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Factors Likely to Decide Hibbett's (HIBB) Fate in Q3 Earnings

Hibbett Sports, Inc. HIBB is slated to release third-quarter fiscal 2019 results on Nov 27, before the market opens. The company’s earnings surprise history mirrored a dismal performance in the last two quarters. Consequently, the company delivered an average negative surprise of 24.3% in the last four quarters.

The Zacks Consensus Estimate for the fiscal third quarter is pegged at 19 cents per share, which witnessed a decline in the last 30 days. Further, it reflects a significant decline of 48.7% from 37 cents earned in the prior-year quarter.

Hibbett Sports, Inc. Price and EPS Surprise

 

Hibbett Sports, Inc. Price and EPS Surprise | Hibbett Sports, Inc. Quote

Let’s see how things are shaping up prior to this earnings announcement.

Factors Likely to Influence 3Q19

Hibbett has been witnessing a dismal performance since the start of fiscal 2019, owing to higher SG&A expenses that weighed on operating margins. Further, softness in the license, equipment and accessory businesses hurt quarterly results.

Additionally, Hibbett witnessed strained margins in the recent quarters. While the company’s seven-quarter long dismal gross margin trend reversed in the fiscal second quarter, contraction in operating margin continued for the eighth time. Higher SG&A expenses have taken a toll on operating margin for the last few quarters. The increase in SG&A expenses is attributed to rising marketing and omni-channel investments as well as higher employee benefit costs.

Hibbett incurred operating loss of $1.9 million in the fiscal second quarter. Notably, the company’s operating margin contracted 200 bps, 180 bps, 480 bps, 330 bps, 350 bps and 330 bps, respectively, in the first quarter of fiscal 2019; the fourth, third and first quarters of fiscal 2018; and the fourth and third quarters of fiscal 2017. Further, it incurred operating loss of $5.2 million in second-quarter fiscal 2018.

The company expects the soft operating margins trend to continue in fiscal 2019, which is evident from the SG&A expense expectation of 7-9% increase. Earlier, management anticipated SG&A expenses growth of 6-8%.

Driven by the dismal results in the first half, management trimmed its guidance for fiscal 2019. Though comparable-store sales (comps) were positive in the fiscal second quarter, management lowered the favorable end of the guided range. Comps are now expected to be in the range of negative 1% to positive 1% compared with the earlier projection of negative 1% to positive 2%. Management envisions earnings of $1.57-$1.75 per share, down from $1.65-$1.95 expected earlier.

Furthermore, the Zacks Consensus Estimate for revenues is pegged at $216.3 million, reflecting a decline of 9.1% from the year-ago period.

Driven by the dismal performance in the first half of fiscal 2019 and the soft outlook, the company’s stock has also been witnessing a downtrend. The stock declined 36.8% in the last three months against 7.3% growth recorded by the industry. However, the stock has moved up 2.1% in the past month, providing some positivity ahead of the earnings release.

 



While we cannot ignore these headwinds, we remain encouraged by the company’s focus on enhancing its omni-channel capabilities, renewing loyalty program and inventory management initiatives. Further, Hibbett is witnessing significant improvement in its branded apparel and footwear categories, which is positive.

Notably, e-commerce sales accounted for nearly 8% of total sales in second-quarter fiscal 2019. Recently, the company rolled out the “Buy Online, Pick Up In Store” (BOPIS) and “Reserve Online, Pick Up In Store” (ROPIS) capabilities, which are likely to boost traffic both online and in stores during the holiday season. In the fiscal second quarter, Hibbett also continued to witness gains from its loyalty program. As a result, the loyalty members reflect about 60% of the company’s transactions.

What the Zacks Model Unveils

Our proven model does not conclusively show that Hibbett is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hibbett currently has a Zacks Rank #5 and an Earnings ESP of -9.33%, consequently making the surprise prediction impossible.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Burlington Stores, Inc. BURL has an Earnings ESP of +3.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Zumiez Inc. ZUMZ has an Earnings ESP of +2.47% and a Zacks Rank of 3.

The Kroger Co. KR has an Earnings ESP of +0.58% and a Zacks Rank #3.

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Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL) : Free Stock Analysis Report
 
Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
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