Hibbett Sports Inc. (HIBB - Free Report) is among the few stocks that are displaying mixed sentiments. While growth of omni-channel capabilities, renewed loyalty program and inventory management initiatives place it in an advantageous position, the company’s recent quarterly performance and soft margins trend keep us on the sidelines.
The company’s shares have declined 23.4% in the past month against the industry’s increase of 5%. The decline can be attributed to lower-than-expected earnings and sales reported in first-quarter fiscal 2019. Further, the stock declined 24.9% since reporting dismal results on May 25.
Let’s analyze the pros and cons related to this Zacks Rank #3 (Hold) stock.
Headwinds to Stock Performance
The recent decline in the stock price has clearly been caused by the dismal first-quarter fiscal 2019 results. Both earnings and sales lagged estimates in the fiscal first quarter while the top line also declined year over year. Earnings were hurt by soft margins and higher SG&A expenses, whereas sales dropped due to soft comparable store sales (comps). This marked an earnings lag after reporting four consecutive beats, though sales missed estimates after two straight quarters of positive surprises.
Notably, the company has been witnessing soft margin trend for the past few quarters, which continued in the fiscal first quarter. Higher sales of clearance merchandise and freight on e-commerce sales hurt gross margin while higher SG&A expenses took a toll on operating margin. Notably, this was the seventh straight quarter of negative gross and operating margins.
Though the company expects easier gross margin comparisons in the fiscal second quarter due to the week shift caused by the 53rd week last year, the shift is likely to impact gross margins in the fiscal third quarter.
Backed by this view, the company’s earnings estimates of 2 cents per share for the fiscal second quarter remained unchanged in the last 30 days. However, estimates for periods thereafter witnessed a decline. In the last 30 days, the company’s Zacks Consensus Estimate of $1.83 and $2.03 for fiscal 2019 and 2020 have moved south by 4 cents and 5 cents, respectively. Management continues to envision earnings per share of $1.65-$1.95 for fiscal 2019 compared with $1.71 earned in fiscal 2018.
Can Strategic Actions Offset Hurdles?
Hibbett is encouraged by the progress it is making on its internal initiatives, including improving e-commerce penetration and expanding its loyalty program. It remains focused on expanding customer base by connecting with more customers through e-commerce and selective store expansion. Notably, e-commerce sales accounted for nearly 7% of total sales in first-quarter fiscal 2019. Further, the company is encouraged with early results of its new mobile app, which has been downloaded nearly 130,000 times since the launch and is contributing to overall digital sales.
Further, the company is on track to launch the “buy online and pick-up in store” and “reserve in-store” capabilities ahead of the holiday season, which will aid in boosting traffic both in stores and online. During the reported quarter, the company continued to witness growth from the recent revamp of its loyalty program. Consequently, its reward program contributed 58% to net sales.
Moreover, the company is likely to drive traffic at stores by reinventing the e-mail program, direct mail program and in-store raffle process with the App. It expects the small market strategy, along with growth of omni-channel capabilities, to enrich customers' experience, consequently positioning Hibbett well for long-term growth.
Hibbett seems on track with store-expansion and inventory management initiatives. The company reiterated its target of growing to over 1,500 stores in underserved markets. In first-quarter fiscal 2019, it introduced seven stores, expanded four high-performing stores and shut down 18 underperforming ones. With this, the company operated 1,068 stores in 35 states as of May 5, 2018. Additionally, the company is stringently working on inventory management initiatives despite a challenging environment.
Though the company’s near-term outlook remains an impediment, the aforementioned strategies clearly profess that Hibbett still has significant growth potential in the long term. Further, a VGM Score of A and long-term earnings growth rate of 6.9% reflect growth potential attached to the stock.
Looking for More Trending Picks? Look at These
Some better-ranked stocks in the retail space are Big 5 Sporting Goods Corp. (BGFV - Free Report) , Five Below Inc. (FIVE - Free Report) and Fossil Group Inc. (FOSL - Free Report) . While Big 5 Sporting flaunts a Zacks Rank #1 (Strong Buy), Five Below and Fossil Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Big 5 Sporting has pulled off an average positive earnings surprise of 10.5% in the last four quarters. The stock has rallied 26.1% in the last three months.
Five Below, which has returned 43.6% in the last three months, has delivered an average positive earnings surprise of 16% in the trailing four quarters.
Fossil Group has long-term earnings growth rate of 5%. Further, the company’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat of 54.1%.
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