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Hibbett (HIBB) Q4 Earnings Mixed, Soft FY19 View Hurts Stock

Hibbett Sports Inc. HIBB 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 the company’s fourth straight quarter of bottom-line beat. Following the mixed results, it provided a soft outlook for fiscal 2019.

This led the shares of this Zacks Rank #3 (Hold) stock to fall 2.4% on Mar 16. However, Hibbett has gained 10.9% in the last three months, against the industry’s 2.5% decline.



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.

Hibbett Sports, Inc. Price, Consensus and EPS Surprise

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

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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, the company 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, the company 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, the company 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, the company 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 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%. The company 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 rise in 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, the company envisions earnings for fiscal 2019 in the range of $1.65-$1.95 per share compared with $1.71 earned in fiscal 2018.

Key Picks

Better-ranked stocks in the same industry include MarineMax Inc. HZO, KAR Auction Services, Inc. KAR and The Michaels Companies, Inc. MIK. While MarineMax carries a Zacks Rank #1 (Strong Buy), KAR Auction and Michaels Companies sport a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarineMax has long-term growth rate of 30% and posted positive earnings surprise of nearly 612.1% in the trailing four quarters.

KAR Auction delivered a positive earnings surprise of 14.1% in the trailing four quarters and has long-term growth rate of 11%.

Michaels Companies delivered a positive earnings surprise of nearly 4.9% in the trailing four quarters and has long-term growth rate of 12%.

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Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
 
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