A month has gone by since the last earnings report for Hibbett Sports (HIBB). Shares have lost about 18.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Hibbett due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hibbett Lags Q3 Earnings Estimates, Trims FY19 View
Hibbett Sports Inc. reported dismal third-quarter fiscal 2019 results, wherein earnings lagged estimates while sales were almost in line. Additionally, both top and bottom lines declined year over year. This marked the company’s third straight bottom-line miss. Moreover, management trimmed its earnings guidance for the fiscal year and raised forecast for comps.
Hibbett reported adjusted earnings of 14 cents per share, down 62.2% from 37 cents in the year-ago quarter. Further, the bottom line lagged the Zacks Consensus Estimate of 19 cents.
Net sales dipped 8.8% to $216.9 million but marginally beat the Zacks Consensus Estimate of $216.3 million. The year-over-year decline is attributed to strong comparisons from last year due to the additional 53rd week as well as an impact from the sale of Team Division in December 2017. However, the top line continued to gain from strong momentum in the branded apparel business and robust e-commerce growth.
Notably, e-commerce sales increased 62.2% and accounted for nearly 8.8% of total sales in the fiscal third quarter. The company expects continued growth in the e-commerce business as enhancements in mobile app, as well as its newly launched “Buy Online, Pick Up in Store” and “Reserve in Store” capabilities, are delivering results.
Comparable store sales (comps) inched up 0.1% in the fiscal third quarter, owing to comps growth of 2.8% in August and 1.6% in October, which was mostly offset by decline of 5% in September.
Category-wise, the company witnessed significant improvement in branded apparel while sportswear and footwear were also positive. However, its licensed, teamsports, and women’s and kids businesses remained soft.
Gross profit declined 7.4% to $70.5 million while gross margin expanded 51 basis points (bps) to 32.5%. The upside was primarily driven by fewer clearance markdowns and more full-priced sales. Further, lower logistics and store occupancy expenses aided gross margin.
Operating income of $1.8 million declined 84.7% from $11.8 million in the year-ago quarter. Operating margin contracted 420 bps to 0.8% primarily due to higher store operating, selling and administrative (SG&A) expenses, somewhat mitigated by increase in gross margin. SG&A expenses increased 7.5% and 436 bps as a percentage of sales, driven by increased e-commerce-related operating expenses, non-recurring costs associated with the acquisition of City Gear and a deleverage due to lower sales.
Other Financial Aspects
Hibbett ended the fiscal third quarter with $121.2 million in cash and cash equivalents, $25 million in debt outstanding (long-term debt), and $75 million available under its unsecured credit facilities. Total shareholders’ investment as of Nov 3 totaled roughly $328.5 million.
Further, Hibbett repurchased 395,450 shares for $7.6 million. As of Nov 3, it had roughly $188 million remaining under its standing share repurchase authorization.
In third-quarter fiscal 2019, Hibbett introduced seven new stores; expanded, relocated or remodeled one store while shut down 24 underperforming outlets. Consequently, it ended the quarter with 1,042 stores across 35 states.
The company now expects to open nearly 30 stores and close 82 outlets in fiscal 2019. This will include 2 closures due to the impact of hurricane and nearly 25 closures expected in the fiscal fourth quarter. Earlier, the company anticipated opening 30-35 stores and closing 55-60 outlets in fiscal 2019.
Reflecting the year-to-date results, management has updated its guidance for fiscal 2019. It raised its comps view while lowered its adjusted earnings per share outlook. Comps are now anticipated to be flat to up 1% versus the earlier projection of negative 1% to positive 1%. SG&A expenses are likely to increase 7-9%, excluding City Gear acquisition costs. However, it is estimated to increase 8.8-11.2%, including the acquisition costs.
Excluding non-recurring costs associated with the acquisition of City Gear, management now envisions adjusted earnings of $1.55-$1.65 per share, down from $1.57-$1.75 expected earlier. In fiscal 2018, the company delivered earnings of $1.71 per share. Including the acquisition-related costs of 17-20 cents per share, earnings per share are expected to be $1.35-$1.48.
Share buybacks in fiscal 2019 are now estimated to be $18-$23 million compared with $40-$80 million mentioned earlier.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
At this time, Hibbett has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Hibbett has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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