Tuesday, August 5, 1997

Hibbett Sporting Goods
(Nasdaq: HIBB)
Phone: 303-440-5220
Price (8/5/97): $22

HOW DID IT DOUBLE?

Hibbett Sporting Goods was a disappointing IPO in the fall of 1996 when, after coming public at $16 a share, it drifted down to $11 per share over the next couple of months. The first quarterly earnings report as a public company may have been the culprit. With flat year-over-year earnings per share and a drop in earnings sequentially, it was pretty uninspiring for a growth stock.

That was then, this is now. The next two earnings reports were more like it, with two estimate-beating performances. In the 4th quarter, the company reported a sales increase of 26% and EPS more than doubled. In the most recent quarter, sales increased 29% and the company reported a 43.8% increase in EPS. The stock moved up smartly and has now doubled from its January lows.

BUSINESS DESCRIPTION

Hibbett Sporting Goods is a sporting goods retailer operating principally in the southeastern U.S. under the Hibbett Sports, Sports Additions, and Sports & Co. names. It operates more than 70 stores currently and has aggressive expansion plans with 500 potential sites identified. While Sports Authority takes on major league cities, Hibbett is content to work down in the minor leagues.

The unique thing about Hibbett is its "hit 'em were they ain't" approach, taking a page from of Wal-Mart's book by targeting rural areas. Typically Hibbett places stores in the only shopping mall in counties with 250,000 or less population density. In essence, it becomes the only game in town. Most of Hibbett's stores are located in malls.

FINANCIAL FACTS

Income Statement

      12-month sales: $92.3 million
      12-month income: $3.3 million*
      12-month EPS: $0.60*
      Profit Margin: 3.5%
      Market Cap: $137.2 million
      (*Excludes extraordinary charge)

      Balance Sheet
      Cash: $2.0 million
      Current Assets: $35.4 million
      Current Liabilities: $18.2 million
      Long-term Debt: N/A

      Ratios
      Price-to-earnings: 36.7
      Price-to-sales: 1.49

HOW COULD YOU HAVE FOUND THIS DOUBLE?

There have been no press releases from Hibbett except the earnings news, and there have been no references to the company in Investor's Business Daily or on Dow Jones. This has been a quiet story.

If an investor had stumbled on Hibbett, there would have been reason for interest. The PEG at the price nadir was 0.80 and a YPEG valuation gave the stock a $23 target price. That would have been a double off of the lows.

Investors from the Southeast would have had the best shot at this stock. Anyone with a Hibbett store in the area could have seen the growth and its unique position in the marketplace. There is no substitute for local knowledge, particularly with retailing stocks.

WHERE TO FROM HERE?

Management at Hibbett is clearly focused on growth, and they are planning to open more than 25 new stores this year. They have paid off debt and are financing the new projects with current cash flow. Their strategy of finding sites with lower competitive pressures could be a successful formula.

Looking at the valuation on an earnings growth basis, the PEG is 0.70 and the YPEG valuation is $32, which implies more room on the upside. There are three analysts following the stock and all rate it a "strong buy."

The company has very aggressive growth plans. With retailing stocks, growth can be both good and bad, a lot depends on the type of store and the markets served. Wal-Mart's growth was phenomenal because it could dominate the smaller markets it entered. A retailer like PETsMART is another story -- its expansion tended to steal business from its own stores. Hibbett is taking the Wal-Mart approach, which makes it a company to watch for Foolish investors.

--Mark Weaver, MD (MWEAV@aol.com)

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