(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
As you read the MD&A, please refer to our consolidated financial statements, included in Part II. Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See "Cautionary Statement Regarding Forward-Looking Statements" and Part I, Item 1A. "Risk Factors."
Hibbett, Inc. is a leading athletic-inspired fashion retailer primarily located in underserved communities across the country. Founded in 1945, Hibbett stores have a rich history of convenient locations, personalized customer service and access to coveted footwear and apparel from top brands like Nike, Jordan, and adidas. Consumers can browse styles, find new releases, and make purchases by visiting www.hibbett.com . Purchases can be made online or by visiting their nearest store. As of January 29, 2022, we operated a total of 1,096 retail stores in 35 states composed of 900 Hibbett stores, 179 City Gear stores and 17 Sports Additions athletic shoe stores.
Our Hibbett stores average 5,800 square feet and are located primarily in strip centers, which are usually near a major chain retailer. Our City Gear stores average 5,100 square feet and are located primarily in strip centers. Our Sports Additions stores average 2,900 square feet with the majority located in malls and usually near a Hibbett store. Our store base consisted of 833 stores located in strip centers, 32 free-standing stores and 231 enclosed mall locations as of January 29, 2022.
Hibbett operates on a 52- or 53-week fiscal year ending on the Saturday nearest to January 31 of each year. The consolidated statements of operations for Fiscal 2022, Fiscal 2021 and Fiscal 2020 all included 52 weeks of operations. Fiscal 2023 will also include 52 weeks of operations.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. The pandemic has significantly impacted our business over the past two fiscal years. The initial effects of the pandemic included mass closings of parts of the national and global economy, supply chain disruptions and stay-at-home orders, all of which impacted every aspect of our business in Fiscal 2021. Throughout this challenging time, we were able to navigate a rapidly changing retail landscape by leveraging omni-channel and distribution capabilities, having access to and availability of in-demand products, taking decisive action to protect liquidity, demonstrating the ability to reopen stores quickly when circumstances allowed and servicing our customers efficiently and safely through new shopping and payment initiatives. Government stimulus and unemployment programs boosted discretionary spending and consumer demand for the products we carry, resulting in significant sales growth and improved profitability.
As the COVID-19 pandemic continued into Fiscal 2022, communities and consumers remained focused on health and safety protocols and supply chain challenges persisted, but additional government stimulus and extended unemployment benefits continued to fuel discretionary spending and consumer demand. Toward the end of Fiscal 2022, ongoing supply chain disruptions impacted our overall inventory position and had a negative impact on fourth quarter revenue and profitability. In addition, the lack of government stimulus in comparison to the prior year coupled with inflation appears to have driven slightly more conservative consumer purchasing behavior. Despite these headwinds late in Fiscal 2022, the combination of health and safety initiatives we implemented early in the pandemic, changes in the distribution and availability of high demand footwear and apparel and investments we made to improve the consumer experience allowed us to capitalize on the strong demand cycle. These factors were the main contributors to the robust revenue and profitability growth we experienced in Fiscal 2022.
Executive Summary Following is a highlight of our financial results over the last three fiscal years: Fiscal 2022 Fiscal 2021 Fiscal 2020 (52-weeks) (52-weeks) (52-weeks) Net sales (in millions) $ 1,691.2 $ 1,419.7 $ 1,184.2 Operating income, percentage to net sales 13.5 % 6.9 % 3.0 % Comparable store sales 17.4 % 22.2 % 5.3 % Net income (in millions) $ 174.3 $ 74.3 $ 27.3 Net income, percentage increase (decrease) 134.7 % 171.6 % (3.8) % Diluted earnings per share $ 11.19 $ 4.36 $ 1.52
During Fiscal 2022, we opened 36 stores and closed seven stores, bringing the store base to 1,096 in 35 states as of January 29, 2022. Included in new stores and closed stores is one Sports Additions store rebranded and opened as a Hibbett store. During Fiscal 2021, we opened 28 stores and closed 42 stores. Included in new stores were 12 Hibbett stores rebranded and opened as City Gear stores. Included in closed stores in Fiscal 2021 were 10 Hibbett stores closed for rebranding to City Gear stores. Inventory on a per store basis increased 6.6% compared to Fiscal 2021 as we strove to normalize our inventory levels, despite continuing supply chain constraints.
Hibbett ended Fiscal 2022 with $17.1 million of available cash and cash equivalents on the consolidated balance sheet. Hibbett had no debt outstanding at January 29, 2022, and we had full availability of our $100.0 million 2021 Credit Facility.
In March 2020, we borrowed $50.0 million under our prior credit facilities as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 pandemic. In April 2020, we entered into a Second Amended and Restated Note with Regions Bank (the "Amended Credit Facility") that provided for an aggregate amount of credit available to us of $75.0 million. The Amended Credit Facility superseded the Regions Bank credit agreement dated October 2018 and terminated our Bank of America credit agreement dated October 2018. In July 2021, we entered into an unsecured 2021 Credit Facility between the Company and its subsidiaries and Regions Bank. The 2021 Credit Facility, which superseded the Amended Credit Facility, provides an unsecured line of credit of up to $100.0 million and is effective through July 2026 with an interest rate of one-month LIBOR plus 1.0% to 1.8%, depending on specified leverage levels. For discussion of our 2021 Credit Facility and other borrowings, see "Liquidity and Capital Resources."
In Fiscal 2022, comparable store sales increased 17.4%.
Comparable store sales - Stores deemed as comparable stores include our Hibbett, City Gear and Sports Additions stores open throughout the reporting period and the corresponding period of the prior fiscal year, and e-commerce sales. We consider comparable store sales to be a key indicator of our current performance; measuring the growth in sales and sales productivity of existing stores. Management believes that positive comparable store sales contribute to greater leveraging of operating costs, particularly payroll and occupancy costs, while negative comparable store sales contribute to deleveraging of costs. Comparable store sales also have a direct impact on our total net sales and the level of cash flow. Comparable store sales for City Gear stores are presented in comparable store sales beginning in the fourth quarter of Fiscal 2020 and are in full year comparable store sales for Fiscal 2022 and Fiscal 2021.
For Fiscal 2022, 1,034 stores were included in comparable sales. If a store remodel, relocation, or expansion results in the store being closed for a significant period, its sales are removed from the comparable store sales base until it has been open a full 12 months. In addition, rebranded stores are treated as a new store and are not presented in comparable store sales until they have been open a full 12 months under the new brand.
About Non-GAAP Measures
This MD&A includes certain non-GAAP financial measures in Fiscal 2021 and Fiscal 2020. We are not presenting any non-GAAP financial measures with respect to Fiscal 2022. Management believes these non-GAAP financial measures are useful to investors to facilitate comparisons of our current financial results to historical operations and the financial results of peer companies, as they exclude the effects of items that may not be indicative of, or are unrelated to, our underlying operating results, such as expenses related to the COVID-19 pandemic in Fiscal 2021, the acquisition and integration of City Gear in both Fiscal 2021 and Fiscal 2020, and our strategic realignment plan in Fiscal 2020. Costs related to the COVID-19 pandemic include impairment charges of goodwill, tradename and other assets and net lower of cost or net realizable value (LCM) inventory reserve charges and were specific to Fiscal 2021. Costs related to acquisition and integration of City Gear include amortization of inventory step-up value, professional service fees and changes in the valuation of the contingent earnout. Costs related to the strategic realignment plan included lease and equipment impairment costs, third party liquidation fees, store exit costs and residual net lease costs.
While we use these non-GAAP financial measures as a tool to enhance our ability to assess certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial statements. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the review of our financial and operational performance. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
Recent Accounting Pronouncements
See Note 2 of Item 8 of this Annual Report on Form 10-K for the fiscal year ended January 29, 2022, for information regarding recent accounting pronouncements.
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in our consolidated statements of operations for the periods indicated.
Fiscal Year Ended January 29, January 30, February 1, 2022 2021 2020 (52-weeks) (52-weeks) (52-weeks) Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 61.8 64.5 67.6 Gross margin 38.2 35.5 32.4 Store operating, selling and administrative expenses 22.6 26.5 26.9 Depreciation and amortization 2.1 2.1 2.5 Operating income 13.5 6.9 3.0 Interest income (expense), net - - - Income before provision for income taxes 13.5 6.9 3.1 Provision for income taxes 3.2 1.7 0.8 Net income 10.3 % 5.2 % 2.3 % Note: Columns may not sum due to rounding.
Fiscal 2022 Compared to Fiscal 2021
Net sales. Net sales increased $271.5 million, or 19.1%, to $1.69 billion for Fiscal 2022 from $1.42 billion for Fiscal 2021. Furthermore:
Gross margin. Cost of goods sold includes the cost of merchandise, the related inbound and outbound freight expense, occupancy costs for stores and occupancy and operating costs for our wholesale and logistics facility. Gross margin was $646.4 million, or 38.2% of net sales, in Fiscal 2022, compared with $504.5 million, or 35.5% of net sales, in Fiscal 2021. This is the result of historically high margin performance in the first half of Fiscal 2022, which was driven by higher sell-through, a low promotional environment and a greater mix of in-store sales, which carry a higher margin than e-commerce sales. Gross margin of $646.4 million, or 38.2% of net sales compares to non-GAAP gross margin of $507.5 million, or 35.8% of net sales in Fiscal 2021, adjusted for inventory reserve adjustments.
Store operating, selling and administrative (SG&A) expenses. SG&A expenses, including goodwill impairment in Fiscal 2021, were $382.4 million, or 22.6% of net sales, for Fiscal 2022, compared with $376.5 million, or 26.5% of net sales, for Fiscal 2021.
Excluding certain City Gear acquisition and integration expenses and pandemic related impairment and valuation costs that occurred in Fiscal 2021, Fiscal 2022 SG&A expenses of $382.4 million, or 22.6% of net sales, reflected an improvement, compared to $336.5 million, or 23.7% of net sales, for Fiscal 2021.
A large portion of the SG&A rate decrease resulted from leverage from year-over-year revenue growth.
Depreciation and amortization. Depreciation and amortization was flat as a percentage of net sales for Fiscal 2022 compared to Fiscal 2021. The increase in dollars year-over-year was primarily due to increased store development, infrastructure and technology projects placed in service in Fiscal 2022.
Provision for income taxes. The combined federal, state and local effective income tax rate as a percentage of pre-tax income was 23.5% for Fiscal 2022 and 24.2% for Fiscal 2021. The lower rate in Fiscal 2022 was primarily the result of additional equity compensation deductions in Fiscal 2022, resulting from the Company's increased common stock price.
Reconciliations of Non-GAAP financial measures. The following table provides a reconciliation of our consolidated statement of operations for the 52-weeks ended January 30, 2021, as reported on a GAAP basis, to a consolidated statement of operations for the same period prepared on a non-GAAP basis. For more information regarding our non-GAAP financial measures, see "Executive Summary - About Non-GAAP Measures" above.
GAAP to Non-GAAP Reconciliation (Dollars in thousands, except per share amounts) 52-Weeks Ended January 30, 2021 Excluded Amounts GAAP Basis Acquisition Non-GAAP Basis (As Reported) Costs(1) COVID-19(2) (As Adjusted) % of Sales Cost of goods sold $ 915,169 $ - $ 3,043 $ 912,126 64.2 % Gross margin $ 504,488 $ - $ 3,043 $ 507,531 35.8 % SG&A expenses $ 356,856 $ 4,608 $ 15,743 $ 336,505 23.7 % Goodwill impairment $ 19,661 $ - $ 19,661 $ - - % Operating income $ 98,388 $ 4,608 $ 38,447 $ 141,443 10.0 % Provision for income taxes $ 23,686 $ 1,394 $ 11,645 $ 36,725 2.6 % Net income $ 74,266 $ 3,214 $ 26,802 $ 104,282 7.3 % Basic earnings per share $ 4.49 $ 0.19 $ 1.62 $ 6.30 Diluted earnings per share $ 4.36 $ 0.19 $ 1.57 $ 6.12
1) Excluded acquisition amounts during the 52-weeks ended January 30, 2021, related to the acquisition of City Gear, LLC, consist primarily of change in the valuation of contingent earnout and accounting and professional fees.
2) Excluded amounts during the 52-weeks ended January 30, 2021, related to the COVID-19 pandemic, consist primarily of net non-cash lower of cost and net realizable value charges in cost of goods sold and impairment costs (goodwill, tradename and other assets) in SG&A.
Fiscal 2021 Compared to Fiscal 2020
Net sales. Net sales increased $235.4 million, or 19.9%, to $1.42 billion for Fiscal 2021 from $1.18 billion for Fiscal 2020. Furthermore:
Gross margin. Cost of goods sold included the cost of merchandise, occupancy costs for stores, occupancy and operating costs for our wholesale and logistics facility, and ship-to-home freight. Gross margin was $504.5 million, or 35.5% of net sales, in Fiscal 2021, compared with $383.5 million, or 32.4% of net sales, in Fiscal 2020. Excluding inventory reserve adjustments in Fiscal 2021 and City Gear acquisition and strategic realignment costs incurred in Fiscal 2020, non-GAAP gross margin was $507.5
SG&A expenses. SG&A expenses, including goodwill impairment, were $376.5 million, or 26.5% of net sales, for Fiscal 2021, compared with $318.0 million, or 26.9% of net sales, for Fiscal 2020.
Excluding non-GAAP adjustments, SG&A expenses were $336.5 million, or 23.7% of net sales for Fiscal 2021, compared to
A large portion of the SG&A increase resulted from impacts related to the COVID-19 pandemic. This included non-cash intangible asset impairments to goodwill in the amount of $19.7 million and the City Gear tradename of $8.9 million. Other impacts related to the COVID-19 pandemic included asset group impairments of approximately $4.1 million and other related costs of $2.8 million.
Depreciation and amortization. Depreciation and amortization decreased 40 basis points as a percentage of net sales for Fiscal 2021 compared to Fiscal 2020. The decrease was mainly due to leverage from higher net sales.
Provision for income taxes. The combined federal, state, and local effective income tax rate as a percentage of pre-tax income was 24.2% for Fiscal 2021 and 24.7% for Fiscal 2020. The lower rate in Fiscal 2021 was the result of executive compensation
Reconciliation of Non-GAAP financial measures. The following table provides a reconciliation of our consolidated statement of operations for the 52-weeks ended February 1, 2020, as reported on a GAAP basis, to a consolidated statement of operations for the same period prepared on a non-GAAP basis. For more information regarding our non-GAAP financial measures, see "Executive Summary - About Non-GAAP Measures" above.
GAAP to Non-GAAP Reconciliation (Dollars in thousands, except per share amounts) 52-Weeks Ended February 1, 2020 Excluded Amounts Strategic GAAP Basis Acquisition Realignment Non-GAAP Basis (As Reported) Costs(1) Costs(2) (As Adjusted) % of Sales Cost of goods sold $ 800,783 $ 956 $ (1,120) $ 800,947 67.6 % Gross margin $ 383,451 $ 956 $ (1,120) $ 383,287 32.4 % SG&A expenses $ 318,011 $ 17,432 $ 2,031 $ 298,548 25.2 % Operating income $ 36,117 $ 18,388 $ 911 $ 55,416 4.7 % Provision for income taxes $ 8,984 $ 4,547 $ 225 $ 13,756 1.2 % Net income $ 27,344 $ 13,841 $ 686 $ 41,871 3.5 % Basic earnings per share $ 1.54 $ 0.78 $ 0.04 $ 2.36 Diluted earnings per share $ 1.52 $ 0.77 $ 0.04 $ 2.33
1) Excluded acquisition amounts during the 52-weeks ended February 1, 2020, related to the acquisition of City Gear, LLC, consist primarily of the amortization of inventory step-up in cost of goods sold and change in the valuation of contingent earnout, legal, accounting, and professional fees. -35- Index
2) Excluded amounts during the 52-weeks ended February 1, 2020, related to our strategic realignment plan, consist primarily of gain on operating leases net of accelerated amortization on right-of-use assets in cost of goods sold and professional fees, impairment costs, and loss on fixed assets in SG&A.
Liquidity and Capital Resources
Analysis of Cash Flows
Our capital requirements relate primarily to funding capital expenditures, stock repurchases, dividends, the maintenance of facilities and systems necessary to support company growth and working capital requirements. Our working capital requirements are somewhat seasonal in nature and typically reach their peak near the end of the third and the beginning of the fourth quarters of our fiscal year. Historically, we have funded our cash requirements primarily through our cash flow from operations and occasionally from borrowings under credit facilities. We use excess cash to offset bank fees.
We believe that our existing cash balances, expected cash flow from operations, funds available under the 2021 Credit Facility, operating and finance leases and normal trade credit will be sufficient to fund our operations and capital expenditures. We are not aware of any trends or events that would materially affect our capital requirements or liquidity.
Our consolidated statements of cash flows are summarized as follows (in thousands):
Fiscal Year Ended January 29, January 30, February 1, 2022 2021 2020 (52-weeks) (52-weeks) (52-weeks) . . .
Mar 25, 2022
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