Hibbett Sports, Inc.

“Game Tested. Athlete Approved.” Hibbett Sports, Inc. Kevin A. Pribil Module 4

Company Overview • Intro to Forecasting • Picking apart RNEA • EPM • EATO • Analyzing the EPM and EATO together • Sales Growth, EPM, EATO growth and assumptions (HIBB & Comparables) • Parsimonious Forecast Agenda

Est. 1945 as Dixie Supply Co. in Alabama • Began in the marine and small aircraft markets but moved into sporting goods by the ‘60s • IPO in October 1996; operated 79 stores at the time • Incorporated in Delaware in 2007 • Immense growth into a now 873 store company • CEO- Jeffry Rosenthal, 55, former executive at Champs • Chairman- Michael Newsome, 74, began at Hibbett over 45 years ago and worked his way up from cashier Company Overview

As a retailer Hibbettoperates typically in 5,000 sq. ft. stores usually influenced by the location of a WalMart • 4 different types of stores • Hibbett Sports: full retail format • Sports Additions: 90% footwear and headgear • Sports & Co.: a 25,000 sq. ft. superstore (1 in operation) • Team: leading customized apparel supplier • CEO and CFO conduct annual evaluation of efficiency of internal controls procedures based on COSO standards • KPMG released audit report on Hibbett’s internal controls Company Operations

Increased competition not only between sporting goods stores but also with departments stores and online merchandisers • Increased store overhead (ex: rock-climbing walls, putting greens) • The fight for exclusive contracts with vendors • Analysts expect a slight decline in revenue of .1% per year through 2018. Industry Drivers Source: www.ibisworld.com

Why forecast? • To estimate ability to repay obligations • To understand the foundation for S/H value and so on • Create a set of future financial performance measures based on expected Sales, EPM, EATO • “Be conservative in our forecasts”  goal is to be neither conservative nor aggressive Intro to Forecasting

Estimated F/S are highly dependent on revenue streams • Forecasting must intertwine or “link” revenues with EPM and EATO … Why? • Example: large increases in revenue would logically be correlated with large increases in NEA and so forth • In reality, forecasts done at the micro-level (each product, service). However, as external F/S users  not privy to such information Intro to Forecasting

RNEA = EPAT / (Avg. NEA) • RNEA = (EPAT / Sales) * (Sales / Avg. NEA) • RNEA = EPM * EATO Picking apart RNEA

Enterprise Profit Margin = how much profit the firm earns from each sales dollar. (Public Co’s average over past decade was 6%) • EPM = EPAT / Sales • Increases from 2011 shows efficiency in cost control Picking apart RNEA - EPM

Enterprise Asset Turnover = shows how productive the company’s enterprise assets are (Public Co’s average over past decade was $1.40) • EATO = Sales / (Avg. NEA) • EATO relatively constant due to stability in assets used to create sales dollars Picking apart RNEA - EATO

EATO is generally more stable (illustrated in the calculations) because it is more difficult to change the assets involved with sales than is the profit margin • Infinite combinations form the RNEA • Use EPM to forecast EPAT (Income Statement items) • EPM & EPM from sales are the same  no discontinued operations, one-time items, etc • Use EATO to forecast NEA (Balance Sheet items) • Use sales to forecast revenues Analyzing Sales, EPM, and EATO Together

Hibbett Sales Growth

Comparables’ Sales Growth

Assume 8% based on industry averages from 2012 to 2013 and Footlockers unstead sales growth since 2011. It had a large jump going into 2012 and a slight decline into 2013 • Management intends to shut down underperforming stores and expand high performing stores  continual growth but not at as rapid of a rate Sales Growth Assumption

Hibbett EPM Growth

Comparables’ EPM Growth

Assume 9.5% based on Hibbett and comparables’ upward trends over the past several years • May be an indication Hibbett is improving its cost control efficiency in the market EPM Growth Assumption

Hibbett EATO Growth

Comparables’ EATO Growth

Assume 4.5 based on the Hibbett’s stable EATO and a marginally declining EATO for industry comparables • May be an indicator that future sales will be less efficient in terms of assets used to generate those sales dollars EATO Growth Assumption

With expectations of growth and improved cost control efficiency, Hibbett exudes signs of a healthy future. Investors may reap the reward if they purchase now and enjoy the benefits of increases to EPS and share price in the future. Analysis is limited based on this minimally invasive forecast. Walmart, although used as a comparable does not truly have the characteristics of a sporting goods company and therefore was not over-utilized in analysis. Hibbett Parsimonious Forecast

Note that the basis for forecasting is the 2014 Fiscal Year data. With a January year-end, Hibbett will release its 2014 10-K in the near future. That report includes 11 months of data from 2013 and 1 month of data from 2014. Forecasting solely Q4 of FY 2014 uses 3 quarters of actual data and 1 quarter of projected data. This allows for a more current and relevant basis for 5-year forecasting. Hibbett Parsimonious Forecast

Hibbett Sports, Inc.