Hibbett, Inc. (HIBB Quick QuoteHIBB - Free Report) has been gaining from favorable sales trends for the back-to-school shopping season, the solid e-commerce business, and store expansion and inventory-management initiatives. The company also witnessed growth from the pre-pandemic levels in second-quarter fiscal 2023.

Sales advanced 55.6% from second-quarter fiscal 2020. Comparable store sales (comps) rose 54.4% and in-store comps grew 42% on a three-year basis. Also, gross margins were above the pre-pandemic levels.

Consequently, this Zacks Rank #2 (Buy) stock has gained 27.8% in the past three months against the industry’s decline of 4.3%.

Image Source: Zacks Investment Research

That said, let’s delve into other factors driving the stock.

Growth Drivers

Hibbett’s progress on the e-commerce front, driven by expanded digital capabilities and the expansion of the loyalty program, bodes well. Some of its omni-channel capabilities include home delivery, buy online and pick-up in store, reserve online and pick-up in store, buy online ship to store facility, same-day delivery, and mobile app services to fulfill online orders and serve customers.

The company witnessed a strong online show in second-quarter fiscal 2023, with year-over-year e-commerce sales growth of 8.3%, driven by better inventory, robust traffic across its website and app, and improved digital customer experience. The metric rose 174.4% on a three-year basis. It accounted for 15.2% of the total sales, up from 13.1% in the prior-year quarter. Going into fiscal 2023, e-commerce comps are expected to grow in the mid-single digits.

Hibbett remains on track with its small market strategy, as it continues to strengthen its presence across the country. It targets expansion in markets with increased growth potential. The company has a target of growing to more than 1,500 stores in underserved markets. In second-quarter fiscal 2023, the company opened 13 stores and shut down one underperforming outlet.

Driven by these factors, management raised the guidance for comparable sales for fiscal 2023. For the second half of fiscal 2023, the company anticipates comparable sales growth in positive low-double digits versus positive high-single-digit growth stated earlier. For fiscal 2023, it expects comparable sales to be between flat and positive low-single digits from the earlier mentioned negative low-single digits.

Hibbett expects net sales to increase in the low-single-digit range for fiscal 2023. It expects sales growth on a year-over-year basis for the third and fourth quarters, which will likely result in a return to better leverage of fixed costs.

Headwinds to Overcome

Despite the upsides, HIBB’s earnings and sales missed the Zacks Consensus Estimate and declined year over year in second-quarter fiscal 2023. This mainly resulted from lower average product margins, and higher freight and transportation costs. The downsides also dented margins in the said quarter.

The gross margin contracted 460 basis points (bps) to 34.4%, while the operating margin contracted 630 bps to 8.4%. Store operating, selling and administrative (SG&A) expenses, as a percentage of sales, expanded nearly 100 bps to 23.3% due to lower sales and higher expenses in categories like wages, employee benefits, repairs and maintenance.

The fiscal 2023 gross margin is envisioned to contract 290-310 basis points year over year, with the metric likely to be 35.1-35.3%. SG&A, as a percent of net sales, is estimated to rise 10-20 bps year over year due to wage inflation, higher costs related to growth in e-commerce, a larger store count and back-office infrastructure investments in fiscal 2022.

The operating margin is predicted to be in the low-double-digit range and is likely to remain above the pre-pandemic level. Earnings are anticipated to be $9.75-$10.50 per share, whereas it posted $11.19 last year.

Hibbett expects to witness supply-chain disruptions in the coming days, which might lead to higher freight expenses. The company also predicts elevated shipping costs and deleverage from store occupancy costs.

Bottom Line

Although supply-chain woes and rising costs remain concerning, we hope that solid demand and online strength will aid the stock and help drive growth. Notably, HIBB’s earnings estimates for the current financial year have increased 1.5% to $9.77 over the past 60 days. Topping it, a long-term earnings growth rate of 3.7% reflects its inherent strength.

Other Stocks to Consider

Here are three other top-ranked stocks to consider — Kroger (KR Quick QuoteKR - Free Report) , DICK’S Sporting Goods (DKS Quick QuoteDKS - Free Report) and Ulta Beauty (ULTA Quick QuoteULTA - Free Report) .

Ulta Beauty, which operates as a retailer of beauty products, currently sports a Zacks Rank #1 (Strong Buy). ULTA has a trailing four-quarter earnings surprise of 32.8%, on average. ULTA has an expected EPS growth rate of 11.9% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 13.7% from the year-ago reported number.

Kroger, a renowned grocery retailer, currently carries a Zacks Rank #2. KR has an expected EPS growth rate of 11.7% for three to five years.

The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.8% and 9.8%, respectively, from the year-ago reported figure. KR has a trailing four-quarter earnings surprise of 15.7%, on average.

DICK'S Sporting, a sporting goods retailer, currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of nearly 21.4%, on average.

The Zacks Consensus Estimate for DICK'S Sporting’s current financial year’s revenues and EPS suggests a decline of 3.2% and 27.3%, respectively, from the year-ago reported figure. DKS has an expected EPS growth rate of 5% for three to five years.