Earnings season is the time when the market separates the winners from the losers. A poor earnings report or business hiccup can send the biggest and smallest companies down for a time or for good. Investors looking for companies encountering temporary price discounts may find a trove in the stocks that skidded in the past week.
Hibbett Sports (HIBB, Financial)
Shares of Hibbett Sports took the hardest fall Monday, dropping in price by 30%. The stock that opened at $23.35 per share Friday completed Monday trading at $13.10 per share.
Hibbett is an Alabama-based athletic fashion retailer operating in small and mid-sized cities in the U.S. – the kind that often get swept up by larger competitors or cave to competitive pressures. Founded in 1945, the company owns about 1,000 stores and underscores its personalized customer service.
The trigger for Hibbett’s plummet was not an earnings release but a profit warning for the second quarter ended July 29. Hibbett said it expected a 10% decline in comparable store sales “based on very challenging sales trends.”
It also flagged the pressure placed on its gross margins, resulting in a loss of 19 cents to 22 cents per diluted share.
Margins have already experienced a squeeze at the company. Its gross margins have declined for the past five consecutive years, landing at 34.8% for 2016, their lowest since 2010. Operating margins have been in decline for the same period, shrinking to 9.95%, also their lowest since 2010.
Despite the decrease, Hibbett has made a profit every year in the past decade, including every quarter in the past year, making next quarter’s expected loss a distinct change.
On the positive side, Hibbett rolled out its first e-commerce website that will allow customers to buy its footwear, apparel and sports equipment online.
Jeff Rosenthal, President and Chief Executive Officer, stated, "Despite the difficult retail environment, the Company remains focused on improving its business for the long term. Launching an e-commerce site has been a key strategic goal for Hibbett, and we took time to invest in our omni-channel infrastructure to do it the right way. Our main objective is to provide a seamless shopping experience for our customers with a platform that will allow us to significantly expand our assortment over time. We have always prided ourselves on convenience, and we believe we can now be top of mind when our customers shop for athletic footwear, apparel, and equipment."
Investors attracted to the crater have already bid the price of Hibbett shares up 7.63% to around $14.07 per share in Tuesday afternoon trading.
Alphabet Inc. (GOOGL, Financial)
Shares of Alphabet (GOOGL, Financial), the world’s 24th largest company, were off 3% Tuesday after the company exceeded expectations for earnings and revenue, usually a boon for a stock price. Other factors in its results spooked some investors, though.
First, traffic acquisition costs to Google network members rose from the second quarter of 2016 to $3.04 billion from $2.62 billion. Costs to distribution partners soared to $2.05 billion from $1.35 billion for the same periods, while total traffic acquisition costs increased to $5.09 billion from $3.98 billion.
The cost per click for Alphabet’s ad revenue also declined year over year. Most of Google’s customers pay the company only when a user clicks on an ad, allowing Google to generate revenue from each click. In the first quarter, Alphabet expanded its categories of video ads that, resulting in a second-quarter increase of 52% in paid clicks and a 23% decline in cost per click.
Alphabet’s share price slid a further 3.04% Tuesday to close at $967.95.
Seagate Technology PLC (STX, Financial)
Seagate Technology was Tuesday’s worse performer, tumbling 15.7% to $33.51 per share.
Seagate, a data storage company based in Dublin, Ireland, was toppled by a straightforward earnings miss. Analysts looked for 99 cents earnings per share and $2.57 billion in revenue for the second quarter. The company reported 38 cents earnings per share and $2.4 billion in revenue.
Seagate also recorded 27.7% gross margins, $243 million in cash flow from operations and a $400 million payout to shareholders in dividends and share repurchases.
The company’s CEO, Steve Luczo, emphasized that he sees the company’s stumbles weakness as a temporary situation.
“The results of our performance this fiscal year reflect improved year-over-year profitability of our storage product portfolio and business operations,” Luczo said in a release.
“Although the near-term dynamics of technology shifts present demand variations for the storage industry from time to time, we continue to see growing storage demand in the long-run driven by the proliferation of data growth from new technologies, emerging industries, and growing businesses.”
