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Why Is Hibbett (HIBB) Up 20.5% 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 20.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Hibbett Q2 Loss In Line, Sales Miss Estimates

Hibbett posted second-quarter fiscal 2020 results, wherein the bottom line met the Zacks Consensus Estimate but the top line missed the same.

Although net sales increased year over year, net loss widened from the prior-year period. We note that the rate of growth of comparable-store sales (comps) decelerated sharply on a sequential basis. Moreover, gross margin remained under pressure.

Q2 Highlights

Hibbett incurred an adjusted loss of 13 cents per share, wider than a loss of 6 cents registered in the year-ago quarter. The bottom line came in line with the Zacks Consensus Estimate.

Net sales grew 19.6% year over year to $252.4 million but missed the Zacks Consensus Estimate of $271 million. This year-over-year increase can be attributed to the inclusion of City Gear that contributed $42 million to sales.

Additionally, digital sales grew 25% and accounted for nearly 8.6% of the total sales in the fiscal second quarter.

Comps, excluding City Gear sales, rose 0.3% in the quarter, marking the third successive quarter of positive comps.

Further, comps rose low-single digits in May and June but declined in July due to the back-to-school selling season.

Category-wise, the company registered low single-digit growth in footwear sales, recording the eighth successive quarter of positive comps. Men’s footwear sales rose low-single digit, women’s footwear witnessed double-digit growth while kids’ footwear recorded mid-single-digit growth. This along with sturdy sales in activewear and accessories drove the top line. Notably, activewear sales were up low-single digits and accessories sales were positive.

However, the apparel business fell low-single digits during the quarter due to sluggishness in women's and kids’ apparel. Also, the licensed business fell high-single digits in the quarter.

Adjusted gross profit rose 15.1% to $76.4 million, while adjusted gross margin contracted 110 basis points (bps) to 30.3% primarily due to closure of 37 stores. This includes complete inventory liquidation of 32 stores and lower markdown activity.

Adjusted operating loss came in at $3.2 million compared to adjusted operating income of $39.9 million in the year-ago quarter.

Furthermore, adjusted store operating, SG&A expenses increased 170 bps as a percentage of sales.

Other Financial Aspects

Hibbett ended the quarter with $97.8 million in cash and cash equivalents, $17 million in debt outstanding (long-term debt) and $83 million available under its credit facilities. Total stockholders’ investment, as of Aug 3, was roughly $339.9 million.

Further, Hibbett repurchased 429,964 shares for $8.9 million in the fiscal second quarter. As of Aug 3, it had roughly $174.2 million remaining under its authorization for share repurchase through Jan 29, 2022.

For fiscal 2020, management anticipates share buyback of roughly $25-$30 million.

Store Update

In second-quarter fiscal 2020, Hibbett introduced two stores, rebranded two of its flagship stores to City Gear outlets and expanded three high-performing stores.

However, the company shut down 40 underperforming outlets. Consequently, it ended the quarter with 1,108 stores across 35 states.

Furthermore, management accelerated store closure plan by focusing on increasing store productivity, besides reinforcing the omnichannel business.

Currently, management is on track to shut down roughly 95 Hibbett stores in fiscal 2020. In this regard, it is anticipated to incur charges to the tune of 10-15 cents per share related to store closures and impairment costs in fiscal 2020. Additionally, the company still expects 80-85 net store closures for the fiscal year.

Guidance

Management is optimistic about the second half of the year owing to solid comps trend. Also, it estimates momentum in products during the second half of fiscal 2020 along with a strong finish to the back-to-school season.

As a result, management lifted its earnings guidance for fiscal 2020.

Excluding non-recurring costs, it now envisions adjusted earnings of $2.15-$2.25 per share, up from the prior expectation of $2.00-$2.15 and $1.77 earned in fiscal 2019.

Including the non-recurring costs related to the integration of City Gear and store closure expenses of 75-80 cents per share, earnings are expected to be $1.35-$1.5 per share compared with $1.70-$1.85, guided previously.

Further, comps are now anticipated to be up 1-2% compared with the earlier projection of 0.5-2%.

SG&A expenses, as a percentage of sales, are likely to increase 50-70 bps, while the metric is expected to advance 40-60 bps on an adjusted basis.

Earlier, SG&A expenses, as a percentage of sales, were estimated to expand 10-15 bps, while it was likely to remain flat to down 10 bps on an adjusted basis. The tax rate is projected at roughly 25.5%.

Nevertheless, gross margin is estimated to increase 30-40 bps and adjusted gross margin to decline 40-50 bps. Earlier, gross margin was estimated to decrease 25-35 bps and adjusted gross margin to contract 35-45 bps.

Capital expenditures are now projected to be nearly $18-$20 million for fiscal 2020 compared with $18-$22 million guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Hibbett has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, 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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