Last Friday, Hibbett Sports Inc. (HIBB - Analyst Report) came up with mixed financial results for the first quarter of fiscal 2014 wherein its bottom-line recorded a year over year improvement but missed the Zacks Consensus Estimate.
The sporting goods retailer’s first quarter earnings of $1.09 per share witnessed a 9% rise from the year-ago comparable quarter’s earnings of $1.00 per share primarily driven by strong top line growth, partially offset by higher cost of goods sold.
However, the company’s quarterly earnings fell short of the Zacks Consensus Estimate by a penny. This spread negative sentiments among investors resulting in a decline of over 7% in the company’s share prices during the trading session on Friday.
Highlights of the Quarter
Net sales of the company increased by 9.1% year over year to $261.9 million and surpassed the Zacks Consensus Estimate of $261 million. The upside was attributed to strong sales performance at the company’s stores due to high demand for footwear and branded apparels.
Comparable-store sales (comps) for the quarter increased 4.1%. Monthly comps reflected an increase of 7.2% in February, 2.9% in March and 0.9% in April. However, the company revealed that comps for May are running in the negative low-single-digit range.
Hibbett’s gross profit increased approximately 8.1% to $98.2 million from $90.9 million in the year-ago comparable quarter. However, gross margin contracted 38 basis points (bps) to 37.49% during the quarter. Product margin was down 44 bps in the quarter due to higher markdowns, while warehouse and store occupancy expenses as a percentage of sales improved 6 bps.
During the quarter, store operating, selling and administrative expenses increased 8.5% to $49.0 million, while as a percentage of revenue it contracted 11 bps to 28.69%. The year-over-year improvement in store operating, selling and administrative expenses as a percentage of sales was due to higher sales and some cost benefits.
Gross margin contraction impacted the company’s operating margin. Hibbett’s operating margin for the quarter contracted 24 bps to 17.44% compared with 17.68% in the year-ago quarter. However, in dollar terms, operating income increased 7.6% year over year to $45.7 million.
Hibbett ended the quarter with a strong balance sheet comprising $110.3 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.
During the quarter, Hibbett bought back 198,000 shares for $10.8 million. As of May 3, 2014, Hibbett had nearly $219.0 million remaining under its share repurchase program worth $250.0 million, authorized on Nov 15, 2012.
During the quarter, Hibbett enhanced its store network by opening 16 new stores and expanding 4 high-performing stores, while it shut 4 stores. As a result, the company’s total store count at the quarter-end was 939 in 31 states.
Fiscal 2015 Guidance
Looking at the last quarter’s performance, the company has slightly raised its upper-end earnings guidance for fiscal 2015. Hibbett now expects earnings per share to come in the range of $2.75–$2.98 compared with the earlier guidance range of $2.78–$2.96. Comps for the fiscal are still projected to grow in the low-to-mid single digit range. The company anticipates flat to slightly positive gross margin in the upcoming fiscal year. Further, SG&A expense as a percentage of sales in fiscal 2015 is expected to increase by a couple of cents based on higher health care costs and marketing and IT costs.
Hibbett expects to further expand its store base in fiscal 2015 by opening about 75 to 80 new stores. Additionally, the company plans to expand nearly 10–15 high-performing stores and close about 15 to 20 stores during fiscal 2015.
Other Stocks to Consider
Currently, Hibbett carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail space include Five Below, Inc. (FIVE - Snapshot Report), Foot Locker, Inc. (FL - Snapshot Report) and American Apparel, Inc. . All of these stocks carry a Zacks Rank #2 (Buy).