UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934. For the quarterly period ended: August 2, 2003 -------------- - OR - ________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transaction period from _________ to ________ COMMISSION FILE NUMBER 000-20969 HIBBETT SPORTING GOODS, INC. (Exact name of registrant as specified in its charter) DELAWARE 63-1074067 --------- ---------- (State or other jurisdiction of (IRS Employee Identification No.) incorporation or organization) 451 Industrial Lane, Birmingham, Alabama 35211 - ----------------------------------------- ----- (Address of principal executive offices) (Zip code) (205) 942-4292 (Registrant's telephone number including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No______ ----- Indicate the number of shares outstanding of each of the issuer's common stock, as of the latest practicable date: Shares of common stock, par value $.01 per share, outstanding as of September 10, 2003 were 15,386,364 shares. HIBBETT SPORTING GOODS, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets at August 2, 2003 and February 1, 2003 2 Unaudited Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Week Periods Ended August 2, 2003 and August 3, 2002 3 Unaudited Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended August 2, 2003 and August 3, 2002 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Item 4. Controls and Procedures 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to Vote of Security-Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15 1 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars In Thousands) -------- -------- Aug. 2, Feb. 1, 2003 2003 -------- -------- Assets Current Assets: Cash and cash equivalents .......................... $ 23,030 $ 12,016 Accounts receivable, net ........................... 3,470 3,371 Inventories ........................................ 93,755 86,246 Prepaid expenses and other ......................... 3,197 760 Income tax receivable .............................. 2,964 -- Deferred income taxes .............................. 768 798 -------- -------- Total current assets ............................ 127,184 103,191 -------- -------- Property and equipment, net ........................... 25,432 26,205 -------- -------- Noncurrent Assets: Deferred income taxes .............................. 115 60 Other, net ......................................... 128 124 -------- -------- Total noncurrent assets ......................... 243 184 -------- -------- Total Assets ............................................ $152,859 $129,580 ======== ======== Liabilities and Stockholders' Investment Current Liabilities: Accounts payable ................................... $ 38,125 $ 24,869 Accrued income taxes ............................... -- 1,338 Accrued expenses: Payroll-related ................................. 2,789 3,520 Other ........................................... 3,030 2,503 -------- -------- Total current liabilities .......................... 43,944 32,230 -------- -------- Long-Term Debt ........................................ -- -- -------- -------- Stockholders' Investment: Preferred stock, $.01 par value 1,000,000 shares authorized, no shares outstanding ............... -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 15,368,897 shares issued and outstanding at August 2, 2003 and 15,121,750 shares issued and outstanding at February 1, 2003 154 151 Paid-in capital .................................... 63,309 60,245 Retained earnings .................................. 45,452 36,954 -------- -------- Total stockholders' investment .................. 108,915 97,350 -------- -------- Total Liabilities and Stockholders' Investment .......... $152,859 $129,580 ======== ======== See notes to unaudited condensed consolidated financial statements. 2 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars In Thousands, Except Share and Per Share Amounts) Thirteen Weeks Ended Twenty-Six Weeks Ended ------------------------ ----------------------- August 2, August 3, August 2, August 3, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net sales ................................... $ 71,731 $ 65,919 $ 151,324 $ 136,709 ---------- ---------- ---------- ---------- Cost of goods sold, including warehouse, distribution and store occupancy costs ................. 49,744 45,816 104,379 94,609 ---------- ---------- ---------- ---------- Gross profit ................................ 21,987 20,103 46,945 42,100 Store operating, selling, and administrative expenses ................... 15,105 14,116 30,056 27,737 Depreciation and amortization ............... 1,796 1,710 3,550 3,381 ---------- ---------- ---------- ---------- Operating income ......................... 5,086 4,277 13,339 10,982 Interest (income) expense, net .............. (20) 86 (43) 150 ---------- ---------- ---------- ---------- Income before provision for income taxes . 5,106 4,191 13,382 10,832 Provision for income taxes .................. 1,864 1,530 4,884 3,954 ---------- ---------- ---------- ---------- Net income ............................... $ 3,242 $ 2,661 $ 8,498 $ 6,878 ========== ========== ========== ========== Basic earnings per common share ............. $ 0.21 $ 0.18 $ 0.56 $ 0.46 ========== ========== ========== ========== Diluted earnings per common share ........... $ 0.21 $ 0.17 $ 0.55 $ 0.45 ========== ========== ========== ========== Weighted average shares outstanding: Basic .................................. 15,320,192 15,072,735 15,249,529 15,009,600 ========== ========== ========== ========== Diluted ................................ 15,659,120 15,396,501 15,555,832 15,360,802 ========== ========== ========== ========== See notes to unaudited condensed consolidated financial statements. 3 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars In Thousands) Twenty-Six Weeks --------------------- Aug. 2, Aug. 3, 2003 2002 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ..................................... $ 8,498 $ 6,878 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............... 3,550 3,381 Deferred income taxes ....................... 220 (26) Refundable income tax ....................... (2,964) -- Loss on disposal of assets .................. 110 92 Change in operating assets and liabilities .. 2,278 (8,718) -------- -------- Total adjustments ........................ 3,194 (5,271) -------- -------- Net cash provided by operating activities. 11,692 1,607 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ........................... (2,877) (2,997) Proceeds from sale of property and equipment ... 6 11 -------- -------- Net cash used in investing activities ... (2,871) (2,986) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Revolving loan activity, net ................... -- 1,536 Proceeds from options exercised and purchase of shares under employee stock purchase plan. 2,193 1,509 -------- -------- Net cash provided by financing activities. 2,193 3,045 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 11,014 1,666 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ... 12,016 1,972 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD ......... $ 23,030 $ 3,638 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest ............................... $ 27 $ 112 -------- -------- Income taxes, net of refunds ........... $ 8,337 $ 6,777 -------- -------- See notes to unaudited condensed consolidated financial statements. 4 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation & Accounting Policies The accompanying unaudited condensed consolidated financial statements of Hibbett Sporting Goods, Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended February 1, 2003. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position as of August 2, 2003 and February 1, 2003 and the results of its operations and cash flows for the periods presented. The Company has experienced and expects to continue to experience seasonal fluctuations in its net sales and operating income. Therefore, the results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. Interest Interest income for the thirteen and twenty-six-week-periods ended August 2, 2003 was $33,090 and $69,546, respectively, shown net of interest expense of $13,340 and $26,887, respectively. Interest expense for the thirteen and twenty-six-week-periods ended August 3, 2002 was $86,480 and $152,105, respectively, shown net of interest income of $234 and $1,762, respectively. Advertising Hibbett participates in various advertising and marketing cooperative programs with its vendors, who, under these programs, reimburse Hibbett for certain costs incurred. A receivable for cooperative advertising to be reimbursed is recorded as a decrease to expense as the reimbursements are earned. Hibbett's gross advertising costs for the thirteen weeks ended August 2, 2003 and August 3, 2002 were $723,314 and $544,769, respectively. The Company's gross advertising costs for the twenty-six weeks ended August 2, 2003 and August 3, 2002 were $1,454,865 and $1,479,101, respectively. Reportable Segments Hibbett is an operator of full-line sporting good stores in small to mid-sized markets predominately in the southeast, mid-Atlantic and midwest. Given the economic characteristics of the store formats, the similar nature of the products sold, the type of customers and methods of distribution, the operations of Hibbett constitute only one reportable segment. Customers No customer accounted for more than 5% of the Company's sales during the thirteen and twenty-six-week periods ended August 2, 2003 or August 3, 2002. Vendors For the thirteen-week-period ended August 2, 2003, Nike, our largest vendor, represented approximately 38.5% of our purchases, New Balance represented approximately 14.4% of our purchases and Reebok represented approximately 10.0% of our purchases. For the twenty-six-week-period ended August 2, 2003, Nike, our largest vendor, represented approximately 37.5% of our purchases, New Balance represented approximately 11.8% of our purchases and Reebok represented approximately 9.5% of our purchases. Store Closing Costs Hibbett considers individual store closings to be a normal part of operations and expenses all related costs at the time of closing. 5 Revenue Recognition All merchandise sales occur on-site in the Company's retail stores, and the customers have the option of paying the full purchase price of the merchandise upon sale or paying a down payment and placing the merchandise on layaway. The customer may make further payments in installments, but the entire purchase price for merchandise placed on layaway must be received by Hibbett within 30 days. Hibbett records the down payment and any installments as deferred revenue until the customer pays the entire purchase price for the merchandise and takes possession of such merchandise. Hibbett recognizes merchandise revenues at the time the customer takes possession of the merchandise. The cost of coupon sales incentives are recognized at the time the related revenue is recognized by Hibbett. Proceeds received from the issuance of gift cards are initially recorded as deferred revenue, and such proceeds are subsequently recognized as revenue at the time the customer redeems such gift cards and takes possession of the merchandise. Stock-Based Compensation Stock-based compensation cost is measured under the intrinsic value method in accordance with Accounting Principles Bulletin No. 25. If the Company had recorded compensation costs in accordance with SFAS No. 123 under the fair value based method (using the Black-Scholes option pricing model), the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: Thirteen Week Period Twenty-Six Week Period Ended Ended ---------------------- ---------------------- August 2, August 3, August 2, August 3, 2003 2002 2003 2002 ---------- ---------- --------- --------- Net income--as reported $ 3,242 $ 2,661 $ 8,497 $ 6,878 Net income--pro forma $ 3,000 $ 2,415 $ 8,013 $ 6,387 Diluted earnings per share--as reported .21 .17 .55 .45 Diluted earnings per share--pro forma .19 .16 .51 .41 The weighted average assumptions for determining compensation costs for the thirteen-week-period ended August 2, 2003, under the fair value method include (i) a risk-free interest rate based on zero-coupon governmental issues on each grant date with the maturity equal to the expected term of the options (2.4% and 5.0% for fiscal 2004 and 2003, respectively), (ii) an expected stock volatility of 56% and 58% for fiscal 2004 and 2003, respectively, and (iii) no expected dividend yield. The weighted average assumptions for determining compensation costs for the twenty-six-week-period week period ended August 2, 2003, under the fair value method include (i) a risk-free interest rate based on zero-coupon governmental issues on each grant date with the maturity equal to the expected term of the options (2.7% and 5.1% for fiscal 2004 and 2003, respectively), (ii) an expected stock volatility of 56% and 58% for fiscal 2004 and 2003, respectively, and (iii) no expected dividend yield. 2. Properties We currently lease all of our existing 390 store locations and expect that our policy of leasing rather than owning will continue as we continue to expand. Our leases typically provide for terms of five to seven years with options on the part of Hibbett to extend. Most leases also contain a three-year early termination option if projected sales levels are not met and a kickout clause if co-tenancy provisions are violated. We believe that this lease strategy enhances our flexibility to pursue various expansion opportunities resulting from changing market conditions and to periodically re-evaluate store locations. Our ability to open new stores is contingent upon locating satisfactory sites, negotiating favorable leases and recruiting and training additional qualified management personnel. As current leases expire, we believe that we will be able either to obtain lease renewals for present store locations or to obtain leases for equivalent or better locations in the same general area. For the most part, we have not experienced any significant difficulty in either renewing leases for existing locations or securing leases for suitable locations for new stores. Based on our belief that we maintain good relations with our landlords and that generally we have been able to secure leases for suitable locations, we believe that our lease strategy will not be detrimental to our business, financial condition, or results of operations. 6 Our offices and our distribution center are leased under an operating lease expiring in 2014. We own the Team division's warehousing and distribution center located in Birmingham, Alabama. 3. Earnings Per Share Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings. Diluted EPS has been computed based on the weighted average number of shares outstanding, including the effect of outstanding stock options, if dilutive, in each respective period. A reconciliation of the weighted average shares for basic and diluted EPS is as follows: Thirteen Week Periods Twenty-Six Week Periods Ended Ended ------------------------ ------------------------ August 2, August 3, August 2, August 3, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Weighted average shares outstanding Basic 15,320,192 15,072,735 15,249,529 15,009,600 Dilutive effect of stock options 338,928 323,766 306,303 351,202 ---------- ---------- ---------- ---------- Diluted 15,659,120 15,396,501 15,555,832 15,360,802 ========== ========== ========== ========== For the thirteen and twenty-six week periods ended August 2, 2003, there were no anti-dilutive options. For the thirteen and twenty-six-week periods ended August 3, 2002, 11,250 anti-dilutive options were excluded from the computation. 4. Stockholders' Investment The Company offers participation in stock option plans to certain employees and individuals. Awards typically vest and become exercisable in incremental installments over a period of five years after the date of grant and expire on the tenth anniversary of the date of grant. For the twenty-six week period ended August 2, 2003, 243,116 shares were issued upon exercise of options, resulting in an increase in Stockholders' Investment of $2,131,000, which includes an increase in Paid in Capital of $874,000 attributable to the tax benefit received from the exercise of these options. For the twenty-six weeks ended August 2, 2003, 4,426 shares were purchased under the Employee Stock Purchase Plan resulting in an increase in Stockholders' Investment of $62,000. 5. Stock Split On June 9, 2003, the Company announced that its Board of Directors approved a 3-for-2 stock split. The stock split was effected in the form of a 50% stock dividend, and the new shares were distributed on July 15, 2003, to stockholders of record on June 27, 2003. The effect of this split has been retroactively reflected in the accompanying financial statements. 6. Contingencies The Company is a party to various legal proceedings incidental to its business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect the financial position or results of operations of the Company. 7 7. Recent Accounting Pronouncements In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt"; SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers"; and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking Fund Requirements." The rescissions eliminate the requirement to report gains and losses from the extinguishment of debt as an extraordinary item, net of any related income tax effect. This Statement also amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement became effective for fiscal years beginning after May 15, 2002, and we expect the adoption of this standard to have no material impact on our financial condition, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of this Statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We expect the adoption of this statement to have no material impact on our financial condition, results of operations or cash flows. In December 2002, the FASB issued SFAS 148, which provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method used on reported results. Finally, this Statement amends APB Opinion 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. This Statement is effective for fiscal and interim periods ending after December 15, 2002. We expect the adoption of this Statement to have no material impact on our financial condition, results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We expect the adoption of SFAS No. 150 to have no material impact on our financial position, results of operations or cash flows. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Hibbett Sporting Goods, Inc. ("we" or "Hibbett" or the "Company") is a rapidly-growing operator of full-line athletic sporting goods stores in small to mid-sized markets predominantly in the southeast, mid-Atlantic and midwest. The Company's stores offer a broad assortment of quality athletic equipment, footwear and apparel at competitive prices with a high level of customer service. Hibbett's merchandise assortment features a broad selection of brand name merchandise emphasizing team and individual sports complemented by a selection of localized apparel and accessories designed to appeal to a wide range of customers within each market. The Company's management team believes that its stores are among the primary retail distribution avenues for brand name vendors that seek to penetrate our target markets. As of August 2, 2003, we operated 368 Hibbett Sports stores, as well as 18 smaller-format Sports Additions athletic shoe stores and four larger-format Sports & Co. superstores, in 20 states. The Company's primary retail format and growth vehicle is Hibbett Sports, an approximately 5,000 square foot store located in enclosed malls or in strip shopping centers which are generally the center of commerce within the area and which are generally anchored by a Wal-Mart store. We target markets with county populations that range from 30,000 to 100,000. By targeting smaller markets, we believe that we achieve significant strategic advantages, including numerous expansion opportunities, comparatively low operating costs and a more limited competitive environment than generally faced in larger markets. In addition, we establish greater customer and vendor recognition as the leading full-line sporting goods retailer in these local communities. Although competitors in some markets may carry similar product lines and national brands, we believe that the Hibbett Sports stores are typically the primary, full-line sporting goods retailers in their markets due to the extensive selection of traditional team and individual sports merchandise offered and a high level of customer service. Hibbett operates on a 52 or 53 week fiscal year ending on the Saturday nearest to January 31 of each year. Hibbett has been incorporated under the laws of the State of Delaware since October 6, 1996. Store Locations As of August 2, 2003, we operated 390 stores in 20 contiguous states. Of these stores, 142 are located in malls and 248 are located in strip shopping centers which are generally the center of commerce within the area and which are generally anchored by a Wal-Mart store. The following table shows the locations in which we operated stores as of August 2, 2003: 9 ALABAMA - 56 Conway (2) McDonough Campbellsville Greenville (2) Mt. Vernon Gallatin Adamsville El Dorado Milledgeville (2) Corbin Grenada New Boston Greeneville Athens Forrest City Moultrie Danville Hattiesburg Steubenville Jackson (3) Auburn Harrison Newnan Elizabethtown (2) Jackson OKLAHOMA - 18 Kimball Bay Minnette Hot Springs Rome Frankfort Laurel Ada Kingsport Bessemer Jonesboro Snellville Georgetown Magee Altus Knoxville Brewton Little Rock St. Marys Glasgow McComb Ardmore Lebanon Birmingham (2) Magnolia Statesboro (2) Hazard Meridian Bartlesville Lenoir City Calera Monticello Thomaston Henderson Natchez Chickasha Martin Clanton Paragould Thomasville Hopkinsville New Albany Duncan Maryville Cullman Pine Bluff Thomson Madisonville Ocean Springs Enid McMinnville Daphne Rogers Tifton Mayfield Oxford McAlester Morristown Decatur Russellville Toccoa Morehead Pascagoula Muskogee Murfreesboro (2) Dothan Searcy Valdosta (3) Murray Pearl Miami Nashville Enterprise Van Buren Vidalia Owensboro Picayune Okmulgee Paris Eufaula FLORIDA - 15 Villa Rica Paducah Richland Owasso Springfield Fairfield (2) Chiefland Warner Robbins Richmond Senatobia Ponca City Tullahoma Florence (3) Clewiston Waycross Somerset Starkville Stillwater Union City Ft. Payne Destin IOWA - 2 South Williamson Tupelo (2) Shawnee Winchester Gadsden Ft. Walton Beach Debuque Winchester Vicksburg (2) Tahlequah TEXAS - 12 Gardendale Gainsville West Burlington LOUISIANA - 12 Waynesboro Woodward Cleburne Guntersville Gulf Breeze ILLINOIS - 8 Abbeville N. CAROLINA - 34 Yukon College Station Hartselle Lake City Carbondale Bastrop Albemarle S. CAROLINA - 21 Early Hoover Lake Wales Centralia Crowley Asheboro Aiken Greenville Huntsville (2) Leesburg Charleston Deridder Boone Anderson Longview Jacksonville Live Oak Danville Hammond Clinton Camden Lufkin Jasper Okeechobee Galesburg Monroe Dunn Chester Mt. Pleasant Leeds Palatka Harrisburg Natchitoches Elizabeth City Columbia Palestine Madison Panama City Mt. Vernon New Iberia Elkin Conway Paris Montgomery (2) Santa Rosa Quincy Ruston Forest City Greenville Sherman Muscle Shoals Sebring INDIANA - 12 Thibodaux Greenville Greenwood Victoria Northport GEORGIA - 50 Bedford West Monroe Hendersonville (2) Hartsville Waco Oneonta Albany Columbus Winnsboro Jacksonville Lancaster VIRGINIA - 12 Opelika Americus Corydon MISSOURI - 13 Kinston Laurens Bristol Oxford Athens (2) Crawfordsville Cape Girardeau Lexington Lexington Cedar Bluff Parkway City Bainbridge Greencastle Fulton Lincolnton Marion Christianburg Pelham Brunswick Greenfield Hannibal Lumberton Murrells Inlet Covington Pell City Canton Greensburg Jefferson City Monroe (2) Myrtle Beach Franklin Phenix City Carrollton Jasper Kennett Morehead City Newberry Galax Prattville Cedartown Madison Kirksville Morganton Orangeburg Martinsville Roebuck Centerville Princeton Moberly New Bern Rockhill Norton Scottsboro Columbus (3) Seymour Poplar Bluff Reidsville Seneca Petersburg Selma Cordele Vincennes Rolla Roanoke Rapids Sumter South Boston Talladega Cornelia KANSAS - 8 Sedalia Rockingham York Staunton Tillmans Corner Covington Coffeyville Sikeston Salisbury TENNESSEE - 34 Wythville Troy Dalton Dodge City St. Roberts Sanford Athens W. VIRGINIA -3 Trussville Douglasville Emporia Warrensburg Shallotte Chattanooga Beckley Tuscaloosa (3) Ft. Olgethrope Hays MISSISSIPPI - 32 Shelby (2) Cleveland Martinsburg Valley Gainesville Liberal Batesville Southern Pines Columbia Morgantown ARKANSAS - 21 Griffin Manhattan Clarksdale Statesville Cookeville (2) Arkadelphia Hinesville Pittsburg Clinton Washington Crossville Batesville Hiram (2) Salina Columbia Whiteville Dickson Benton Jessup KENTUCKY - 23 Columbus (2) Wilson Dyersburg (2) Blytheville La Grange (2) Ashland Corinth OHIO - 4 Fayetteville Cabot Macon Bowling Green Flowood Heath Franklin 10 Results of Operations The following table sets forth consolidated statement of operations items expressed as a percentage of net sales for the periods indicated: Thirteen Week Twenty-Six Week Period Ended Period Ended ----------------- ----------------- Aug. 2, Aug. 3, Aug. 2, Aug. 3, 2003 2002 2003 2002 ------- ------- ------- ------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold, including warehouse, distribution and store occupancy costs 69.3 69.5 69.0 69.2 ------- ------- ------- ------- Gross profit 30.7 30.5 31.0 30.8 Store operating, selling, and administrative Expenses 21.1 21.4 19.9 20.3 Depreciation and amortization 2.5 2.6 2.3 2.5 ------- ------- ------- ------- Operating income 7.1 6.5 8.8 8.0 Interest expense 0.0 0.1 0.0 0.1 ------- ------- ------- ------- Income before provision for income taxes 7.1 6.4 8.8 7.9 Provision for income taxes 2.6 2.3 3.2 2.9 ------- ------- ------- ------- Net income 4.5% 4.1% 5.6% 5.0% ======= ======= ======= ======= Thirteen Weeks Ended August 2, 2003 Compared to Thirteen Weeks Ended August 2, 2002 Net sales. Net sales increased $5.8 million, or 8.8%, to $71.7 million for the thirteen weeks ended August 2, 2003, from $65.9 million for the comparable period in the prior year. This increase is attributed to the opening of forty-one Hibbett Sports stores and two Sports Additions, net of store closings, in the 52 week period ended August 2, 2003 and a 1.1% increase in comparable store net sales for the thirteen week period ended August 2, 2003. The increase in comparable store net sales was primarily due to increased sales in apparel. Apparel sales, mainly college and pro-licensed products and active wear, were driven by retro NBA, NFL and MLB jerseys, Under Armour and Nike Dri-Fit performance wear, and ladies college apparel and cheerleading shorts. Footwear sales, driven by basketball, New Balance running shoes, Converse, Nike Shox, Kswiss athletic shoes and the retro-classic look, were flat compared to last year's numbers. Equipment sales overall were slightly down from last year's numbers. However, basketball, football and exercise equipment were positive. New stores and stores not in the comparable store net sales calculation accounted for $5.1 million of the increase in net sales, and increases in comparable store net sales contributed $700,000. Comparable store net sales data for the period reflect sales for our traditional format Hibbett Sports stores open throughout the period and the corresponding period of the prior fiscal year. During the thirteen weeks ended August 2, 2003, we opened fourteen Hibbett Sports stores and two Sports Additions and closed two Hibbett Sports stores. Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy and operating costs for the distribution center. Gross profit was $22.0 million, or 30.7% of net sales, in the thirteen weeks ended August 2, 2003, as compared to $20.1 million, or 30.5% of net sales, in the same period of the prior fiscal year. A 38 basis point decrease as a percent of net sales in net markdowns was somewhat offset by a 17 basis point increase as a percentage of net sales in occupancy related costs and a 2 basis point increase as a percentage of net sales in freight costs due to fuel surcharges and rate increases. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $15.1 million, or 21.1% of net sales, for the thirteen weeks ended August 2, 2003, as compared to $14.1 million, or 21.4% of net sales, for the comparable period a year ago. The decrease in store operating, selling and administrative expenses as a percentage of net sales in the thirteen weeks ended August 2, 2003, is primarily attributed to the leveraging of salaries and benefits, and a reduction in advertising expense, inventory counting expense and credit card fees. Salaries and benefits costs decreased as a percentage of net sales by 9 basis points this thirteen-week-period compared to the same period last year due to a delay in 11 adding additional staff. Advertising costs decreased as a percentage of net sales by 9 basis points this period compared to the same thirteen-week-period last year due to less promotional advertising. Inventory counting expenses decreased as a percentage of net sales by 11 basis points this thirteen-week-period compared with the same period last year due to less inventories taken this year compared to having to take an extra inventory in every store last year due to the implementation of a new warehouse system. Credit card fees decreased as a percentage of net sales by 6 basis points this period compared to the same thirteen-week-period last year due to the increased use of debit cards. Depreciation and amortization. Depreciation and amortization as a percentage of net sales decreased to 2.5% of net sales for the thirteen-week-period ended August 2, 2003, compared with 2.6% of net sales for same thirteen-week- period last year. The reduction in depreciation and amortization expense as a percentage of net sales is due to an increase in sales and fewer capital expenditure purchases this quarter compared to the same thirteen-week-period last year as a result of an increase in landlord contributions. Interest (income) expense. Net interest income for the thirteen weeks ended August 2, 2003, was $20,000 compared to $86,000 of interest expense in the prior year period. The decrease is attributable to lower borrowing levels due to a reduction in working capital needs. Twenty-Six Weeks Ended August 2, 2003 Compared to Twenty-Six Weeks Ended August 3, 2002 Net sales. Net sales increased $14.6 million, or 10.7%, to $151.3 million for the twenty-six weeks ended August 2, 2003, from $136.7 million for the comparable period in the prior year. This increase is attributed to the opening of forty-one Hibbett Sports stores and two Sports Additions, net of store closings, in the 52 week period ended August 2, 2003 and a 2.9% increase in comparable store net sales for the twenty-six-week-period ended August 2, 2003. The increase in comparable store net sales was primarily due to increased sales in footwear and apparel. Apparel sales, mainly college and pro-licensed products and active wear, were driven by retro NBA and MLB jerseys, Under Armour and Nike Dri-Fit performance wear, and ladies college apparel and cheerleading shorts. Basketball, New Balance running shoes, Nike Shox, Kswiss athletic shoes and the retro-classic look drove footwear sales. Equipment sales were down from last year's numbers, but there were positive trends in basketball, football and exercise equipment in the second quarter. New stores and stores not in the comparable store net sales calculation accounted for $10.9 million of the increase in net sales, and increases in comparable store net sales contributed $3.7 million. Comparable store net sales data for the period reflect sales for our traditional format Hibbett Sports stores open throughout the period and the corresponding period of the prior fiscal year. During the twenty-six weeks ended August 2, 2003, we opened twenty-two Hibbett Sports stores and two Sports Additions and closed five Hibbett Sports stores. Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy and operating costs for the distribution center. Gross profit was $46.9 million, or 31.0% of net sales, in the twenty-six weeks ended August 2, 2003, as compared to $42.1 million, or 30.8% of net sales, in the same period of the prior fiscal year. A 49 basis point decrease as a percent of net sales in retail reductions (net markdowns and inventory shortages) was somewhat offset by a 9 basis point increase as a percentage of net sales in occupancy related costs and an 11 basis point increase as a percentage of net sales in freight costs due to fuel surcharges and rate increases. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $30.1 million, or 19.9% of net sales, for the twenty-six weeks ended August 2, 2003, as compared to $27.7 million, or 20.3% of net sales, for the comparable period a year ago. The decrease in store operating, selling and administrative expenses as a percentage of net sales in the twenty-six weeks ended August 2, 2003, is primarily attributed to a reduction in advertising expense, inventory counting expense and credit card fees. Advertising costs decreased as a percentage of net sales by 24 basis points this period compared to the same twenty-six-week-period last year due to less promotional advertising. Inventory counting expenses decreased as a percentage of net sales by 14 basis points this twenty-six-week- period compared with the same period last year due to less inventories taken this year compared to having to take an extra inventory in every store last year in June due to the implementation of a new warehouse system. Credit card fees decreased as a percentage of net sales by 7 basis points this period compared to the same twenty-six-week-period last year due to the increased use of debit cards. Depreciation and amortization. Depreciation and amortization as a percentage of net sales decreased to 2.4% of net sales for the twenty-six-week-period ended August 2, 2003, compared with 2.5% of net sales for same twenty-six-week-period last year. The reduction in depreciation and amortization expense as a percentage of net sales is due to an increase in sales and fewer capital expenditure purchases this year compared to the same twenty-six--week-period last year as a result of an increase in landlord contributions. Interest (income) expense. Net interest income for the twenty-six weeks ended August 2, 2003, was $43,000 compared to $150,000 of interest expense in the prior year period. The decrease is attributable to lower borrowing levels due to a reduction in working capital needs. 12 Liquidity and Capital Resources Our capital requirements relate primarily to new store openings and working capital requirements. Our working capital needs are somewhat seasonal in nature and typically reach their peak near the end of the third and the beginning of the fourth quarter of our fiscal year. Historically, we have funded our cash requirements primarily through cash flows from operations and borrowings under our revolving credit facilities. Net cash provided by (used in) operating activities has historically been driven by net income levels combined with fluctuations in inventory and accounts payable balances. Inventory levels decreased during the twenty-six-week-period ended August 2, 2003 compared to inventory levels for same twenty-six-week-period last due to enhanced merchandise flow through the distribution center. Accordingly, net cash provided by operating activities was $11.7 million for the twenty-six-week-period ended August 2, 2003 compared with net cash provided by operating activities of $1.6 million for the twenty-six-week-period ended August 3, 2002. With respect to cash flows used in investing activities, capital expenditures were $2.9 million in the twenty-six- week-period ended August 2, 2003 compared with $3.0 million for the prior year period. Capital expenditures in the twenty-six weeks ended August 2, 2003 were primarily related to the opening of twenty-four new stores, the refurbishing of existing stores and various corporate additions, including automobiles and warehouse equipment. Net cash provided by financing activities was $2.2 million in the twenty-six-week-period ended August 2, 2003 compared with $3.0 million provided by financing activities in the prior year period. Financing activities primarily relate to net borrowings under our credit facilities and proceeds from stock options exercised. The Company estimates capital expenditures in fiscal 2004 to be approximately $9.4 million, which includes resources budgeted to (i) fund the opening of approximately 60 to 65 Hibbett Sports stores (ii) remodel selected existing stores and (iii) fund corporate headquarters and distribution center related capital expenditures. Hibbett maintains an unsecured revolving credit facility that allows borrowings up to $35 million and which is subject to annual renewal each November. We also maintain an unsecured working capital line of credit for $7.0 million, which is subject to annual renewal each November. As of August 2, 2003, the Company had no debt outstanding under these facilities, compared with $3.0 million outstanding under the revolving credit facility and $2.4 million outstanding under the working capital facility, on August 3, 2002. Based on our current operating and store opening plans, management believes that we can fund our cash needs for the foreseeable future through borrowings under the revolving credit facility, the working capital facility and cash generated from operations. Quarterly Fluctuations The Company has historically experienced and expects to continue to experience seasonal fluctuations in its net sales and operating income. The Company's net sales and operating income are typically higher in the fourth quarter due to sales increases during the holiday selling season. However, the seasonal fluctuations are reduced to some extent by the strong product demand in the spring, summer and back-to-school sales periods. The Company's quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of new store openings, the amount and timing of net sales contributed by new stores, the level of pre-opening expenses associated with new stores, the relative proportion of new stores to mature stores, merchandise mix, the relative proportion of stores represented by each of the Company's three store concepts and demand for apparel and accessories driven by local interest in sporting events. Special Note Regarding Forward Looking Statements The statements contained in this report that are not purely historical or which might be considered an opinion or projection concerning the Company or its business, whether express or implied, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include statements regarding the Company's expectations, intentions, plans or strategies regarding the future. All forward-looking statements included in this document are based upon information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those described or implied in such 13 forward-looking statements because of, among other factors, the ability of the Company to execute its expansion plans, a shift in demand for the merchandise offered by the Company, the Company's ability to obtain brand name merchandise at competitive prices, the effect of regional or national economic conditions, the effect of competitive pressures from other retailers and the ability to attract and retain qualified personnel. In addition, the reader should consider the risk factors described from time to time in the Company's other documents and reports, including the factors described under "Risk Factors" in the Company's Form 10-K/A dated May 1, 2003. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's financial condition, results of operations and cash flows are subject to market risk from interest rate fluctuations on its revolving credit facility and working capital facility, each of which bears interest at rates that vary with LIBOR, prime or quoted cost of funds rates. The average amount of borrowings outstanding under these agreements during the thirteen-week-period ended August 2, 2003 was $25,034 and the maximum amount outstanding was $1,103,675. The average amount of borrowings outstanding under these agreements during the twenty-six-week-period ended August 2, 2003 was $36,993 and the maximum amount outstanding was $1,980,553. The total amount of interest paid during the twenty-six week period ended August 2, 2003 was less than $500. A 10% increase or decrease in market interest rates would not have a material impact on the Company's financial condition, results of operations or cash flows. CONTROLS AND PROCEDURES Hibbett maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Office and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), Hibbett carried out an evaluation, under the supervision and with the participation of Hibbett's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of Hibbett's disclosure controls and procedures as of the end of the fiscal quarter covered by this report. Based on the foregoing, Hibbett's Chief Executive Officer and Chief Financial Officer concluded that Hibbett's disclosure controls and procedures were effective at the reasonable assurance level. There have been no changes in Hibbett's internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Hibbett's internal control over financial reporting. PART II OTHER INFORMATION ITEM 1: Legal Proceedings The Company is a party to various legal proceedings incidental to its business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect the financial position or results of operations of the Company. ITEM 2: Changes in Securities and Use of Proceeds None ITEM 3: Defaults Upon Senior Securities None ITEM 4: Submission of Matters to Vote of Security-Holders None ITEM 5: Other Information None 14 ITEM 6: Exhibits and Reports on Form 8-K (A) Exhibits Exhibit No. 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.1 Section 1350 Certification of Chief Executive Officer 32.2 Section 1350 Certification of Chief Financial Officer (B) Reports on Form 8-K The Company filed with the Commission a Current Report on Form 8-K dated August 19, 2003, to report, under Item 12, a copy of its press release announcing its financial results for the second fiscal quarter ended August 2, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. HIBBETT SPORTING GOODS, INC. Date: September 12, 2003 By: /s/ Gary A. Smith ------------------ ---------------------- Gary A. Smith Vice President & Chief Financial Officer 15 Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer I, Michael J. Newsome, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hibbett Sporting Goods, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 12, 2003 /s/ Michael J. Newsome ------------------------ Michael J. Newsome Chief Executive Officer 16 Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer I, Gary A. Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hibbett Sporting Goods, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 12, 2003 /s/ Gary A. Smith ------------------------ Gary A. Smith Chief Financial Officer 17 Exhibit 32.1 Section 1350 Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Hibbett Sporting Goods, Inc. (the "Company") hereby certifies, to the best of such officer's knowledge, that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended August 2, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: September 12, 2003 /s/ Michael J. Newsome ------------------ ------------------------ Michael J. Newsome Chief Executive Officer 18 Exhibit 32.2 Section 1350 Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Hibbett Sporting Goods, Inc. (the "Company") hereby certifies, to the best of such officer's knowledge, that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended August 2, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: September 12, 2003 /s/ Gary A. Smith ------------------ ------------------------ Gary A. Smith Chief Financial Officer 19