Hibbett: A Quality Company Sporting Irrationally Low Valuations

The small-cap sporting goods retailer is facing some short-term headwinds

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Mar 22, 2022
  • Hibbett is a well-managed sporting goods retailer with a major presence in the Southeast U.S.
  • The company performed very well during the fiscal stimulus and inflation-driven consumer spending boom.
  • Hibbett's stock is selling at unusually low valuations given the company's quality.
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Hibbett Inc. (

HIBB, Financial), headquartered in Birmingham, Alabama, is an athletic-inspired fashion and sporting goods retailer with approximately 1,100 stores in 35 U.S. states nationwide. Hibbett’s history dates back over 75 years. The company operates stores in small to mid-sized markets, mostly in the Southeast, Southwest and Lower Midwest regions of the U.S. The states with the most stores are Georgia, Texas and Alabama. The company has been public since 1996 and currently has a market capitalization of $655 million.

The company appears to be in good shape, having navigated the Covid-19 pandemic better than most competitors, allowing it to take proper advantage of the spending boom caused by easy-money policies and the resulting high inflation. That's why I think it seems irrationally undervalued at current levels.


Hibbett was late to the e-commerce game compared to other competitors, but has since rapidly caught up to many other sporting goods retailers. E-commerce sales in fiscal 2022 were $233 million, which represented approximately 13.8% of total revenues.

Five years ago, e-commerce revenues were only $32 million. The e-commerce segment is profitable on a stand-alone basis, although not likely equivalent to physical store operating margins. The omni-channel experience has also been enhanced with online ordering and in-store pickup as well as curbside services in addition to full online delivery options.

Business strategy

The company has made efforts to transform itself from a small-town retailer (associated next to a Walmart (

WMT, Financial) typically) to a nationwide omni-channel industry leader. These include efforts such an focusing on fashion-oriented athletic wear targeting multiple age groups, but emphasizing the Gen-Z influencer market.

Targeting underserved markets is still the focus for store expansion efforts. The company states 70% of its stores have two or less competitors within a 15 minute drive. Almost a third of stores have no material competition within a reasonably close driving range.

Financial review

Hibbett reported earnings results for its fourth quarter and fiscal year 2022 in March (its fiscal year ended January 2022). For the year, revenues increased 19.1% to $1.69 billion with comparable sales increasing 17.4%. Physical store comp sales increased 21.4%, which was partially offset by a decline in e-commerce sales of 1.6%.

Gross margin was 38.2% for the fiscal year compared with 35.5% in the prior year. This was driven by historically high margin performance in the first half of the year driven by higher sell-through, a lower promotional environment and a greater mix of in-store sales, which carry a higher margin than e-commerce sales.

Net income for the year increased significantly to $174.3 million, or $11.19 per diluted share, compared to adjusted net income of $104.3 million, or $6.12 per diluted share, for the prior year.

Balance sheet

The company has historically maintained a very strong balance sheet and this continued for the fiscal year ending January 2022. The company has $17 million in cash, and while the cash-debt ratio is a worryingly low 0.06, the interest coverage ratio is 832.72, indicating the company has ample ability to meet its minimum debt repayment obligations. Taking a closer look, all of this debt comes from capital lease obligations; eliminating the capital lease obligations, the company has no debt.

Inventory at the end of the year was $221.2 million, a 9.5% increase compared to the prior year's fourth quarter ending. The company indicated that continuing supply chain constraints have not allowed them to get inventory back to ideal levels.

Guru trades

Gurus that have established or added to their Hibbett positions recently include Hotchkis & Wiley,

Catherine Wood (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).


The company stated they expect to face a number of business and economic challenges in the current fiscal year. This includes ongoing supply chain disruption, a lack of stimulus and unemployment benefits, inflation, wage pressures and a more cautious consumer.

Total net sales are expected to be flat compared to 2021 results. This implies comparable sales are expected to decline in the low-single digits for the full year. Brick and mortar comp sales are expected to decline in the low-single digit range while e-commerce revenue is anticipated to be in the positive mid-single digit range. The company plans to open 30 to 40 stores during the year to offset the negative same-store sales.

As a result, analysts' earnings per share estimates for this fiscal year are $9.84, a decline of 12% compared to the prior year. However, analysts expect earnings to recover the following year back to approximately 2021 levels.

This creates a stunningly low price-earnings ratio of approximately 5 based on the current year earnings. Those low earnings valuations are usually reserved for companies with high debt levels, but Hibbett has a very manageable debt situation, since all of its debt is capital lease obligations. In addition, the company is selling at only 4 times Ebitda.


Although Hibbett is facing headwinds from tough comps, inflation amid tightening monetary policy, slower consumer spending and supply chain issues, the valuation levels are still irrationally low in my opinion. I believe the company appears to be significantly undervalued. Long-term investors will get earnings growth in 2023, multiple expansion and a dividend yield of approximately 2.0% while they wait.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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