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Sporting goods retailer, Hibbett Sports Inc. (HIBB - Analyst Report) reported strong third quarter fiscal 2013 results, driven by a robust sales performance, an improvement in comparable store sales as well as operational efficiencies. Hibbett’s third-quarter earnings of 71 cents per share comfortably beat the Zacks Consensus Estimate of 68 cents, representing a positive surprise of 4.4%. Moreover, the company’s earnings climbed over 20% from the year-ago quarter earnings of 59 cents.

Highlights of the Quarter

Boosted by strong business from back-to-school buyers, net sales rose 9.6% year over year to $202.9 million and surpassed the Zacks Consensus Estimate of $201.0 million. Moreover, we believe that the company’s sharp focus on expanding its store network in mid-sized and smaller markets, as well as better product mix are the major factors behind this growth.

Comparable store sales (comps) witnessed an increase of 6.4%, marking the 12th consecutive quarterly increase for the retailer. Monthly comps reflect an increase of 8.5% in August, 4.3% in September and 5.3% in October. Hibbett experienced positive comps growth at all of its categories.

Driven by improved product margin along with leveraged store occupancy costs, Hibbett’s gross profit for the quarter surged 11.2% to $75.4 million from $67.8 million in the year-ago quarter. Consequently, gross margin expanded 60 basis points (bps) to 37.2% during the quarter.

During the quarter, SG&A expenses, as a percentage of revenue, declined 60 basis points year over year to 20.7% mainly due to lower store labor expenses and favorable debit card transaction fees. As a percentage of sales, depreciation and amortization leverages 22 bps from last year, due to lower costs for leasehold improvements for new stores.

A healthy gross margin, coupled with continued operational momentum, drove a 21.3% increase in operating income during the quarter. The company reported an operating income of $30.3 million compared with $25.0 million in the same period last year. Consequently, operating margin for the reported quarter improved 145 bps to 14.9% from the prior-year quarter.

Financials

Hibbett ended third quarter fiscal 2013 with a strong balance sheet, with $75.3 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.

During the quarter, the company bought back 206,729 shares for a total cost of $11.8 million. Moreover, Hibbett on November 15 also announce a new share repurchase program worth of $250.0 million to be expired on January 29, 2016.

Stores Update

During the third quarter, the company expanded its store base by opening 13 new stores and launching 4 high performing stores, while it shuttered 2 underperforming stores. As a result, the company’s total store count at the quarter-end stood at 848 in 26 states.

Fiscal 2013 Outlook Raised

Buoyed by better-than-expected results, continued sales strength along with improved cost management and margins, the company raised its expectations for fiscal 2013. The company now forecasts earnings in the range of $2.66–$2.71 per share, versus the prior guidance of $2.57–$2.67 per share. Comparable store sales for the year are expected to increase in the mid-single digit range.

Further, the company still expects to expand its stores network in fiscal 2013 by opening about 57 to 60 new stores. Additionally, the company also plans to open nearly 17 high-performing stores and seal up to 18 stores during the remainder of fiscal 2013.

Our Take

Hibbett remains focused on mid-sized and smaller markets with population sizes of 25,000 to 75,000 and offers a strategic mix of branded and localized merchandise. It serves a niche market by strategically aligning its merchandise to regional/local sporting and community interests. We believe this gives the company a competitive edge over its peers, such as Dick's Sporting Goods Inc. (DKS - Analyst Report) and Big 5 Sporting Goods Corporation (BGFV - Analyst Report).

Further, Hibbett has a healthy debt-free balance sheet with strong liquidity, comprising  $80 million available under its unsecured credit facilities. This offers Hibbett the financial flexibility to open new stores and identify new markets or locations for future expansion. Moreover, the company is focusing on increasing its operating results while creating shareholders’ value.

Currently, Hibbett holds a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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