On Feb. 13, Hibbett Sports Inc. (HIBB, Financial) provided its business update and announced it would report its fiscal fourth-quarter 2017 results on March 10.
The now $656.7 million sporting goods retailer said it had weak comparable sales for the recent quarter. Hibbett Sports expects its comparable sales figure will be down 2.2% from the same period in 2015.
The retailer also expects quarterly earnings per share in the range of 53 cents to 55 cents—a probable 29% decline from the same quarter the year before.
Hibbett Sports, in addition, provided preliminary fiscal 2018 Â EPS guidance in the range of $2.65 to $2.85—a probable 1.1% growth from the supposed trailing 12-month EPS—also, comparable store sales are expected to be in the flat to low single-digit range.
As a result, Hibbett Sports' share price plummeted 12.25%.
Hibbett Sports President and CEO Jeff Rosenthal attributed the disappointing sales to weaker holiday traffic and lower than expected sales in apparel and equipment.
"We continued to experience strength in our footwear business, which was a direct result of our improved assortments and in-stocks by store types," Rosenthal said. "As traffic declined and sales softened, we became more promotional in order to drive sales and manage inventory, which had a negative impact on gross margin.”
Valuations
Hibbett Sports trades at a discount compared to its peers in terms of earnings multiple. According to GuruFocus data, the retailer had a trailing price-earnings (P/E) ratio of 10 times (industry median 20.8), price-book (P/B) ratio of 1.97 times (industry median 1.78) and price-sales (P/S) ratio of 0.69 (industry median 0.7). The company did not have any trailing dividend yield.
(10-K, Hibbett Sports)
Total returns
Hibbett Sports has underperformed the broader S&P 500 index in both short and long-term periods. According to Morningstar data, the retailer had year-to-date and five-year total returns of -19.8% and -9.3%, respectively, compared to the S&P 500’s 5.2% and 14.3%.
(10-Q)
History
The Alabama-based sports retailer was founded 71 years ago. The retailer initially specialized in the marine and small aircraft business, but by 1960 was solely in the sporting goods business.
Hibbett Sports now is an athletic specialty retailer operating in small to mid-sized markets, predominantly in the South, Southwest, Mid-Atlantic and Midwest regions of the United States. Hibbett Sports stores provide an extensive selection of premium branded footwear, apparel and team sports equipment, emphasizing convenient locations and a high level of customer service.
In fiscal 2015, $429.3 million or 47% of total sales came from Hibbett Sports’ footwear business. This compares to $383.4 million or 45% in fiscal 2014.
Hibbett Sports enlisted itself as a public company in 1996 when it had 79 stores. As of October 2016, the retailer had 1,067 stores in 34 states after opening 13 new stores that period. Of those, 98% or 1,048 are Hibbett Sports stores while the remaining 19 stores are Sports Additions athletic shoe stores. Hibbett Sports only reports one business segment.
(10-K and News Release, Hibbett Sports)
The company stated in its recent annual filing that it seeks to have 1,300 stores in total by fiscal 2019.
Hibbett Sports
According to company filings, its primary retail format and growth vehicle is Hibbett Sports, an approximately 5,000-square-foot store located in strip malls, usually near a Wal-Mart (WMT, Financial) store.
Hibbett Sports stores offer a core selection of quality, brand name merchandise with an emphasis on team sports.
Sports Additions
Sports Additions stores are small, primarily enclosed mall-based stores, averaging 2,500-square-feet with approximately 90% of merchandise consisting of athletic footwear and the remainder consisting of caps and a limited assortment of apparel.
Team
Hibbett Team Sales Inc., a wholly-owned subsidiary of the company, is a supplier of customized athletic apparel, equipment and footwear to school athletic programs in Alabama and parts of Georgia, Florida and Mississippi.
Comparable store sales
(Previous and Recent Company Filings, Hibbett Sports)
As observed, comparable store sales have declined in recent years. Comparable sales figures are from Hibbett Sports and Sports Additions stores open throughout the period and the corresponding period of the prior fiscal year.
Excluding the recent 39 weeks of operations, Hibbett Sports had a five-year sales and profit growth and operating margin averages of 7.2%, 8.7% and 13%.
Cash, debt and book value
As per its recent quarterly filing, Hibbett Sports had $41.2 million in cash and no debt. The sporting goods retailer also had no goodwill or intangibles in its assets, with a book value of $332.2 million compared to $296 million the year before.
Cash flow
(Cash flow, Hibbett Sports)
Recent filings indicate Hibbett Sports grew its cash flow from operations by 1.1% to $59.8 million compared to the year before. As observed, there was a clear reduction of accounts payable for the sports retailer along with an increase in inventories.
Capital expenditures were $19.6 million, leaving Hibbett Sports with $40.3 million compared to $43.6 million year on year. Hibbett Sports allocated 76% or $30.7 million in share buybacks in the period.
(10-Q and Morningstar Data, Hibbett Sports)
On average, Hibbett Sports used 291% of its free cash flow for share buybacks in the past three fiscal years.
Hibbett Sports initiated a stock repurchase program amounting to a $300 million budget in late 2015 that is set to expire February 2019. So far, it has been able to repurchase 53,519 shares for an average price of $36.28 a share and still has $269 million left in the budget.
Conclusion
Hibbett Sports demonstrated an overall solid state of balance sheet—no debt and no goodwill figures. The retailer also takes good care of its shareholders through company-initiated buybacks.
Weakening sales have been observed in recent times as most retailers experienced transitioning consumer taste to e-commerce. Hibbett Sports also indicated it will have flat to low single-digit comparable sales for the coming year.
These low expectations have been reflected in the company’s recent share price performance.
(Hibbett Sports One-Year Time Frame, GuruFocus)
Meanwhile, both Susquehanna and SunTrust downgraded Hibbett Sports shares to neutral and hold post-announcement on Valentine’s Day.
Hibbett Sports had an average price target of $34 a share among the 15 analysts covering the company. Asking a 50% margin while applying a five-year profit growth rate indicated a value of $29 a share.
In summary, Hibbett Sports—although slightly unappealing—has a probable upside to $32 a share and, therefore, would be a buy.
Disclosure: I do not have shares in any of the companies mentioned.
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