Hibbett (HIBB) Stock Falls on Q1 Earnings and Sales Miss

Hibbett Sports Inc. HIBB reported lower-than-expected results for first-quarter fiscal 2019. Both earnings and sales lagged estimates while the top line also declined year over year. Consequently, shares of this Zacks Rank #3 (Hold) stock declined 15.6% on May 25.

Moreover, Hibbett has declined 3.4% in the last three months, against the industry’s growth of 3.7%.

Q1 Highlights

Hibbett reported earnings of $1.12 per share, missing the Zacks Consensus Estimate of $1.13. However, earnings improved 15% from 97 cents earned in the prior-year quarter. The lag can be attributed to soft 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

Net sales dipped 0.4% to $274.7 million, lagging the Zacks Consensus Estimate of $277 million. The decline is attributed to soft same-store sales (comps), offset by strong e-commerce growth. Comps fell 0.3% due to negative 7.3% comps in February, offset by comps growth of 6.1% and 0.6% in March and April, respectively.

During the reported quarter, branded apparel remained extremely strong with high single-digit comps growth. Additionally, footwear and cleats reported positive comps. Notably, e-commerce sales accounted for nearly 7% of total sales in the fiscal first quarter.

Hibbett’s gross profit declined 1.4% to nearly $96.8 million while gross margin contracted 40 basis points (bps) to 35.2%. The decline in margin was due to higher sales of clearance merchandise and freight related with e-commerce sales.
 
Operating income of $28.6 million declined 16.4% from $34.2 million in the year-ago quarter. Additionally, operating margin contracted 200 bps to 10.4%, attributed to lower gross margin as well as higher SG&A expenses. The increase in SG&A expenses stemmed from additional operating expenses associated with reinvestment of tax reform savings to benefit the company’s team members, additional marketing expenses to drive e-commerce sales and investments for the launch of its new mobile app.

Other Financial Aspects

Hibbett ended the fiscal first quarter with nearly $115.8 million in cash and cash equivalents, no bank debt outstanding and full availability under its $60-million revolving credit facility. Total shareholders’ investment, as of Feb 3, was roughly $341.7 million.

The company’s capital expenditure was $4.1 million in the quarter, mainly directed toward its major initiatives and new store openings. Further, Hibbett repurchased 40,299 shares for $0.9 million. As of May 5, it had roughly $203.6 million remaining under its standing share repurchase authorization.

Store Update

In first-quarter fiscal 2019, Hibbett introduced seven new stores, expanded four high-performing stores and shut down 18 underperforming ones. Consequently, it ended the quarter with 1,068 stores across 35 states.

Outlook

Following a soft fiscal first quarter, the company believes that it is well positioned for the fiscal second quarter, given its fresh assortments and easier comparisons as it prepares for the back-to-school season. Going into the fiscal second quarter, the company sees more opportunities with cleaner inventory levels and higher volumes of new product. Further, it expects to benefit from healthier branded apparel and footwear categories compared with the prior-year quarter.

The company expects gross margin comparisons to be relatively easier as product margin is expected to improve significantly due to fresher product and significant leverage on store occupancy expenses due to the week shift caused by the 53rd week last year.

For fiscal 2019, the company reiterated its previously-stated outlook, projecting earnings of $1.65-$1.95 per share compared with $1.71 earned in fiscal 2018.

Key Picks

A few better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. BGFV, with a Zacks Rank #1 (Strong Buy) and Ulta Beauty Inc. ULTA carrying a Zacks Rank #2 (Buy). Investors may also consider Urban Outfitters Inc. URBN from the broader sector, which also carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting has surged 35.5% in the last three months and posted positive earnings surprise of 10.5% in the trailing four quarters.

Ulta Beauty delivered a positive earnings surprise of 2.7% in the trailing four quarters and has long-term growth rate of 18.6%.

Urban Outfitters delivered a positive earnings surprise of nearly 19.8% in the trailing four quarters and has long-term growth rate of 12%.

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