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Why Is Hibbett (HIBB) Up 10.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Hibbett Sports (HIBB). Shares have added about 10.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hibbett due for a pullback? 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 catalysts.

Hibbett Q3 Earnings & Sales Beat, Raises View

Hibbett’s adjusted earnings of 32 cents per share in third-quarter fiscal 2020 increased substantially from 14 cents reported in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of 13 cents by a wide margin.Results were driven by solid contributions from the City Gear business as well as strong in-store and online sales.

Net sales grew 27% year over year to $275.5 million and beat the Zacks Consensus Estimate of $256 million. The increase can be attributed to progress on the integration of City Gear (acquired a year ago) into Hibbett’s business. Notably, the City Gear business contributed $43.7 million to net sales in the fiscal third quarter.

Comparable store sales (comps), excluding City Gear sales, rose 10.7% in the quarter, marking the fourth successive quarter of positive comps and strongest comps growth since first-quarter fiscal 2013. Comps benefited from strong performance in brick-and-mortar and e-commerce businesses. Further, gains from a delayed back-to-school period, innovative launches and early demand for fall apparel drove the increase.

Robust footwear sales primarily aided comps, driven by continued investments in the category. Additionally, positive sales in activewear and accessories connected to footwear products were growth drivers. Footwear rose in the mid-teens, recording the ninth successive quarter of positive comps. The company witnessed double-digit growth in men's, women's and kids footwear, driven by strong launch calendar as well as strength in non-launch business. Meanwhile, apparel sales, including activewear, were up in low-single digits and accessories’ sales were up in mid-single digits. However, the licensed business declined in double-digits in the quarter, while team sports fell in low-single digits.

In the quarter, the company integrated City Gear’s online business into Hibbett’s digital portal. Additionally, Hibbett revamped its website and apps, and added flexible payment options for customers and launched same-day delivery in many markets. Driven by these actions, digital sales accounted for 10.5% of the total sales in the fiscal third quarter. Moreover, digital comps improved 52%.

Gross profit rose 27.9% to $90.2 million, with gross margin expanding 20 bps to 32.7% primarily on lower occupancy costs as a percent of sales due to store closures completed in the past year. Lower occupancy costs also offset the decline in product margin, owing to increased e-commerce sales, which tends to generate lower margins compared with stores.

Operating income of $2.6 million improved 42.5% year over year while operating margin expanded 20 bps. Excluding costs related to the City Gear acquisition and the company’s accelerated store closure plan; store operating, selling and administrative (SG&A) expenses declined 110 bps as a percentage of sales.

Other Financial Aspects

Hibbett ended the quarter with $77.4 million in cash and cash equivalents, $8 million in debt outstanding, and $92 million available under its credit facilities. Total stockholders’ investment as of Nov 2 was $336.2 million. Further, Hibbett repurchased 371,976 shares for $7 million in the fiscal third quarter. As of Nov 2, it had $167.2 million remaining under its authorization for share repurchase through Jan 29, 2022. For fiscal 2020, management continues to anticipate share buyback of $25-$30 million.

Store Update

In third-quarter fiscal 2020, the company introduced four stores and rebranded four Hibbett stores to City Gear. However, it shut 19 underperforming outlets. Consequently, it ended the quarter with 1,097 stores across 35 states.

Management is on track to shut roughly 95 Hibbett stores in fiscal 2020 as part of its accelerated store closing plan. In this regard, it is anticipated to incur non-recurring impairment and store closure charges of 8-12 cents per share in fiscal 2020. The company still expects 80-85 net store closures for fiscal 2020.

Guidance

Driven by its robust results in the first nine months of fiscal 2020, management raised its guidance for the fiscal year. Comps are now anticipated to be up 4-6% compared with 1-2% growth mentioned earlier. Excluding non-recurring costs, it now envisions adjusted earnings of $2.30-$2.50 per share, up from $2.15-$2.25 mentioned earlier and $1.77 earned in fiscal 2019. Including non-recurring costs of about 75-80 cents per share, the company expects GAAP earnings of $1.55-$1.65 per share compared with $1.35-$1.5 mentioned previously.

It anticipates gross margin to be flat to up 20 bps compared with an increase of 30-40 bps stated earlier. It now expects adjusted gross margin between a 10-bps decline and a 10-bps increase compared with a 40-50 bps decline mentioned earlier.

The company expects rise in SG&A expenses, as a percentage of sales, of 60-80 bps, while anticipates the metric to decline 60-80 bps on an adjusted basis. Earlier, it estimated 50-70 bps rise in SG&A expenses, as a percentage of sales, while it was expected to contract 40-60 bps on an adjusted basis. The company projects tax rate of 25.5%. The company now projects capital expenditure of $15-$18 million for fiscal 2020 compared with $18-$20 million stated earlier.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 9.82% due to these changes.

VGM Scores

At this time, Hibbett has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Hibbett has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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