Sporting goods retailer, Hibbett Sports Inc. (HIBB), reported strong second quarter fiscal 2013 results driven by robust sales performance, an improvement in comparable store sales as well as operational efficiencies. Hibbett’s second-quarter earnings of 30 cents per share outpaced the Zacks Consensus Estimate of 27 cents, representing a positive surprise of 11.1%. Moreover, the company’s earnings climbed 42.9% from the prior-year quarter earnings of 21 cents.
The Numbers Impress
Net sales rose 8.0% year over year to $165.4 million, but missed the Zacks Consensus Estimate of $169 million. Comparable store sales (comps) for the quarter witnessed an increase of 4.8%, marking the 11th consecutive quarterly increase for the retailer. Monthly comps reflect an increase of 9.21% in May, 1.91% in June and 4.09% in July.
Comps increase in the quarter was mainly attributed to double-digit increase in accessories, high-single digit rise in branded and licensed apparel and a healthy mid-single digit comps increase in footwear. This was partially offset by flat to slightly down comps in equipment categories.
Despite a 6.2% increase in cost of goods sold, distribution center and store occupancy costs in the quarter, gross profit surged 11.7% year over year to $56.5 million. Gross margin expanded 110 basis points to 34.2% during the quarter.
During the quarter, SG&A expenses, as a percentage of revenue, reflected a favorable leverage as it declined 60 basis points year over year to 24.2% mainly on account of favorable credit card fees. Depreciation and amortization declined 3% from last year due to lower costs for leasehold improvements for new stores.
Healthy gross margin coupled with continued operational momentum drove a 31.9% increase in operating income during the quarter. The company reported an operating income of $12.4 million compared with $9.4 million in the same period last year. Consequently, operating margin for the reported quarter improved 140 basis points to 7.5% from the prior-year quarter.
Financials
Hibbett ended second quarter fiscal 2013 with a strong balance sheet, comprising $71.5 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.
During the quarter, the company bought back nearly 176,443 shares under its $250 million buyback program for a total cost of $10.2 million. Currently, Hibbett has authorization worth $121.5 million available for buy back under its ongoing share repurchase program.
Stores Update
During the second quarter, the company expanded its store base by opening 7 new stores and expanding 3 high performing stores, while it shut down 5 loss-making stores. As a result, the company’s total store count at quarter-end was 837 stores in 26 states.
Fiscal 2013 Outlook Raised
Buoyed by better-than-expected results, continued sales strength along with improved cost management and margins, the company raised its expectations for fiscal 2013. The company now forecasts earnings in the range of $2.57 to $2.67 per share, versus the prior guidance of $2.50 to $2.65 per share. Comparable store sales for the year are expected to increase in the mid-single digit range. The current Zacks Consensus Estimate of $2.54, for fiscal 2013, is nearly at the mid-point of management's guided range.
Further, the company expects to expand its stores network in fiscal 2013 by opening about 55 to 60 new stores. Additionally, the company also plans to expand nearly 15 high performing stores and close up to 18 stores.
Our Take
Hibbett remains focused on mid-sized and smaller markets with population sizes of 25,000 to 75,000 as well as strategic mix of branded and localized merchandise. It serves a niche market by strategically aligning its merchandise to regional/local sporting and community interests. We believe this gives the company a competitive edge over larger rivals, such as Dick's Sporting Goods Inc. (DKS) and Big 5 Sporting Goods Corporation (BGFV).
Further, Hibbett has a healthy debt-free balance sheet with strong liquidity, comprising of $80 million available under its unsecured credit facilities. This offers Hibbett the financial flexibility to open new stores and identify new markets or locations for future expansion. Moreover, the company is geared towards increasing operating results while creating shareholders’ value.
Currently, Hibbett holds a Zacks #2 Rank, implying a short-term 'Buy' rating on the stock. Besides, the company retains a long-term 'Outperform' recommendation on the stock.
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