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Hibbett Q3 Earnings Beat by a Penny

Zacks Equity Research

Sporting goods retailer Hibbett Sports Inc. (HIBB) reported strong third-quarter fiscal 2014 results with earnings of 66 cents per share, beating the Zacks Consensus Estimate by a penny. However, earnings declined 7% from the year-ago quarter earnings of 71 cents, mainly due to an 11 cents reduction resulting from a week shift in fiscal year due to the 53rd week last year. During the quarter, an increase in sales was largely offset by higher expenses.

Highlights of the Quarter

Net sales of this Zacks Rank #4 (Sell) company jumped 2.5% year over year to $208.0 million, while it came in line with the Zacks Consensus Estimate. The increase in sales was primarily driven by strong performance at the newly opened stores. By products, Hibbett’s footwear, equipment, activewear and accessories categories contributed to the increase in sales during the quarter. However, the week shift in the fiscal year resulted in $14 million decline in sales.

Comparable-store sales (comps) for the quarter increased 4.8% on a calendar basis (comparable 13-week period). Monthly comps reflected an increase of 8.7% in August and 7.3% in October, while it declined 2.3% in September. So far in November, the company’s comps have increased in the low single digits range, which is within expectations, due to a shift in Thanksgiving and the launch calendar.

Hibbett’s gross profit rose 1.5% to $76.5 million from $75.4 million in the year-ago comparable quarter. However, gross margin contracted 20 basis points (bps) to 36.5% during the quarter. Decline in gross margin rate was mainly driven by a reduction of 7 bps in product margin and 32 bps in warehouse and store occupancy expenses as a percentage of sales.

During the quarter, store operating, selling and administrative (SG&A) expenses increased 8.6% to $45.5 million, while as a percentage of revenue it expanded 120 bps to 21.9%. The year-over-year increase in SG&A expenses as a percentage of sales was mainly due to higher salaries and benefits.

Gross margin contraction and deleveraged operating expenses impacted the company’s operating margin. Hibbett’s operating margin for the quarter contracted 170 bps to 13.2% compared with 14.9% in the comparable year-ago quarter.  In dollar terms, operating income declined 9.6% year over year to $27.4 million.

Financials

Hibbett ended the quarter with a strong balance sheet comprising $69.9 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.

During the quarter, Hibbett bought back 134,406 shares for $7.1 million. As of Nov 2, 2013, Hibbett had nearly $230.9 million remaining under its share repurchase program worth $250.0 million, authorized on Nov 15, 2012.

Stores Update

During the quarter, Hibbett expanded its store base by opening 16 new stores and 4 high-performing stores, while it shut 4 underperforming stores. As a result, the company’s total store count at quarter-end was 904 in 31 states.

Fiscal 2014 Outlook

For fiscal 2014, the company tapered its earnings per share guidance range to $2.68–$2.77, compared to its previous forecast of $2.65–$2.77. However, the comparable store sales forecast for the fiscal is retained, projecting an increase in the low single-digit range.

Further, Hibbett still expects to expand its store network in fiscal 2014 by opening about 72 to 75 new stores. Additionally, the company plans to expand nearly 15 high-performing stores and close 17 to 20 stores during fiscal 2014. Further, the company remains on track to become the nation’s leading sporting goods provider with over 1,500 stores over the longer term.

Other Stocks to Consider

Other better-performing stocks in the retail space include CST Brands Inc. (CST), Five Below Inc. (FIVE) and Ulta Salon, Cosmetics & Fragrance Inc. (ULTA). Of these, CST Brands has a Zacks Rank #1 (Strong Buy), while Five Below and Utla Salon carry a Zacks Rank #2 (Buy).

Read the Full Research Report on ULTA
Read the Full Research Report on HIBB
Read the Full Research Report on FIVE
Read the Full Research Report on CST


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