We have issued an updated research report on Hibbett Sports Inc. HIBB on Dec 28, 2015.
Hibbett posted better-than-expected earnings for third-quarter fiscal 2016 supported by solid back-to-school sales, improved margins and lower costs, along with continued gains from its merchandise initiatives. Earnings per share of 74 cents surpassed the Zacks Consensus Estimate of 68 cents and increased 10.4% from 67 cents reported last year.
With this, Hibbett delivered an average positive earnings surprise of 5.2% in the trailing four quarters. Moreover, the company raised the fiscal 2016 earnings guidance, as the merchandise strategies and their smooth implementation position it well for the holiday season sales. The company now expects earnings in the range of $2.87–$2.94 per share as against $2.80–$2.90. We believe that the company’s solid surprise history coupled with the raised fiscal 2016 guidance indicate growth potential.
We are also impressed with Hibbett’s sustained focus on expanding the store network and improving productivity — its key revenue drivers. The company opened 20 stores in the last reported quarter, while expanding a high-performing store and shutting down three underperforming ones. Management plans to widen the store network by adding approximately 80–85 and expanding roughly 10–15 during fiscal 2016.
Further, the company sees significant opportunities to expand its footprint, with the potential to take its U.S. store count to about 1,500. We believe that the strategy of expanding its store base provides strong upside potential, while the debt-free balance sheet offers the financial flexibility to drive growth.
Nevertheless, despite year-over-year improvement, top line missed the estimates due to significant sales decline in the company’s colder weather category items. Also, the company anticipates comps growth to be nearly flat, as against flat-to-low single-digit growth expected earlier.
Additionally, stiff competition from peers and start-up costs related to omni-channel business may dampen results of this Zacks Rank #3 (Hold) stock.
The entry of DICK’s Sporting Goods Inc. DKS, a leading sporting goods store retailer, into smaller and mid-sized markets has added to Hibbett’s woes. This has not only intensified competition for the company, but also raised the likelihood of higher store occupancy costs and operating expenses.
Key Picks from the Sector
A couple of better-ranked stocks in the same industry are CST Brands Inc. CST and ULTA Salon, Cosmetics & Fragrance Inc. ULTA. Both carry a Zacks Rank #2 (Buy).
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