Hibbett Sports Inc. HIBB has been putting up a good show lately driven by robust earnings trend, growth of omni-channel capabilities, improved Rewards members, small market strategy and inventory management initiatives.
The cumulative effect of the company’s strategies and strong third-quarter fiscal 2018 is visible in its stock performance. Notably, the stock has gained 46.7% in the past three months, outperforming the industry’s growth of 4.7%. Additionally, the stock has improved 41.8% since reporting third-quarter fiscal 2018 results on Nov 17.
This has helped the stock improve significantly, and attain a Zacks Rank #1 (Strong Buy) and a VGM Score of A. That said, let’s find out the reasons behind the stock’s upsurge.
Robust Surprise Trend
Much of the recent momentum in Hibbett’s stock price can be attributed to robust earnings trend in recent quarters and a splendid performance in third-quarter fiscal 2018. The company retained positive earnings momentum in the fiscal third quarter, which marked its third straight bottom-line beat. Moreover, the company reversed its trend of having missed sales estimates in nine of the past 10 quarters. Results were driven by improvement in the company’s footwear and apparel businesses, alongside strong e-commerce sales, which now accounts for nearly 5% of total sales.
Hibbett Sports, Inc. Price, Consensus and EPS Surprise
Hibbett Sports, Inc. Price, Consensus and EPS Surprise | Hibbett Sports, Inc. Quote
Encouraging Outlook Drives Estimates
Following the robust quarter, the company substantially raised guidance for fiscal 2018. The company now envisions earnings for fiscal 2018 in the range of $1.42-$1.50 per share, up significantly from the previous forecast of $1.25-$1.35.
Consequently, the company’s estimates witnessed an uptrend in the last 30 days. The Zacks Consensus Estimate for fourth quarter and fiscal 2018 moved up by 2 cents each to 27 cents per share and $1.44 per share, respectively.
Growth Initiatives Bode Well
While the external environment remains challenging, Hibbett is encouraged by the progress it is making on internal initiatives, including the launch of new e-commerce site and re-launch of loyalty program. The company observes that initial results from the website launch have exceeded expectations, while the new loyalty program has been well received by customers. E-commerce contributed 5% to net sales in fiscal third-quarter benefiting from the company’s early marketing plan and strong conversion from online traffic.
Additionally, its ongoing marketing initiatives boosted sales by improving traffic and increased loyalty members, while also enhancing site navigation strength and product assortments. Rewards jumped to 57% of net sales in fiscal third-quarter, compared with 47% last year. Further, revenues from Rewards members improved 24% year over year. Going forward, the company anticipates its small market strategy along with the growth of omni-channel capabilities to enrich customers' experience, consequently positioning Hibbett well for long-term growth.
Store Expansion & Inventory Management Strategies
Hibbett is gaining from small market strategy as it continues to strengthen presence across the country. The company targets expansion in markets where it is needed and which offer increased potential for future growth. The company reiterated target of growing to over 1,500 stores in undeserved markets. In third-quarter fiscal 2018, Hibbett introduced 13 new stores, expanded one high-performing store and shut down 11 underperforming ones. With this, the company operated 1,082 stores in 35 states as of Oct 28, 2017.
Additionally, the company is stringently working on inventory management initiatives despite a challenging environment. Overall, total inventory declined 9.2% from last year and 10.5% on per store basis at the end of fiscal third-quarter.
Possible Deterrents – Strained Margins
Though the company’s fundamentals look strong, it has been witnessing strained margins for quite a while now. The company’s margins continue to be under pressure due to increased promotions and markdowns to maintain lower inventory levels, along with higher freight and SG&A expenses. In third-quarter fiscal 2018, the company’s gross margin marked the fifth straight decline, while operating margins contracted for the fourth quarter in a row.
Looking ahead, we expect the margins to remain under pressure given the persistence of a highly promotion retail environment during the holiday season.
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