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Hibbett (HIBB) Tanks on Q2 Earnings & Sales Miss, Cuts View

Zacks Equity Research

Hibbett Sports Inc. HIBB posted narrower-than-expected loss per share for second-quarter fiscal 2018. However, both top and bottom lines compared unfavorably with the prior-year period. Sales missed estimates again, continuing with its negative surprise trend. Evidently, the company has lagged top-line estimates in nine of the past 10 quarters.

Further, the company substantially trimmed guidance for fiscal 2018 due to the soft second-quarter results and the likelihood of the tough retail environment to continue through the rest of the year.

This led the shares of this Zacks Rank #5 (Strong Sell) stock to fall 5.2% on Aug 18. Further, Hibbett has slumped 55.1% in the last three months, wider than the industry’s 10.3% decline.



Q2 Highlights

Hibbett reported a loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 20 cents. However, results compared unfavorably with earnings of 29 cents per share reported in the prior-year quarter. The year-over-year decline in the bottom line can be attributable to soft sales and a tough retail backdrop, which also weighed upon margins.

Hibbett Sports, Inc. Price, Consensus and EPS Surprise

 

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

Net sales declined 9.2% to $188 million, falling short of the Zacks Consensus Estimate of $191 million. Further, comparable-store sales (comps) fell 11.7% due to significant decline in transactions amid a challenging retail environment. The quarter was characterized by soft traffic trends, higher distribution, increased promotional activities and difficult launch compares.

Further, comps were marred by softness witnessed across all categories, including double-digit declines in apparel, equipment and team sports businesses, while footwear business dipped high-single digits. Also, license business was down double digits.

Hibbett’s gross profit fell 20.4% to $54.4 million, while gross margin contracted 410 basis points (bps) to 28.9%. The decline in margin was due to unfavorable impact of promotions and markdowns related to clearing of excess and aged inventory, along with logistics and store occupancy cost deleverage.

However, the company reported operating loss of $5.2 million compared with operating income of $10.1 million in the year-ago quarter. This was mainly driven by lower gross margins, while expenses remained controlled.

Other Financial Aspects

Hibbett ended the quarter with nearly $52.8 million in cash and cash equivalents, no outstanding bank debt and full availability under its $80 million revolving credit facility. Total shareholders’ investment, as of Jul 29, was roughly $470 million.

The company’s capital expenditure was $6.6 million in the quarter toward omni-channel initiatives, persistent investments in new and existing stores as well as other projects to improve business. Further, Hibbett repurchased 282,609 shares worth $6.9 million during the quarter. As of Jul 29, the company had roughly $229.3 million remaining under its standing share repurchase authorization.

Store Update

In second-quarter fiscal 2018, Hibbett introduced six new stores, expanded four high-performing stores and shut down eight underperforming ones. As a result, it ended the quarter with 1,080 stores across 35 states. In the long run, Hibbett targets taking its store count to 1,500.

Outlook

Following a soft quarter, management drastically trimmed fiscal 2018 guidance on expectations of persistence the challenging retail environment. However, the company remains encouraged by the progress on its internal initiatives, particularly the launch of its new eCommerce site. Further, it observes that initial results from the launch have exceeded expectations.

Nonetheless, the company anticipates the tough retail backdrop to continue to weigh on sales through the rest of the year. The company now anticipates comps decline in the mid to high single-digit range, compared with the prior guidance of negative 1% to positive 1%. While the company projects comps to remain very challenging through the rest of the year, it expects some benefit from the inclusion of eCommerce sales.

Management now anticipates gross margin to contract 250–285 bps. Earlier, it had projected gross margin reduction of 55-75 bps. Gross margin is expected to be hurt by increased markdowns to lower aged inventory, continuation of the highly promotional retail environment, along with persistent logistics and store occupancy deleverage due to lower comps.

Consequently, the company now envisions earnings for fiscal 2018 in the range of $1.25-$1.35 per share, down significantly from the previous forecast of $2.35-$2.55.

Key Picks

Better-ranked stocks in the retail space include Sally Beauty Holdings, Inc. SBH, The Children’s Place, Inc. PLCE and Canada Goose Holdings Inc. GOOS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sally Beauty has a long-term earnings growth rate of 5.6%. Further, the company has witnessed positive estimate revisions in the last seven days.

Children’s Place has a long-term EPS growth rate of 9%. Further, the stock has returned 17.1% in the past year.

Canada Goose has gained nearly 11.4% year to date. Moreover, it has a long-term earnings growth rate of 34.1%.

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