Patrick Watson - SVP and Principal, Corporate Communications, Inc. Jared Briskin - Chief Merchant and SVP Jeffry Rosenthal - CEO, President and Non-Independent Director Scott Bowman - CFO and SVP

Stephen Tanal - Goldman Sachs Group Inc. Rafe Jadrosich - Bank of America Merrill Lynch Camilo Lyon - Canaccord Genuity Seth Sigman - Crédit Suisse AG Daniel Wewer - Raymond James & Associates David Magee - SunTrust Robinson Humphrey Peter Benedict - Robert W. Baird & Co. Nels Nelson - Stephens Inc. Samuel Poser - Susquehanna Financial Group Patrick McKeever - MKM Partners Anthony Lebiedzinski - Sidoti & Company Jim Duffy - Stifel, Nicolaus & Company William Priebe - Geneva Capital Management Mitchel Kummetz - B. Riley & Co.

Welcome to the Hibbett Sports First Quarter Fiscal 2018 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded, Thursday, May 18, 2017. I would now like to turn the conference over to Pat Watson from Corporate Communications. Please go ahead, sir.

Thank you, Susie and thank you, everyone, for joining Hibbett Sports to review the company's financial and operating results for the first quarter of fiscal year 2018 which ended on April 29, 2017. Before we begin, I would like to remind everyone that management's comments during this conference call not based on historical facts, including those in response to your questions, are forward-looking statements. These statements which reflect the company's current views with respect to future events and financial performance, are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company's future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued 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. Lastly, I would like to point out that management's remarks during this conference call are based on information and understandings believed accurate as of today's date, May 18, 2017. Because of the time-sensitive nature of this information, it is the policy of Hibbett Sports to limit the archived replay of this conference call webcast to a period of 30 days. I'd now like to turn the call over to Jeff Rosenthal, Chief Executive Officer. Please go ahead, Jeff.

Thank you and good morning, everyone. Welcome to the Hibbett Sports First 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. Net sales for the 13-week period ended April 29, 2017, decreased 2.3% to $275.7 million compared with $282.1 million for the 13-week period ended April 30, 2016. Comparable store sales decreased 4.9%. We experienced a slow start to the quarter with a double-digit decline comparable store sales in February, most of which was attributed to delay in tax refunds. Trends improved in March and April, with comparable store sales and a positive low to mid-single-digit range. However, the sales shortfall in February was not fully offset, to which led to 4.9% decline in comparable store sales for the quarter. Footwear continues to perform well with comparable store sales in the low single-digit range. Apparel and equipment posted negative comparable store sales. Gross margin was also negatively affected due to the markdowns taken to manage inventory to the levels below last year. We were able to keep tight controls on expenses which helped our overall profitability. The retail environment is challenging and we expect second quarter to be negative but better than first quarter. As we launch e-commerce, we foresee improvement in our sales results in the second half of the year. We had many accomplishments during the first quarter. During the quarter, we implemented our store-to-home capability in all stores and the early results are encouraging. We expect to see increased benefits from this initiative going forward as it gives our stores a great tool to improve sales and to enhance our customers' experience. This tool is very instrumental in helping us become a full channel omni-retailer. At the end of the quarter, we also launched a brand-new customer loyalty program to enhance our customers' loyalty to our brands. This will allow us to understand our customers better and more importantly, keep them loyal to Hibbett. We're very excited that we're still on track to launch our e-commerce site in the third quarter of this year which will be fully integrated with our stores. For the quarter, Hibbett opened 13 new stores, expanded 4 high-performing stores and closed 9 stores, bringing the store base to 1,082 in 35 states as of April 29, 2017. We know that there are many opportunities to continue our growth to the 1,500 stores, over time. We feel that going to markets where we're needed and bringing exceptional service in the long term, we will bring shareholder value for many years to come. Our team is working extremely hard in making sure that our customers have the greatest service and the capabilities of purchasing products in any form they would like, both in-store and online. I would like to thank our associates for their hard work. All of this would not be happening without them and their expertise, knowledge, teamwork and extended hours and dedication to Hibbett Sports to ensure positive results. I will now turn the call over to Jared Briskin, Senior VP, Chief Merchant.

Good morning and thank you, Jeff. As Jeff mentioned, the quarter got off to a very slow start with the delay in tax refunds that impacted February significantly. While we did see improvement in March and April, sales were still lower than expected. Throughout the quarter, we continued to see further declines in performance apparel, licensed products and equipment impact negatively. For the quarter, our sports specialty stores were challenged the most. Athletic specialty stores fared better but were still very challenged both by traffic and declining performance categories. Fashion specialty stores continued to perform much better than the balance of the chain. Apparel was down low double digits due to impacts in performance apparel, socks and team sport-related products. From a gender perspective, women's and kids were both down double digits, while men's was down low single digits. The license business was down double digits and remains our most challenged area. The core fan license business continues to be very challenging. Our team sports business was also down high single digits. Cleated was down low singles, but the equipment area saw additional pressure, down low double digits. Footwear continued to be our best-performing category and was up low single digits for the quarter. Men's was up mid-single digits, women's was down mid-single digits and kids was flat. Key styles for the quarter were Retro and Jumpman Pro from Jordan; Huarache and Air Force from Nike; and NMD and AlphaBOUNCE from Adidas. Inventory was managed well despite the sales challenges ending down 3.6% per store. While the inventory dollars have been managed well, there is additional pressure on the age of our inventory that we need to continue to address through markdowns. This, coupled with the soft general climate and intensifying promotions in the market, will continue to pressure margins in the near term. I'll now turn the call over to Scott Bowman to discuss our financial results.

Thanks, Jared and good morning. For the first quarter, total sales decreased $6.4 million to $275.7 million, a decrease of 2.3% over the prior year. Comp sales were down 4.9%. By month comp sales were negative 20.1% in February, positive 5.5% in March and positive 3.1% in April. Gross profit rate decreased 159 basis points in the quarter. Product margin decreased 130 basis points, mainly due to markdowns associated with managing inventory. Logistics and store occupancy expenses increased 29 basis points as a percent of sales which was due to deleverage of these expenses associated with lower comp sales. SG&A expenses increased 4% in the quarter and increased 129 basis points as a percent of sales. This was mainly due to investments in our omnichannel initiative and deleverage associated with lower comp sales. Depreciation and amortization increased 24% from last year and was up 44 basis points as a percent of sales. This was mainly due to the rollout of our new POS system and continued investments in our stores. The income tax rate for the quarter was 38.7% which compares to last year's rate of 37%. The increase was due to an accounting standards change regarding the treatment of stock-based compensation. The effect of this accounting change mainly affects the first quarter due to the vesting schedule of stock-based awards. Operating income of $34.2 million decreased 23% from last year and was 12.4% of sales versus 15.7% last year. Diluted earnings per share came in at $0.97 per share versus $1.22 last year, a decrease of 20%. From a balance sheet perspective, the company ended the quarter with $76 million in cash versus $73 million last year, with no borrowings outstanding on our revolving credit facilities. Inventory decreased 1% from last year and was 3.6% lower on a per-store basis. We spent $7.8 million in CapEx for the quarter as we completed the rollout of our new POS system and continued our store growth, opening 13 stores and expanding 4 stores. Also, the company repurchased 748,000 shares for a total of $22.3 million in the quarter. Based on these results for the first quarter, we're updating our full year guidance with the following changes, as communicated in our recent business update, we expect full year earnings per share to be in the range of $2.35 to $2.55 from the previously reported range of $2.65 to $2.85; comparable store sales are expected to be in the range of negative 1% to positive 1% which compares to previous guidance of an increase in the low single-digit range; for gross margin, we expect a reduction of 55 to 75 basis points compared to last year which compares to previous guidance of a relatively flat gross margin rate. With respect to expenses, we expect dollars to be at or below original expectations, although we will likely experience increased deleverage with lower comparable store sales. With that update, operator, we're now ready for questions.

[Operator Instructions]. The first question coming from the line of Stephen Tanal with Goldman Sachs.

If I can just spend a second kind of thinking through the comp for a moment and the idea that 2Q would be a bit negative. I think if we look at the monthlies, the compares certainly got easier. But is there anything to call out? Has the business slowed a bit or where are you seeing the incremental pressure here into the quarter?

Yes, I can start off, Stephen. This is Scott. I think, overall, we continue just to see kind of a soft environment out there which is, I think, no big surprise. I think as we get into the back half of the year, I think we have a couple of things that will help us internally. First, obviously, is the continued ramp-up of our store-to-home capability, the e-commerce capability that we look to launch in the third quarter. We have some good allocations, both in apparel and footwear, that we'll roll out in the third quarter, starting around back-to-school time. And then, of course, we have some easier comps, especially in the fourth quarter with negative 2% last year.

Got it. And can you just comment on traffic and ticket in the quarter and how you think tax refunds may have played into that?

Yes, traffic or transaction, thus, as we kind of looked at it, was down high single digits and then ticket was up kind of mid-single digits. For us, tax refunds are very important. With our customer, it's still a very high cash-based customer and so it affects us probably more than the average retailer. And so that was one of the biggest reasons we saw coming into February because that's a huge month for us because of that. So that negative 20% was mainly due, we think, to that tax refund shift. Unfortunately, we didn't see all of that money come back in March and we saw a pretty steep decline in late March.

Our next question coming from the line of Rafe Jadrosich with Bank of America.

Apparel has been softer for a few quarters here on -- and you spoke a little bit about adjusting these assortments and more lifestyle product. Is there anything that you're seeing that gives you confidence that, that might -- that's the category that could start to inflect positive? And then what are you just seeing in the broader margin in apparel that you think is causing the pressure?

Yes, I think from a broader perspective, I think apparel has been challenged for a while now. Certainly, from a distribution standpoint, based off the athleisure trend, there's product essentially everywhere. So I think that's caused some challenges. It's certainly more difficult to segment apparel than it is some of the other categories, so they kind of get lumped in, in some of the general apparel softness that's out there. We continue to make significant changes to the assortment and we continue to roll those changes out to additional stores. And they are certainly trending in the right direction in those stores that we've rolled of them out to, we're just not getting them out fast enough to compensate for some of the declines in the more performance and commodity type product.

And then just in terms of the back half of the year, the comp improvement that you're assuming, how much of a lift are you baking in from a benefit from the e-commerce rollout?

We're not going to give you a specific number. It's -- we're trying to be fairly conservative. And so I think we're on track right now and if we launch on time, we definitely think we can hit that number. And the main reason for that is we're doing a lot of things right now to make sure that we get started off on the right foot. So when we do launch, there will be a lot of extra that you'll see on the site. The site will be extremely clean and well done. And so I think we'll definitely put our foot -- our best foot forward and have the opportunity to meet, if not exceed our expectations.

Do you have a date yet for -- or timing, a rought timing for when the site will launch?

Yes, right, we're still saying third quarter and the reason why we're not more specific than that is because we're getting close to entering more of the testing phase. And with 20-some-odd integrations to other systems, both internally and externally, as you can imagine, there's a lot of things that we can come up against and how to work out. I think we've done everything in our power to mitigate that risk, but there's still a lot of unknowns out there. And so until we kind of get into that phase, we're not going to have a really good idea if it's going to be kind of early or late third quarter. But we're still confident we can launch at some point in the quarter.

And as a team, we know how important it is to our business, so we're working very hard, night and day, to try to move it up as soon as possible because we feel that, that's a big part of the sales shortfall. As you look at other retailers, most of their gains are coming from e-commerce. So we're working as hard as we can to get it up as soon as possible. And we're extremely excited because this will get us more on even-playing field with the rest of retail. And as you look at how much business is done online, we're getting nothing. And we think that, that could be a huge part of our second half.

Our next question coming from the line of Camilo Lyon with Canaccord Genuity.

Scott, you mentioned, with respect to the back half and some confidence around the comps turning, you mentioned good allocations in both apparel and footwear. I'm wondering if you could just talk about that product pipeline on the footwear side as well on the apparel side. And in that context, what is Nike's change in their map pricing policy due to the overall construct in apparel on your business?

Yes, this is Jared. I think for the balance of the year with regard to product initiatives, we do see some newness which we're excited about. The plate, from a launch perspective, still remains very full. We've also worked very closely with our partners to ensure that we only -- not only have additional access points to certain products, but also, we're getting some more allocations to drive additional stores and product that we feel is not as impacted as some of the map policy changes as well. So we feel good directionally about where we're going from a product perspective and the support that we're getting from our partners. We have a map policy. Certainly, it could have an impact. We do see it having more of an impact on the apparel side of the business which has been promotionally challenged for a long period of time anyway. But again, the majority of the product that we sell on the footwear side, this product that is highly in demand and fairly scarce in the marketplace and we feel like we can avoid some of the challenges with regard to map.

So Jared, when you talk about the product pipeline on the footwear side, are you speaking more about a greater quantity of a product that's already selling well or some new innovations that have been coming down the pipe that should drive incremental demand and excitement?

Yes, it's a combination of both. We do see some newness coming that we're excited about. We certainly believe that there are customer and the customer today is looking for newness more often and our vendors are starting to cater to that need from a consumer perspective. But we've also done a significant amount of work with our vendors to continue to get additional stores in play for some key driving products. So we feel very good about that initiative and we feel like we do have some traffic-driving product getting to significantly more stores year-over-year.

Okay. And then my follow-up is just on the commentary around incremental markdowns expected to linger into Q2. What categories does that really consist of? Is that mainly in the apparel and equipment side? And do you feel like that will be the end of your expected markdown cadence to get you back into a position where you'll start to recognize a much more fuller margin opportunities?

Yes, I think we've been clear the last few quarters about where the challenges were with regard to categories. And unfortunately, some of those categories have continued to deteriorate. We certainly rebalanced our investments in those categories as we got into this year and certainly, the back part of this year, but we still have some inventory to work through. So while -- again, the inventory dollars, we feel good about where we're, we feel like we're managing them appropriately, but we're not comfortable with the health of our inventory right now, so we feel like there'll be some additional markdown pressure to ensure that we get our age in line to where we need it where we can then start to drive more full price sales and start to drive the marginal line in the other direction.

Our next question coming from the line of Seth Sigman with Credit Suisse.

I wanted to follow up on the second quarter comment. It seemed like you ended the first quarter on a stronger note. What do you think changed in early May? And if you could give us a sense of the categories that may have softened, I think that would be helpful.

Well, I think it's just you had some of the tax refunds that ran into March, so that made March a little bit higher. You had Easter that went into April. And then we think the business is pretty much on the same trajectory that it was on before all those events. So just knowing all the headwinds that are out there and seeing all the promotions and all the things out there, we just want to be a little bit more cautious on how we look at the business through the rest of the second quarter. And then we feel a lot more comfortable as we get store-to-home ramped up and we get e-commerce ramped up, that we can really start getting in at a more positive direction and that's really the main things. It's just that you had some events in March and April that probably got it a little bit higher than it really would have been. And then, we feel very comfortable with the increased allocations, the store-to-home capabilities and e-comm. Those 3 things are gigantic movers for our company and we feel -- we've put a lot of time and we've worked on this for the last few years and we're finally here, very close to getting all that accomplished.

Okay. And then Scott, if you can remind us of the investments planned for the second half, maybe break it down between SG&A and what hits D&A and just give us a sense of what is sort of on track at this point.

Yes, sure. I think the D&A number that you saw in Q1 won't increase dramatically for the remainder of the year because we did finish the rollout of our POS. And really, that was the big chunk of capital that was causing the big D&A bumps. You might see a slight increase in the next few quarters, but it's not going to be significant on the D&A side. From an SG&A standpoint, we came in, in my mind, a little better in the first quarter. And basically, what happened there is we wound down fairly aggressively some of the external help that we had on our store-to-home initiative. And so those fell off. But as we continue down the path of getting our website up and running, it would be some pretty heavy spend to get all that complete and then some prelaunch expenses as we get closer to launch. So I would say, in second -- in third quarter, we'll continue that spend on the development, maybe a little bump prior to launch with some prelaunch expenses. And then, of course, after we launch, we'll have some operating expenses pick up and some of the development costs fall off, be more of a kind of a steady state after that point. But the important thing is we'll have some revenue offset when that happens.

Okay. And then, just one final follow-up. The gross margin pressure that you're expecting, is that isolated to the second quarter or does it impact the second half as well? And I guess, how do you think about the e-commerce impact on gross margins and what have you reflected here?

Sure. I think more of the pressure will be in Q2. As Jared said, we still have some inventory to work through to get a healthier age position. And so we'll be fairly aggressive to improve that in the second quarter. With our comps lower, we'll also see a little bit more deleverage on our fixed expenses. And so that decline in gross margin will definitely be more pronounced in the second quarter. So I think that's the way to think about it.

Our next question coming from the line of Dan Wewer from Raymond James.

First, thinking about the second quarter negative comp forecast, is there any change in back-to-school tax-exempt shopping holidays that could be influencing this forecast?

Yes, we see a very similar last year. The biggest thing is, hopefully, traffic will pick up as we get closer to the back-to-school. But the tax-free, we haven't noticed. Some of them still haven't posted that yet. But right now, we think it's pretty close to being what it was last year but not really that is being considered for second quarter.

Second question. As I recall, there's approximately 100 Hibbett stores near Kohl's, correct me if I'm wrong. Did you get a chance to look at your stores that are adjacent to Kohl's and see how they performed after the Under Armour product was added to Kohl's?

Yes, we look at it closely. I mean, anytime that there's changes in distribution strategy, it puts more pressure on segmentation. We continue to work with Under Armour as well as others that are doing business with, whether it be moderate department stores, some of the moderate shoe chains to ensure that our assortment is as relevant as they can and that it's segmented as much as possible from those retailers. And to this point, any new distribution can have an impact. I still think it's a little early to tell what the full impact of that distribution could be, along with just the general softness of performance product. Some of those are going hand-in-hand and it's difficult to determine the true cause of some of the issues going on in apparel.

So there is -- when you look at that subset of Hibbett stores near Kohl's, you did not see any trends that were worse than the rest of the chain?

Yes, I think it's a little early to tell, but a lot of where the Kohl's stores are compared to ours are in our sports specialty store type and where we compete. Some of those businesses on the performance side were already pressured.

And then the last question. Jared, for the last year or so, you've been talking about the lack of fashion content with some of your vendors. Under Armour has been calling that out on themselves as well. What are you hearing from their salespeople as to when Hibbett and the other retailers may begin to see changes in the fashion content of the athletic apparel product? Is that third quarter next spring or do you have any sense as to when the customer will begin to see a change?

Yes, I think, as every quarter passes, I think it'll continue to improve. I think as an industry, I mentioned it earlier in one of my replies, I think the customer is moving so much faster and is looking for newness more often. I think, as an industry, we've somewhat struggled to keep up with some of the changes that they're requiring. I do think it's something that all of our vendor partners have recognized and are building plans to try and ensure that they can keep up with the customers' change in trend and change in taste. So every quarter, I think we'll see some improvement, but I do think we're going to continue to chase the customer as they seem to be moving more faster than the product pipeline to keep up with.

Our next question coming from the line of David Magee with SunTrust.

A couple of questions. Jared, on the fashion specialty stores, I'm just curious, for the quarter, how their comp differed from the overall comp that the chain put up.

Yes, we're not going to share specific comps with regard to the store types, but they had been our best-performing type of store and they did outperform the other types as well for the first quarter.

Would you be willing to say were they positive or just not as negative?

They were positive.

Okay. Did that cause you to sort of rethink what the potential would be within the store base that, that format could comprise?

Yes, I think we're really looking at -- the store type of strategy is a consumer-centric strategy. And then our merchants then have to apply our products then we believe the primary consumer is for each of the types. So we're certainly looking at that assortment that's showing more relevancy in the fashion stores and ensuring what of those pieces from an assortment perspective can apply to the other types and working very closely with our partners to achieve, whether it be greater access or greater allocations to get their product to additional stores that we believe that product will resonate based on the consumer shopping. So those are things we look at every day. We've continued to build upon that and feel like we've done a great job with that. We've seen a lot of success as we've been able to build that -- as we're able to build that up, what has -- and somewhat surprising that some of the deterioration of some of the other categories is happening at a more rapid pace than we had projected.

Okay. And then with regard to the store-to-home program, are you as confident regarding the impacts, say, over the next 12 months as you would have been a few months ago just based on the early learnings?

Sure. Early learnings are very positive. I think as we start implementing it more -- we're already implementing it, but as we get more familiar with using it, we expect that percent to continue to go up. So we have seen most of the stores are using it very well and we still think that there's huge opportunity to get even that much better at it. So we feel very confident that what we have laid out for the years in that will hit those numbers. But it's still kind of early because we just got it all, to all stores ramped out in April. So as we get through the year, we think it could be a bigger part of our business.

So it's just a question of how well the employees follow the instruction?

Yes, it's very store operation-driven and it's really -- our team does a really good job on taking over those new tools. They're learning a new POS. They have store-to-store and store lookup and all that, so those are all new processes. And like any process, it takes a while to ramp up to where you get the full capabilities of it. And that's one of the biggest things that we're doing is really training our staff on how to use that tool and make sure when customers come in, we can find them whatever they want.

And then lastly, with regard to the loyalty program being upgraded, I'm just curious, as a member of the old program, what should I expect in terms of the upgrades in the coming months?

Sure. We -- as we go into e-commerce and as we relaunch some of the things that we did -- have been doing as a company and really becoming more progressive as a company going forward, we had to look at a lot of things to drive more footsteps into our stores. So our customer, we call it Hibbett Rewards now, our old program was really a self-made program and in-house program. This is now part of our new POS which gives us the capabilities of looking at the customers' needs and wants much better, much easier to use from the customers on how to look at points and how to use points. Store employees can help them with that. And we also reduced the amount of points you need to get additional rewards and very competitive with what's out in the industry. We had a company called [indiscernible] that helped us look at that. And we had a very low redemption rate. And we think we can increase that, over time which will drive footsteps because we need to drive footsteps and especially with our e-commerce and it'll be very easy to use our e-commerce site. So if someone's close to hitting that reward and we'll remind them to maybe buy another shirt or a hat or something else to go with whatever they're buying. So we feel like that's an integral part of driving traffic.

Our next question coming from the line of Peter Benedict with Robert Baird.

A clarification, Scott. So just on the product margin due for the second quarter, are we thinking that's going to be similar to the 1.30% hit that you saw in the first quarter, worse, not as bad? I was a little unclear.

Yes, I would say it should be a little bit better, Peter, than we saw in first quarter.

Okay, and then, Jared, a question for you. The average ticket, mid-single-digit increase has been very consistent several quarters here. What's driving that? And how do you view the sustainability of that? And just curious as e-commerce and store-to-home kind of picked up in the back half of the year, any impact on average ticket that you guys are envisioning?

Yes, I think we have certainly been very focused on upgrading and focus those premium as we possibly can across all categories. So I think that's where we've seen the impact of the average ticket. It's really across all categories. One thing to consider as we've been able to achieve that with some fairly high aged levels of inventory. So we feel we still have another catalyst that we can get our age to align with where we need it to be. We still feel like there's some significant runway with regard to the average ticket, assuming the average price which will then hopefully offset what could be -- could happen from an e-commerce standpoint with that coming down. But our average -- average price point still has a long runway ahead of it. We still feel like there's opportunity to drive that. As we get more and more key product and key drivers into more locations, we do see that AUR continuing to tick up. And we feel, again, as we continue to manage the inventory properly and get our age under control, that should be another opportunity to continue to drive those AURs.

Okay, great. And then Scott, just one more for you. Just back to the SG&A, you made some comments there earlier. I think SG&A growth year-over-year was around 4% in the first quarter. Is that a pace that you think you can maintain over the balance of the year even when some of these additional capabilities come online? Or how should we think about that?

Sure. I think it'll be a little bit higher than that going forward. I think one of the benefits that we had in the first quarter was kind of winding down that outside help that we had for store-to-home, so that was a big part of it. And as we -- to the rest of the year, we will have some of that, but it will be somewhat offset by increased marketing costs and so forth to get ready for the launch of our website.

Our next question coming from the line of Rick Nelson with Stephens.

I'd like to follow up on store traffic issue. I think you mentioned it was down high single digit this quarter. I think it was down high single digit in the fourth quarter. You mentioned the rewards program as being a traffic driver. Any other tools in your toolbox to help drive store traffic?

We feel that will be one big driver. We think as we launch e-comm, we think that, that's another opportunity. Most customers today do most of their homework online before they even go to stores. So I think between having that, some of our social media that we're doing out there around that, will bring -- will build customer awareness to the Hibbett brand. And we think between those 2 things, that we can help drive sales.

Sure. Go ahead, Jared.

I'm sorry. I also think, as we continue to improve access points in product and allocations in product and get our product to more stores, a lot of that key, what I would call, scarce marketplace product, without question, that was a traffic driver. So we're very focused on that, very focused on getting that product to additional stores. We've been focused on it, we're more focused on it than ever because we do believe that, that is a traffic driver for us.

Do you think store-to-home is going to be a bigger sales driver than e-commerce or are you now thinking of e-commerce being a bigger sales driver?

We definitely think that, over time, e-commerce will be the bigger sales driver. In this year, just based on the timing of the rollout, store-to-home may be a little bit bigger. But as we get into next year, e-comm will definitely be a bigger piece.

So you launched store-to-home in April. Can you speak to the proportion of sales that you did store-to-home and what the potential is?

Yes, right, I mean, from kind of the early read on it, it's added -- it added about 1% or so to the first quarter. And so we expect more than that going in the second, third, fourth quarters. So it's kind of performing as expected and some stores are doing extremely well. There's some opportunities to increase that number. So it's never going to be a huge percentage, but we definitely see some upside from where we were in first quarter.

Our next question coming from the line of Sam Poser with Susquehanna.

Can we talk about the guidance, Jeff and sort of -- you sort of said if the e-commerce platform gets put it on time, then you'd expect that these numbers work. I guess, the question is this, I know you don't want -- it's on time, probably, September post back-to-school? And two, isn't your guidance sort, of based on the flow of the comps or the inferred flow of the comps to the back half of the year, really counting on this thing to work? And it feels like you can get there, but it still feels somewhat aggressive.

Yes, I mean, Sam, there's a lot of thought that went into this. And really, we feel that e-comm is a big part. I've used this before, but when you look at Cyber Monday and Cyber Week, not to get one sale and if, say, we get it up in early September or whenever we get it up, we know we'll be up and running by Cyber Week. That week alone, we can make a lot, we can probably pick up a comp in 1 week just because of e-comm. So that's why we feel pretty confident on the second half of the year.

Can you talk about how many -- like, I mean, your opinion on, I guess, on consumer acquisition to the website, people are buying various things on other websites right now. And I guess, the question is, how are you going to draw them to you to capture what you expect to capture within that [indiscernible].

Sure, good question. I think our loyalty program that we already have today that we're enhancing as we speak and we have almost 7 million members, we have over 1.5 million members on our text. So we have quite a good base to start with. We have almost 1,100 stores which we have a huge program planned for our stores to beef up the knowledge that now we're selling. And then we've hired some of the best people at SCO that's out in the business to help us get ready from the very beginning. So we think all those and we'll do paid searches and all the things that most retailers that you've covered have had for many years. I know we're late to the game, but we've hired the best of the best and we think we'll do a good job with it.

And Sam, if you just think of our MVP program, roughly 6 million members in the past, it's been over half of our sales or close to half of our sales and that could potentially get even better with kind of the relaunch and enhanced awards. So I mean, that right there, if we can get the word out extremely quickly that we're online, we're going to have a separate pay for each individual store that we have that really helps the search results. So what we're doing a lot of things to get the word out there and to make sure we get started off on the right foot.

I agree that you can get there, but I mean, I guess, the question is why guide for perfect? Why say -- and I mean, because it's just -- I mean, you're expecting comps to really pick up fairly dramatically in the back half of the year, arguably, to go up, let's say, 1% to 3% in Q3 and probably 3% to 7% or something in Q4 which we'd all love to see. But I guess, the question is why guide that before you flip the switch?

Yes well, it's really not guiding to perfection. It's based on kind of what we see right now and things have gone very well so far. And as each week and month goes by, we get more confident. So it's not guiding to perfection. I mean, we have a chance of overachieving, especially with the negative 2% that we did in fourth quarter, the additional bump up that we'll probably see in store-to-home and some better allocations. I mean, you couple all those together and I don't think it's guiding to perfection. So I think we have a good chance of hitting that.

Okay. Lastly, footwear, how did -- where do you see footwear as a percent of total sales, going forward? Where is it now? Where do you see it going forward? I mean, I think it's been running around 50% to 52% of sales over the years. How do you see that?

Yes, Sam. We definitely saw a little bit of an uptick in the first quarter and like you said, it's been increasing a couple of points per year. And so we see that can -- that trend continuing for the near future.

Our next question coming from the line of Patrick McKeever with MKM Partners.

Just a question on store growth. And the biggest, largest player in full-line sporting goods recently talking about a much slower rate of store growth after 2017, looking to capitalize on what could be significant -- some significantly lower rents following just a wave of retail store closings this year and probably next year as well. You talked about 1,500 stores, that's still a longer term target. This year, you've said 50 to 60 new store openings. But how are you thinking about store growth now in light of all these store closures? And I guess, specifically, I'm wondering what you think you will see in some of your targeted smaller markets when it comes to rent expense as you continue to grow the store base.

Sure. I think we go to markets where there's not a lot of competition. We look at markets where there isn't necessarily a big box. As we look at markets, as some of these other retailers are starting to close stores, we expect to get some good deals on real estate. It also presents opportunities for us, too, where we may have wanted to go to a town and there wasn't a good spot available and now there may be a spot. So we're going to be very opportunist. The point of entry for us to open a store doesn't cost much and we get an early return. So we just look at this, making sure that we get great quality deals. It's really not about the number that we open, it's just making sure that we get good quality deals. The stores are performing very well this year, the new stores that we have opened. And last year's stores are performing better. So gives us confidence that we can do that and with spaces becoming available, we'll be opportunists when we see that it's a good market that we think we can hit our hurdle rates.

And then what -- how are you thinking about the competitive set, looking forward here? I mean, do you still think your biggest competitor is Walmart? Or are you thinking more Amazon with some of the changes that we've seen?

I believe, I think that a lot of misnomers out there on -- when they hear Hibbett Sports, we act more like a ball guy than necessarily a big box, first of all. And the majority of our footwear and apparel, Amazon doesn't sell. And a lot of footwear that we carry is very limited on the amount of pairs that are out there. So Walmart, we like to be next to Walmart because, really, even if there is -- there really isn't on SKUs overlap. And we always use the example, baseball gloves, their most expensive baseball glove is $29, while we carry gloves up to $250. So it's really apples and oranges. We like to be next to Walmart because if you go to a small town, that is really the center of commerce, that's where most of the traffic is. So that strategy still works. Now we need that strategy to be able to do e-commerce also. But that -- we really don't consider them a huge competitor. Where we see the most competitive is really in the family footwear stores, more self-serve stores. Those are our largest competitors overall.

Our next question coming from the line of Anthony Lebiedzinski with Sidoti & Company.

So I may have missed this, but as far as the breakdown for your different specialty type stores, can you share with us what percentage of your stores are now fashion specialty and the others?

Yes, we -- from a specific perspective, I mean, it certainly fluctuates based on the rate that we open stores. Our largest group of stores is the athletic specialty group, followed by the fashion specialty stores and the smallest group is our sports specialty stores.

Got it, okay. And then, so as you think about the product mix changing, you mentioned footwear, that you continue to expect to grow as a percentage of sales. So when you look at the other 2 main categories, do you expect the equipment to shrink more than apparel? And if so, how do you -- how will all this impact the product margins, longer term?

Yes, I think we're certainly seeing some mix changes without question. As we mentioned, the footwear business continues to grow. Long term, it probably grows a little bit more at the expense of equipment and license than it does apparel. But it does -- footwear does grow at the expense of the other categories in general. We have opportunity to improve our margin rate across all the categories. So while there are some challenges around mix with regard to the margin blend, we do still have opportunity to grow our margins across the different categories.

Got it. And then, Jared, also, you mentioned before about apparel shortening. Some of this is commoditized. So when you look at apparel, I mean, the total apparel last year was 29% of your total sales within apparel. I mean, how much would you say is kind of commoditized in apparel that's easily comparable to other retailers?

Yes and I think that's hard to put a number on. I think where we'll see that -- the mix within apparel will change some. I mean, we've certainly seen a better performance out of our men's category than we have our women's and kids business. So I think we'll see the mix change within apparel. We're very focused on upgrading our assortments across all categories within apparel and across all store types. So I think we'll continue to see that change, over time, but it's really more of an upgrade conversation overall, certainly trying to do as much business in apparel as we can.

Our next question coming from the line of Jim Duffy with Stifel.

I'm interested in how you're thinking about benefits from having e-commerce online for the back-to-school period versus the potential disruption risks during a high-volume period. What are the factors you guys are considering as part of that risk-reward assessment?

Yes, so how we're looking at that and as I said, we'll know more as we kind of get through more of the testing phase of a little bit finer point on the specific date. But we're looking at that very closely and part of the testing phase is simulating different volume levels that we could see during heavy selling periods, whether that be back-to-school or holiday or spring or whatever. And so that is a key part of our testing program, to really understand how much volume it can withstand. There'll be circuit breakers built in. If we do get too much volume, then you can -- we put in a waiting room, things like that, that's kind of the last resort. But so far, the conversations we've had with our vendors, it is definitely top of mind and we feel very comfortable at this point that we can handle very high volume.

And is there any potential to store-level volume disruption? Or can you keep flipping the switch on e-commerce isolated and e-commerce room, so to speak?

Yes, I don't anticipate much disruption. I think one of the positive things that we've done on our roadmap is start the store-to-home capability first. And so the stores now are fulfilling product on a daily basis to customers' homes and that process is exactly the same to fulfill an e-comm order, okay? And so they will know how to do it already and spreading that volume over 1,000-plus stores really gives us some good leverage. In addition to that, we're building out a very good, very efficient pick-pack module in our distribution center. The construction on that is complete and we just upgraded our warehouse management system. So our efficiency level in the DC and picking and shipping orders will be very good and then leveraging our 1,000 stores really gives us a lot of flexibility to fulfill those orders.

Okay. That's a good segue to my next question. With e-commerce coming online, what's the philosophy for inventory planning? Will you manage inventories tighter in the stores? Or do you continue to see it important to have sufficient inventory in stock in the stores? Is there an opportunity to speed turns?

There's absolutely an opportunity to speed turns. We still feel it's important to ensure that we have a strong and appropriate assortment in stores. We're certainly going to balance products that we ought to ensure that we don't have stock0outs in, that we're having stock in those in the DC to ship to customers. But we're, without question, are starting to get leverage on the store inventory to help improve turns.

Okay. And then my last question. Looking into 2018, what's still on the wish list for systems deployment or operational capabilities? What are kind of the next steps beyond this?

Sure. And I think a lot of what we'll see over the next, probably, a couple of years are just further enhancements to what we've done so far. For example, buy online, pickup and store, that is kind of on our roadmap. We feel like that could give us some nice benefit as kind of a next phase. Visibility in stores of what we have online to help customers understand our -- what our full assortment truly is, there's some opportunities there. And just from an operational standpoint, there are some improvements we see that can help to smooth things out a little bit as we go down further down the road. So we continue to look at those opportunities and kind of stack those up based on the benefit that we'll drive for the business, but I see that going on for the foreseeable future.

We're approaching the top of the hour, so at this time, we'll take a question from Mitch Kummetz with B. Riley.

I've got a few. So in terms of the guidance, could you say whether or not -- I know you guys don't want to give us kind of a revenue number on e-comm. But is there any way you can say whether or not the guidance contemplates positive or negative comp on stores in the back half?

What I would say is the stores, without e-comm, should be slightly better just because we still have a little bit of a benefit to get from store-to-home. But we're not anticipating a big turnaround in kind of the overall environment out there. We feel like it'll still be challenging. So the increase in comp in the back half is going to be mostly things that we're doing internally. Store-to-home will be found with better assortments, things like that in the easier comp in fourth quarter from last year.

Got it. And then on gross margin, it looks like the guide -- even though you lowered the guide, it still looks like you're assuming expansion in the back half. Can you just kind of walk us through the puts and takes there? Because I would imagine a drag or a potential drag would be the shipping expense on e-comm, but obviously, you've also got fairly easy margin comparisons to the back half as well. How do you kind of think of those two things together?

No, that's definitely a piece of it. Looking at the last year compares, as Jared said, most of the heavy lifting on purging some of the aged inventory, a lot of that will happen in Q2 and so that will more or less clear the way in the back half to have some improvement there. And then also, as we post better comps in the back half, it will give us leverage on our fixed costs.

And then lastly, I think you mentioned on the last call that omnichannel all-in and the expected income and the revenue and all that was going to be like a $0.03 to $0.04 drag on earnings this year. Is that still kind of the assumption that's embedded in the new guidance or has that changed?

No, that range is still valid.

And our final question coming from the line of Bill Priebe with Geneva Capital.

Just a question on the smaller markets. Are you seeing any of the local players basically going out of business? And with your new POS system, your e-commerce system almost done, are you also going to enhance, beside the loyalty program, in-store marketing, local marketing to make the client excited about coming back to Hibbett and really start to drive some momentum in what is, we all agree, a pretty sluggish environment? In other words, will it take more than rolling out the e-commerce and continuing to work on the loyalty system to get the excitement back into the Hibbett brand?

Yes, I think you're 100% right. We have to do both. Besides, loyalty is just -- we're going to be relaunching and retraining our associates to really embrace all this new technology. And we have marketing efforts around us to really relaunch the brand and continue to enhance how we're perceived out in the marketplace which I think is good. We've always done a great job at service, but I think, today, as we've run settings with our consumers, they want to shop any which way they can. They want to shop with us in stores or online. So we think now we can finally tie all our customers' needs and wants together and get them what they want. And it's all about service, no matter if it's in the stores or online. And we have to be the best at it. We got to act like we've been here. Some of our competitors have been doing it for years and -- but we got to be better than that and we have to have better service and better opportunities to make sure that people want to come back to us.

Mr. Rosenthal, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

I just want to thank everyone for being on the call today. We will look forward to updating you for the second quarter in August. Thank you.

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. Have a great day.