| HIBBETT SPORTING GOODS INC Item 1A Risk Factors You should carefully consider the following risks, as well as the other information contained in this report, before investing in shares of our common stock |
| If any of the following risks actually occur, our business could be harmed |
| In that case, the trading price of our common stock could decline, and you might lose all or part of your investment |
| We may be unable to achieve our expansion plans for future growth |
| We plan to increase our store base by a net of 80 to 85 new Hibbett Sports stores in fiscal year 2007 |
| Our continued growth will depend, in large part, upon our ability to open new stores in a timely manner and to operate them profitably |
| Additionally, successful expansion is subject to various contingencies, many of which are beyond our control |
| These contingencies include, among others: • our ability to identify and secure suitable store sites on a timely basis; • our ability to negotiate advantageous lease terms; • our ability to complete any necessary construction or refurbishment of these sites; and • the successful integration of new stores into existing operations |
| As our business grows, we will need to attract and retain additional qualified personnel in a timely manner and develop, train and manage an increasing number of management level sales and other employees |
| We cannot assure you that we will be able to attract and retain personnel as needed in the future |
| If we are not able to hire capable store managers and other store-level personnel, we will not be able to open new stores as planned and our revenue growth and operating results could suffer |
| We cannot give any assurances that we will be able to continue our expansion plans successfully; that we will be able to achieve results similar to those achieved with prior locations; or that we will be able to continue to manage our growth effectively |
| Our failure to achieve our expansion plans could materially and adversely affect our business, financial condition and results of operations |
| In addition, our operating margins may be impacted in periods in which incremental expenses are incurred as a result of new store openings |
| A downturn in the economy could affect consumer purchases of discretionary items, which could reduce our sales |
| In general, our sales represent discretionary spending by our customers |
| Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions |
| Our customers’ purchases of discretionary items, including products that we sell, could decline during periods when disposable income is lower or periods of actual or perceived unfavorable economic conditions |
| If this occurs, our revenues and profitability could decline |
| In addition, our sales could be adversely affected by a downturn in the economic conditions in the markets in which we operate |
| Our inability to identify, and anticipate changes in, consumer demands and preferences and our inability to respond to such consumer demands in a timely manner could reduce our sales |
| Our products appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change |
| Our success depends on our ability to identify product trends as well as to anticipate and respond to changing merchandise trends and consumer demand in a timely manner |
| We cannot assure you that we will be able to continue to offer assortments of products that appeal to our customers or that we will satisfy changing consumer demands in the future |
| Accordingly, our business, financial condition and results of operations could be materially and adversely affected if: - 9 - ______________________________________________________________________ • we are unable to identify and respond to emerging trends, including shifts in the popularity of certain product categories; • we miscalculate either the market for the merchandise in our stores or our customers’ purchasing habits; or • consumer demand unexpectedly shifts away from athletic footwear and our more profitable apparel categories |
| In addition, we may be faced with significant excess inventory of some products and missed opportunities for other products, which could decrease our profitability |
| If we lose any of our key vendors or any of our key vendors fail to supply us with merchandise, we may not be able to meet the demand of our customers and our sales could decline |
| Our business is dependent to a significant degree upon close relationships with vendors and our ability to purchase brand name merchandise at competitive prices |
| The loss of key vendor support could have a material adverse effect on our business, financial condition and results of operations |
| We cannot guarantee that we will be able to acquire such merchandise at competitive prices or on competitive terms in the future |
| In this regard, certain merchandise that is in high demand may be allocated by vendors based upon the vendors’ internal criterion which is beyond our control |
| In addition, we believe many of our largest vendors source a substantial majority of their products from China and other foreign countries |
| Imported goods are generally less expensive than domestic goods and indirectly contribute significantly to our favorable profit margins |
| A disruption in the flow of imported merchandise or an increase in the cost of those goods may significantly decrease our sales and profits |
| We may experience a disruption or increase in the cost of imported vendor products at any time for reasons that may not be in our control |
| If imported merchandise becomes more expensive or unavailable, the transition to alternative sources by our vendors may not occur in time to meet our demands or the demands of our customers |
| Products from alternative sources may also be more expensive than those our vendors currently import |
| Risks associated with reliance on imported goods include: • disruptions in the flow of imported goods because of factors such as: o raw material shortages, work stoppages, strikes and political unrest; o problems with oceanic shipping; o economic crises and international disputes; and • increases in the cost of purchasing or shipping foreign merchandise resulting from: o foreign government regulations, changes in currency exchange rates and local economic conditions; and o import duties, import quotas and other trade restrictions |
| Our sales and profitability could decline if vendors are unable to promptly replace sources providing equally appealing products at a similar cost |
| Problems with our information system software could disrupt our operations and negatively impact our financial results and materially adversely affect our business operations |
| The efficient operation of our business is dependent on the successful integration and operation of our information systems |
| In particular, we rely on our information systems to manage effectively our sales, distribution, merchandise planning and replenishment, to process financial information and sales transactions and to optimize our overall inventory levels |
| Most of our information systems are centrally located at our headquarters, with offsite backup at other locations |
| We continue to focus on enhancements to the inventory management systems and point-of-sale systems and are in the process of upgrading to the JDA Merchandising System |
| Any material disruption, malfunction or other similar problems in or with our information systems could negatively impact our financial results and materially adversely affect our business operations |
| Pressure from our competitors may force us to reduce our prices or increase our spending, which would lower our revenue and profitability |
| The business in which we are engaged is highly competitive |
| The marketplace for sporting goods remains highly fragmented as many different retailers compete for market share by utilizing a variety of store formats and merchandising strategies |
| Hibbett Sports stores compete with national chains that focus on athletic footwear, local sporting goods stores, department and discount stores, traditional shoe stores and mass merchandisers |
| Many of our competitors have greater financial resources than we do |
| In addition, many of our competitors employ price discounting policies that, if intensified, may make it difficult for us to reach our sales goals without reducing our prices |
| As a result of - 10 - ______________________________________________________________________ this competition, we may also need to spend more on advertising and promotion than we anticipate |
| We cannot guarantee that we will continue to be able to compete successfully against existing or future competitors |
| Expansion into markets served by our competitors, entry of new competitors or expansion of existing competitors into our markets could be detrimental to our business, financial condition and results of operations |
| Our operating results are subject to seasonal and quarterly fluctuations, which could cause the market price of our common stock to decline |
| We have historically experienced and expect to continue to experience seasonal fluctuations in our net sales, operating income and net income |
| Our net sales, operating income and net income are typically higher in the spring, back-to-school and Christmas seasons |
| An economic downturn during these periods could adversely affect us to a greater extent than if a downturn occurred at other times of the year |
| Our operating results may fluctuate as we open new stores |
| We plan to increase our store base by a net of approximately 80 to 85 new Hibbett Sports stores in fiscal year 2007 |
| Our results of operations may vary significantly as a result of the timing of new store openings, the amount and timing of net sales contributed by new stores, the level of pre-operating expenses associated with new stores and the relative proportion of new stores to mature stores |
| Any significant variation in our results of operations could adversely affect our stock price |
| We would be materially and adversely affected if our single distribution center were shut down |
| We operate a single centralized distribution center in Birmingham, Alabama |
| We receive and ship substantially all of our merchandise at our distribution center |
| Any natural disaster or other serious disruption to this facility due to fire, tornado or any other cause would damage a portion of our inventory and could impair our ability to adequately stock our stores and could adversely affect our sales and profitability |
| In addition, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace the center |
| We depend on key personnel |
| If we lose the services of any of our principal executive officers, including Michael J Newsome, our Chief Executive Officer and Chairman of the Board, we may not be able to run our business effectively and operating results could suffer |
| We have benefited from the leadership and performance of our senior management, especially Michael J Newsome, our Chairman and Chief Executive Officer |
| Newsome has been instrumental in directing our business strategy within the small to mid-sized markets in the Sunbelt, Mid-Atlantic and Midwest and maintaining long-term relationships with our key vendors |
| Our overall success and the success of our expansion strategy will depend on our ability to retain our current management, including Mr |
| As we continue to grow, we will continue to hire, appoint or otherwise change senior managers and other key executives |
| We do not maintain key man life insurance on any of our executive officers |
| Newsome for any reason could have a material adverse effect on our business, financial condition and results of operations |
| In addition, the loss of certain other principal executive officers could affect our ability to run our business effectively and our ability to successfully expand our operations |
| On March 9, 2005, we entered into a Retention Agreement (“Agreement”) with Mr |
| The purpose of the Agreement is to secure the continued employment of Mr |
| Newsome as an advisor to us following his future retirement from the duties of Chief Executive Officer of our Company |
| Such retirement is not currently planned but could possibly occur within several years |
| Provisions in our charter documents and Delaware law might deter acquisition bids for us |
| Certain provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects and may discourage, delay or prevent a takeover attempt that a stockholder might consider in its best interest |
| These provisions, among other things: • classify our Board of Directors into three classes, each of which serves for different three year periods; • provide that a director may be removed by stockholders only for cause by a vote of the holders of not less than two-thirds of our shares entitled to vote; • provide that all vacancies on our Board of Directors, including any vacancies resulting from an increase in the number of directors, may be filled by a majority of the remaining directors, even if the number is less than a quorum; - 11 - ______________________________________________________________________ • provide that special meetings of the stockholders may only be called by the Chairman of the Board of Directors, a majority of the Board of Directors or upon the demand of the holders of a majority of the shares entitled to vote at any such special meeting; and • call for a vote of the holders of not less than two-thirds of the shares entitled to vote in order to amend the foregoing provisions and certain other provisions of our certificate of incorporation and bylaws |
| In addition, our Board of Directors, without further action of the stockholders, is permitted to issue and fix the terms of preferred stock which may have rights senior to those of common stock |
| We are also subject to the Delaware business combination statute, which may render a change in control of us more difficult |
| Section 203 of the Delaware General Corporation Laws would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of Common Stock held by stockholders |