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Edited Transcript of HIBB earnings conference call or presentation 10-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2017 Hibbett Sports Inc Earnings Call

BIRMINGHAM Mar 10, 2017 (Thomson StreetEvents) -- Edited Transcript of Hibbett Sports Inc earnings conference call or presentation Friday, March 10, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Pat Watson

Hibbett Sports - Senior Vice President & Principal

* Jeff Rosenthal

Hibbett Sports - CEO, President

* Jared Briskin

Hibbett Sports - SVP, Chief Merchant

* Scott Bowman

Hibbett Sports - SVP, CFO, Principal Accounting Officer

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Conference Call Participants

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* Dan Wewer

Raymond James & Associates, Inc. - Analyst

* Rafe Jadrosich

Bank of America - Analyst

* Stephen Tanal

Goldman Sachs - Analyst

* Camilo Lyon

Canaccord Genuity - Analyst

* David Magee

SunTrust Robinson Humphrey - Analyst

* Peter Benedict

Robert W. Baird - Analyst

* Rick Nelson

Stephens, Inc. - Analyst

* Sam Poser

Susquehanna International Group - Analyst

* Anthony Lebiedzinski

Sidoti & Company - Analyst

* Jim Duffy

Stifel Nicolaus - Analyst

* Mitch Kummetz

B. Riley & Co. - Analyst

* Mark Smith

Feltl and Company - Analyst

* Adam Sindler

Deutsche Bank - Analyst

* Patrick McKeever

MKM Partners - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you very much for standing by and welcome to Hibbett Sports fourth-quarter fiscal 2017 conference call. (Operator Instructions) As a reminder, this conference is being recorded on Friday, March 10, 2017. I would now like to turn the conference over to Pat Watson with corporate communications. Please proceed.

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Pat Watson, Hibbett Sports - Senior Vice President & Principal [2]

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Thank you for joining Hibbett Sports to review the Company's financial and operating results for the fourth quarter of fiscal year 2017, which ended on January 28, 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, areforward-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 provision 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, and the Company's annual report on Form 10-K, and in other filings with the Securities and Exchange Commission. We refer you to the 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, March 10, 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 would now like to turn the call over to Jeff Rosenthal, Chief Executive Officer. Please go ahead, Jeff.

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Jeff Rosenthal, Hibbett Sports - CEO, President [3]

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Thank you and good morning, everyone. Welcome to the Hibbett Sports fourth-quarter earnings call. I have with me this morning Scott Bowman, Senior VP and CFO; Jared Briskin, Senior VP and Chief Merchant; and Cathy Pryor, Senior VP of Store Operations.

Net sales for the 13 weeks ended January 28, 2017 increased 0.5% to $246.9 million compared with $245.7 million for the 13-week period ended January 30, 2016. Comparable store sales decreased 2.2%. However, we did end the year with a positive comp of 0.2%.

We were disappointed with sales challenges in the fourth quarter. Weaker traffic during the holiday season, lower than expected sales in apparel and equipment led to a comparable store sales decline, but continue to experience strength in our footwear business. We are making significant progress in our store typing initiatives and in our in-stock position on key items in footwear, equipment and apparel.

Moving forward, we are excited about the progress we are making on our major initiatives and expect to see meaningful revenue growth for them this year and beyond. Our store POS rollout of store-to-store will be fully rolled out in the next three weeks and will give us many levers in helping us run our business more efficiently. We are showing very positive results so far.

Our store-to-home capability is in pilot mode and scheduled to begin rollout in the first quarter of this year. This will enable us to use our entire chain to locate an item and send directly to our customers' homes. We are also seeing very positive results while in pilot mode.

We're also on track to launch our e-commerce site in the third quarter of this year, which will be fully integrated with our stores and will include an enriched customer loyalty program. Once implemented, we feel these initiatives will provide an outstanding customer experience and will position us to drive long-term growth and shareholder value.

For the year, Hibbett openned 65 new stores, expanded eight high-performing stores, closed 31 underperforming stores, bringing the store base to 1,078 in 35 states as of January 28, 2017. We have opened three stores in California. We are very pleased with the results so far. It gives us confidence that we could open many more, not just in the state of California, but as well as many other states throughout the US. Our goal to have over 1,500 stores in underserved markets has not changed.

This is the year to see the results of our significant investments we made over the past several years: a new distribution center, a new home office, new POS, system upgrades and in the omni-channel. All these investments were made to maximize our opportunities and ensure a strong and stable foundation for our success.

I would like to thank all of our searches for their hard work. All of this would not be happening without them and their expertise, knowledge, teamwork, 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, to talk about our merchandise trends.

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [4]

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Good morning. Thank you, Jeff. While the fourth quarter was more challenging than we would like, we remain confident in our strategy and opportunities that lie ahead. The continued declines of some of our legacy businesses such as performance apparel and footwear, licensed products and equipment, continue to reinforce our direction, focusing on sports-inspired fashion products for our stores. We are also excited about the levers, such as store-to-home shipping and e-commerce that we believe will help us stabilize some of our poor performing legacy businesses.

For the quarter, we saw the negative impacts hurt our sports specialty stores the most. These stores have the highest penetration of legacy categories, and we were not able to offset the declines. Our athletic specialty stores fared better, as the assortment in the stores is gaining relevancy but was not able to offset the declines in the legacy categories. Our fashion specialty stores performed exceptionally well, as improvements to our assortment resonated with our consumers. These stores have a low penetration of legacy categories.

Apparel was down mid-single digits, primarily due to impacts in our accessory business. Weakness in team sports-related products, socks and hydration led to declines. Branded apparel was much improved, with a very low single-digit decline. Our focus on premium sports-inspired fashion styles performed better than the balance of our assortment. We continue to take a more meaningful position in this product in an effort to stabilize our branded apparel business.

From a gender perspective women's was down low single digits, kids down mid-single digits, but men's was up low single digits. The license business was down double digits and remains our most challenged area. The core licensed business continues to be very difficult. This, coupled with declines from events in the prior-year quarter, led to significant declines. Our licensed team did an excellent job of maximizing the Cubs' World Series championship, Clemson National Championship, as well as Falcons' Super Bowl run, but they were not large enough to offset the prior year.

Our team sports business was down high single digits. Cleated business was down low single digits. But equipment was poor, down low double digits. While fitness was our most challenging area, there was general weakness across all equipment categories.

Footwear performed well for the quarter and was up mid-single digits. All genders were positive, led by our men's business, which was up double digits. Key styles for the quarter were Retro and True Flight from Jordan; Huarache, Kyrie 3 and Air Force from Nike; and NMD, Alpha Bounce Shadow and Superstars from adidas.

From an inventory perspective we were able to close the year below our plan and are expecting improvement in inventory productivity throughout fiscal 2018. We will continue to invest in our footwear business while rightsizing some of our legacy businesses.

I will now turn the call over to Scott Bowman to discuss our financial results.

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [5]

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Thank you, Jared and good morning. For the fourth-quarter, total sales increased $1.2 million to $246.9 million, an increase of 0.5% over the prior year. Comp sales were down 2.2%. By month comp sales were negative 0.7% in November, negative 3.4% in December, and negative 0.4% in January. Gross profit rate decreased 177 basis points in the quarter. Product margin decreased 118 basis points, mainly due to markdowns associated with liquidating seasonal and aged inventory. Logistics and store occupancy expenses increased 59 basis points as a percent of sales, which was due to deleverage of these expenses associated with lower comp sales. SG&A expenses increased 7% in the quarter and increased 147 basis points as a percent of sales. This was mainly due to investments in our omni-channel initiative and deleverage associated with lower comp sales. Depreciation and amortization increased 14% from last year and was up 25 basis points as a percent of sales. This was mainly due to the rollout of our new POS system, investments in our stores and other infrastructure improvements.

The income tax rate for the quarter was 36.7%, which compares to last year's rate of 36.8%. Operating income of $19.1 million decreased 31% from last year and was 7.8% of sales, versus 11.2% last year. Diluted earnings per share came in at $0.54 per share, versus $0.76 last year, a decrease of 28%.

For the full year I would also like to mention a few highlights. Total sales were up 3.2% while comp store sales increased 0.2%. Gross profit rate was down 48 basis points, while SG&A expenses increased 9.4% and were up 130 basis points as a percent of sales. Operating income decreased 193 basis points to 10% of sales, and earnings per diluted share of $2.72 decreased 6.8%. From a balance sheet perspective, the Company ended the quarter with $39 million in cash versus $32 million last year with no borrowings outstanding on our revolving credit facilities.

Significant progress was made on our inventory position in the quarter with total inventory decreasing by 0.8% over last year and 4% lower on a per-store basis. We spent $10.2 million in CapEx for the quarter as we made very good progress on our major initiatives and finished the year at $29.8 million. Also the Company repurchased 324,000 shares (Sic-see press release "324,200") for a total of $11.4 million in the quarter and repurchased 1.2 million shares for $43.1 million for the entire year. At quarter end, we had approximately $258 million remaining under the existing purchase authorization.

As we turn our focus to fiscal 2018, I would like to provide some highlights related to our guidance. I would like to start with some assumptions in our guidance related to our omni-channel initiative and will then provide details on our consolidated financials. For our omni-channel initiative, we expect to spend $7 million to $8 million of capital to complete the rollout of our new POS system, complete the buildout of our fulfillment capability, and complete the infrastructure work for our website launch. From an earning standpoint, we expect to incur an incremental impact of approximately $0.03 to $0.04 per share in fiscal 2018, which will include incremental SG&A and depreciation expense, partially offset by additional revenue. Starting next year, in fiscal 2019, we expect the incremental impact to be a net positive as we ramp up sales and leverage our operating costs.

With that update, I would like to now provide details on our consolidated guidance for fiscal 2018. Keep in mind that fiscal 2018 will include 53 weeks, versus 52 weeks in fiscal 2017. For the year we expect comparable-store sales to increase in the low single-digit range. We plan to open 50 to 60 new stores and close 25 to 35 stores. We expect earnings per diluted share to be in the range of $2.65 to $2.85, including $0.09 to $0.11 for the 53rd week.

For gross margin we expect our overall rate to be relatively flat. Product margin is expected to decline as a percent of sales, due to freight cost associated with store-to-home and e-commerce sales, although we will see an offset from leverage gained on logistics and store occupancy expenses.

With respect to SG&A, we expect to deleverage by 30 to 40 basis points. Our omni-channel initiative will negatively impact SG&A by 60 to 70 basis points, but we will be partially offset by additional revenue and other expense savings. Depreciation is expected to increase 30 to 35 basis points, mainly due to the capitalization of our new POS system and development cost related to our omni-channel initiative.

We expect our tax rate to be approximately 37.5%, which exceeds last year's rate of 36.7%. The increase is due to an accounting standards change which relates to the tax effects of stock-based compensation. Any change in valuation of stock-based compensation between grant date and vesting date will now be booked to the P&L, rather than equity section of the balance sheet. For fiscal 2018 the effect of this change will be mostly realized in the first quarter.

Our earnings-per-share guidance reflects the continuation of our share buyback program and we expect to repurchased $45 million to $55 million in stock for the year. For capital expenditures, we expect to spend $25 million to $30 million as we continue investments in our omni-channel initiative, grow our store base and execute on our strategic initiatives to improve the business.

With that preview of fiscal 2018, operator, we are now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Dan Wewer, Raymond James.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [2]

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Jeff, can you give some more depth on the store typing work that you are doing, maybe give us an indication of how many stores today fall into those three buckets? And when you think about the 1,500-store potential nationally, how will they fall into those three categories?

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Jeff Rosenthal, Hibbett Sports - CEO, President [3]

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Sure. We continue to refine that, but really what has given us between fashion, athletic specialty and sport is really more of a focused inventory on our consumers, what they want and what they need. The fashion doors, as Jared mentioned, have performed much better. And as we've spoken in the past, we are getting assets, more product in some of the other stores, which is lending us to feel a little bit more confident on what stores we open and where we open them. And it varies by state and it varies by demographics, but it really gets back to focusing on that consumer's needs.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [4]

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So are we thinking it's roughly one-third of the stores are fashion stores today, or do you think it's less than that?

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Jeff Rosenthal, Hibbett Sports - CEO, President [5]

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That's about right.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [6]

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And then on the other two, are they equally split as well?

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Jeff Rosenthal, Hibbett Sports - CEO, President [7]

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There's more athletic specialty and may be about a third sport.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [8]

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And long-term, is there an opportunity to convert more of the stores to fashion, or are you thinking ultimately it's about 500 stores are fashion, 500 athletic and 500 sport?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [9]

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Dan, it's Jared. We continue to look at this, certainly on a quarterly basis. And we'll move the stores, based on what the customers are telling us within each store. Our opportunities to certainly improve the mix of lifestyle, or fashion, in our sports stores as well as our athletic stores is a significant opportunity that we feel like we have like we have strong plans in place to take advantage of.

Our initial rollout of store typing occurred within our footwear category. And we are seeing our best results there. So we do feel, as we continue to roll the strategy to all categories, hopefully that will lead to better results.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [10]

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Okay. And then, Scott, one question for you: did I understand correctly that the tax rate headwind is going to be most significant in first quarter? And are there any other issues that make the first quarter more challenging compared to the rest of the year?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [11]

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No, that's one of the biggest differences, Dan. And that's what I did infer. The tax rate change will be mostly realized in the first quarter and I would expect the other quarters to be similar to last year's rate.

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Dan Wewer, Raymond James & Associates, Inc. - Analyst [12]

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Okay, thank you.

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Operator [13]

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Rafe Jadrosich, Bank of America.

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Rafe Jadrosich, Bank of America - Analyst [14]

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Jared, I was hoping you could talk a little bit more about this shift to more lifestyle product and apparel. Could you talk about when that started, and then how you feel you can adjust your assortment going forward to be more on trend for that?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [15]

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Yes. I think we started it -- the second half of last year was when we really started getting some stronger deliveries of that product, and the goal was to certainly follow our typing strategy and follow the strength of our footwear business. It's taken a little longer to execute, frankly. The strength of what we see from an assortment perspective and the sports-inspired fashion product is outstanding, but we're seeing deterioration in some of the legacy performance categories that's happening a little faster than we projected. So we will continue to take a more aggressive stance in shifting that assortment. And we feel like that will put us in better position to stabilize branded apparel.

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Rafe Jadrosich, Bank of America - Analyst [16]

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And the softness on some of the performance, the legacy kind of performance styles, what you think is driving that? Is it just a trend shift, or do you think there is just more competition in that category?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [17]

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I think it's a combination of a lot of things. I don't think it's one. Certainly, there is more competition in the category. But I think it's more -- it more pertains to the consumer today, and certainly the younger consumer. This kid is just so well-connected, from an information perspective, and I think they are looking more and more for the latest and greatest, and looking more and more to stand out. And they know what's happening, not just across the US, but around the world from a fashion perspective. So I think, as our kid gets more engaged from a media perspective, and they certainly are, I think we will continue to see their efforts personally to become faster and more trend-relevant.

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Rafe Jadrosich, Bank of America - Analyst [18]

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Thank you, that's really helpful. And just I wanted to follow up with one more on just the omni-channel outlook. In terms of the 2019 commentary, you said it would be incremental, that it would be a net positive for fiscal 2019. Is that just on SG&A or is that all-in, in terms of the EBIT contribution?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [19]

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That's all-in, Rafe. So the way to think about it is the incremental impact will be a net positive. So we will still have some increases in expenses and revenue, but we will see some year-over-year positive effects of that.

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Rafe Jadrosich, Bank of America - Analyst [20]

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Okay. Great, thank you.

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Operator [21]

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Stephen Tanal, Goldman Sachs.

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Stephen Tanal, Goldman Sachs - Analyst [22]

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I just wanted to ask if you could give us any color on tax refunds and what you may have seen there. Anything you could help with? I wonder if that showed up in the business at all.

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [23]

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This is Jared. Certainly, it has not been a secret. The late start of the refund season was certainly impactful. What we've seen as the dollars have flowed into the marketplace -- we are very confident in the product that we have and see the customer responding to our assortments. But certainly, we've never seen a shift of that magnitude from a tax refund perspective. We've seen shifts, but nothing to that magnitude. So there's still some time to really fully understand that shift along with some of the other shifts that we see in first quarter, such as Easter shifting from March to April.

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Stephen Tanal, Goldman Sachs - Analyst [24]

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Got it. And as we think through some of those puts and takes, is there anything in the thought process that would say that same-store sales in the first quarter should be materially different than the year?

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Jeff Rosenthal, Hibbett Sports - CEO, President [25]

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Yes, I think I'll comment on that. I think, as you look at the year, the main contributors to our low single comp this year should be our store-to-home capability and our digital business that we will take online in the back half of the year. And so the good way to think about it is that comps should continue to improve a bit quarter-over-quarter, throughout the year, because of that. So that's built into the guidance to get to our low single for the entire year.

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Stephen Tanal, Goldman Sachs - Analyst [26]

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Got it. And then I just wonder if you would be able to give us a little color. Obviously, the store typing initiative sounds pretty exciting. But could you or would you be willing to share what fashion specialty comped in the quarter, versus maybe some of the other store types?

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Jeff Rosenthal, Hibbett Sports - CEO, President [27]

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Yes. Jared mentioned a little bit about that they did perform better. But we are really not going to give that out.

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Stephen Tanal, Goldman Sachs - Analyst [28]

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Okay. All right, thanks a lot.

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Operator [29]

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Camilo Lyon, Canaccord Genuity.

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Camilo Lyon, Canaccord Genuity - Analyst [30]

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Maybe asking the last question a little differently, could you share what the spread is between your fashion stores and your athletic stores, sports specialty stores?

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Jeff Rosenthal, Hibbett Sports - CEO, President [31]

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No, again, I think in our initial commentary, I think what we are willing to share is certainly our best-performing store type is our fashion stores, followed by our athletic specialty stores. And then the weakness is certainly coming more from the sports specialty stores.

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Camilo Lyon, Canaccord Genuity - Analyst [32]

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Okay. And just thinking more about the discussion around what's built into the comp guidance, Scott, I think you mentioned that there's an expectation for e-com to be contributing, and that's built into the comp expectation. Initially, what changed from the flat too low single digit guidance on comps to now up low singles, relative to the last time that we heard from you?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [33]

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The main thing that's changed is, as we get closer and closer, the more confident we feel about both of those initiatives. We actually have shipped our first store-to-home order, and it worked. So that's encouraging. Still a little bit of ways to go to get rolled out, but we are very encouraged with that capability. And then on the digital initiative, it's a testament to the team. The capability of our team and the focus they have on that initiative is outstanding -- both initiatives, really. And so it's really a testament to their hard work to get us to where we are today, and to give us confidence that we will be able to launch according to schedule.

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Jeff Rosenthal, Hibbett Sports - CEO, President [34]

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And we also -- we started with just store-to-store, and we've seen how well it's worked for us. So we know, once we get store-to-home going later in the quarter, that that will also help.

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Camilo Lyon, Canaccord Genuity - Analyst [35]

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Got it. And then as we think about the rollout for the e-comp use in the third quarter, how are you guys thinking about if there's any actual store comp leakage as it may shift to online? Is that contemplated in this outlook, or are you just thinking about the incrementals that it may add?

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Jeff Rosenthal, Hibbett Sports - CEO, President [36]

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No, that is contemplated in the guidance. And so we were conservative on the comp we expect out of brick-and-mortar, outside of the store-to-home bump that we should see. But we also think that there's going to be benefit both ways, so there will be a little bit of a blurry line there. When we do go online, we will have that full integration with the stores, to see some inventory availability, the availability to return products in stores to drive further traffic into the stores, a little bit better enriched loyalty program. So we're doing some things around that digital launch to really make sure that there is that integration with the stores that should help that leakage that you mentioned.

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Camilo Lyon, Canaccord Genuity - Analyst [37]

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Got it, great. And then just finally for me on categories, if you could just talk about -- maybe, Jared, you could talk about on the footwear side, generally speaking it seems like footwear slowed a little bit from the high singles that you were producing previously. Just maybe address that. And then as it relates to the basketball, versus lifestyle, versus running, if you could address where the acceleration is mostly coming from. And is there a deceleration in one category as the other categories benefit from an acceleration in demand on those trends you've talked about?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [38]

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Yes. I think from an acceleration perspective, I think from a commentary perspective, what we are really seeing is more of the more fashion-forward footwear is really what's taking share from the performance categories. When you look across the categories within footwear, we've got cool shoes across every category and are very, very pleased with their performance, the way the categories are performing. The real trend that we are seeing within footwear, again, is the deterioration around performance product and the consumer moving more towards these fashion-inspired styles.

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Camilo Lyon, Canaccord Genuity - Analyst [39]

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So when you say performance, are you talking just running, or basketball and running?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [40]

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I'm talking performance across the entire portfolio.

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Camilo Lyon, Canaccord Genuity - Analyst [41]

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Got it. Okay. And then just why did it decelerate? Why do you think it decelerated from Q3 high single digits to mid singles in footwear?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [42]

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Well, I think first and foremostly, when we initially rolled out our store typing strategy, we had some significant gains in the back half of last year. So we are starting to lap some of those. But I also think we had some general traffic declines in our stores throughout the period, which certainly had an impact that we were not able to offset in some of our stores.

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Camilo Lyon, Canaccord Genuity - Analyst [43]

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Got it. Okay, that's helpful. Thanks so much. Good luck, guys.

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Operator [44]

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David Magee, SunTrust.

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David Magee, SunTrust Robinson Humphrey - Analyst [45]

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I wanted to ask about the fashion stores. Geographically, where would they be concentrated? Would those be stores that would be closer to major market areas?

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Jeff Rosenthal, Hibbett Sports - CEO, President [46]

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Not necessarily. I think it's very interesting. Our real estate strategy has always been about trying to hone in, into these underserved, smaller, isolated markets. And we are seeing the same thing through our store typing. We have fashion stores that are close to major markets, but we also have fashion stores that are in really, really tiny markets. So I think it's all based off the demographics and as local to the store as we possibly can get. So it's really across the whole chain from where these stores lie, whether they are sport, athletic or fashion.

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David Magee, SunTrust Robinson Humphrey - Analyst [47]

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Thanks, Jared. And then secondly, with regard to the multi-program in e-commerce, I'm curious what sort of tweaks you might make there and what percent of your current business is done by MVP participants at this point.

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [48]

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The current percentage is right around 50% of our sales are done through MVP loyalty members. So it's a great asset for us that we just haven't fully utilized up until this point. So more details will come out closer to the launch. But just from a broad perspective, it will just be more competitive as you look at our peer group, in terms of how quickly you earn points and what those points are worth, and the ability for us to reach out to those customers in a more differentiated way. We will also have a couple of different tiers to incentivize those customers to get to that next tier. So that's the broad view of it, and we will have more details come out later in the year.

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Jeff Rosenthal, Hibbett Sports - CEO, President [49]

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And David, we just have these capabilities, just got it with the rollout of the new POS. So as we roll that out and get to e-commerce, it will be much more enriched than it ever has been. And it gives us a lot of benefits that we just couldn't pull off, with our old POS.

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David Magee, SunTrust Robinson Humphrey - Analyst [50]

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Great. Thank you, Jeff. Good luck.

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Operator [51]

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Peter Benedict, Robert W. Baird.

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Peter Benedict, Robert W. Baird - Analyst [52]

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Just a clarification, guys. So just on the comp ramp, Scott, it doesn't sound like you are necessarily expecting all the quarters to be positive but clearly acceleration throughout the year. Is that the right way to think about it?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [53]

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It is, yes.

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Peter Benedict, Robert W. Baird - Analyst [54]

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Okay, perfect. And then when we think about them revenue lift from getting these omni-channel capabilities in the store-to-home up and running, is 50 to 60 basis points for the year -- is that -- are we in the neighborhood there in terms of what you think the lift might be? And obviously it could be more as it's in for the full year in 2018. But are we on the right track there?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [55]

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Yes, I think so. It actually could be a little higher. Those two initiatives, we feel, will provide most of our low single-digit increase in comp sales.

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Peter Benedict, Robert W. Baird - Analyst [56]

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Okay, good. On SG&A, Scott, the leverage point beyond this year, can you help us? How do we think about 2018? I think you mentioned in your prepared remarks that you expect some leverage of your expenses in 2018. I'm just trying to understand if you think -- what kind of comp do you need to leverage SG&A in 2018?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [57]

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I think in 2018, or fiscal 2019, it will go down a little bit, closer to probably about a 4% rate. And as we continue to ramp up our digital business and store-to-home, we will continue to see leverage as we gain volume.

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Peter Benedict, Robert W. Baird - Analyst [58]

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Okay, that's helpful. And then last question: just on the e-commerce site, I don't know how much -- and I apologize if it's already been asked. But any color on the loyalty program, what's going to be new? And then when you say store integration, is there going to be functionality like buy online, pick up in-store, that type of thing? Thanks.

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [59]

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Sure. Yes, the couple important things, Peter, on the loyalty program is that you'll earn awards more quickly. And it will be more in line with our peer group, and then we will have a couple tiers to further incentivize those customers to get to that next tier. From a visibility and integration standpoint there will be very good integration of the program with our digital website, and so it will be very visible. As you shop and put items in your basket, it will show you your points value and how close you are to the next award.

And it also, from a store perspective and online, it will be much easier to sign up customers to get them into the program. So I think everyone will be pleased. There's been a lot of work and research that's going into it, so I think it will be a nice improvement versus what we've had in the past.

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Peter Benedict, Robert W. Baird - Analyst [60]

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Okay, thank you.

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Operator [61]

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Rick Nelson, Stephens.

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Rick Nelson, Stephens, Inc. - Analyst [62]

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Can you talk to traffic and ticket, what you saw there in the fourth quarter?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [63]

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Sure, Rick. Traffic or transactions -- we measure by transactions -- were down high single digits. And then the average ticket was up mid-single digits.

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Rick Nelson, Stephens, Inc. - Analyst [64]

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And Scott or Jeff, what can you do, I guess, to -- what kind of tools do you have in your toolbox to alter the direction in traffic?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [65]

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There's really a couple things that we are doing. First off, the store-to-home capability should certainly improve conversion. So convert more customers that are coming into our stores today and converting those into transactions. I think the other thing with, on the product side, as Jared continues to do great work on our store typing initiative, getting the right product in the right stores, it certainly helped.

The loyalty program that I mentioned, should also help get those folks into the store on a more frequent basis, as they redeem awards and accumulate points. And then certainly when we launch our digital website, that will give us some nice advertising marketing awareness for our stores, especially when those customers come in to return products. So that should help from a traffic standpoint, when we get to that stage.

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Jeff Rosenthal, Hibbett Sports - CEO, President [66]

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And just to add to that, Rick, as Scott mentioned, the digital piece really gives us the avenue to connect the customer 24/7, which will both drive online traffic and to stores. So there's a lot of things we can do about going to pick up things or just running things to stores. So we really think that has been our missing link is being able to connect it 24/7, and make sure that we tell the proper content so people know what we carry. And I think this would be the perfect time to really pull all that together.

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [67]

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Just one other example, too. As we continue to go down the path of launching our digital website, there will be some improvements on search results. We are really doing some good work on search engine optimization. And so in the future, if you go to a search engine and you are searching for sporting goods near me, for example, Hibbett stores will come up much more often than they have in the past.

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Rick Nelson, Stephens, Inc. - Analyst [68]

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Thanks for that color. The pilot that you have going with store-to-home: can you speak to what you are seeing in terms of conversion there, comps or any financial metrics?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [69]

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It's much too early. Right now we are just focused on the functionality and if that's working. And so far, so good. So we are really focused on that right now and it's really too early to tell, or to measure the financial numbers behind it.

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Rick Nelson, Stephens, Inc. - Analyst [70]

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Okay, fair enough. Thanks a lot and good luck.

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Operator [71]

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Sam Poser, Susquehanna International Group.

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Sam Poser, Susquehanna International Group - Analyst [72]

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Can you talk about, in more detail about the more traditional sports brands, Jared, and how you are looking at that, what that definition, sort of, of what -- or not brands, but items -- as to what that is? And then can you also talk about maybe SKU count reduction across categories?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [73]

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Yes, sure, Sam. When you look at it, I mean, some of these categories, we call them legacy categories. They are fairly broad. Certainly, the biggest impacts that we are seeing right now are in our licensed product business, particularly with regard to the fan part of the licensed business, that we are seeing a lot of deterioration.

We have similar results out of our equipment area as well. Where I think it starts to get a little bit more item-driven is in our apparel business and our footwear business. And again, in anything that I would consider to be performance versus sports-inspired fashion, those are really the differentiators where, from a product perspective in apparel, as an example of compression -- very, very performance, team sports-driven. That's an area where we have seen some significant decline. So really the difference is that sports-inspired fashion versus core sports performance -- those are the differentiators within each category.

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Sam Poser, Susquehanna International Group - Analyst [74]

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And then in footwear, Jared, if I could follow up, there's been lots of gray areas there. Back in the Shox days, they wanted to call that performance. I don't know. It was expensive, but it wasn't performance. So I guess the question is, is could you give us a couple of examples of what you define as a performance shoe and what you define as a fashion shoe?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [75]

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I can. Without getting into too many details, I think you are right. There is a lot of gray area. I think there's absolutely a lot of subjectivity. And frankly, it's an item-by-item basis to make that determination. Some styles, as an example, are -- there are performance colors and materials, but then there are other colors and materials of a particular style that actually make it more of a fashion-relevance shoe.

So getting real specific on which shoe is which is a little bit difficult, because some of the iterations across each platform or each style of footwear can really change the shoe to who the end-user is. So we have to look at every item appropriately, and try and ensure that we feel that it really has that sports-inspired fashion look to each product. It's less about the category. It's less about the style. It's really more about the item.

And to that point, in doing that, we've seen the items that we are bringing in dramatically reduce. And we still see significant opportunities to reduce our assortment that much further and stay focused on those items that are more fashion-inspired that will really drive the business.

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Sam Poser, Susquehanna International Group - Analyst [76]

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One last thing. An example would be like the Nike Pegasus, which is a performance shoe, but they did a lot of fashion, and that would take both sides? Is that a fair example of that (multiple speakers)

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [77]

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Yes, that's a fair example, yes.

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Sam Poser, Susquehanna International Group - Analyst [78]

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-- because I don't think that's an example that you have in your mix. And just the SKU count -- could you give us a percentage across the board of how you are thinking about SKU count reduction?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [79]

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Yes. We've been operating in the high teens. And we still see further reduction in that as we go forward. Some of the opportunities to help reduce the SKUs will also be some of the new capabilities around store-to-home, where we will start to get leverage across using the inventory across all three types of stores, which will be very helpful as well.

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Sam Poser, Susquehanna International Group - Analyst [80]

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Thanks very much. Good luck.

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Operator [81]

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Anthony Lebiedzinski, Sidoti & Company.

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Anthony Lebiedzinski, Sidoti & Company - Analyst [82]

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Just wanted to clarify as far as the timing of the e-commerce rollout. I think you mentioned third quarter, but will that be before the back-to-school season, or are you thinking more like the September-October?

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Jeff Rosenthal, Hibbett Sports - CEO, President [83]

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We are still working on that, Anthony. So stay tuned. As we get further down the road, we'll be able to tighten up that a little bit. But for right now we are saying sometime in the third quarter. And we are going as fast as we can.

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Anthony Lebiedzinski, Sidoti & Company - Analyst [84]

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Got it. Okay, so thanks for that. And then also, as far as the loyalty program, will that be geared -- as far as the improvements there, will that be geared towards trying to drive more traffic into the stores? Or will you be more channel agnostic? How are you approaching that?

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Jeff Rosenthal, Hibbett Sports - CEO, President [85]

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Yes. Eventually, we will be fairly channel agnostic. We want our customer to shop online and in our stores. And so hopefully it will drive both.

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Anthony Lebiedzinski, Sidoti & Company - Analyst [86]

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Got it, okay. And then, Scott, you also mentioned in your remarks that there will be some SG&A expense savings. Which areas of the business were you referring to as far as where you can potentially get some savings from?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [87]

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That's fairly broad-based, Anthony. We are always looking for ways to save money here and there, without impacting the business. So there's not one particular area. It's a lot of different areas that add up to some savings that we will continue to look for.

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Anthony Lebiedzinski, Sidoti & Company - Analyst [88]

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Got it. All right, thank you very much.

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Operator [89]

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Jim Duffy, Stifel.

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Jim Duffy, Stifel Nicolaus - Analyst [90]

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A couple questions from me, the first around merchandising direction towards lifestyle and fashion. Can you build on your explanation of the operational implications of that? Does that change your buying patterns, buying philosophy, at all? And what are any other operational implications in terms of flow of merchandise and so forth?

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Jeff Rosenthal, Hibbett Sports - CEO, President [91]

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The implications are for us to get more focused, based on the store assortment that we feel are relevant for each store type. It hasn't necessarily changed the operation of how we go to buy. We do spend and have resourced appropriately some significant improvement to the way we assort. And based on those three types, and the typing strategy has also helped us with regard to allocation as well. As the store-to-store capability and store-to-home capabilities continue to improve, we also see opportunities to leverage allocation into those markets, as we will know a lot more about those stores and what they are capable of selling.

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Jim Duffy, Stifel Nicolaus - Analyst [92]

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Okay. Is there a lot of continuity between regions in terms of how they respond to different lifestyle fashion trends? Or can that vary by region? Does it require specific regional merchandising accordingly?

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Jeff Rosenthal, Hibbett Sports - CEO, President [93]

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Yes, but we've always had regional merchandising and there's always trends that are adopted in different parts of the country sooner than others. So it really comes down to how fast, based on where the consumer is, how fast they are willing to adopt a trend.

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Jim Duffy, Stifel Nicolaus - Analyst [94]

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Fair enough. Last question, Scott: the share repurchases, $45 million to $55 million, is that irrespective of price? Do you have a price sensitivity? What's the strategy around that?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [95]

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Yes, the overall strategy is that we'd like to be in the market on a regular basis but we will definitely take advantage of the stock at lower levels.

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Jim Duffy, Stifel Nicolaus - Analyst [96]

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Fair enough, thank you.

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Operator [97]

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(Operator Instructions) Mitch Kummetz, B. Riley & Co.

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Mitch Kummetz, B. Riley & Co. - Analyst [98]

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First question I have is just on the stores. I think you mentioned -- and actually, I just looked it up online. You've got three stores in California. Of the stores that you are opening this year, how many of those are going to be in California? And does your strategy in California differ at all from what your overall strategy is, just given the void that's now been left by the bankruptcies of TSA and Sports Chalet?

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Jeff Rosenthal, Hibbett Sports - CEO, President [99]

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Sure. We still want to go where the markets are underserved. But we see lots of open space with lots of population where there isn't very much competition. But we will continue to look and see if there are some spots left void by some of those guys. But right now it's really just go to markets, where we are underserved.

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Mitch Kummetz, B. Riley & Co. - Analyst [100]

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And can you say how many of the stores that you are opening this year are California stores?

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Jeff Rosenthal, Hibbett Sports - CEO, President [101]

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We are still working on it. But it will be a pretty small subset, but we will continue to look at that a little bit more aggressively as the year goes on, and probably more for next year than this year.

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Mitch Kummetz, B. Riley & Co. - Analyst [102]

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Got it. And then on the legacy performance apparel, any thoughts on what the product pipeline looks like there? I know that Under Armour has said publicly that they didn't think there product this holiday season was that great, in terms of newness or freshness, but they were kind of doubling down in those areas. When you look at the pipeline, maybe more into the back half of the year, is there improvement there on the performance side? Or is that not really what you are looking to do, you are just looking to build out in other areas where the trend may be a little bit stronger?

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Jeff Rosenthal, Hibbett Sports - CEO, President [103]

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We are really looking just to build our assortment where the customer is going. From a product pipeline perspective, we feel very good about the rest of the year. From a pipeline perspective, we are a little bit less concerned about the performance categories. If the customer tells us that they have interest again in performance categories, then we will certainly move back in that direction. But currently we are more focused on the lifestyle/fashion piece of the business.

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Mitch Kummetz, B. Riley & Co. - Analyst [104]

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Got it. And then lastly, it sounds like the licensed piece and equipment continues to be two of the weaker parts of the business. What can be done there to help improve that performance?

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Jeff Rosenthal, Hibbett Sports - CEO, President [105]

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We continue to look at those categories. And they are legacy categories, and they are still very important to our business, and certainly very important to our sports specialty stores, primarily. The biggest lever that we will have for those businesses is both of those businesses will be impacted by our store-two-store, store-to-home and, certainly, e-commerce rollout as we get to the latter part of the year. So we feel like those are opportunities that could hopefully help us stabilize some of those businesses.

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Mitch Kummetz, B. Riley & Co. - Analyst [106]

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Got it. All right, thank you.

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Operator [107]

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Mark Smith, Feltl and Company.

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Mark Smith, Feltl and Company - Analyst [108]

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Sorry if you've talked about this, but now that we are through another NFL and college football season, can you just talk about the trends in football and any impact on your business?

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Jeff Rosenthal, Hibbett Sports - CEO, President [109]

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We did see some trends with regard to tackle football that -- we certainly felt like there was some participation gaps. But at the same time we saw some pretty significant increases in businesses that are more flag football related. So we still believe there's a lot of football being played. Certainly, categorically, it's changing the way we look at things. But for us one of the drivers is certainly with regard to footwear for football, where you need it for tackle or for flag. And we saw better results there than we did on the equipment side, which we believe is due to the flag football influence.

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Mark Smith, Feltl and Company - Analyst [110]

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Okay. And then last from me, can you just give us any more insight into how your customer is doing as we look at where unemployment is, good consumer confidence? How do you feel your customer is doing in the market today?

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Jeff Rosenthal, Hibbett Sports - CEO, President [111]

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I feel our customer is doing okay. I think there are some bright spots with the employment picture and wage growth. So I think those are positives. I think there are still some headwinds out there, with regard to tuition cost, and rent cost, and healthcare, and so forth. I think they still see some of those headwinds. But overall I think the customer is doing okay and hopefully will improve a bit in the next year or so.

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Mark Smith, Feltl and Company - Analyst [112]

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Okay, great. Thank you.

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Operator [113]

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Adam Sindler, Deutsche Bank.

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Adam Sindler, Deutsche Bank - Analyst [114]

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Thanks for taking my questions, real quickly. Two for sort of on the e-commerce side. First, as it relates to the guidance for the year, now more low single digits, relative to flat to low single digits, I just wanted to confirm or clarify, it's not because of what you are seeing quarter-to-date, but more just because of confidence that trends accelerate back into the back part of the year, driven in part by e-commerce? Is that -- would that be a fair statement?

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Jeff Rosenthal, Hibbett Sports - CEO, President [115]

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That is, that is. And that's exactly what was driving that thought. I mentioned we did have our first store-to-home shipment, and it worked. So that gives us more confidence. And as we get further down the road on both initiatives, we continue to feel more confident.

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Adam Sindler, Deutsche Bank - Analyst [116]

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Okay. And then just secondly, on the e-commerce, as you are getting much closer to DTC now, what is baked into your internal plan as it relates to attrition at the store level, so we can think about as you ramp on DTC, what you expect to occur brick-and-mortar.

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Jeff Rosenthal, Hibbett Sports - CEO, President [117]

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I won't give out an exact number, but what I can tell you is that we have taken that into account. And our assumption on base-level brick-and-mortar comps is quite conservative. So we do feel we have that incorporated in the guidance.

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Adam Sindler, Deutsche Bank - Analyst [118]

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Perfect. Okay, thank you so much. I appreciate it.

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Operator [119]

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Patrick McKeever, MKM Partners.

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Patrick McKeever, MKM Partners - Analyst [120]

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A question on all of the store closures that are either in process, or on the horizon in the near term, thinking mostly the department stores, but not just the department stores. And I'm just wondering if you have -- if there's anything there that is reflected in guidance. Would you expect a negative impact from some of the liquidation sales, followed by, perhaps, a little bit of an opportunity later in the back half of the year? Or is this something that's just not really -- may be outside of your business, something you are not going to feel an impact from, one way or the other?

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Jeff Rosenthal, Hibbett Sports - CEO, President [121]

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Yes. I believe sometimes, obviously when Sports Authority went out, I think there was a lot more product available in the marketplace. I think now it's settling in the way it's going to be. Some of our centers may get affected, but for the most part, we are pretty isolated from a lot of it. And so we don't think it's going to have a major impact on the way we look at the business.

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Patrick McKeever, MKM Partners - Analyst [122]

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Okay. And then on the launch of e-commerce in the back half of the year, what do you think will be the key or what are the key competitive advantages, do you think, that you will bring to the marketplace?

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Jeff Rosenthal, Hibbett Sports - CEO, President [123]

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For us, being late to the game, we need to make sure that we look like we've belonged and we've been doing business for a long time. We really have spent a long time -- our digital team, and management, and a lot of people in this building have spent a long time making sure that we've benchmarked against all our competitors and other people out there. So the good thing about being late, if there is something good to it, is that there are so many more functionalities that we will be able to have from the get-go than some people have. So we really have benchmarked the industry, and we feel that our product will be at or better than what they have out there. And so we feel pretty confident on what we are doing with it.

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Patrick McKeever, MKM Partners - Analyst [124]

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Okay, thanks. And then just my last question is on the fourth quarter and the negative 2.2% comp. How much impact do you think -- how much impact do you think there was from e-commerce competition in the quarter? Do you think it was greater than the fourth quarter of 2015? Do you feel like or you think your core customer is accelerating their spending online? Or do you think there were other factors that played more into the performance, including just the weakness in traffic across all of bricks and mortar retail?

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Jeff Rosenthal, Hibbett Sports - CEO, President [125]

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We definitely think that e-commerce played a much bigger role. One of the things that we've really looked at in the last really three years is really that Cyber Week. It was a dramatic drop in our business during Cyber Week. And that's a pretty large-volume week for us. So we have been seeing it gradually go, but this year was so much more dramatic. And it really affected our December tremendously, that first Cyber Week. So we know a lot of it is going there. Obviously, there was other things out in the marketplace that affected our business, too. But we think that was the most significant piece was that in Cyber Week, Black Friday, those type things, we are definitely seeing store traffic and revenue go down on those key e-commerce weeks.

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Patrick McKeever, MKM Partners - Analyst [126]

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Okay, super helpful. Thank you.

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Operator [127]

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Stephen Tanal, Goldman Sachs.

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Stephen Tanal, Goldman Sachs - Analyst [128]

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Sorry, guys, to keep this going. But two very quick ones, just on the P&L: how much of the 118 basis points of merch margin decline was one-time-ish in nature, sort of liquidations, versus the mix shift, as we just think about that?

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Scott Bowman, Hibbett Sports - SVP, CFO, Principal Accounting Officer [129]

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The mix shift was a small component. So the majority of it was the one-time adjustment that we had to make to get our inventory in line.

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Stephen Tanal, Goldman Sachs - Analyst [130]

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Got it. The last one is the SG&A was pretty tight in the quarter, with all that you have going on. I was wondering if there's anything specific you'd call out, to get our models better calibrated. Was incentive comp like a swing or anything like that?

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Jared Briskin, Hibbett Sports - SVP, Chief Merchant [131]

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There were not really any big swings like that. I think overall we are just a little bit more focused on making sure that we can cut where we can without affecting the business. So it's generally tight controls, in light of the extra money we're spending on our initiatives.

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Stephen Tanal, Goldman Sachs - Analyst [132]

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All right, thanks so much.

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Operator [133]

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

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Jeff Rosenthal, Hibbett Sports - CEO, President [134]

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I would like to thank everyone for being on the call today and look forward to our next call, when we report the first quarter. Thank you very much.

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Operator [135]

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Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day.