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Why Is Hibbett (HIBB) Down 2.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Hibbett Sports (HIBB). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hibbett due for a breakout? 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 drivers.

Hibbett Earnings and Sales Surpass Estimates in Q1

Hibbett reported solid first-quarter fiscal 2020 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. Both the top and bottom line also improved on a year-over-year basis. While this marked the company’s second consecutive bottom-line beat, the top line outpaced estimates for the third straight quarter.

Q1 Highlights

Hibbett reported adjusted earnings of $1.61 per share, up 43.8% from $1.12 registered in the year-ago quarter. The bottom line also outpaced the Zacks Consensus Estimate of $1.29.

Net sales grew 25% year over year to $343.3 million and also came above the Zacks Consensus Estimate of $327 million. Markedly, the reported sales figure includes contributions of $59.4 million from the City Gear business.

Additionally, consolidated e-commerce sales surged 49.7% and accounted for nearly 8.3% of the total sales in the fiscal first quarter. The company expects continued growth in the e-commerce business owing to enhancements in mobile app as well as “Buy Online, Pick Up in Store” and “Reserve in Store” capabilities.

Comparable store sales (comps), excluding City Gear sales, rose 5.1% in the fiscal first quarter. Comps rose low-single digits in February, mid-single digits in March and low-double digits in April.

Category-wise, the company registered growth in footwear and sneaker-connected apparel & accessories, which also drove comps growth. However, it witnessed persistent softness in the licensed products and team sports.

Adjusted gross profit rose 23.6% to $119.6 million, while adjusted gross margin contracted 40 basis points (bps) to 34.8% primarily due to lower merchandise margin.

Adjusted operating income surged 39.5% to $39.9 million. Further, adjusted operating margin expanded 90 bps to 11.6% primarily owing to lower adjusted store operating, selling and administrative (SG&A) expenses, somewhat mitigated by gross margin contraction. Adjusted store operating, SG&A expenses decreased 140 bps as a percentage of sales.

Other Financial Aspects

Hibbett ended the quarter with $117 million in cash and cash equivalents, $26 million in debt outstanding (long-term debt), and $74 million available under its credit facilities. Total stockholders’ investment as of May 4, 2019, totaled roughly $361.4 million.

Further, Hibbett repurchased 259,432 shares for $5.4 million in the fiscal first quarter. As of May 4, it had roughly $183.2 million remaining under its authorization for share repurchases through Jan 29, 2022.

For fiscal 2020, management anticipates share buyback of roughly $10-$15 million.

Store Update

In first-quarter fiscal 2020, Hibbett introduced three new stores, rebranded two of its flagship stores to City Gear outlets and expanded one high-performing store. However, the company shut down 24 underperforming outlets. Consequently, it ended the quarter with 1,144 stores across 35 states.

Furthermore, management accelerated store closure plan by focusing on increasing the store productivity besides reinforcing the omni-channel business. Currently, management remains on track to shut down roughly 95 Hibbett stores in fiscal 2020. In addition, the company expects 80-85 net store closings for the fiscal year.

Outlook

Following the robust first-quarter results, management revised its guidance for fiscal 2020. Comps are now anticipated to be up 0.5-2% compared with the earlier projection of negative 1% to positive 1%. Further, gross margin is estimated to decline in the 25-35 bps range and adjusted gross margin is expected to decline 35-45 bps. Earlier, gross margin was estimated to decrease in the 25-45 bps range and adjusted gross margin was likely to contract 35-55 bps.

SG&A expenses, as a percentage of sales, are likely to increase 10-15 bps, while the metric is expected to remain flat to down 10 bps on an adjusted basis. Earlier, SG&A expenses, as a percentage of sales, was estimated to increase 15-25 bps, while it was likely to remain flat on an adjusted basis. Further, the tax rate is projected at roughly 25%.

Excluding non-recurring costs, management now envisions adjusted earnings of $2.00-$2.15 per share, up from the prior expectation of $1.80-$2.00 and $1.77 earned in fiscal 2019. Including the non-recurring costs related to the integration of City Gear as well as store closures expenses of 25-35 cents per share, earnings per share are expected to be $1.70-$1.85 compared with $1.50-$1.70, guided previously.

Meanwhile, capital expenditures are still expected to be nearly $18-$22 million for fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -21.48% due to these changes.

VGM Scores

At this time, Hibbett has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 A. 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 these revisions 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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