Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Hibbett Sports (NASDAQ:HIBB)
Q1 2019 Earnings Conference Call
May. 25, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Hibbett Sports first-quarter 2019 conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session.

[Operator instructions]. As a reminder, this conference is being recorded, Friday, May 25, 2018. I would now like to turn the conference over to Pat Watson, corporate communications. Please go ahead.

Patrick Watson -- Corporate Communications

Thank you, everyone, for joining Hibbett Sports to review the company's financial and operating results for the first quarter fiscal year 2019, which ended on May 5, 2018. 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, are forward-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 provisions 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, in the company's annual report on Form 10-K and in other filings with the Securities and Exchange Commission.

We refer you to these 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, May 25, 2018. 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.

Jeffry O. Rosenthal -- Chief Executive Officer and President

Thank you and good morning, everyone. Welcome to the Hibbett Sports first-quarter earnings call. I have with me this morning Scott Bowman, senior VP and CFO, Jared Briskin, senior VP, chief merchant; and Cathy Pryor, senior VP of store operations.First-quarter results. Net sales for the 13-week period ending March 5, 2018, decreased 0.4% to $274.7 million, compared with $275.7 million for the 13-week period ended April 29, 2017.

Comparable-store sales decreased 0.3%. E-commerce sales represented 7% of total sales for the quarter. Overall, we are pleased with the results as we exceeded our internal plan and experienced gross margin improvement in April. Branded apparel was expressly strong during the quarter, with comparable store sales in the high single-digit range.

Footwear and cleats were positive as well. E-commerce sales continued to perform above expectations and represented approximately 7% of total sales for the quarter.Our app, we are also very encouraged by the early results of our new mobile app and believe this will be a great tool for our highly mobile customer. The app is rated 41/2 out of five stars is one of the top 100 shopping apps on iTunes. Overall, 80% of our web traffic is from smartphones.

We have had over 130,000 downloads since we launched the app and is already a meaningful percent of digital sales. We have received very positive feedback from our customers with our app, mainly the ability to sign up for our in-store sneaker raffles. We have had over 60,000 entries since we rolled out the process a few weeks ago.Our website, we continue to make progress and grow our digital business. One of our numerous initiatives is to "buy online and pick up in store" and "reserve in store" capabilities.

Our plan is to launch this functionality ahead of the holiday season. We will be one of the few retailers that will offer both "buy online and pick up in store" and "reserve online and pick up in store." This functionality will help drive sales both in stores and online and digital. The growth comes from growth in traffic, conversion, and average order value.Our marketing. We continue to see results from last year's revamp of our loyalty program.

Q1 approximately 58% of our sales versus 53% year over year increased approximately 9%. Loyalty program registrations are continuing to comp positively. We are focused on measurable activity to drive traffic to our stores, reinventing our email program, direct mail program and in-store raffle process with the app. We will see real opportunity to drive increased store traffic.Real estate for the quarter.

Hibbett opened seven new stores, expanded four high-performing stores, and closed 18 underperforming stores, bringing the store base to 1,068 and 35 states as of May 5, 2018. We will continue to close stores while optimizing our store base and improve our return on invested capital. Looking forward as we start the second quarter, we feel that we are well-positioned with our inventory, excellent shape with fresh assortments, easier comparisons as we prepare for the back-to-school season. The strategies that we have put in place we are starting to see the results and are encouraged that we are starting to see significant improvement in our business.I will now turn the call over to Jared Briskin, senior VP and chief merchant, to talk about our merchandise trends.

Jared S. Briskin -- Chief Merchant

Thank you, Jeff. Good morning. The first quarter started slowly with a difficult February. As the quarter progressed, we saw a nice acceleration in our business and some positive indicators for the balance of the year.

This acceleration was driven by additional access points, new innovation, growth in e-commerce and cleaner inventory. Our apparel business was up high single-digits in the quarter, as our trend from fourth quarter continued to improve. All genders were positive with men's apparel at mid single-digits and double-digit growth both in women's and kids' apparel. Our sportswear focused assortments are resonating with our consumers across all genders.

Accessory business remains challenged as declines in socks and hydration continued during the quarter.The license business remains our most challenged area, down double-digit. While a portion of the decrease can be attributed to reduced category investment, challenges in core fan apparel and headwear continued to lead to significant declines. The comparison of the college basketball championship was also a negative as the North Carolina championship in the year-ago period was not offset with Villanova's championship.Team sports business was down low single-digits. Cleated business was very strong with all categories up as our penetration of e-commerce improved.

Significant growth was achieved in track, football and soccer plates. While equipment was down as a whole, baseball was positive due to regulation changes impacting the bat business. Fitness remains a challenge as we continued to reduce our investment in the category. Footwear was up low single-digits.

Men's and women's were both positive for the quarter, while the kids business was down low single-digits. Additional access points and delivery of new innovative models resulted in an improvement over the prior year.As we look to the second quarter and beyond, we are confident in our assortments and plan. The team sports business is starting to stabilize. We have reduced our investment in license products.

We are clearly on trend in apparel and many of our new product intros will scale in footwear. Our aged inventory is significantly reduced and we are continuing to improve our productivity by reducing our overall inventory.I will now turn the call over to Scott Bowman to discuss some financial results.

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Thanks, Jared, and good morning. For the first quarter, total sales decreased 0.4% to $274.7 million, which included a decline of $1.8 million due to the sale of our team division last year. Strong sales trends continued in our e-commerce business, which represented 7% of total sales in the quarter. Overall, comp sales decreased 0.3%.

By month, comp sales were negative 7.3% in February, positive 6.1% in March and positive 0.6% in April. Gross profit rate decreased 40 basis points in the quarter. Product margin decreased 50 basis points, mainly due to higher levels of clearance sales and freight associated with e-commerce sales. In April, we experienced gross margin improvement versus the prior year due to a significantly improved aged inventory position.

Logistics and store occupancy expenses decreased 10 basis points as a percent of sales, which was mainly due to leverage gain from e-commerce sales.SG&A expenses increased 6% in the quarter and increased 137 basis points as a percent of sales. This was mainly due to the operational cost associated with our e-commerce business, the cost associated with the launch of our mobile app, increased marketing expenses and higher compensation costs. Depreciation and amortization increased 9% in the quarter and was up 20 basis points as a percent of sales. The income tax rate for the quarter was 24.7%, which compares to last year's rate of 38.7%.

This reduction was mainly due to the decrease in the federal rate from 35% to 21% as a result of tax reform. The rate was also somewhat higher in the first quarter due to the accounting treatment of stock-based compensation. Operating income of $28.6 million decreased 16% from last year and was 10.4% of sales, versus 12.4% last year. Diluted earnings per share increased 15% to $1.12 per share, compared with $0.97 per share last year.Turning to the balance sheet, the company ended the quarter with $116 million in cash, versus $76 million last year, with no borrowings outstanding on our revolving credit facilities.

Inventory decreased 8% from last year and was 7% lower on a per-store basis. We spent $4.1 million in capex for the quarter as we opened seven new stores and made further progress on our major initiatives. Also, the company repurchased 40,000 shares for a total of $871,000 in the quarter. At quarter-end, we had approximately $204 million remaining under the existing purchase authorization.Turning to our guidance, I would like to reaffirm our full-year guidance of earnings per share in the range of $1.65 to $1.95.

As we stated in the press release, we exceeded our internal plan for the first quarter. In the second quarter, we believe that there will be more opportunity due to the following reasons. No. 1, we will have a cleaner inventory and higher volumes of new product.

Last year, we had a negative 11% comp adjusted for the week shift driven by weakness in branded apparel and footwear. This year, these categories are much healthier, which we believe will continue in the second quarter due to better assortments and fresher product. No. 2, we will have easier comparisons for gross margin.

Last year, our product margin was down 264 basis points and the total gross margin was down 404 basis points. We expect significant improvement in product margin due to fresher product and significant leverage on store occupancy expenses due to the additional revenue from the week shift. And lastly, I would like to remind everyone about the details of the week shift caused by the 53rd week last year.Based on last year's sales, the second quarter would be positively impacted by about $18 million and third quarter would be negatively impacted by approximately $17 million. Keep in mind that this negative impact for the third quarter would also impact the leverage on store occupancy expenses and does gross margin.

Further details regarding this week shift are contained in the supplemental information in the press release.With that update, operator, we are now ready for questions.

Questions and Answers:

Operator

Thank you. [Operator instructions]. Our first question comes from the line of Camilo Lyon with Canaccord Genuity. Please go ahead.

Camilo Lyon -- Canaccord Genuity -- Analyst

Yes. Digging a little bit deeper into the commentary around Q2 gross margin opportunity that you discussed, clearly, you got easier comparisons, you got the benefit of the extra week from the calendar shift and how that should help occupancy? Can you, last year I think your merch margins you said they were down 264 basis points, can we think about what's the probability of you gaining recovering half that margin degradation given that there is better inventory position and you have got more volume coming in on the newer innovations. Could it be possible to gain all of that back? Just trying to understand the magnitude of the recovery opportunity as it plays out for the second quarter?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Sure. The way that we look at it is first on the product margin side, there is a significant opportunity there and we are already seeing that. And so we feel comfortable that product margin will improve significantly. The other piece of that, the week shift, I mean, that's just straight math, that that will significantly improve our leverage on occupancy expenses.

So to answer your question, on the 400 basis points we were down last year, I think we have really good opportunity to recover more than half of that.

Camilo Lyon -- Canaccord Genuity -- Analyst

Perfect. And then similarly on the comparisons on the comp line item, clearly Q1 have the impact of a reset February from last year's tax shift and so that makes the two-year seem like it decelerated pretty significantly. How should we think about the trends as product improves and volumes improve and aged inventory improves with respect to kind of the two-year trend? And then maybe within that, I think in the back half, it looks like you are guiding to about a positive low single-digit comp, what are your assumptions for your e-commerce growth now that you will have lapped that introduction in the back half?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. So, I will answer that question first. As we look at the back half, I mean, we will be lapping e-commerce but we still see growth in e-commerce. And I think the dynamic that we will see which is what we are seeing now is that we are seeing some acceleration in growth in e-commerce.

And I think the dynamic that we will see which is what we are seeing now is that we are seeing some acceleration in growth in e-commerce and the mix is getting better as well. So, we are selling less clearance product, more full-price product, which is helping leverage on freights cost and certainly on product margin. So, the business is getting healthier and it is accelerating.And so we do see that opportunity to comp positively just on the e-com business in the back half. And just to add little bit more color on the opportunity on sales for the second quarter, I think your statement is correct on the first quarter last year, we did a negative 5 comp.

And in my mind, that was also just a reset for the most part based on the timing of tax refunds. We saw a similar trend this year. And so we think that is more of the new normal, whereas if you look at the negative 11 comp last year in the second quarter that was based more on true weakness in the business both in branded apparel and footwear.The good news is that as we look at those businesses today, they are much healthier, it's a different environment and we see significant opportunity to improve that comp because of that and because it was a true weakness last year. And so normally we don't do this but since there is a lot of confusion around the numbers and the week shift and everything else in the trends, I would say that early in the second quarter and at the end of April, we are up about mid single-digits in our total comp.

And a lot of that is being driven by our branded apparel business and a healthier footwear business. And so as we look forward to the product that we have coming in the second quarter, that new products of volume will increase as we get closer to back-to-school. We have better assortments in our apparel business that are really getting good traction and we see that continuing throughout the quarter, which should allow us to maintain that mid-single-level comp number.

Camilo Lyon -- Canaccord Genuity -- Analyst

Great. And just remind me your monthlies from last year's Q2, they got worse as the quarter progressed right?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

They did. We were about a negative 8.5% comp in May and we were negative 13% comp in June and July. And so that's really where we see the opportunity especially as we get closer to back-to-school. I think at the same time as you look at Q3 you need to keep that in perspective too, because our comp was much better in Q3 last year, negative 1.3 and we have e-commerce last year in Q3.

And so you have to kind of incorporate that into your thinking as well as you model out Q3. And long story short, there is probably a little more opportunity in Q2, a little less in Q3 than what is reflected today.

Camilo Lyon -- Canaccord Genuity -- Analyst

Got it. And then my last question is on the accessories business, I think you had really healthy contribution from Yeti last year and clearly that's slowed significantly, is there any way to articulate how much of an impact that's been to the accessories business or maybe to the overall comp and when you'll start to lap those declines?

Jared S. Briskin -- Chief Merchant

Yes, it's been an impact for us certainly for the last few quarters and was in the first quarter as well. The early part of the second quarter gets impacted to a degree, but then the impact lessens, really starting at that point.

Camilo Lyon -- Canaccord Genuity -- Analyst

Got it. Thanks, guys. Good luck for the rest of the quarter.

Operator

Our next question comes from the line of Peter Benedict with Robert W. Baird. Please go ahead.

Peter Benedict -- Robert W. Baird & Company -- Analyst

Hey, guys. The first question, on the fresh product that's coming in now and I guess increasingly over the balance of the year. How did the quantities compare to historical levels? I mean, we know that Nike is being tighter with Jordan allocations but how about with the product, I think you are referring to which is I presume it's non-Jordan product just for clarification but how are they allocating those products now? Are they holding them back a bit more than they typically do or is this kind of the normal case of business?

Jared S. Briskin -- Chief Merchant

Yes, this is Jared. Good morning. I think first and foremost, certainly they are always in control as on the marketplace, which certainly helped the heat of the product and we certainly support. We do feel like a slice of the pie that our share is going to continue to get larger.

The most exciting news that started really in the first quarter throughout the rest of the year is just the amount of new products and franchises that will start to scale for us as we go through the year, whether it be the Air Max platform from a new product creation such as Vapormax and Air Max 270 heritage models around 90s, 95s, 97s, 98s, Air Force React, Adidas Xplorer, or Swift, there are lot of models that we feel can really impact our business and we can start to scale as we go throughout the year.

Peter Benedict -- Robert W. Baird & Company -- Analyst

OK. Thanks, Jared. That's helpful. Moving over to e-commerce that the 7% penetration, how do we think about that going forward? How are you guys thinking about that the second quarter you still weren't cycling having it a year ago? And then as you think toward 3Q and 4Q, I think that can continue to build and at what percentage of the sales that you are getting online are coming from those markets that don't have a store? I think you have spoken to that in the past.

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. So as we see e-commerce continuing to progress. Naturally, the penetration will probably increase in the fourth quarter due to seasonality in holidays but outside of that, we see it still ticking up a bit. We see some good traction on some of the work we are doing around marketing and making adjustments.

We have the mobile app now, which we think will help as well that the product assortments continue to expand online. And so have a lot of good things going to keep that business accelerating even in light of fewer sales of clearance merchandise and so that will make for healthier margin on the e-commerce business which would help out a little bit as well. So, everything is going pretty well there. We will continue to drive it.

And we think that back-to-school should be good for us from an online perspective and so we look forward to that.

Peter Benedict -- Robert W. Baird & Company -- Analyst

That makes sense. Do you have the percent that comes from the markets outside, I guess, store-based markets?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes, it hasn't changed too much, Peter. It's still in the 25% to 30% range and so that's still encouraging where we see that traffic coming from.

Peter Benedict -- Robert W. Baird & Company -- Analyst

Yes. And my last question is just shifting over to kind of the store comps, the trajectory that you are visioning in your plan as you look 2Q and then into the back half of the year, I know you have got some marketing initiatives to try to drive that, you have got some easier comparisons in 2Q. So just curious how you are kind of thinking about that as you have got your full-year guidance laid out? Thank you.

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. So, we are seeing some healthier store comps more recently as well and so that is encouraging, I think is being helped by fresher assortments and some newer products. And so we see that continuing to be a little bit stronger for the remainder of the year.

Jeffry O. Rosenthal -- Chief Executive Officer and President

We think as we get later in the year we have 'buy online pick up in store', 'reserve online pick up in store', we definitely see it as an opportunity to drive traffic to our stores. So as we look upon launching the app, the loyalty and by fourth quarter doing "buy online pick up in store" and "reserve online pick up in store," we definitely see it as a traffic driver that should help our store comps.

Peter Benedict -- Robert W. Baird & Company -- Analyst

OK, great. Thanks so much, guys.

Operator

Our next question comes from the line of Dan Wewer with Raymond James. Please go ahead.

Dan Wewer -- Raymond James -- Analyst

Thanks. Jeff, a number of your largest vendors have invested heavily in their direct-to-consumer capabilities, including very powerful online shopping sites. From the consumers' perspective, what is Hibbett's advantage in generating a sale of a branded apparel item, let's say, Nike or Under Armour, why would the consumer buy that from Hibbett as opposed to going directly to the vendors' shopping site?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Sure. As we look at this, we have worked very hard with Nike and Adidas and other brands. Really, it's really the differentiation of having a comparison of brands among, so people can look not just Nike or just Adidas or whatever. Also, the brands are really helping us with our digital growth giving us exclusive products or better colors or some of those type things.

So as it's a pull market and trying to get through things, there are some unique things that we have and also the comparison of brands is what a lot of consumers line. They will shop both ways but a lot of the products that are hot and Nike maybe selling out at the same time we are selling out or vice-versa. So, they are really enhancing what we are doing digitally with all kinds of content extra product. So they wanted to be just as healthy for us as it is for them.

Dan Wewer -- Raymond James -- Analyst

When you comment that 25% to 30% of your online revenues are outside of your traditional geography, are those the sales that are primarily shopping for the clearance items?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Not necessarily. We do a really good job on SEO. We are rankings on our search pages on search. We are on the top one page and quite a few compared to where our competition is, and we've really done a good job of setting our website up correctly from the beginning.

Page search, we also show up but we have really done a good job on making sure that we show up and people know about us and a lot of times they are finding us that way.

Dan Wewer -- Raymond James -- Analyst

I think the last question I have is, subtracting out the e-commerce revenues, it appears that the bricks and mortar same-store sales may have declined around 7% during the quarter. Do you have a sense as to how much of that is, use the word cannibalization, of existing customers using your online shopping site?

Jeffry O. Rosenthal -- Chief Executive Officer and President

It's really kind of hard to get a feel for cannibalization as you talk to store managers and people out in the field, they think our customer awareness has gone up, I am sure it has affected us somewhat. And really and you are looking at the store comps really a lot of it was around the tax refund and then little bit tougher comparisons in the northern markets really where we had the most impact on comps we are in the northern markets and then tax refunds were just not to the levels that we expected in February and we think this may be the new norm for tax refunds. So as we got into March and April we see significant improvements in our store comps.

Dan Wewer -- Raymond James -- Analyst

OK, great. Thank you.

Operator

Our next question comes from the line of Patrick McKeever with MKM Partners. Please go ahead.

Patrick McKeever -- MKM Partners -- Analyst

Thanks. Good morning, everyone. Just a question also on e-commerce, you have talked in the past I think about breaking even at $50 million in annualized sales just wondering what your thoughts are currently on that? And then on the marketing for e-commerce maybe you could talk about how that has been evolving and where you are investing the most in terms of incremental marketing and I think I had one more but I can't think about it right now, so I will just leave it at those two for the time being.

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Sure. The first question on the break-even point on e-commerce, it may be a little bit higher than that. The main reason for that is because we are investing more in marketing and the reason for that is we are seeing some pretty good traction and some of the initiatives we have in that area. And so some of that is for near-term sales and some of it is to acquire new customers for future benefit.

So, if you look at this year for e-com, our revenue will be probably a little bit higher than that. So we should come close to breakeven this year in e-com and it will continue to get better after that.From a marketing standpoint, we are spending a lot of our dollars in paid search and PLAs, product listing ads. And the reason for that is because we have run tests on several terms and we kind of take a test-and-learn approach, where we circle back and look and see which terms have been more profitable than others. And so we are still in that mode.

And we have seen some good traction on certain things that we have done and so we have put some more dollars behind that. We are also doing a fair amount of social media to get the word out. We are looking into doing some direct mail kind of an oldie but goodie but it has been effective. And so we are doing a little bit more on that, especially to help our stores.

And so as we continue into the back half, we will continue to invest in marketing but we will keep a close eye on the return as well.

Patrick McKeever -- MKM Partners -- Analyst

And then the other one I was thinking about earlier, the weather you didn't mention many retailers have though, wondering if that has a material impact just the colder weather some of the winter storms that came through during the quarter even down into some of your core markets? And if so, do you think some of the more strength is related to any kind of pent-up demand related to the weather?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. We don't like to talk about the weather too much. What I would tell you is that as Jeff mentioned if you look at the northern half of our geography, the comps were noticeably worse than the southeast and the southwest. Now to be fair that has been a trend over the last few quarters.

It was just a little bit worse this past quarter. So given that you can make your own assumptions and maybe a little bit of impact but we don't think it was that impactful.

Patrick McKeever -- MKM Partners -- Analyst

OK, thank you.

Operator

Our next question comes from the line of Sam Poser with Susquehanna. Please go ahead.

Sam Poser -- Susquehanna International Group -- Analyst

Good morning, guys. Thank you for taking my question. I have got three. No.

1, follow-up on to the other question, some of your major accounts, major vendors have offices and have down in Birmingham still and continue to support you very closely, am I correct?

Jared S. Briskin -- Chief Merchant

That's correct.

Sam Poser -- Susquehanna International Group -- Analyst

OK. Secondly, can you talk about sort of the line, Jared, between performance product and outside of the cleats like a performance running, the performance of basketball versus the more fashion products in footwear and apparel and how that's performing the different sides of that?

Jared S. Briskin -- Chief Merchant

Yes. I mean, the lines are certainly blurry between the two. We have certainly positioned our business away from core performance certainly of some of the premium performance products. We still take a position in and some are doing well.

Some of the products that are developed from a performance standpoint also do resonate as non-performance as well. A great example would be the Nike Epic React, which is a fantastic performance shoe or an Adidas UltraBoost, again fantastic performance shoe but we are selling certainly more of those products as cool sneakers versus performance product. We look at all products today that there has to be some compelling feature whether it's performance or whether it's lifestyle, a compelling feature whether it's a visible technology in materials, aesthetics, color trends, just to assure that it will resonate with the consumer as the consumer today is not sold on performance alone. There needs to be a significant elevation again whether it be storytelling materials or visible technology that really enhances their interest in the product.

Sam Poser -- Susquehanna International Group -- Analyst

Thank you. And then lastly for Jeff and Scott, in the press release today, you commented that the first-quarter results were better than, came in above your expectation. Can you give us some idea, more specifically, as to what your expectations are for second-quarter and third-quarter results? And the reason I am asking for both is because of the shifting dollars and the effect of leverage. So everybody gets on the same page relative to what's going to happen in this quarter and next.

And I understand this is not something you normally do, but given the calendar shift, and given that you, in the release, you said you beat your numbers but your stock's getting abused a bit right now.

Jeffry O. Rosenthal -- Chief Executive Officer and President

Yes. So in the first quarter, I mean, the reason why our internal plan was probably a bit lower than the Street was a couple of things. I think the first thing is that we still saw some clean up that needed to be done in our inventory and we did work through that in the first quarter as planned that have some impact on the margin side. We didn't have the volume of the fresh product yet and I think that is an important kind of nuance to understand is that as we go throughout the year that volume of new product will expand.

So, we did have the Air Max 270 and Epic React couple other items in the first quarter but very small volume. And so that didn't have as much of an effect that it eventually will in later quarters. So, we had some pretty clear visibility to that and that did go into our thinking about our internal plans.So question about Q2 and Q3, we kind of discussed a few points around that. And I think that Q2 we are running mid single-digit positive comps today with the expansion of new product, some easier compares.

We see the potential of that continuing. It's always at the whim of the consumer and things like that but just based on how we said internally, we feel that that's entirely possible in the second quarter. I think as you look in the third quarter, the comps showed return to flatter numbers and the main reason for that is because we are going to be lapping e-commerce from last year.From a gross-margin standpoint, as I kind of talked about down 400 points last year and more than half of that was driven by product margins. We see the ability to recover a good portion of that and then, of course, the leverage we will get on store occupancy should allow us to recapture not all of that 400 points but a good portion of that back for Q2.

As we get into Q3, there will be a little bit less of an opportunity. Our margin was down 337 points last year, so still down but we won't have as much opportunity on the store occupancy line, because of the revenue shift that will occur. And the thing to keep in mind is store occupancy expenses stay pretty static, so that impact on leverage will be pretty significant as those dollars shift from one quarter to the next. And from a product-margin standpoint, there is some opportunity in Q3 just not as much as we see it than Q2.

Sam Poser -- Susquehanna International Group -- Analyst

Why is that when you were down 375 bps in your merch margins in Q3 last year?

Jeffry O. Rosenthal -- Chief Executive Officer and President

I think on an overall gross-margin basis, it's definitely the impact of the week shift that will affect the total gross margins. So, there is not as much opportunity from that standpoint as we get into later into the quarter, I think we will have some promotions that come in and things like that won't allow us to recover all of that in the third quarter.

Sam Poser -- Susquehanna International Group -- Analyst

But last year, your e-commerce said you had a lot of inventory that was hard to clear, now your inventory is cleaner, you have your e-commerce was cleaner that means you should be able to clear sort of the slower sellers more quickly at higher prices and your inventory is down on a year-over-year basis, at least now it is. As you look forward, shouldn't those all be very positive things to the merchandise margins?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Yes, those should help and I think it's just a matter of as we get closer to that time frame, I mean we will get a better read on that. That means we have a little bit better line of sight on Q2 but on Q3, I mean, there is when we get to that point, I think we will have a clear idea of how much we can recover.

Sam Poser -- Susquehanna International Group -- Analyst

Why not just give everybody your EPS estimate, a range of EPS for the second quarter and everybody sort of figure out the back half of the year since you clearly have plans in mind here and there was such a disconnect in the first quarter?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. I don't really want to give specific EPS numbers. I think if you take into account the discussion that we have had around revenue and the gross margin opportunity, I think that will get you very close.

Sam Poser -- Susquehanna International Group -- Analyst

Well, thank you very much and good luck.

Operator

Our next question comes from the line of Tim Duffy with Stifel. Please go ahead.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Thanks. It's Jim Duffy with Stifel. I just have a question around the branded-apparel strength. Can you guys talk about what are the key things that are behind that -- is there an ASP component to this and how do you plan to build on that branded-apparel strength into back-to-school and holiday?

Jared S. Briskin -- Chief Merchant

Yes. We are seeing both increase in units sold as well as ASPs some of it certainly is the cleaner inventory that we have in apparel, some of it is our ability to capitalize on some of the sportswear 90ish trend that's going on today but our customers across all genders are really resonating with what we currently have. Our expectation is our penetration of that product gets better as we get to the back half. So, we feel very good about where we are with apparel currently.

Jim Duffy -- Stifel Financial Corp. -- Analyst

So it tells more lifestyle-oriented than performance product-oriented?

Jared S. Briskin -- Chief Merchant

It is very much lifestyle and then we do start to lap some of the significant declines from a performance standpoint as we go throughout the year.

Jim Duffy -- Stifel Financial Corp. -- Analyst

OK. And then can you also comment on your statement that you are seeing stabilization in the team sports business, it seems that cleats category was healthy. I recognize there is the regulation change in bats, what else is behind that stabilization?

Jared S. Briskin -- Chief Merchant

Yes. I think the No. 1 component to me, we have obviously tried to follow a similar path that we followed in some of our other categories with regard to cleats focusing on differentiation. So that certainly has helped but certainly, the development of our e-commerce business has been the biggest enhancement that we have had within our cleated business, so the stabilization is primarily coming from our e-commerce growth.

Jim Duffy -- Stifel Financial Corp. -- Analyst

All right. Thank you, guys.

Operator

Our next question comes from the line of Rick Nelson with Stephens. Please go ahead.

Nicholas Zangler -- Stephens -- Analyst

Hey, guys. Nick Zangler on for Rick here. I know it's early but on the app, I would imagine the shoe launch schedule is a hit. It's very clean, easily accessible.

And I am sure shoe launches have always been a traffic driver for Hibbett but with the new app, have you seen any incremental in-store traffic that you can attribute to this launch schedule? And then also can you talk about the raffles, this is a new feature, it just seems in general like there is a lot of opportunities here, anything else you could potentially do to lever this schedule to drive app downloads and traffic into the store? I would imagine just it seems like, given your relationships with all the brands at exclusive allocations, it seems possible that like this Hibbett mobile app could be the place to gain complete awareness for all these shoe launches, especially for enthusiasts. So just any thoughts here?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Sure. One of the things we did a lot of customer surveys on people's pain points on buying launch sneakers. We did customer surveys in New York and out in our stores and we really see that we have built a really good opportunity to increase our store traffic through launch. We have just rolled it out to some of our stores, not all of our stores and trying to do that really soon but the stores that we have rolled it out, we see how much demand that we are really having for those shoes which really gives us an opportunity for the first time to say hey, we got 24 pairs last year but we had a demand for 300, which will help us with our vendors.

I am showing them how much opportunity that there really is. And it also drives store traffic and conversion and all that. So we see it as a huge opportunity and really we have only been testing it and just launched about three or four weeks ago in some more stores.And as we get throughout the second quarter, I will go to almost all of our stores there, if not all. And so we see it as a huge opportunity just a few launches that we had over 60,000 people put their names in for the raffles soon.

We know that there is a huge, huge opportunity and this isn't even the time of year where you have a ton of launches. So when we get into those later in the year we see that as a big driver. Also, another feature which we will take live in the next four to six weeks is our reraffles. So if somebody didn't show up to get up, we can relaunch it to customers, which will also help with our liquidation and drive store traffic.

So, there are many things that we think we can deal with it and we are very excited about where it can take us.

Nicholas Zangler -- Stephens -- Analyst

Are the raffles completely new and do you see that continuing to be an ongoing offering or is it part of the initiative just to get downloads and actually have apps downloaded for new customers?

Jeffry O. Rosenthal -- Chief Executive Officer and President

It's not completely new. We did it with old-fashioned buckets and we had to call people and all that. This just makes it a lot easier for the customers. And one of the unique features that we have in it is that when you do sign up, you have the opportunity to put three different stores on there, which also drives traffic to other stores.

So, if you happen to be in a town like Birmingham, where there are multiple stores that have it, you have a chance to win it in multiple locations. So, I think especially the sneaker kid really likes that opportunity that he feels that he get it anywhere and that will help drive loyal customers to our raffles.

Nicholas Zangler -- Stephens -- Analyst

Yes, it looks great so far. It's super clean. And then just finally on the e-commerce so in the quarter, a higher mix of aged inventory weighed on margin this quarter, in prior quarters you had mentioned that in the e-commerce offering itself was helpful in mitigating the markdowns. Just curious if in this quarter if that was the case as well, did e-commerce help you or can you estimate maybe the spread that e-commerce may have provided on margins because it was there versus potentially obviously if you didn't have e-commerce you wouldn't have had such an expanded marketplace?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes, it's a little difficult to measure, Nick. I mean, we do see some examples where we think we are clearing it sooner with fewer markdowns. It's a little difficult to get the total impact of that at this point just because we are adjusting and trying some things to see if our liquidations still are at a high level. So, it's a little bit early to put an exact number on it, but we will continue to monitor that and do see some opportunity there.

Jared S. Briskin -- Chief Merchant

Great. Thanks a lot, guys. Good luck.

Operator

[Operator instructions]. Our next question comes from the line of David Shlick with Consumer Edge Research. Please go ahead.

David Schick -- Consumer Edge Research -- Analyst

Well, I join my friend Tim Duffy, it's David Schick. Thank you. Two questions. First, you talked about performance and fashion, the line is blurring, it sounds like you are trying to say footwear ASP is going to be better.

Could you give us some sense of that in a mathematic basis if that's true? And then second, the March comp was 6 and you have talked about mid-singles as you start or for May and April was essentially flat or flattish, is it fair to say that you think that was weather in that 6 in May it would have been more normal?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Yes. I think as we get into the second quarter, a lot of the change, last year we did a 3 comp in April and then a negative 8 1/2 in May. So, we saw a really big shift last year from April to May. And so part of the mid-single comps that we are seeing now is a lot of it is pressure product but a lot of it is just a real soft compare from last year.

David Schick -- Consumer Edge Research -- Analyst

Great. And then anything on the footwear ASP, some sense of the math what that might look like as we shift into the new stuff coming in?

Jared S. Briskin -- Chief Merchant

Yes. From an ASP standpoint in footwear, there is some shift from an assortment perspective to positive but the bigger impact on ASPs is the lack of aged inventory. So, we will get some benefit in ASPs both from assortment as well as the health of the inventory.

David Schick -- Consumer Edge Research -- Analyst

OK, great. And then last with the launch of the app, any real step down in the cost of that build or should we expect that to stick around into a lap next year?

Jared S. Briskin -- Chief Merchant

Cost of the builds.

David Schick -- Consumer Edge Research -- Analyst

Well, you have been adding cost around digital and then you have the incremental around the app, finding out if there is anything incremental in the short term around the app launch or if it's just part of the general spending toward digital that you have budgeted out?

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

It will be part of the general spending. So the launch of the app we spend a little more but as we continue further into this year next year, we will continue to make improvements and enhancements to the app. It won't be to the magnitude that we have seen so far to launch it but we will continue to make improvements and that is built into our guidance.

David Schick -- Consumer Edge Research -- Analyst

OK, thanks.

Operator

Mr. Rosenthal, there are no further questions at this time. Would you like me to turn the presentation back to you?

Jeffry O. Rosenthal -- Chief Executive Officer and President

Sure. Thank you for being on our call today. We look forward to our second-quarter earnings call in August and thank you for participating.

Operator

[Operator signoff]

Duration: 52 minutes

Call Participants:

Patrick Watson -- Corporate Communications

Jeffry O. Rosenthal -- Chief Executive Officer and President

Jared S. Briskin -- Chief Merchant

Scott J. Bowman -- Chief Financial Officer and Principal Accounting Officer

Camilo Lyon -- Canaccord Genuity -- Analyst

Peter Benedict -- Robert W. Baird & Company -- Analyst

Dan Wewer -- Raymond James -- Analyst

Patrick McKeever -- MKM Partners -- Analyst

Sam Poser -- Susquehanna International Group -- Analyst

Jim Duffy -- Stifel Financial Corp. -- Analyst

Nicholas Zangler -- Stephens -- Analyst

David Schick -- Consumer Edge Research -- Analyst

More HIBB analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Hibbett Sports
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Hibbett Sports wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 8, 2018

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.