Hibbett Sports 2005 Annual Report Download - page 20

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERAT I O N S
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 $104.0 million, or 32.4% of net sales,
in the 52 weeks ended January 31, 2004, compared with $87.1 million, or 31.2% of net sales, in the
same period of the prior fiscal year. The improved gross margin is primarily attributed to selling more
merchandise at full price, the leveraging of occupancy and warehouse cost and improved logistics flow.
Product margin improved 89 basis points due to gains in initial mark up, a reduction in markdown rate
and improvements in shrinkage. Occupancy, as a percent of net sales, improved by 13 basis points year
over year due to above average comparable store sales gains. Warehouse costs improved by 18 basis
points, primarily due to the leveraging of salaries and benefits.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $63.5 million, or 19.8% of net sales, for the 52 weeks ended January 31, 2004, compared with
$55.7 million, or 20.0% of net sales, for the comparable period a year ago. We attribute this
decrease in store operating, selling and administrative expenses as a percentage of net sales to the
following factors:
• Retail store labor decreased as a percent of net sales by 16 basis points this period compared
with the same period last year due to higher than expected comparable store sales and
improved labor controls.
• Store supplies were down 10 basis points year over year and net advertising costs were
reduced by 5 basis points this year compared to the same 52-week-period last year.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 3.0% in
the 52 weeks ended January 31, 2004, and 3.1% in the 52 weeks ended February 1, 2003. The reduction
in depreciation and amortization expense as a percentage of net sales is due to an increase in sales
this year compared to the same period last year.
Provision for income taxes. Provision for income taxes as a percentage of net sales was 3.5% in the 52
weeks ended January 31, 2004, compared to 2.9% for the 52 weeks ended February 1, 2003, due to an
increase in pre-tax income. The combined federal, state and local effective income tax rate as a percentage
of pre-tax income was 36.5% for fiscal 2004 and for fiscal 2003.
Liquidity and Capital Resources
As described in Note 2 to the Consolidated Financial Statements, we restated previously issued consolidated
financial statements for the fiscal years ended January 31, 2004, and February 1, 2003, to correct our
accounting for leases, related leasehold improvements and construction allowances. While this restatement
changed several cash flow components, cash and cash equivalents were not impacted for any fiscal year.
Our capital requirements relate primarily to new store openings, stock repurchase 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.
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