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Hibbett Loses Sheen to Dismal Sales Trends: Time to Sell?

Zacks Equity Research

Hibbett Sports Inc. HIBB seems like a ‘touch-me-not’ stock at the moment with the company witnessing sluggish sales trends for a while now. This has probably caused the shares of this sporting goods retailer to decline as much as 15.6% in the last three months. This marks an underperformance compared with the Zacks categorized Retail–Miscellaneous/Diversified industry’s growth of 2.9% in the same period. Let’s find out more.

Hibbett’s soft sales trend is evident from the top-line miss reported for the last seven quarters. For the last reported quarter, in particular, sluggish September and October sales due to the adverse impact of cold weather on apparel sales hurt the company’s top-line. While the company managed to report nearly 4% increase in sales in the third quarter of fiscal 2017, we believe such meager sales growth will persist as the company sticks to its store growth strategy. However, this growth is short-lived and does not represent a turnaround for the company.

Further, the company’s earnings miss in the last reported quarter crushed its four-quarter long trend of posting positive surprises and also marked the start of a dismal earnings trend.  Results were hampered by soft comparable store sales (comps), higher store operating, selling and administrative expenses and unfavorable markdowns and product mix, which also proved to be a drag on margins.

The sluggish sales trends along with a miserable third-quarter led the company to lower fiscal 2017 outlook. The company slashed its earnings range to $2.82−$2.88 per share, from its previous forecast of $2.93–$3.02. Further, merchandise margin rate for fiscal 2017 is anticipated to remain flat, compared with the prior projection range of flat to slightly positive.

Moreover, it is unfortunate to note that all this comes at a time when the sporting goods retail industry is gaining from competitive rationalization due to the recent liquidation of Sports Authority and Sports Chalet. While rivals DICK’S Sporting Goods Inc. DKS and Big 5 Sporting Goods Inc. BGFV are benefiting from increased sales due to the closing of these competitor stores, we observe that Hibbett’s top-line does not largely reflect these gains.

Notably, Big 5 Sporting recently released encouraging sales and comps results for the fourth quarter and fiscal 2016 largely gaining from its actions to make the most of opportunities presented by the competitive rationalization in the retail sporting goods industry. Consequently, the company raised the lower end of its earnings guidance for the fourth quarter and provided its estimates for fiscal 2016.

Coming back to Hibbett, the company’s consumer driven business remains prone to unstable economic conditions. Further, it is exposed to seasonal risks as the seasonal nature of the company’s business generally attracts stronger sales in the spring and holiday seasons.

Zacks Rank & Key Pick

Hibbett currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Cabela’s Incorporated CAB, which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cabela’s, with a long-term earnings growth rate of 12.5%, has surged 37.9% in the past one year.

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Big 5 Sporting Goods Corp. (BGFV): Free Stock Analysis Report
Cabela's Inc. (CAB): Free Stock Analysis Report
Dick's Sporting Goods Inc. (DKS): Free Stock Analysis Report
Hibbett Sports Inc. (HIBB): Free Stock Analysis Report
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