Hibbett Sports 2012 Annual Report Download - page 28

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Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 1.8% in Fiscal 2012,
and 2.1% in Fiscal 2011. The average lease term of new store leases added in Fiscal 2012 compared to those added in Fiscal
2011 increased to 8.06 years compared to 7.85 years, respectively, as the result of the execution of more leases with longer initial
lease terms in Fiscal 2012 compared to Fiscal 2011. We attribute the decrease in depreciation expense as a percent of net sales to
a decrease in the investment in leasehold improvements in recent years as more of the build-out work is being done by landlords
offset somewhat by changes in estimates of useful lives of leasehold improvements in some underperforming stores.
Provision for income taxes. Provision for income taxes as a percentage of net sales was 4.7% in Fiscal 2012, compared
to 4.1% for Fiscal 2011. This increase was primarily due to operating efficiencies achieved resulting in higher pre-tax income as
a percentage of net sales. The combined federal, state and local effective income tax rate as a percentage of pre-tax income was
36.7% for Fiscal 2012 and 36.8% for Fiscal 2011. The decrease in rate resulted primarily from an increase in employment-
related income tax credits and the resolution of an income tax matter with a state taxing authority.
Fiscal 2011 Compared to Fiscal 2010
Net sales. Net sales increased $71.5 million, or 12.0%, to $665.0 million for Fiscal 2011, from $593.5 million for
Fiscal 2010. Furthermore:
 We opened 45 Hibbett Sports stores while closing 13 underperforming Hibbett Sports stores and 1 Sports & Co.
store for net stores opened of 31 stores in Fiscal 2011. We expanded or remodeled 17 high performing stores.
New stores and stores not in the comparable store net sales calculation accounted for $17.2 million of the increase
in net sales. Store openings and closings are reported net of relocations.
 We experienced a 9.8% increase in comparable store net sales for Fiscal 2011 compared to Fiscal 2010. Higher
comparable store net sales contributed $54.3 million to the increase in net sales.
During Fiscal 2011, 705 stores were included in the comparable store sales comparison. The increase in comparable
store net sales was broad-based with strong performances across footwear, equipment, apparel and accessories. Strong product
performances were led by positive trends in accessories, licensed apparel, activewear, all categories of footwear and equipment.
Strip locations continue to outperform enclosed mall stores. Strip center locations comprised approximately 76% of our total
store base and include free-standing store locations.
Gross profit. Cost of goods sold included the cost of inventory, occupancy costs for stores and occupancy and
operating costs for the distribution center. Gross profit was $230.4 million, or 34.7% of net sales, in Fiscal 2011, compared with
$196.2 million, or 33.1% of net sales, in Fiscal 2010. The increase in gross profit percent was due primarily to a higher
percentage of merchandise sold at regular price and fewer promotions. Distribution expense as a percentage of net sales
decreased 19 basis points primarily due to basis point decreases in salary and benefit costs compared to a year ago. Store
occupancy expense as a percentage of net sales decreased 67 basis points. The largest decrease was rent expense as a percentage
of net sales as we continued to experience rent savings through lease renegotiations and from co-tenancy violations by our
landlords, offset somewhat by a decrease in construction allowances used to offset rent expense.
Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $143.2
million, or 21.5% of net sales, for Fiscal 2011, compared with $129.9 million, or 21.9% of net sales, for Fiscal 2010. Expense
trends we experienced included:
 Salary and benefit costs in our stores decreased by 45 basis points as a percentage of net sales, but increased in
dollars, primarily from annual pay rate increases and incentive payments associated with higher sales. These
expenses increased at the administrative level by 12 basis points as a percentage of net sales primarily due to
increases in accruals for bonuses.
 Legal fees, business insurance costs and professional fees were lower as we continued to closely monitor and
carefully manage these costs.
 Credit and debit card fees increased as a percent to net sales due to higher exchange rates. Medical insurance
costs increased as a result of increased enrollment coupled with a slight increase in actual claims. Third-party
freight and shipping costs were also higher, primarily due to an increase in the total number of stores serviced.
Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.1% in Fiscal 2011,
and 2.3% in Fiscal 2010. The average lease term of new store leases added in Fiscal 2011 compared to those added in Fiscal
2010 increased to 7.85 years compared to 6.38 years, respectively, as the result of the execution of more leases with longer initial
lease terms in Fiscal 2011 compared to Fiscal 2010. We attributed the decrease in depreciation expense as a percent of net sales
to a decrease in the investment in leasehold improvements in recent years as more of the build-out work was being done by
landlords offset somewhat by changes in estimates of useful lives of leasehold improvements in some underperforming stores.
Provision for income taxes. Provision for income taxes as a percentage of net sales was 4.1% in Fiscal 2011, compared
to 3.3% for Fiscal 2010. This increase was primarily due to operating efficiencies achieved resulting in higher pre-tax income as