Hibbett (HIBB) Jumps 15% in 3 Months: What's Aiding Growth?

Hibbett Sports Inc. HIBB is climbing up the chart, thanks to its robust earnings trend in recent quarters. Though the company reported a mixed fourth-quarter fiscal 2018, its earnings beat trend remained intact. This marked its fourth straight bottom-line beat. Further, sales were in line and improved year over year, backed by gains in the apparel business driven by strong e-commerce growth, favorable weather and focus on sportswear.

The cumulative effect of the recent results is visible in the stock’s 15.8% growth in the last three months against the industry’s decline of 9.9%. Further, shares of this Zacks Rank #3 (Hold) company rallied 7.8% since reporting earnings on Mar 16.

Though solid earnings trend is the clear driver behind the recent momentum of the stock, let’s analyze some more factors that are acting as catalysts.

Hibbett Sports, Inc. Price, Consensus and EPS Surprise

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

Growth Catalysts

Hibbett remains well positioned to gain from the growth of omni-channel capabilities, improved Rewards members, and small market strategy and inventory management initiatives. The company is on track with the internal initiatives, including improving e-commerce penetration and expanding its loyalty program. It remains focused on expanding customer base by connecting with more customers through e-commerce and selective store expansion. Notably, e-commerce sales accounted for nearly 7.6% of total sales in the fourth quarter.

Further, Hibbett continued to witness strong results from the re-launch of the loyalty program in the fourth quarter. During the quarter, new member sign-ups improved 45% year over year while total member revenues increased 24%. Consequently, its rewards program contributed 57% to net sales.

Going forward, the company will continue to focus on omni-channel growth in fiscal 2019. Alongside, it remains keen on store expansion and inventory management initiatives. It is also gaining from small market strategy as it continues to strengthen presence across the country.

Consequently, the company reiterated its target of growing to over 1,500 stores in underserved markets. In fiscal 2018, it opened 44 new stores, expanded 11 high-performing outlets and closed 43 underperforming ones. With this, it operated 1,079 stores in 35 states as of Feb 3, 2018. As part of its efforts to improve store productivity, the company expects to close 50-60 underperforming stores in fiscal 2018. Additionally, it plans to open 30-35 new stores in the fiscal.

Additionally, the company is stringently working on inventory management initiatives despite a challenging environment. It expects the small market strategy, along with the growth of omni-channel capabilities, to enrich customers' experience, consequently positioning Hibbett well for long-term growth.

Possible Deterrents

Though Hibbett’s growth prospects are bright, its trend of reporting lower gross and operating margins, due to increased promotions and markdowns to improve inventory and e-commerce penetration, have been concerns. Notably, fourth-quarter fiscal 2018 was its sixth straight quarter of negative gross and operating margins.

Moreover, Hibbett provided a soft outlook for fiscal 2019, due to the week shift resulting from an additional 53rd week in fiscal 2018. This is likely to impact its earnings and sales 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.

Final Thoughts

Hibbett’s robust earnings trend, as well as growth strategies, positions it for more growth ahead. Furthermore, its financial flexibility and ability to generate a strong operating cash flow has helped it to execute long-term strategies such as store expansion, enhancement of products and brand offerings as well as building operational infrastructure.

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