Hibbett's Hiccup Not an Issue, but Is It a Buy?

For the big-box sports retailers, the recently ended quarter has yielded few positive notes. Management is citing the gamut of reasons, from unfavorable weather to lower in-store traffic, but the story is likely the same as for all of retail: limited consumer confidence and, thus, spending. This can be a good thing for investors, as a great retailer will likely rebound strongly in better times while the stock is temporarily discounted based on non-company-specific factors. Hibbett Sports (NASDAQ: HIBB  ) may be a prime example. The company saw softer sales, similar to its competitors and its industry, but still managed to beat estimates and remains a strong player in the sporting goods sector. Should you buy the recently discounted Hibbett?

Earnings recap 
Shares cascaded down double digits as Hibbett Sports reported its second-quarter earnings and guidance for the remainder of the year. Headline numbers actually weren't bad, with revenue climbing 13% to $186.2 million and bottom-line earnings up an impressive 33% to $0.40 per share, beating analyst estimates. What killed the stock was guidance: Management changed its fiscal 2014 EPS guidance from $2.85-$3.05 to $2.65-$2.77.

The back-to-school season is typically a boon time for all retailers, especially sporting goods companies, but the catalyst seemed to have fallen flat this year and the retailers are suffering for it.

The good thing is, as mentioned, this is not so much a company-specific problem as it is a macro issue. This means that even the good, long-term buys are getting punished in line with the poorer performers in the space. Financial news publication Barron's finds Hibbett to be an industry outperformer, with a strong management team and a still-appealing growth platform that will boost performance down the line despite fiscal 2014 guidance adjustments.

Hibbett is a growing business, with management planning to open 70 to 75 new stores throughout 2014 and a continued acceleration in 2015. The company currently has a little fewer than 900 stores in small and mid-size markets across the country, so the new stores over the next year or so represent a 7% to 8% expansion. Hibbett's same-store sales growth had been appealing prior to this quarter, and its management are sound merchandisers.

Things will improve over time, as the macro environment does, for Hibbett, but what about the stock's value?

Valuation 
For a retailer, Hibbett does trade on the pricier side, at 18.7 times the high end of the new 2014 guidance. If all goes well and the company can regain momentum in subsequent years, earnings of $3.05 to $3.15 implies a still-rich valuation of 16.9 to 16.45 times. Larger competitor Dick's Sporting Goods does not have the same growth runway that Hibbett does, but trades more attractively at less than 15 times forward earnings.

Hibbett is a strong operation with compelling growth prospects, but even with its precipitous drop in stock price, the company remains pricey compared to others. If further stock price fallout continues throughout 2013, though, it may be worth revisiting.

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