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Source: Hibbett Sports to Acquire City Gear | Hibbett Sports, Inc.
Conference Call: https://edge.media-server.com/m6/p/go8oedte
The pending acquisition of Memphis based City Gear by Hibbett Sports was based on a mapping system Hibbett Sports is utilizing called Sports Typing. The system allows $HIBB to tailor their business to the consumer. In utilizing the new system they’ve acknowledged that “Fashion” is extremely important and to that point this acquisition gives $HIBB 135 doors that operate at an average ticket price of 90 dollars vs their own 60 dollar average ticket. The deal isn’t expected to close until December. Fashion is currently $HIBB best performing segment and the company sees the acquisition as improving growth and profitability.
Notes transcribed from questions on the Q&A from the Conference Call (questions and answers have been organized for a more cohesive presentation):
Q: What is the opportunity to open and close stores?
A: Hibbett Sports will be working with City Gear for opportunities to open locations. It costs City Gear 300K to open a new store which is higher than $HIBB. Hibbett Sports already has 350 “Fashion” doors, but they will look at the locations where City Gear already has locations. Expansion outside of the 15 states where City Gear operates currently, isn’t being considered because $HIBB sees a number of locations to improve ie. Florida where CG only has 1 location. Hibbett Sports is looking at strip centers to capitalize on City Gear’s connection to the neighborhoods they are in. In regard to closures Hibbett Sports will look at profitability.
Q What are City Gear’s Historical Finances?
A: CG has good new store and comp store growth. It is a profitable business. CG has customer loyalty and a differentiated inventory. Their customer skews towards lower income and they are a strong cash based business. There is room for improvement in e-commerce.
Q: How is City Gear’s Brand Mix?
A: The CG shoe inventory offers more specialty footwear. They are 70% footwear and 30% apparel. The stores are similar in their Nike and Jordan allotments, but City Gear delivers apparel to $HIBB. That is the big difference.
Q: How does $HIBB look at City Gear’s local connection?
A: City Gear does well with social media. They host events (music, even barbers in store) and Hibbett Sports plans to learn a lot from CG on the fashion side.
Q: Does CG have an agreement with Nike on expansion?
A: Nike is okay with CG and HS aligning and considers them strategic accounts.
Notes and analysis:
This deal is not finalized until December. I have to think that as good as this fit is, the deal could fall apart. Hibbett Sports has just done an amazing job with their digital platform. They recently began to work on the merchandising and store layout which is something that needed considerable work. They aren’t utilizing many “on sale” tables in store as they did in the past which tells me they are cleaning up inventory issues. I think many of their inventory issues have been helped by their online platform. The company feels robust and seems to be moving forward. It makes sense to grab a company like City Gear, but I think CG has a lot of internal issues. I think their buyers are not very strong and the fact that on the conference call apparel was mentioned and Hibbett touts AKOO and BBC as solid apparel options overlook a quickly shifting streetwear environment that I think City Gear doesn’t truly have a grasp on. I think a deeper dive into CG will take place and this deal could potentially fall apart.
