - SVP, Chief Financial & Accounting Officer: Sure.
Operator
The next question is from the line of Mitch Kummetz with B. Riley. Please go ahead. Mitch Kummetz - B. Riley & Co. LLC: Yes. Thanks for taking my questions. I still have a few. So one, just from a product standpoint, you talked about shifting in demand kind of from performance to fashion and running. I know that I think on the last conference call, you talked about that you're still in the process of kind of working through that balance. Could you remind us of where you are? Is that sort of in an optimal point right now or is there still opportunity to get that in a better balance going forward? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: I guess I'm not understanding the balance question. Mitch Kummetz - B. Riley & Co. LLC: Well, I think that you're shifting your assortments more towards fashion from performance and running, and I think you made the comment on the last earnings call that you're still kind of working through that shift and it wasn't in an optimal level yet. And I'm curious if it now is. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Yes. We're still – we're much more optimal than we were, but we still have significant opportunity to shift in that direction. And again, it's really just ensuring that we've got what the kids are looking for today. And I think we'll continue to move in that direction but certainly ensure that we still have performance-based product for the consumer that's looking for that. We're more in balance (01:08:01) than we were, but we still have significant opportunity primarily with regard to store growth in that category. Mitch Kummetz - B. Riley & Co. LLC: Okay. And then, I think, Chris asked the question about your expectations around categories as they kind of build into your comp guidance. It sounds like you're expecting most of the comp growth to come from footwear. But correct me if I'm wrong, just from a comparison standpoint, it sounds like your apparel and equipment businesses were probably the ones that were hurt most in fiscal 2016 due to the weather. So I'm curious if you think there is an opportunity for better comp performance there given those easier comparisons? Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Yeah. We absolutely do. I think what we're trying to look at the long-range performance of those categories over the last few seasons has not been in line with what's happened with our footwear business. So we're trying to be conservative there with how we're planning those businesses, but at the same time know that if we see opportunities, we'll certainly try and capitalize on them. We do feel like we're making significant improvement in those categories, but those categories overall are a little bit pressured and we didn't realize the gains based off the weather. Mitch Kummetz - B. Riley & Co. LLC: Got it. And then lastly, just in terms of the gross margin guide, any color you can provide either kind of in terms of the cadence by quarter or maybe first half versus back half? Again, you obviously have easier your gross margin compares in the back half. So in terms of how we should be thinking about gross margin going through the year, is the opportunity for maybe some pressure in the first half followed by expansion in the back half? Is that how we should be thinking about it? Jared Briskin - Chief Merchant & Senior Vice President: There's probably – on the merch margin or product margin side, there's probably a little more opportunity in the back half just based on last year compares. But when you talk about total gross margin, there will be some effect on the warehouse and occupancy expenses as we build out the DC for that, fulfillment capability. So there'll be some additional expenses flowing into that line probably in the back half that may offset some of that product margin capability Mitch Kummetz - B. Riley & Co. LLC: Got it. Okay. Thanks and good luck. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you.
Operator
And there are no further questions at this time. I will now turn the call back to you, Mr. Rosenthal, for closing remarks. Jeffry O. Rosenthal - President, Chief Executive Officer & Director: Thank you for being on the call today. We're extremely excited about the future of Hibbett Sports. As we get some of these capabilities from omni-channel and continue to have great customer service, we feel like we're positioned very well in the marketplace for many years to come. Thank you.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.