Over the past two decades, Hibbett Sports Inc. (HIBB, Financial) has steadily grown from a leading regional retailer into a national powerhouse with north of 1,100 stores across 32 states. Since 2008, Hibbett’s revenue has increased from $521 million to just shy of $1 billion. Management has also bought back much of the stock to really boost earnings per share. The company netted $20.78 in EPS over the past 10 years. It is trading under $14 per share.
Most retailers have suffered because of Amazon (AMZN, Financial), and Hibbett has suffered as well. Earnings last quarter came in at 84 cents, a 45% drop year over year. Net sales fell 9.2% and same-store sales declined 11.7%, one of the worst recent showings across the entire retail landscape. Thus, the stock continues to plummet, down 63% year to date. These cycles are why good stock pickers are still able to beat the market.
It is entirely possible Hibbett could go out of business sometime in the future if people stop buying sporting goods. Despite a drop in financial performance this year, however, the company’s fundamentals remain solid. With $52 million in cash (18% of its capitalization), zero debt, strong returns on equity and assets, still profitable and trading below book, if I had $300 million to buy a business, Hibbett would be on the short list.
The stock does present risks. Hibbett’s earnings outlook was lowered to between $1.35 and $1.96 for 2018, the direct-to-consumer shift is going to lower foot traffic for all retailers and lower demand trends across the sporting goods sector have also effected the company.
In fact, traders have taken note and built a sizable short position in the stock, 26% of the float. Nonetheless, there are also some renowned guru investors that have taken the other side of the trade, at least from the last SEC filings. Jim Simons (Trades, Portfolio) owns 3.54% (726,625 shares) of the stock, while Joel Greenblatt (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) have small holdings. With that in mind, these positions are still what I would call “flyers,” making up just a small portion of their assets under management. We will see if there is any movement in the next round of filings.
What matters is whether Hibbett will continue to generate a profit as revenue increases. It has the cash and free cash flow to reinvest and pivot as needed. I think it is entirely likely the company will produce another $20 of earnings in the next decade, making the trade today worthwhile.
If there is a better retail trade under $300 million, please let me know.
Disclosure: I am not long/short HIBB.
