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Hibbett Fails to Impress Investors

Zacks Equity Research

Woes for sporting goods retailer Hibbett Sports, Inc. (HIBB) have been setting in since the company posted dismal fourth-quarter fiscal 2014 results, weighing it down to a Zacks Rank #5 (Strong Sell). Shares of the company have dropped 3.1% since the earnings release on Mar 14, 2014. Moreover, year-to-date, the company has witnessed an 18.9% slump in its stock price.  

Hibbett’s performance in the fourth quarter is marked by several negative factors. Owing to difficult comparisons from the prior-year quarter resulting from the additional week in fiscal 2013, both the company’s quarterly and fiscal year earnings fell 12.3% and 0.7% year on year, respectively and also missed the Zacks Consensus Estimate.

Apart from earnings, Hibbett’s quarterly and yearly sales also came below the Zacks Consensus Estimate. This was due to soft sales performance in January due to the extremely chilly weather that forced store closures and weak sales from the college football championship game, offset by favorable holiday sales.

On delving deeper, we found more disappointing factors that further highlight Hibbett’s weak performance, such as contractions in gross and product margins due to higher markdowns, and increase in store operating, selling and administrative expenses. Clubbed together, this led the operating margin to shrivel by 180 bps.

Additionally, looking ahead, the company’s fiscal 2015 forecast pointed to higher costs for the year that is expected to impact margins. The company anticipates flat to slightly positive gross margin in the upcoming fiscal year. SG&A expense as a percentage of sales is expected to expand based on higher healthcare costs and marketing and IT costs. All these factors underline the company’s downside.

Impacted by the above-mentioned factors, Hibbett has witnessed sharp downward estimates revision. The Zacks Consensus Estimate for fiscal 2015 decreased 4.3% to $2.92 per share over the last 30 days. For fiscal 2016 too, most of the estimates were revised downward over the same time frame with the Zacks Consensus Estimate falling 3.2% to $3.33 per share.

Furthermore, we remain skeptical about the stock’s performance on anticipation of competitive risk from DICK’S Sporting Goods Inc. (DKS), which has forayed into smaller and mid-sized markets. Moreover, we believe that the lack of new construction activities in smaller markets may hinder Hibbett’s store expansion plans.

However, other better-ranked stocks in the same industry include Barnes & Noble, Inc. (BKS) and Foot Locker, Inc. (FL), sporting a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively.

Read the Full Research Report on FL
Read the Full Research Report on BKS
Read the Full Research Report on DKS
Read the Full Research Report on HIBB

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