Hibbett Down 21% in a Month: Can Growth Strategies Lift Stock?
Shares of Hibbett Sports, Inc. HIBB have lost 21.1% in the past month due to lower-than-expected results in second-quarter fiscal 2019. Notably, this marked the company’s second straight top- and bottom-line miss. Also, trimmed guidance for the fiscal year is hurting investors’ sentiments. Meanwhile, the industry rallied 10.2% in the same period.
The company incurred loss in the fiscal second quarter mainly due to higher SG&A expenses that weighed on operating margins. Further, softness in the license, equipment and accessory businesses has hurt quarterly results. Though comparable-store sales (comps) were positive in the 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 earlier projection of negative 1% to positive 2%.
Additionally, Hibbett has witnessed strained margins in 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. In fact, it incurred operating loss of $1.9 million due to increased marketing and omni-channel investments as well as higher employee benefit costs. Unfortunately, this trend in operating margin is likely to continue in fiscal 2019 as is evident from SG&A expenses, which are expected to increase 7-9%. Earlier, management anticipated SG&A expenses growth of 6-8%.
Consequently, earnings are now envisioned in the range of $1.57-$1.75 per share for fiscal 2019, down from $1.65-$1.95 range expected earlier. In fiscal 2018, the company delivered earnings of $1.71 per share. Further, the Zacks Consensus Estimate for the fiscal year is pegged at $1.71, which moved south 7.1% over the past 30 days.
Can Growth Strategies Offset Hurdles?
Despite these above-mentioned concerns, Hibbett’s store expansion and inventory management initiatives coupled with other growth strategies look encouraging. The company is also gaining from its small market strategy and targets expansion in markets that offer increased potential for growth. Notably, it reiterated the target of growing to more than 1,500 stores in underserved markets. In second-quarter fiscal 2019, Hibbett introduced six new stores, expanded, relocated or remodeled three stores besides shutting down 15 underperforming outlets.
Hibbett too remains encouraged by progress on its internal initiatives, including improving e-commerce penetration and expanding loyalty program. In the fiscal second quarter, e-commerce sales accounted for nearly 8% of total sales. Further, the company is on track to launch the “buy online and pickup in store” and “reserve in-store” capabilities ahead of the holiday season, which should aid in boosting traffic both in stores and online. Moreover, the loyalty members reflect about 60% of the company’s transactions. Moving ahead, Hibbett is expected to drive traffic by reinventing the e-mail program, direct mail program and in-store raffle process with the app.
Impressively, Hibbett’s debt-free and strong balance sheet provides it with the financial flexibility besides taking shareholder-friendly moves. During the fiscal second quarter, the company made share repurchases worth about $8 million (or 336,302 shares). As of Aug 4, the company had roughly $195.7 million remaining under its $300 million share repurchase program approved in November 2015.
Although Hibbett’s back-to-back dismal quarterly performances and trimmed fiscal 2019 view are hurting the company now, we expect its solid market strategy and omni-channel capabilities to help rebound the stock.
Presently, Hibbett carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Take a Look at Better-Ranked Stocks From the Same Industry
Five Below, Inc. FIVE has an impressive long-term earnings growth rate of 28.7% and a Zacks Rank #2 (Buy).
Tractor Supply Company TSCO, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 12.8%.
Office Depot, Inc. ODP pulled off an average positive earnings surprise of 9.8% in the trailing four quarters and carries a Zacks Rank #2.
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