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spk07: Thank you and good morning. Please note that we've prepared a slide deck that we will refer to during our prepared remarks. The slide deck is available on Hibbett.com via the investor relations link down at the bottom of the home page or at investors.hibbett.com and under the news and events section. These materials may help you follow along with our discussion this morning. Before we begin, I'd like to remind everyone that some of the management's comments during this conference call are forward-looking statements. These statements, which reflect the company's current views with respect to future events and financial performance, are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to uncertainties and risks. It should be noted that the company's future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors could cause or contribute to such differences have been described in the news release issued this morning and are noted on slide two of the earnings presentation and the company's annual report on Form 10-K and other filings with the Securities Exchange Commission. We refer you to those sources for more information. Also, to the extent non-GAAP financial measures are discussed on the call, you may find a reconciliation to the most directly comparable GAAP measures on our website. Lastly, I'd like to point out that management's remarks during the conference call are based on information and understandings believed accurate as of today's date, November 21st, 2023. Because of the time-sensitive nature of this information, It is the policy of Hibbett to limit the archive replay of this conference call webcast to a period of 30 days. The participants on this call are Mike Longo, President and Chief Executive Officer, Jared Briskin, Executive Vice President Merchandising, Bob Voelke, Senior Vice President and Chief Financial Officer, Bill Quinn, Senior Vice President of Marketing and Digital, and Ben Knighton, Senior Vice President of Operations. I'll now turn the call over to Mike Longo.
spk05: Good morning and welcome to the Hibbett CityGear Q3 earnings call. For those of you following along in the slides, I'm on slide three entitled Overview. We're very pleased to report a strong financial and operating performance for the third quarter of fiscal 24. Our team did an outstanding job with consistent execution of our strategy as we continue to win market share. While the retail environment remains challenging as consumers are being more selective in their discretionary spending, we've worked very hard to offer a compelling product mix that meets this demand. Additionally, our superior customer service, a best-in-class omni-channel shopping experience, strong vendor relationships, and store placement in underserved markets are distinct competitive advantages that allowed us to continue to gain market share. Our sales were supported by a strong back-to-school season, which occurred in the first month of the third quarter. Footwear sales continue to be the key driver of our sales, especially for our premium brands. We are fortunate to have strong vendor relationships that support our ability to deliver the latest products that appeal to our fashion conscious consumers. During the quarter, we benefited from a more regular schedule of new product launches, which received a very positive response from our brand loyal customers. As announced earlier in the quarter, we launched our Nike Connected Partnership, which connects Hibbett and Nike's loyalty programs. We're very excited about this new benefit for our customers and what it means for our joint businesses. Bill will provide some additional detail in his remarks. In addition to our solid sales performance, we're pleased with the progress we've made with respect to improved expense management and disciplined inventory controls. Bob will cover this in greater detail in his remarks. We also continue to make the necessary investments in our business to enhance the customer experience, both in our stores and our expanding omnichannel platform. We believe our store expansion strategy will be a key driver to our continued growth, and we are still on track to meet our goal of adding approximately 40 net new stores this year. We're pleased with the trends in our business and look forward to the fourth quarter and a successful holiday sales season in line with our expectations. We're excited about additional new product launches around the holidays, which will boost sales and we're confident we have sufficient inventory to support these events and our premium footwear sales. I would like to emphasize, in short, we're investing in our business model for the long term and continue to take market share. Before turning the call over to Jared, I would like to thank our 11,000 team members across the organization for their dedication and hard work and support to our customers in a relatively challenging environment.
spk00: The changing world order. The times ahead will be radically different from those that we've experienced in our lifetimes, though similar to many times before. How do I know that? Because they always have been. Over my roughly 50 years of global macroeconomic investing, I've learned the hard way that the most important events that surprised me did so because they never happened in my lifetime. These painful surprises led me to study the last 500 years of history for similar situations where I saw that they had indeed happened many times before with the ups and the downs of the Dutch, British, and US empires. And every time they did, it was a sign of the changing world order. This study taught me valuable lessons that I'm going to pass along to you here in a distilled form. You can find the comprehensive version in my book, Principles for Dealing with the Changing World Order. Let me begin with a story that brought me to this point about how I learned to anticipate the future by studying the past. In 1971, when I was a young clerk on the floor of the New York Stock Exchange, the United States ran out of money and defaulted on its debts. That's right, the U.S. ran out of money. Well, back then, gold was the money used in transactions between countries. Paper money, like the dollar, was like checks in a checkbook in that it had no value other than it could be exchanged for gold, which was the real money. At the time, the United States was spending a lot more money than it was earning by writing a lot more of these paper money checks than it had gold in the bank to exchange for them. As people turned these checks into the bank for gold money, the amount of gold in the U.S. started to dwindle. It soon became obvious that the US couldn't keep its promises for all the existing paper money, so people holding dollars rushed to exchange them before the gold ran out. Recognizing that the U.S. was going to run out of real money, on Sunday evening, August 15th, President Nixon went on television to tell the world that the U.S. was breaking its promise to let people exchange their dollars for gold. Of course, he didn't say it that way. He said it more diplomatically, without making it clear that the United States was defaulting.
spk17: The strength of a nation's currency is based on the strength of that nation's economy. and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the United States.
spk00: I watched in awe, realizing that money as we understood it was ending. What a crisis. I expected the stock market to plunge the next day, so I got on the exchange floor early to prepare. When the opening bell rang, pandemonium broke out, but not the kind I expected. The market was up, way up. and went on to rise nearly 25%. That surprised me because I never experienced a currency devaluation before. When I dug into history, I discovered that the exact same thing happened in 1933 and had the exact same effect. Then paper dollars were also linked to gold. which the U.S. was running out of because it was spending more paper money checks than it had gold to exchange for them. And President Roosevelt announced on the radio that he would break the country's promise to exchange dollars for gold.
spk16: It was then that I issued the proclamation providing for the national bank holiday. And this was the first step in the government's reconstruction of our financial and economic fabrics. The second step, last Thursday, was the legislation promptly and patriotically passed by the Congress confirming my proclamation and broadening my powers so that it became possible in view of the requirement of time to extend the holiday and lift the ban of that holiday gradually in the days to come. This law also gave authority to develop a...
spk00: In both cases, breaking the link to gold allowed the U.S. to continue spending more than it earned, simply by printing more paper dollars. Since there was an increase in the number of dollars without an increase in the country's wealth, the value of each dollar fell. As these new dollars entered the market, without a corresponding increase in productivity, they went to buy lots of stocks, gold, and commodities. and hence caused their prices to rise. As I studied more history, I saw that the exact same thing happened many, many times before. I saw that since the beginning of time, when governments spent much more than they took in in taxes, and conditions got bad, they ran out of money and they needed more. So they printed more, a lot more. which made its value fall and made the prices of most everything, including stocks, gold, and commodities, rise. That's when I first learned the principle that when central banks print a lot of money to relieve a crisis, buy stocks, gold and commodities, because their value will rise and the value of paper money will fall. This printing of money is also what happened in 2008 to relieve the mortgage-driven debt crisis. And in 2020, to relieve the pandemic-driven economic crisis. and it almost certainly will happen in the future. So I suggest that you keep this principle in mind. These experiences gave me another principle, which is to understand what is coming at you, you need to understand what happened before you. That principle led me to study how the Roaring Twenties bubble turned into the 1930s depression. which gave me the lessons that allowed me to anticipate and profit from the 2007 bubble turning into the 2008 bust. All these experiences led me to develop an almost instinctual urge to look to the past for similar situations to learn how to handle the future well. Changing Orders Over the last few years, three big things that hadn't happened in my lifetime prompted me to do this study. First, countries didn't have enough money to pay their debts, even after lowering interest rates to zero, so their central banks began printing lots of money to do so. Second, big internal conflicts emerged due to growing gaps in wealth and values. This showed up in political populism and polarization between the left, who want to redistribute wealth, and the right, who want to defend those holding the wealth. And third, increasing external conflict between a rising great power and the leading great power, as is now happening with China and the United States. So I looked back. I saw that all these had happened together before, many times, and nearly always led to changing domestic and world orders. The last time this sequence happened was from 1930 to 1945. What exactly is an order, you might ask? It's a governing system for people dealing with each other. There are internal orders for governing within countries, typically laid out in constitutions. And there is a world order for governing between countries, typically laid out in treaties. Internal orders change at different times than world orders, though whether within or between countries, these orders typically change after wars. civil wars within countries, international wars between countries. They happen when revolutionary new forces defeat weak old orders. For example, the U.S. Internal Order was laid out in the Constitution in 1789 after the American Revolution, and it is still operating today, even after the American Civil War. Russia got rid of its old order and established a new one with the Russian Revolution in 1917, which ended in 1991 with a relatively bloodless revolution. China began its current internal order in 1949 when the Chinese Communist Party won the Civil War. You get the idea. The current world order, commonly called the American world order, formed after the Allied victory in World War II when the U.S. emerged as the dominant world power. It was set out in agreements and treaties for how global governance and monetary systems work. In 1944, the New World Monetary System was laid out in the Bretton Woods Agreement and established the dollar as the world's leading reserve currency. A reserve currency is a currency that is commonly accepted around the world, and having one is a key factor in a country becoming the richest and most powerful empire. With a new dominant power and monetary system established, a new world order begins. These changes take place in a timeless and universal cycle that I call the Big Cycle. I'll start with a quick overview, then give you a more complete version, and then direct you to my book if you want more. As I studied the ten most powerful empires over the last 500 years, and the last three reserve currencies, it took me through the rise and decline of the Dutch Empire and the Gilder, the British Empire and the Pound, the rise and early decline in the United States Empire and the Dollar, and the decline and rise of the Chinese empire and its currencies, as well as the rise and decline of the Spanish, German, French, Indian, Japanese, Russian, and Ottoman empires, along with their significant conflicts. as measured in this chart. To understand China's patterns better, I also studied the rise and fall of Chinese dynasties and their monies back to the year 600. Because looking at all these measures at once can be confusing, I'll focus on the four most important ones, the Dutch, British, US, and Chinese. You'll quickly notice the pattern. Now let's simplify the form a bit. As you can see, they transpired in overlapping cycles that lasted about 250 years, with 10 to 20 year transition periods between them. Typically, these transitions have been periods of great conflict because leading powers don't decline without a fight. So how am I measuring an empire's power? In this study, I used eight metrics. Each country's measure of total power is derived by averaging them together. They are education, inventiveness and technology development, competitiveness in global markets, economic output, share of world trade, military strength, the power of their financial center for capital markets and the strength of their currency as a reserve currency. Because these powers are measurable, we can see how strong each country is now, was in the past, and whether they're rising or declining. By examining the sequences from many countries, we can see how a typical cycle transpires. And because the wiggles can be confusing, we can simplify it a bit to focus on the pattern of cause-effect relationships that drive the rise and decline of a typical empire. As you can see, better education typically leads to increased innovation and technology development, and with a lag, the establishment of the currency as a reserve currency. You can also see that these forces then declined in a similar order, reinforcing each other's decline. Let's now look at the typical sequence of events going on inside a country that produces these rises and declines. In a nutshell, the big cycle typically begins after a major conflict, often a war, establishes the new leading power and the new world order. Because no one wants to challenge this power, a period of peace and prosperity typically follows. As people get used to this peace and prosperity, they increasingly bet on it continuing. They borrow money to do that, which eventually leads to a financial bubble. The empire's share of trade grows, and when most transactions are conducted in its currency, it becomes a reserve currency, which leads to even more borrowing. At the same time, this increased prosperity distributes wealth unevenly, so the wealth gap typically grows between the rich haves and the poor have-nots. Eventually, the financial bubble bursts, which leads to the printing of money, an increased internal conflict between the rich and the poor, which leads to some form of revolution to redistribute wealth. This can happen peacefully or as a civil war. While the empire struggles with this internal conflict, its power diminishes relative to external rival powers on the rise. When a new rising power gets strong enough to compete with the dominant power that is having domestic breakdowns, external conflicts, most typically wars, take place. Out of these internal and external wars come new winners and losers. Then the winners get together to create the new world order. And the cycle begins again. As I looked back, I saw that these cause and effect relationships drove the cycles of rises and declines all the way back to the Roman Empire. I saw how the stories of each one of these cycles blended together with others before, during, and after in the same way as each individual story blends with others to make the epic 500-year story that is our collective history. And like human life cycles, no two are exactly the same, but most are similar. They're driven by logical cause and effect relationships that progress through stages from birth to strength and maturity to weakness and inevitably decline. However, that's like saying a person's life cycle takes 80 years on average without recognizing that many are much shorter and many are longer. While age can be a good indicator of future longevity, a better way is to look at health indicators. One can do that with empires and their vital signs too. I found that by watching the indicators of power change, I was able to see what stage a country was in, which helped me to anticipate what was likely to come next. Now, I'll take you through the big cycle in more detail. Give me 20 minutes, and I'll give you the last 500 years of history and show you the similar patterns across the Dutch, British, U.S., and Chinese empires. 500 years of big cycles. I'm going to describe the typical cycle by dividing it into three phases. The rise, the top, and the decline. The rise. Successful new orders that rise, both internal and external, are typically started by powerful revolutionary leaders doing four things. First, they win power by gaining more support than the opposition. Second, they consolidate power by converting, weakening, or eliminating the opposition so they don't stand in their way. Third, they establish systems and institutions that make the country work well. And fourth, they pick their successors well, or create systems that do that, because a great empire requires many great leaders over several generations. At this stage, soon after winning the fight, There is typically a period of peace and growing prosperity because the leadership is clearly dominant and has broad support, so no one wants to fight it. During this phase, leaders within the country have to design an excellent system to raise the country's wealth and power. First and foremost, to be great, they must have strong education, which is not just teaching knowledge and skills, but also strong character. civility and work ethic. These are typically taught in the family, schools and religious institutions. That provides a healthy respect for rules and laws, order within society, low corruption and enables them to unite behind a common purpose and work well together. As they do this, they increasingly shift from producing basic products to innovating and inventing new technologies. For example, the Dutch rose to defeat the Habsburg Empire and become superbly educated. They became so inventive that they came up with a quarter of all major inventions in the world, the most important of which was the invention of ships that could travel around the world to collect great riches, and the invention of capitalism, as we know it today, to finance those voyages. They, like all leading empires, enhance their thinking by being open to the best thinking in the world. As a result, the people in the country become more productive and more competitive in world markets, which shows up in their growing economic output and rising share of world trade. You can see this happening now as the U.S. and China are roughly comparable in both their economic outputs and their shares of world trade. As countries trade more globally, they must protect their trade routes and their foreign interests from attack, so they develop great military strength. If done well, this virtuous cycle leads to strong income growth which can be used to finance investments in education, infrastructure, and research and development. They must also develop systems to incentivize and empower those that have the ability to make or take wealth. In all of these cases, the most successful empires used a capitalist approach to develop productive entrepreneurs. Even China, which is run by the Chinese Communist Party, used the form of this capitalist approach. Deng Xiaoping, when asked about this, said, it doesn't matter if it's a white cat or a black cat as long as it catches mice. And it's glorious to be rich. To do this well, they must develop their capital markets. Most importantly, their lending, bond, and stock markets. That allows people to convert their savings into investments to fund invention and development and share in the successes of those who make great things happen. The Dutch created the first publicly listed company, the Dutch East India Company, and the first stock market to fund it, which were integral parts of the system that produced massive wealth and power. As a natural consequence, the greatest empires developed the world's leading financial centers for attracting and distributing the world's capital. Amsterdam was the world's financial center when the Dutch were preeminent. London, when the British were on top. New York is now. And China is quickly developing its financial centers. Most importantly, the capitalists, the governments and the military must work together. Not only did the Dutch work well together, they were one in the same. The Dutch East India Company was granted a trade monopoly from the government and had its own officially sanctioned military to go out into the global markets to make and take wealth. The British followed with the British East India Company and had a similar coordination of their government, business, and military operations. The U.S. military-industrial complex followed suit, as does the Chinese system today. As the country becomes the largest international trading empire, its transactions can be paid with its currency making it the preferred global medium of exchange. And because their currency is so widely accepted and frequently used, people around the world want to save in it, making it the preferred storehold of wealth, and thus the world's leading reserve currency. The guilder was the world's main reserve currency when the Dutch led world trade, the pound was when the British led, and the dollar has been since the US led. Naturally, China's currency is increasingly being used as a reserve currency. Having a reserve currency enables the empire to borrow more than other countries. That advantage is huge. Think about it. People all over the world are eager to save and hence lend back their currency to the empire. Countries without a reserve currency don't have that. And when the empire runs out of its own money, remember the United States in 1971? they can always print more. The exorbitant privilege afforded by the empire's reserve currency leads borrowing to increase and the beginning of a financial bubble. This series of cause and effect relationships leading to mutually supportive financial, political, and military powers bolstered by the borrowing power of a reserve currency have gone together since history began to be recorded. All the empires that became the most powerful in the world followed this path to the top. While in the top phase, most of these strengths are sustained, embedded within the fruits of their success are the seeds of their decline. As a rule, as people in these rich and powerful countries earn more, that makes them more expensive and less competitive relative to people in other countries who are willing to work for less. At the same time, people in other countries naturally copy the methods and technologies of the leading power, which further reduces the leading power's competitiveness. For example, British shipbuilders had less expensive workers than Dutch shipbuilders. So they hired Dutch designers to design better ships that were built by less expensive British workers, making them more competitive, which led the British to rise and the Dutch to decline. Also, as people become richer, they tend not to work as hard. They enjoy more leisure, pursue the finer and less productive things in life, and at the extreme, become decadent. Values change from generation to generation during the rise to the top, from those who had to fight to achieve wealth and power to those who inherited it. They're less battle-hardened, steeped in luxuries, and accustomed to the easy life, which makes them more vulnerable to challenges. The golden era of the Dutch Empire and the Victorian era of the British Empire were such high prosperity periods like this. As people get used to doing well, they increasingly bet on the good times continuing and borrow money to do that, which grows into financial bubbles. Naturally, the financial gains come unevenly, so the wealth gap grows. Wealth gaps are self-reinforcing because rich people use their greater resources to reinforce their powers. For example, they give greater privileges to their children, like better education, and they influence the political system to their advantage. This causes the gaps in values, politics, and opportunities to grow between the rich haves and the poor have-nots. Those who are less well-off feel the system is unfair, so resentments grow. But as long as the living standards of most people are still rising, these gaps and resentments don't boil over into conflict. Having the world's reserve currency inevitably leads to borrowing excessively and contributes to the country building up large debts with foreign lenders. While this boosts spending power over the short term, It weakens the country's financial health and weakens the currency over the long term. In other words, when borrowing and spending are strong, the empire appears very strong, but its finances are in fact being weakened. The borrowing sustains the country's power beyond its fundamentals by financing both domestic overconsumption, and international military conflicts required to maintain the empire. Inevitably, the cost of maintaining and defending the empire becomes greater than the revenue it brings in, so having an empire becomes unprofitable. For example, the Dutch Empire overextended around the world, and fought war after increasingly expensive war with the British and other European powers to protect its territory and trade routes. The British Empire similarly became massive, bureaucratic, and lost its competitive advantages as rival powers, particularly Germany, soared, leading to an increasingly expensive arms race and world war. The U.S. has spent about $8 trillion on foreign wars and their consequences since September 11, and trillions more for other military operations and for supporting military bases in 70 countries. And it still isn't spending enough to support its military competition with China in the area around China. In this cycle, the richer countries eventually get deeper into debt by borrowing from poorer countries that save more. It's one of the early signs of a wealth and power shift. This started in the United States in the 1980s when it had a per capita income 40 times that of China's and started borrowing from Chinese who wanted to save in dollars because the dollar was the world's reserve currency. Similarly, the British borrowed a lot of money from its much poorer colonies and the Dutch did the same at their time. If the empire begins to run out of new lenders, those holding their currency begin to look to sell and get out rather than to buy, save, lend, and get in. And the strength of the empire begins to decline. The decline. The decline comes from internal economic weakness together with internal fighting or costly external fighting or both. Typically, the decline comes gradually and then very suddenly. When debts become very large and there is an economic downturn and the empire can no longer borrow the money necessary to repay its debts, the financial bubble bursts. This creates great domestic hardships and forces the country to choose between defaulting on its debts or printing a lot of new money. It always chooses to print a lot of new money. At first, gradually, and eventually massively, That devalues the currency and raises inflation. For the Dutch, this was the financial crisis brought about by financial excesses and paying for the Fourth Anglo-Dutch War. Similarly, for the British, it was paying for its financial excesses and its debts from the two world wars. And for the US, it's been three cycles of debt finance booms and busts since the 90s, with the central banks stepping in each time with stronger measures. When the government has problems funding itself, when there are bad economic conditions and living standards for most people are declining, and there are large wealth, values and political gaps, internal conflict between the rich and the poor, as well as different ethnic, religious and racial groups, greatly increases this leads to political extremism that shows up as populism of the left or the right those of the left seek to redistribute the wealth while those of the right seek to maintain the wealth in the hands of the rich typically during such times taxes on the rich rise and when the rich fear their wealth and well-being will be taken away the They move to places, assets, and currencies they feel safer in. These outflows reduce the empire's tax revenue, which leads to a classic, self-reinforcing, hollowing-out process. When the flight of wealth gets bad enough, governments outlaw it. Those seeking to get out begin to panic. These turbulent conditions undermine productivity. which shrinks the economic pie and causes more conflict about how to divide the shrinking resources. Populist leaders emerge from both sides and pledge to take control and bring about order. That's when democracy is most challenged because it fails to control the anarchy, and it is when the move to a strong populist leader who will bring order to the chaos is most likely. As conflict within the country escalates, it leads to some form of revolution or civil war to redistribute wealth and force the necessary big changes. This can be peaceful and maintain the existing order, but it's more often violent and changes the order. For example, the Roosevelt revolution to redistribute wealth was relatively peaceful and maintained the existing internal order. while the French Revolution, the Russian Revolution, and the Chinese Revolution were much more violent and led to new internal orders. This internal conflict makes the empire weak and vulnerable to rising external rivals who, seeing this domestic weakness, are more inclined to mount a challenge. This raises the risk of great international conflict, especially if the rival has built up a comparable military. Defending oneself and one's empire against rivals requires great military spending. which has to occur as domestic economic conditions are deteriorating and the empire can least afford it. Since there is no viable system for peacefully adjudicating international disputes, these conflicts are typically resolved through tests of power. As bolder challenges are made, the leading empire is faced with the difficult choice of fighting or retreating. Fighting and losing is the worst outcome, but retreating is bad too, as it seeds progress to the rival and signals that the empire is weak to those countries that are considering which side to be on. Poor economic conditions cause more fighting for wealth and power, which inevitably leads to some kind of war. Wars are terribly costly. At the same time, they produce the tectonic shifts that realign the new waters to the new realities of wealth and power in the world. When those holding the reserve currency in debt of the declining empire lose faith and sell them, that marks the end of its big cycle. Of the roughly 750 currencies that existed since 1700, less than 20% now exist, and all of them have been devalued. For the Dutch, this happened after their defeat in the Fourth Anglo-Dutch War, when they weren't able to repay the massive debts they built up during it. This led to a run on the Bank of Amsterdam and a desperate sell-off, forcing massive money printing, which devalued the currency and the empire into irrelevance. For the British, this happened after World War II, when despite their victory, they could not repay the massive debts they borrowed to fund their war effort. This led to a series of money printing, devaluations, and sell-offs in the British pound, as the U.S. and the dollar emerged dominant and created a new world order. At the time of this recording, the United States hasn't yet reached this point. While it has massive debt, spends more than it earns, and funds this deficit with more borrowing and printing huge amounts of new money, The big sell-off in dollars and dollar debt hasn't yet begun. And while there are great internal and external conflicts occurring for all the classic reasons, they've not yet crossed the line to become wars. Eventually out of these conflicts, whether they're violent or not, come new winners who get together and restructure the losers' debts and political systems. and establish the new world order. Then the old cycle and empire ends, and the new one begins, and they do it all over again. That's a lot of detail I just threw at you to paint a picture of how the typical big cycle transpires. Of course, not all of them transpire in exactly this way, but most largely do, so much so that it seems like the stories of rises and declines stay essentially the same, and the only things that change are the clothes the characters wear and the technologies they use. So, where are we heading? the future. Most empires have their time in the sun and inevitably decline. Reversing a decline is difficult because that requires undoing a lot that's already been done, but it's possible. By looking at these indicators, it's pretty easy to see which stage of the big cycle an empire is in, how fit it is, and whether its condition is improving or worsening, which can help one estimate how many years it has left. Still, these estimates aren't precise, and the cycle can be extended if those in charge pay attention to their vital signs and improve them. For example, knowing that a person is 60 years old, how fit they are, whether they smoke or not, and a few other basic vital signs, one can estimate the person's longevity. One can do that with empires and their vital signs too. It won't be precise, but it will be broadly indicative and give clear direction on steps to take to increase longevity. It's most often the case that a nation's greatest war is with itself over whether or not it can make the hard decisions needed to sustain success. As for what we need to do, it comes down to just two things. Earn more than we spend. and treat each other well. All other things I mentioned, strong education, inventiveness, being competitive and all the rest, are just ways of getting at these two things. It's easy to measure if we're doing them. So like people who want to get fit, let's get on the program and improve our vitals. Let's do that individually and collectively. My goal for sharing this picture of how the world works and a few principles for dealing with it well is to help you recognize where we are and the challenges we face and to make the wise decisions needed to navigate these times well. Since there is a lot more to discuss and we are out of time, you can learn more in my book, Principles for Dealing with the Changing World Order. And I look forward to continuing this conversation at economicprinciples.org and on social media. Thank you and may the force of evolution be with you. Thank you.
spk23: oh lord he coming i'm kurt and i'm an inaccurate nsx type s over there that's chris and he's on a kawasaki h2r let's get to you drax
spk18: Well, today we're doing something a little different. We have Madman Chris Moore riding a 2017 Kawasaki Ninja H2R with 305 horsepower, 121.5 pound-feet of torque, and a whopping 476 pounds. Going up against a 2022 Acura NSX Type S with 600 horsepower and 492 pound-feet of torque that weighs just a little more than the bike. These two are going head-to-head on our Edmunds U-Drag track, which starts with a quarter-mile drag, then they hit the brakes, do a 180, and power back to start-finish. At the end of the first run, we'll swap lanes and do it again. Normally, we'd swap drivers, but we're going to go ahead and skip that this time. What if I told you we just might do this again with a Porsche? Would you like and subscribe then? Come on! Oh yeah, you looking to buy a new car or sell your old one? Head to edmunds.com for all your car shopping needs. Shop with Edmunds. Get more Edmunds U-Drags. You know you want to.
spk23: All right, so how do I get this bike off the line? It's not too difficult. There's a big knob down here. When you're in Sport Plus, you turn it one more twist and hold it for a few seconds, and then track mode shows up on the dashboard. Once you get that, it's pretty simple. You just put your left foot on the brake, right foot on the gas. wait a second or two, and yeah, just take your foot off the gas and hang on tight. I mean, I don't know what I can do to win. I mean, if you don't know who Chris is, check his YouTube channel, check his Instagram. He is a drag racer, and he is a moneymaker, and I think he might win.
spk22: Let's see. We made one practice pass. It went good. We felt fine. Now it's time to do it in competition against the Acura NSX Type S, a $200,000 supercar. against a $60,000 motorcycle that has entirely too much horsepower. So we got hella top end, but we almost got a little too much power to be launching this thing. Trying to keep it down, plus getting out of a turn, definitely challenging.
spk01: Four, three, two, one.
spk23: Oh, man. There he goes. Look at that. Showboating and hauling ass. That's what Chris Moore does. Turn, turn, turn, turn, turn. Give me that all-wheel drive traction, man. I need it.
spk22: The car just passed me. Here we go, baby. Come on, H2. I need to go, man. I need to go.
spk23: Oh, Lord. He coming. He's coming. Come on, duck down! Killer. That's killer. Whoa! Holy cow, that was close. That's what a race looks like, man.
spk22: Man, that was awesome. I can't believe how close it was. I felt like I was way out in front. I braked a little soft, thinking you were not there. Next thing I know, you're right beside me and back in front by a long ways.
spk23: I just watched you leave, and you just looked like you were showing off. But I know you got to work to keep that front wheel on the ground. But holy hell, dude, that was so bitching watching you catch up again.
spk22: Yeah, you have no idea. Like, this thing is literally really on control. Yesterday in practice, I did really good. I felt OK. But then today, once I know there's competition, it pushes me a little harder, and the bike stayed with the front end in the air.
spk23: How soon after you get around that corner can you really open it up? Do you have to wait till you cross like 100 miles an hour?
spk22: Yeah, I was at the top of fifth gear when I crossed the finish line. I was definitely rolling some serious speed.
spk23: That just looks so good. I can't help but laugh, man. That was bitchin'.
spk22: You did some good driving yourself because you were way behind, and the next thing I know, you were way in front of me. If you look over here, how's my hair? Is it okay? You make me sick. You sure you don't want to try this thing one time? It's easy. I mean, if I tried it, it would be one time. That'd be it. Yeah, it's definitely more challenging than I may make it look. That's for sure.
spk23: Well, let's switch sides and run that again.
spk22: Let's do it. All right, I got to do better on the launch, dude. Like, I lost soft because I thought the NSX was slow. I ain't going to lie. But, dude, I kept the front end in the air way too long. I got to keep that front end down. So this time, I've got to turn left. I know that doesn't sound like much difference, but I've been practicing turning right. So turning left is a little different, especially for me, a guy that goes straight.
spk23: I have air conditioning. He's faster and braver. He's cooler. He's wealthier. I have air conditioning.
spk01: Five, four, three, two, one. Oh, dude.
spk23: All right, I got to brake right. Then I got to try and square this corner off because this thing does understeer.
spk22: Come on, baby. Come on, baby. Get turning around.
spk23: I need to use all the traction on the way out. Come on, let's go. Go, go. Oh, he's way out there. Oh, man, not again. I'll lose that every time. I thought you said you liked going right more than going left. I kept the front end down a lot better that time. Looked like you had more of a wild ride on the way out.
spk22: Yeah, for sure. That wind really makes this thing dance around a lot in the front end.
spk23: No, I'm sure. I mean, even with all that carbon fiber arrow that you got on the front, the bike still wants to fly. I think those wings are helping it come off the ground. It definitely would leave. I tried really hard. I tried to square off the hairpin at the end, and I thought I got a pretty good run, but, you know, I can't get good enough of a run to get far enough in front of that bike because it was coming.
spk22: I feel like I was about the same in the turn, but I was definitely better coming down. The launch was much smoother, and I was able to keep the second and third gear wheelie controlled, and that's what helped me get the win. Best two out of three it is. We're back in the right lane. We got our little practice. We're about to make that NSX cry.
spk23: Got to do this again because the first one was so close, we had to play it back again. I pipped him. You drags, baby.
spk22: You know what time it is, boys? Time to shake and bake, baby.
spk01: Five, four, three, two, one.
spk23: I need all the help I can get. Showboating, kicking ass.
spk22: We got to get turned around and go another way in a hurry.
spk23: I got to square this corner off again. I'm glad this thing has carbon ceramic brakes on it.
spk22: Yeah, that's right, guys. Let's turn around. Wait, patient, patient, patient, patient.
spk23: Go, go, go, go.
spk22: Oh, he's way out front. Come on.
spk23: Oh, I don't think I've got enough distance. Oh, man, here he comes.
spk21: Here I come, baby. Bye-bye.
spk23: Killer, dude. How can you be mad at losing when it looks so goddamn cool?
spk22: This H2R was rolling on the top end. Man, what a fun race. This U-Drag is so fun. How can we figure out how to get this back home?
spk23: Well, there you go.
spk22: You got it. Yeah, that was a good run, man. I felt like you got the head start on me a little bit with the good launch, and I was right there. I set the front end down, and this thing went to work.
spk23: Yeah, I mean, I cannot be mad when I watch you pull away on one wheel. I mean, I'll lose like that every day.
spk22: Yeah, at that point, you're wishing the floorboard was a little bit farther in front of you, so you had a little more room to push the pedal.
spk23: Looked like you got a better launch out of this one, kind of like in race number two, you were able to hold it, like hold that front wheel down.
spk22: The first time, I'm not going to lie, underestimated you a little bit. I thought I was going to pull away, and I thought, oh, this is going to be an easy race. Nah, not the case. That thing boogies through the turns.
spk23: Yeah, I got to lean on this car's all-wheel drive pretty hard. But I got to be careful, because if I get on the power too soon, The front end in this car tends to wash wide, so it won't really rotate that well. So I just got to be really patient. But I got you in my mirror. I don't want to be patient. I got to get the hell out of here.
spk22: You think you got to be patient. I can't lock the corner. Literally, I lock it about half track coming back. Third gear, the thing is still floating the tire, and I'm trying to turn it and get it straight.
spk23: At least all your hard work looks really rad.
spk18: All right, after changing my pants, let's talk best numbers. Zero to 60, the winner goes to the Kawasaki at three seconds flat. In the quarter mile, the Ninja takes it again at 10 seconds at 117.6 miles an hour. By the way, he had to hit the brakes before to make the turn. Max cornering goes to all four wheels of the NSX, pulling 1.13 Gs. And the best time goes to the Kawasaki at 32.4 at 174.4 miles an hour, only 0.7 seconds faster than the NSX. It's time for the leaderboard. The Kawasaki comes in fifth, right above the M3 competition, with its time of 32.4 to 174.4 miles an hour. And the NSX comes in right below the Lucid Air, with a time of 33.1 at 136.1. And if you want to see the official leaderboard, head over to edmunds.com slash udirax.
spk23: Honestly, I didn't think it was going to be quite that close, but this car with its all-wheel drive, with the extra traction, I'm happy about what it did, but what do you think about it?
spk22: It was definitely a good run. I'm not going to lie. The first race definitely surprised me. I let you get way too far out in front. I had to do everything I could do to just get back as close as I did.
spk23: Yeah. I just loved looking back, and I was like, here he comes. Yeah. Here he comes. So cool.
spk22: This thing definitely makes serious steam up top.
spk23: Yeah. Well, if you like that one, make sure to click like and subscribe for more U-Drag action. I'm hungry.
spk05: We have a passionate and dedicated workforce operating more than 1,150 stores, our omnichannel platform, our logistics facilities, and our store support center. They distinguish our brand in the marketplace with outstanding support that continues to drive customer loyalty and extends our market reach. Thank you. I'll now turn the call over to Jared.
spk03: Thank you, Mike. Good morning. Please turn to slide four, entitled Merchandising. The third quarter opened with a strong conclusion to the back-to-school season. Footwear remained our strongest category during the quarter with a low single-digit comp sales increase. Results in footwear were driven by strength in basketball, lifestyle, and running silhouettes. A favorable launch calendar also enabled these positive results. Apparel and team sports were both negative for the quarter, down in the low teens. Seasonal categories were strong during the back-to-school season, but cold in the latter part of the quarter due to the warm and dry weather patterns. Apparel also continues to be affected by promotional activity due to elevated inventory levels in the market. While apparel was a challenge overall, socks and backpacks were strong performers in the back-to-school period. Specific to footwear and apparel, the men's and kids' business was down low single digits, while women's was positive mid-single digits. Men's and kids were both down low single digits, driven by a low teen decrease in apparel, Footwear results in both men's and kids were positive, low single digits. Women's was up mid-single digits, driven by a mid-teens increase in footwear, offset by weak apparel results. We continue to make progress on reducing our inventory. Inventory levels declined slightly in the third quarter versus the second quarter, as well as year over year. We continue to expect a promotional environment through the fourth quarter, Our targeted promotional efforts, as well as support from our key brand partners, will help us achieve our goals for inventory reduction. Our expectations remain unchanged, and we are on track to deliver a mid-teens, year-over-year inventory decline at year-end. I now hand the call over to Bob to cover our financial results.
spk19: Thank you, Jared, and good morning. Please refer to slide five, entitled Q3 Fiscal 24 Results. As a reminder, all financial results are reported on a consolidated basis that includes both the Hibbett and City Gear brands. Total net sales for the third quarter of fiscal 24 decreased 0.3% to $431.9 million from $433.2 million in the third quarter of fiscal 23. Overall comp sales decreased 2.7% versus the prior year third quarter. Brick and mortar comp sales declined 5.4% compared to the prior year's third quarter, while e-commerce sales increased 12.6% compared to the same period of fiscal 23. E-commerce sales accounted for 17% of net sales during the current quarter compared to 15% in the prior year third quarter. Gross margin was 33.9% of net sales for the third quarter fiscal 24 compared to 34.3% in the third quarter of last year. This approximate 40 basis point decline was driven primarily by lower average product margin, which was approximately 130 basis points below the same period last year. This unfavorable product margin performance is attributed to higher promotional activity across both footwear and apparel categories. Higher store occupancy costs, mainly due to deleverage from the slightly lower sales volume, accounted for approximately 40 basis points of the overall decline in gross margin versus the prior year period. Partially offsetting the unfavorable product margin occupancy impacts was an improvement in freight, shipping, shrink, and logistics costs as a percent of sales. SG&A expenses were 23% of net sales for the third quarter of fiscal 24 compared to 23.9% of net sales for the third quarter of last year. This approximate 90 basis point decrease is primarily the result of our continued focus on expense management, including improved efficiency of store labor and strategic reductions in discretionary expense categories, such as professional fees and advertising. These initiatives have more than offset the impacts of inflation on wages, goods, and services, and deleveraged from slightly lower sales volume. Depreciation and amortization in the current quarter of fiscal 24 increased approximately 1.4 million in comparison to the same period last year. reflecting increased capital investment on store development, technology initiatives, and various infrastructure projects over the last three fiscal years. We generated $34.5 million of operating income or 8% of net sales in the third quarter this year compared to $34.2 million or 7.9% of net sales in the prior year's third quarter. Diluted earnings per share were $2.05 for this year's third quarter compared to $1.94 per share in the comparable period of fiscal 23. We ended the third quarter of fiscal 24 with $29.6 million of available cash and cash equivalents on our unaudited condensed consolidated balance sheet and $96.9 million of debt outstanding on our $160 million unsecured line of credit. That inventory at the end of the third quarter was $398.1 million, a 1.7% decrease from the prior year's third quarter and down 5.4% from the beginning of the fiscal year. Capital expenditures during the third quarter were $11.5 million, with approximately 75% attributed to store development projects, including new stores, remodels, relocations, and new signage. We opened 10 net new stores in the third quarter, bringing the store base to 1,158 in 36 states. We repurchased just over 700,000 shares under our share repurchase plan in the third quarter at a total cost of $32 million. We also paid a recurring quarterly dividend during the quarter in the amount of 25 cents per eligible common share for a total outflow of approximately 3.1 million. Now I'll turn to slide six, year-to-date results. Total net sales for the first nine months of fiscal 24 increased 1% to 1.26 billion, while year-to-date comparable sales have decreased 1.9% versus the first nine months of the last year. Brick-and-mortar comp sales declined 2.7%, and e-commerce comp sales increased 2.9%. compared to the prior year. Year to date gross margin was 33.5% of net sales versus 35.3% of net sales last year. This is an approximate 180 basis point decline. Please note the unfavorable gross margin on a year over year basis has improved since the end of the second quarter. We closed Q2 trailing prior year gross margin by 240 basis points. The decline in year to date gross margin continues to be driven by lower average product margin of approximately 240 basis points This was 300 basis points at the end of Q2, and higher store occupancy costs were approximately 40 basis points. On the positive side, we experienced year-over-year improvements in freight, shipping, and logistics costs as a percent of net sales. SG&A expenses were 23% of net sales for the first nine months, compared to 23.2% in the same period last year. The approximate decrease of 20 basis points is primarily the result of lower spend in advertising and professional fees. We have generated $96.4 million of operating income or 7.6% of net sales through the third quarter fiscal 24 compared to $117.7 million or 9.4% of net sales in the prior year's first nine months. Net income for the first nine months of this year was $72.3 million or $5.66 per diluted share compared with $89.6 million or $6.71 per diluted share in the prior year comparable period. Capital expenditures for the first nine months of the fiscal year were $37.2 million, predominantly related to store initiatives, including new store openings, relocations, expansions, remodels, and technology upgrades. I'll now turn the call over to Bill Quinn to discuss consumer insights.
spk24: Thank you, Bob. Starting with our loyalty program, I'm happy to report continued growth. In Q3, our loyalty sales grew single digits. This was primarily driven by more member shopping and average ticket growth. Higher average unit retail drove the growth in average ticket, and increased member shopping was driven by continued engagement from our existing members. We continue to make improvements to our loyalty program. We are especially excited to announce the launch of our connected partnership, connecting Hibbett to Nike's loyalty program. This transformative partnership will further distinguish the Hibbett retail experience. Customers can now sign up to be a connected member, either in-store or online. Also, both new and existing customers can sign up to be a connected member. Benefits of the program include exclusive shopping experiences, personalized content, and early access to Nike and Jordan member products. Integrating Hibbit Rewards and Nike membership will improve the ways we engage and delight our members across all Omnichannel touchpoints. We heavily marketed the launch of the program, and we also have a variety of ongoing digital and in-store marketing campaigns. Customers have been very receptive to the program and we are pleased with the results we are seeing. Turning to our e-commerce business, in Q3 sales increased 12.6% versus last year. E-commerce represented approximately 17% of total sales for the quarter versus last year's 15%. We have seen a propensity of customers to return to online shopping as indicated by our most recent surveys and Q3 sales data. traffic, conversion, and average ticket all increased in Q3, driven primarily by footwear, as well as a strong back-to-school sale. Entering Q4, we are continuing to keep a pulse on how our customers are feeling. Customers continue to have elevated concerns around their economic conditions, including inflation. On a positive note, concerns around resuming student loan payments have declined since the summer. Our customers intend to purchase more this holiday season than last year. I will now hand the call back to Bob to discuss our guidance.
spk19: All right, we are moving forward to slide eight. The business outlook for the fourth quarter fiscal 24 remains challenging to predict. Inflation has continued to have a broad impact not only on consumer sentiment and spending patterns, but has also contributed to increases in our operating costs in the form of wages and prices we pay for various goods and services. Higher interest rates have driven up the cost of borrowing for us and may also be affecting discretionary purchase decisions for those consumers with variable rate loans or credit card debt. We also expect the heavier promotional environment to continue for the near term. All these factors contribute to an uncertain retail environment as we enter the traditional holiday shopping period. Despite these headwinds and uncertainties, our strong third quarter results, coupled with a fourth quarter outlook that remains consistent with the assumptions supporting our previous guidance, has resulted in an adjustment of several elements of our fiscal 24 full-year guidance. The most prominent change is an increase in our diluted EPS range. We are now anticipating diluted EPS for the full year to be between $8 and $8.30. This is up from $7 to $7.75 range that we provided earlier. Consistent with prior guidance, net sales for the full year, including the impact of the 53rd week are anticipated to be flat to up approximately 2% compared to our fiscal 23 results. The 53rd week is expected to be approximately 1% of full year sales. Approximately 52% of our total sales will be recognized in the second half of the fiscal year. Total comparable sales are still expected to decline in the low single digit range for the full year. Full year brick and mortar comparable sales are also still anticipated to be in the negative low single digit range However, we now expect full-year e-commerce revenue to be flat to up low single digits. We are anticipating a slight mixed shift toward e-commerce that we saw in the third quarter will continue through the holiday season. We expect our net new store count to be approximately 40 units for the year. This is at the low end of the previous range as delays in external approval and longer lead times on inspections and permitting have pushed back some of our construction schedules. We anticipate the aggressive promotional environment to continue in the near term. Projected full-year gross margin remains unchanged from previous guidance at approximately 33.9% to 34% of net sales. We have lowered the anticipated SG&A range as a percent of net sales to 23.1% to 23.3%, down from 23.3% to 23.5%, which was provided in our previous guidance. We are actively managing discretionary expenses and continue to focus on identifying efficiencies throughout the organization which are currently helping us offset inflationary pressures, most notably in labor and benefits. Operating margin for the year is expected to be in the range of 7.6% to 8% of net sales, up from previous guidance of 7.4% to 7.8% of net sales. Operating profit is a percent of net sales in the fourth quarter benefits from higher sales volume, although the 53rd week is not considered a significant driver of incremental operating profit due to the low sales volume projected for that week. We still expect to carry debt throughout the remainder of the year, although we have lowered the interest expense range as a percent of sales. Consistent with previous commentary, we anticipate that borrowings will moderate as inventory levels decline throughout and after the holiday season. As noted previously, diluted earnings per share anticipated being the range of 8 to 830, up from previous guidance of 7 to 775. This range assumes an estimated full-year tax rate of approximately 23.1 to 23.3%, down slightly from prior guidance, and an estimated year-end weighted average diluted share count of approximately 12.6 million, also down slightly from prior guidance. We continue to project capital expenditures in the range of 60 to 70 million, with the largest allocation focused on new store growth, remodels, relocations, new store signage, and improving the consumer experience. Our capital allocation strategy will continue to include share repurchases and recurring quarterly dividends in addition to the capital expenditures noted above. That concludes our prepared remarks. Operator, please open the line for questions.
spk09: Thank you. We will now be conducting a question and answer session. At this time, we would like participants to ask one question, then re-queue for any additional questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
spk14: Our first question comes from Mitch Cummets from Seaport Research.
spk09: Please proceed.
spk04: Yes, thanks for taking my question. I was hoping to get a better sense of consumer spending patterns. It sounds like you guys had a good back to school. I'm guessing maybe things slowed a bit in September and October. It sounds like from a seasonal standpoint there were some challenges. And then there was a comment made about the holiday spending outlook that you expect your consumer to spend more for this holiday than last. Can you just maybe elaborate on some of that? I don't know if you can kind of give us the months for the quarter. But just talk a little bit about what you're seeing in terms of kind of how the consumer's purchasing, you know, sort of peak versus non-peak period.
spk03: Yeah. Hey, morning, Mitch. It's Jared. I'll start and then get Bill and likely Ben involved in the conversation as well. You know, I think what we saw, obviously, the peak of back to school was really strong for us. And we saw that, you know, at the tail end of the second quarter into the third quarter in the month of August. So, really pleased with the back to school results really across all categories and we're really excited around what the seasonal apparel was showing us during back to school. Unfortunately, as we got outside of back to school, outside of that peak, things definitely slowed down some with the biggest impact coming in apparel. And we do believe that is a direct result of the weather patterns not being favorable with regard to warmer temperatures year over year and lack of wet weather. We felt great again and back to school, a little bit challenged towards the end of the quarter and apparel, as I said, but footwear was fairly consistent through the quarter. Felt really good about footwear and in particular the launch cadence throughout the quarter, we felt really strongly about. So, Bill?
spk24: Yeah, good morning, Mitch. So, to answer your question around how customers are feeling, they do have elevated financial concerns, but at the same time, they do plan on spending more. during the holidays, in particular on footwear as well as online. When we dig further into our survey results, it's pretty interesting. We found that basically the younger you are, the more positive you feel. So Gen Z as well as millennials are definitely bullish and tend to spend more versus the older population, which is good for us because Gen Z millennials are our core customers. Also, for those people that have financial challenges. You know, they are planning to make trade-offs. So, coming back and things like eating out, entertainment to fund retail spending. Also, some customers plan to lean more to credit during the holidays.
spk07: Okay, thanks.
spk13: Yep. Go ahead, Ben.
spk07: I was going to say, you know, Jared and Bill summed it up pretty well. You know, we had a really nice strong back-to-school selling season. you know, impacts our business in a big way. The seasonal patterns, Derrick mentioned too, impacts some of our outerwear sales, but I feel good about our position in inventory going into the holiday season. You know, our peak seasons have been strong and really look forward to seeing what the Christmas, you know, selling season brings in store.
spk04: All right, thanks. I'll go ahead and read the queue. Thank you, Mitch.
spk09: Our next question comes from Sam Poser from Williams Trading. Please proceed.
spk08: Good morning, everybody. Thank you very much. Happy Thanksgiving, almost. A question on the inventory, Jared. You mentioned it would be down mid-teens at the end of the year, which would get it about as clean as from a pure dollar perspective as we've seen it in some times. The promotional activity that you're seeing that's impacting the gross margin, once your inventory gets to that level, um, regardless of what's going on out in the marketplace, I mean, do you anticipate a significant improvement in your gross mark on your, I call it your, let's say your product margin going into fiscal 25.
spk03: Yep. Hey, Morgan, Sam, happy Thanksgiving as well. Um, so yeah, so it's really, you know, it's two palm approach. I mean, obviously we're, we're hyper focused on the level of inventory and, You know, we believe we'll get to a more optimal level by the end of the year with regard to the total level of inventory, but we do still have some pressures with regard to content. So we're highly hyper focused on the content. We'll continue with targeted promotions around the content to try and get, you know, that our healthiest level with regard to what we're showing to the consumer as we go forward. So, you know, likely there'll still be a few challenges as we head into next year. with regard to the content, but we believe we'll get that resolved pretty quickly as we head into next year.
spk08: Thanks. And then secondly, the new Nike part, how much is the new Nike partnership and what sounds like better allocations impacting, you know, where does that impact more in stores or online? And then secondly, you commented that the Launch calendar was very favorable in Q3. How does it look going within Q3? Give us any indication, I know it's early, on sort of what 4Q looks like to date. That's a cross your fingers I get an answer question.
spk03: We're not going to answer quarter to date, but we do feel good about the launch calendar in the fourth quarter and the support that we have regarding allocations in the fourth quarter. You know, specific to Nike connected, it really will affect both channels as we go forward. Bill will give a little more color here in a moment on what we did across all the channels from a connected membership perspective. But specific to product, you know, there is additional focus around our business with regard to access points that will both impact brick and mortar as well as digital. We'll certainly have an enhanced profile of vendor direct offering. That will affect primarily the digital space and then just a general focus of our business being elevated Around additional support of inventory, you know in the most coveted products So we feel really good about where we stand or our relationship and partnership. It's been Incredible and this will help to reinforce it as we continue to put forth a great experience for consumers.
spk24: Oh Yeah Sam's give you a little bit more on connected, so definitely help with acquisition and retention for both channels. So what we're seeing is is definitely some good sign up rates for the connected program, which is positive. We are we are doing connected member events, driving engagement at our stores as well as member only products. From talking with our customers, customers are happy. I mean, the basic gist of it is it's more. The program is more valuable because you're getting more than just HIBIT. And as a result of that, we're starting to see new customer sign-ups increasing overall.
spk08: Thanks. And just one last thing. Can you give us any variation between what you're seeing out of HIBIT and CityGear?
spk03: It's pretty consistent, Sam. Yeah, I think obviously, you know, both of our brands are highly focused on the fashion consumer, so it's been pretty consistent.
spk13: Thanks very much. Continue to, Sam. Thank you. Thank you.
spk09: Our next question comes from Christina Fernandez from Tesley Advisory Group. Please proceed.
spk12: Hi, good morning, and congratulations on the better results. I wanted to ask about the channel mix you're seeing, particularly with the strong performance in e-commerce. Do you think it's more due to the product launches or consumers looking for promotions which have been more, I guess, significant online? Well, first, sort of, yeah, the trends in e-commerce. And then, I guess, what initiatives are you taking to drive more traffic in stores, which has been, you know, a challenge for a few quarters now? Thank you. Yeah.
spk03: Hi, good morning, Christina. It's Jared. I'll start. You know, I think from a channel perspective, obviously, we're hyper-focused on both channels. You know, our ability to gain, you know, additional access and inventory levels and, you know, a lot of the most coveted products is certainly driving, additional engagement from a digital perspective. So, you know, we believe a lot of that is due to the strength of our footwear business and less about the promotional activity from a digital perspective. Bill, I think I'll hand it to you. I'm sure you'll have some commentary around this.
spk24: Yeah, yeah, absolutely. So, you know, as Jared said, the strength of the footwear business really drove, you know, that e-commerce penetration for the quarter. We believe that will continue just based on what we're looking at here for Q4. So we did raise guidance for digital to flat the single-digit positive. You know, as far as, you know, driving store traffic and what we're doing around that, you know, our biggest acquisition and retention vehicle is our loyalty program, and we're doubling down on that. We have a variety of initiatives to continue that, improving that program, as well as connected, obviously. We're also doing a lot around launches, particularly in-store, to drive higher sell-throughs and more traffic around that as well.
spk14: Our next question comes from Justin Claver from Robert W. Baird.
spk09: Please proceed.
spk02: Hey guys, it's Justin Claver. Thanks for taking the questions and congrats on the partnership with Nike. So I want to ask a question on margin, kind of two parts. Just first on the product margin decline of 130 in the quarter. Can you parse that out maybe a bit at least directionally between apparel and footwear and kind of what's really driving that decline? And then just longer term, your new operating margin outlook for this year, 76 to 8%. I guess barring some economic shock, do you guys feel this level is kind of the new baseline now for operating margins and we can either hold or maybe even expand as we look out into the future? Thank you.
spk03: Justin, Jared, good morning. Thank you. I'll start with regard to the product. It's really across both footwear and apparel. You know, we're making great progress. You know, Stephanie and the team have done an incredible job on managing the inventory, getting the inventory lower, and as we said, we feel great about where we expect to land in the fourth quarter. But we still have some work to do to get, you know, to an optimal level of content. So that's across both categories. I would also say that, you know, typically the seasonal product early in the season tends to be very margin-rich. So some of the challenges around seasonal apparel in the latter part of a quarter didn't help us as much as we might have expected with regard to margin from a product standpoint. Bob?
spk19: Morning, Justin. As far as, you know, obviously we're not giving any guidance into the future at this point beyond the current fiscal year, but I think, you know, directionally we're obviously looking to continue to try to slowly, you know, improve performance over time. Nothing's a complete linear equation, so we're going to see some ebb and flow in margin. We'll see some ebb and flow in SG&A, but I think, again, we've talked about this before about established kind of new baseline. We do believe that this is a number we can, again, be comfortable with probably into the near term. But, again, we'll provide more formal guidance, obviously, in the fiscal 25 after we finish the current year.
spk13: All right, guys. Thanks, and happy Thanksgiving to everyone.
spk15: Thank you.
spk10: Ladies and gentlemen, we apologize for the technical difficulties. We'll move on to our next question, which is coming from the line of Alex Perry with Bank of America. Please proceed with your question.
spk20: Hi. Thanks for taking my questions here. I guess first, I just wanted to ask a little bit more about the guidance and sort of the 4Q implied guidance. It looks like the comp guidance and gross margin guidance remains unchanged. Is that just conservatism or you talked about the launch calendar being strong or are you seeing, you know, more cautious consumer behavior that led to not raising the guide? Thanks.
spk03: Hey, Alex. Good morning, Jared. I'll start. Yeah, I mean, I think all the above, right? I think there's still... A lot of market uncertainty. There's uncertainty around the consumer. We still think there's elevated inventory levels in the market, which will likely lead to a pretty heavily promotional environment. The weather at the tail end of the third quarter obviously didn't help that. So I think all of the above. There's still a lot of uncertainty in the market. And even though we're confident in our plans and certainly confident about the investments we've made in the business, there is still a lot of uncertainty in the market.
spk13: That's really helpful.
spk20: And then just a follow-up, can you maybe talk a little bit more about some of the secondary brand performance? I know that had been, you know, a bit softer earlier in the year. Are there any call-outs or strong brands outside of Nike and Jordan that are continuing to help the business?
spk03: Yeah, I mean, we have a really broad brand portfolio, as you know. You know, we typically don't talk specifically about a lot of brands on this call, but You know, historically, we tend to have a pretty significant brand churn. You know, there are some of our secondary brands that are doing a nice job from a pipeline perspective of innovation or at least newness. You know, an innovation in our business doesn't necessarily mean new technology. It can mean something that hasn't been in the market that's brought back and put forth in front of the consumer. So, some brands are doing a little better with regard to the innovation pipeline. And they're succeeding, and others are still unfortunately very slow with regard to innovation that's continuing to have challenges. So as brands improve throughout next year and into the future with regards to that newness and innovation profile, we'd expect a better performance out of our secondary brands.
spk20: Perfect. And then just my last one, could you just talk a little bit more about apparel inventories? Are there still overages that need to be worked through? I guess on the seasonal product, has that improved a bit now that the weather has turned? Thanks.
spk03: Yeah. Hey, Alex, Jared again. We feel really good about where our apparel inventory is. Obviously, that was the category that we really started putting solutions against first. So no real significant challenges with regard to apparel. Obviously, there's a lot of business to be done in the fourth quarter and a lot of uncertainty out there. So we'll see how that all finishes up. But Again, we feel good about where the inventory is expected to land and really good about where we expect to have content as we get into next year.
spk11: Perfect. That's really helpful. Best of luck this holiday season. Thank you so much. Thank you.
spk10: Thank you. Our next question is coming from John Lawrence with The Benchmark Company. Please proceed with your question.
spk06: Great. Thank you. Congrats, guys. Mike, would you talk a little bit about expenses? I mean, obviously, great strides there, and I know you're doing a lot. What ending are we in before you would wonder if you're cutting into muscle on the labor side, whatever? Just some thoughts on how much room you have on the expense cut.
spk05: Good morning. Thanks for the question. Ben will come in after me on this one, I think. To set the table on the question, if you'll recall, several quarters ago we spoke about the fact that sales had accelerated over the past few years and we drug some costs inadvertently as is normal. We drug some costs into our current structure. We went a little too far on a handful of things, whether that was a handful of people or a handful of projects or particular systems that we didn't need. And so we began a systematic process to review those about 12 months ago and that has borne fruit and we're pretty proud of that. We don't think that we're anywhere near cutting into the muscle. I would term it more we're taking the savings and reapplying them to the consumer experience, which has the virtuous circle of improving costs, improving our efficiency and effectiveness and speed with which we can serve the customer. Ben?
spk07: Yeah, Mike. Appreciate it, John. It's been nice. You know, it is a little bit rare in retail when you're able to kind of gain both efficiency while increasing your effectiveness. To your point, not cutting into that muscle. Our big move here to the mobile platform has kind of enabled us to do both. You know, putting those tools in our associates' hands has made them even more productive and kind of enabled them to do their job better with the customer. It's kind of elevated that customer experience and the associate experience, I might add, to Mike's point. That combined with, you know, our sales culture out there has led to really results and improved SG&A for, you know, Q3 specifically. Just really proud kind of and want to state that of all the hard work, you know, done from our associates and being able to do that and really elevating that customer experience in store and online.
spk13: Yeah, thanks.
spk06: And the last one for me is just taking that thought going forward, you get back to more normal weather patterns, et cetera, the apparel business, and there's no reason with a reasonable positive comp that you can't leverage that even further.
spk05: Yeah, we think so. And so to answer your first question, we think we're in the mid-innings. Just know that we're not going to take all that to the bottom line. We are, again, we'll reiterate, reinvesting much of those savings into the business model so that we can continue into the future having that positive consumer experience online and at retail. But thanks for the question.
spk06: Great. Thanks, guys. Happy holidays. Thank you.
spk10: Thank you. The next question is coming from Mitch Cummets with Seaport Research. Please proceed with your question.
spk04: Yeah, it's a quick follow up on the women's business. I just want to have a better understanding there because that was up in the quarter. I think you said that footwear was up mid-teens. Can you say how much of your business is women's? Can you elaborate on the strength of that business, particularly in footwear? Like how much of it is that maybe there's just a better underlying product trend in women's or that you're better positioned to take market share there. And like, what do you see the runway for your women's going forward? Like, do you think there is continued opportunity for kind of outperformance of that side of the business?
spk03: Yep. Hey Mitch, good morning again, Jared. Um, yeah, I think, look, if we really go back and look at our history and history in this industry, you know, women's really haven't been focused on. We took a significant approach in 2020 when we went through our merchandising reorganization to put a focus on each gender. We felt like women have the broadest opportunity, you know, followed by kids. You know, since that point, we've more than tripled the women's business. So, feel great about what we're doing in women's. We have a hyper-focused team specifically on women's that we've added resources to. And we're getting great focus from our brand partners on the women's business. The women's business is very, very fast and trend forward for us. And our team's done an exceptional job on following those trends and getting the right levels of inventory and getting support from the vendors.
spk13: And we still see it as a big growth vehicle for us. All right. Thanks again. Thank you. Thank you.
spk10: Thank you. Our final question is coming from the line of Sam poser with Williams trading. Please proceed with your question.
spk08: Oh, since I got the last one, I got a handful. Um, the, the inventory cleanup that you're doing, uh, that you talked about Jared, um, to get the quality better, is this something where you're sort of being more aggressive during the holiday to sort of take, to take care of it while the ducks are flying kind of situation?
spk03: Yeah, I think it's really the approach is to remain targeted with regard to promotions. We're not in the position where we need to do this mass fire sale with regard to inventory. We're targeting the promotions in the right places and we'll do our best to move through as much of it as we can here in the fourth quarter and put us in the best position as we go forward. But there certainly will be a balance around how much we want to do versus how much we'll hold over into next year and then how much other support we can get from our partners with regard to relief on inventory. So, multi-pronged approach. Again, I feel like the team's executing really well against it and we've made major strides.
spk08: Thanks. And then secondly, you know, you called out Nike as doing quite well. On the footwear side, is there a positive call out on the apparel side of the business? you'd say, you know, this or a category, brand, whatever that is doing well in a very difficult situation?
spk03: Yeah, I'd say right now our biggest driving category of the apparel side is denim. Denim's been a significant focus for us for a number of years. We continue to expand our presence in denim, you know, along with Adding additional products within the woven categories of both of those have been exceptional, continue to be a focus for us, and we believe continue to be a differentiator in our business.
spk08: Thanks. And then, Bob, on the share count, the fourth quarter share count, what number should we be using? And then I just wanted to know about where everybody stood with the loyalty program as well as far as new members and percent of business. I might have missed that earlier.
spk19: Yeah, the end-of-year share count is approximately 12.6 million diluted shares.
spk08: I understand, but Q4 is going to be significantly lower than that. Is that like 11.9? I mean, that's to get you to just under 12.6.
spk19: We don't give the specific guides for the quarters. You can do the math on the difference.
spk08: Thank you. And then on the loyalty.
spk24: Loyalty, we saw growth in total active members. So that's anyone who's purchased within the last 12 months, year over year. So we're continuing to see good growth there. Loyalty is over 60% of sales. As far as the breakdown, you know, most of the growth and loyalty in the quarter was driven by existing member shopping. When we look at new customers, the number was slightly down, but the sales from new customers was actually up, and that's because of an increase in average ticket.
spk13: Thank you very much, and happy holidays again. Thank you. Thank you.
spk10: Thank you. Ladies and gentlemen, that does conclude our question and answer session. I'd like to pass the floor back over to management for an additional closing remarks.
spk05: Well, thank you so much for your time and attention today. We appreciate it. We're pretty proud of the quarter. More to come. And look, going into this holiday season, I'll leave you with the message of you don't have enough sneakers or denim yet, so we'll see you, your family, and friends out in the stores this holiday season. Thank you.
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