Hibbett Gets Dick's Competition

Hibbett Sports’ (HIBB - Analyst Report) second quarter results came in ahead of expectations, due in large part to the government’s stimulus checks. The management also increased its full-year EPS guidance from $0.88-$1.00 to $0.93-$1.03, which implies second half EPS of $0.44-$0.54 versus the consensus of $0.56.

The company’s sales continue to look pretty good, but that sales growth is coming at the expense of its profit margins. Compared to the second quarter of last year, its gross margin was down 40 basis points (bps) and its operating margin was down 80 bps. We continue to believe the difficult consumer spending environment will pressure the company’s results.

Retail sporting goods leader, Dick’s Sporting Goods (DKS - Snapshot Report), is expanding into smaller markets. This is a competitive threat that could negatively impact Hibbett’s results. Even though the current environment for retailers is decidedly negative, Hibbett continues to open new stores at an aggressive pace. This store growth has been masking soft sales trends and declining profit margins.

HIBB shares currently trade at 21.9x our fiscal 2009 EPS estimate and 20.2x our fiscal 2010 EPS estimate. HIBB shares trade at a premium to its industry peers and to its long-term earnings growth rate. We think this premium is ripe for a contraction. We maintain our Sell rating. Our target price is $16, which is about 16x our fiscal 2009 EPS estimate and in-line with the company’s long-term earnings growth rate.

Read the full analyst report on HIBB

Read the full analyst report on DKS