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Hibbett Sports Could Be a Good Buy If Its E-Commerce Takes Off

April 16, 2014 | About:
Rustic Nomad

Rustic Nomad

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Hibbett Sports (HIBB) shares are down a massive 21% this year. The company’s promotional activities carried out in the fourth quarter have finally paid off. But this caused its gross margins to decline from 37.2% to 36.8%. Its selling and administrative expenses also increased 120 basis points to 21.9%, mainly due to higher salaries and benefits.

Delivering Value

However, in an effort to deliver value to its shareholders, Hibbett has bought back 134,406 shares for $7.1 million. The company has about $230.9 million remaining under its share repurchase program. The company has plans to go for more share repurchases, which will further improve its profitability and bring cheers to investors.

Hibbett’s new stores, opened last year as well as this year, have performed above expectations led by improvements in information technology. This enabled the company to procure the right merchandise for these new stores, based on geographic and demographic needs. Going forward, Hibbett forecasts that in 1.5 years, it will grow to a size of 1,000 stores, and finally to 1,500 stores in the long term

Peer Comparison

Dick's Sporting Goods (DKS), on the other hand, is a bigger company as compared to Hibbett.

It has 552 Dick's Sporting Goods stores with 29.9 million square feet of retail space. Dick’s revenue was up 6.7% in the previous quarter as compared to the same quarter a year ago. Its growth was driven by new store openings.

Dick’s Sporting Goods’ e-commerce sales contributed about 6.5% of revenue in the third quarter. To expand its product offerings at various price points, Dick’s will serve as the exclusive ecommerce provider of licensed merchandise and sporting goods for ESPN's online fan shop. This will again strengthen its e-commerce sales.

As compared to this, Hibbett is still not sure what path to take as far as e-commerce integration in its operations is concerned. Hibbett might start thinking about planning on e-commerce as a sales channel once its wholesale and logistics facility is completed. According to me, Hibbett is missing out on a big opportunity that comes with e-commerce as a sales channel.

On the other hand, another sporting goods retailer, Big 5, is a clear laggard. It has been outperformed by Dick’s and Hibbett by some distance. But, Big 5 posted strong results in the last quarter, highlighted by a sharp increase in adjusted earnings. The increase in earnings was driven by sales growth and improved margins. The company also reported good growth in the revenue.

Conclusion

Hibbett has done really well. Looking forward, it intends to grow its store count substantially. However, the only negative point is that it is still not playing well in the e-commerce channel. Once Hibbett adopts e-commerce, it should continue to outperform both Dick’s and Big 5. Once its growth plans materialize, Hibbett can touch new highs.


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