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Hibbett Sports (HIBB) Up 18.2% Since Earnings Report: Can It Continue?

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The release of Google parent Alphabet Inc.'s (GOOGL) first quarter financial results took center stage on Monday afternoon, as investors waited to see how the tech industry bellwether performed amid a shaky market. Shares of Alphabet climbed slightly in after-hours trading after it posted better-than-anticipated Q1 earnings and revenue.

It has been about a month since the last earnings report for Hibbett Sports, Inc. HIBB. Shares have added about 18.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is HIBB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hibbett Q4 Earnings Mixed, Soft FY19 View

Hibbett Sports reported mixed results for fourth-quarter fiscal 2018, wherein earnings topped estimates and sales came in line. However, top line grew year over year while the bottom line declined. Notably, this was its fourth straight quarter of a bottom-line beat. Following the mixed results, it provided a soft outlook for fiscal 2019.

Q4 Highlights

Hibbett reported earnings of 44 cents per share, surpassing the Zacks Consensus Estimate of 43 cents. However, results compared unfavorably with earnings of 54 cents per share reported in the prior-year quarter. The year-over-year decline in the bottom line can be attributable to lower margins and higher SG&A expenses.

Net sales rose 8% to $266.7 million, in line with the Zacks Consensus Estimate of $266.7 million. The year-over-year growth was driven by gains in the apparel business, driven by strong e-commerce growth, favorable weather and focus on sportswear. Additionally, footwear continued to be strong. Notably, e-commerce sales accounted for nearly 7.6% of total sales in the fourth quarter.

Comparable-store sales (comps) increased 1.6%, benefiting from strength in November and December comps, offset by decline in January.

Hibbett’s gross profit jumped 3.1% to nearly $84 million, while gross margin contracted 153 basis points (bps) to 31.5%. The decline in margin was due to increased promotions and markdowns undertaken to improve inventory along with higher e-commerce penetration.
 
Operating income of $15.9 million declined 16.8% from $19.1 million in the year-ago quarter. Additionally, operating margin contracted 180 bps to 6%, attributed to lower gross margin as well as higher SG&A expenses due to additional operating expenses associated with the 53rd week and increased marketing expenses related to the e-commerce business. However, this was partly offset by lower logistics and store occupancy expenses.

Other Financial Aspects

Hibbett ended fiscal 2018 with nearly $73.5 million in cash and cash equivalents, no outstanding bank debt and full availability under its $60 million revolving credit facility. Total shareholders’ investment, as of Feb 3, was roughly $319.6 million.

The company’s capital expenditure was $4.2 million in the quarter and $23.1 million for fiscal 2018, mainly directed toward its major initiatives. Further, Hibbett repurchased 611,596 shares worth $9.3 million during the quarter. This brings share repurchases for the fiscal to 2.8 million for roughly $54.5 million. As of Feb 3, it had roughly $204.1 million remaining under its standing share repurchase authorization.

In fiscal 2019, the company expects capital expenditure in the range of $20-$25 million to be invested in ongoing omni-channel initiatives, selective store openings and other strategic initiatives to improve business. Further, it plans to buy back nearly $40-$50 million worth of shares in fiscal 2019.

Store Update

In fourth-quarter fiscal 2018, Hibbett introduced 12 new stores, expanded two high-performing stores and shut down 14 underperforming ones. In fiscal 2018, it opened 44 new stores, expanded 11 high-performing outlets and closed 43 underperforming ones. Consequently, it ended fiscal 2018 with 1,079 stores across 35 states.

As part of the company’s efforts to improve store productivity, it expects to close 50-60 underperforming stores in fiscal 2018. Additionally, it plans to open 30-35 new stores in the fiscal. In the long run, Hibbett targets taking its store count to 1,500.

Outlook

Going into fiscal 2019, the company revealed that fiscal 2019 started one week later, due to the additional 53rd week in fiscal 2018. Consequently, it expects quarterly total revenues and earnings to be impacted by the week shift, particularly in the second and third quarters. While second quarter will benefit from increased back-to-school volumes this year, the third quarter will be hurt by the loss of volumes from the season compared with last year.

For fiscal 2019, the company anticipates comps to range between negative 1% and positive 2%. It expects the net effect of the aforementioned store openings and closures to be relatively flat, as it will open high volume stores and close stores will lower volumes. However, revenues will be impacted by nearly $7.6 million, relating to the sale of team division in fiscal 2018.

Gross margin is estimated to increase 70-100 bps, driven by rising realized product margins due to better inventory position. Further, SG&A expense is expected to increase 6-8% due to higher operational and marketing costs related to e-commerce business, investments in employees and omni-channel initiatives as well as higher compensation costs linked to more normalized incentive payments.

Further, the company expects effective tax rate of nearly 24% in fiscal 2018, reflecting a decline from 37.9% in the prior-year. This primarily related to the new tax reform. Consequently, it envisions earnings for fiscal 2019 to be $1.65-$1.95 per share compared with $1.71 earned in fiscal 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

Hibbett Sports, Inc. Price and Consensus

 

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

VGM Scores

At this time, HIBB has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, thje 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, HIBB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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