Cabela’s (CAB, Financial) Big 5 (BGFV, Financial) started the earnings seasons with a bang, with both beating analysts’ estimates on top- and bottom-line. A few days later, Dick’s Sporting (DKS) joined the party with mixed results, but I still maintained a bullish stance. Hibbett Sports (HIBB, Financial) was the last to join the party with first-quarter fiscal 2016 results that ended the euphoria generated by its peers.
Let’s delve deeper into the results and see what it holds for investor waiting on the sidelines.
First-quarter recap
The comparable-store sales, or comps, declined 0.9% year over year. On the other hand, Big 5 registered an impressive 5.3% year-over-year growth, Cabela’s registered comps improvement for fourth quarter in a row, and Dick’s reported 1% year-over-year growth.
So clearly, Hibbett Sports was a laggard on comps growth. According to Hibbett, the West Coast port strike and inclement weather was the reason. However, since the comps have climbed up thereafter, according to the company, we can look forward to better comps in the second quarter.
As a result of negative comps growth, net sales came in at $269.8 million, registering a growth of 3% year over year, but were not enough to beat the consensus estimate which was $4.25 million higher.
Over 8% comps decline in February resulted in heavy markdowns subsequently. This negatively impacted gross margin by 50 basis points, or bps, to clock 37%. Gross profit inched up 1.5% year-over-year to $99.7 million. As a result of dismal comps growth, operating profit declined 4.1% year-over-year to $43.8 million, and operating margin contracted 120 bps to 16.2%.
As a result of margin contraction, earnings came in at $1.09 per share and missed consensus estimate of $1.13 per share.
Hibbett exited the first quarter with $119.1 million in cash and cash equivalents, shareholders equity of $346.5 million, and no debt on balance sheet.
Investor friendly
Hibbett repurchased 194,764 shares for $9.5 million and exited the quarter with nearly $166 million remaining under its share repurchase program. Going forward, the company can boost its bottom-line growth through share buybacks.
Bolstering stores for growth
During the quarter, Hibbett opened 15 new stores and surpassed the 1,000-store mark. In addition, the sporting goods retailer expanded three high-performing stores and shuttered two underperforming one’s to exit the quarter with 1,001 stores across 32 states.
In the long run, the company sees opportunity for 1,300 stores in 32 states and 1,500 stores if it expands into states where it currently has no presence.
The new wholesale logistics facility is helping the retailer to convert more customers and to stay on stock on key replenishable items. Going forward, this facility is expected to drive top-line growth.
Omni-channel initiative
Hibbett’s point-of-sale, or POS, project has laid down the foundation for its omni-channel initiative and is progressing well on time. Jeffry O. Rosenthal, President, CEO & Director, said during the conference call:
“We are looking forward to what this will bring to our e-commerce strategies in the future as we continue to serve our loyal customers and create new customers. Yeah, we recently made some enhancements and some of it is a little bit of a stop gap until we get to where we actually have an e-commerce site.”
To a question from Stern Agee CRT on head for e-commerce division, he said:
“Well, we're right in the middle of the search. It should be pretty shortly on the VP of Digital and we are getting very close to putting out what date it will be ready to be up and running.’
Hibbett seems to have a clearer vision of its e-commerce initiative compared to Big 5, but lags by quite a distance when compared to Cabela’s and Dick’s Sporting Goods.
Wrapping up
The company has zero debt on the balance sheet. Weather tends to balance itself out, so first quarter miss due to weather and port strike should be balanced out. Hibbett has far more clarity on its omni-channel/ecommerce initiative compared to Big 5.
A miss in the first quarter indeed has trickled down to full year guidance, but analysts expect compound annual growth of 11.83% over the next five years. The company has posted positive earnings surprise in the three out of last four quarters. So, I would still be bullish on the company and recommend a buy.
