This Sporting Goods Retailer’s Rebound Looks Set to Continue

A weak guidance leads many investors to sell in panic under the belief that the company in question is not going to do well. However, this tendency can also translate into missed opportunities, and this is perhaps best exemplified by the case of Hibbett Sports (NASDAQ: HIBB  ) . Hibbett rose around 20% after a sell off post the second quarter results, bouncing back in style. Let's take a look at Hibbett's third-quarter results and see how it fared as compared to peers such as Dick's Sporting Goods (NYSE: DKS  ) and Big 5 Sporting Goods (NASDAQ: BGFV  ) in the outdoor recreation market in the U.S.

Hibbett's impressive results
Hibbett Sports came up with strong third-quarter results. Comparable-store sales, or comps, for the quarter increased 4.8%. Average ticket was up in the mid-single digits and traffic was slightly positive during the quarter. On the back of positive comps and other factors such as an increase in average ticket and traffic, the company reported revenue gains of 2.5% versus the comparable quarter a year earlier to $208 million .

Hibbett Sports' promotional activity during the quarter paid off. But as a result of this and markdowns on inventory, gross margin contracted from 37.2% to 36.8%. In addition, selling and administrative expenses as a percentage of revenue expanded 120 basis points to 21.9%, primarily due to higher salaries and benefits.

Despite the increase in costs, the company reported estimate-beating earnings of $0.66 per share. Also, for fiscal 2014, Hibbett narrowed its earnings per share guidance range from $2.65–$2.77 to $2.68–$2.77, increasing the lower end of the expectation.

As a part of its drive to improve the bottom line, Hibbett bought back 134,406 shares for $7.1 million. The company has about $230.9 million remaining under its share repurchase program. Going forward, further buy backs will bolster the bottom line and it goes to show that the management team is investor friendly.

Driving growth
One notable point is that new stores opened last year and this year are performing more than 20% above expectations as a result of improvements in information technology, which has resulted in getting the correct merchandise in the new stores based on geographic and demographic needs when the new store opens.

Going forward, Hibbett forecasts that over the next 18 months, it will grow to a size of 1,000 stores and finally to 1,500 stores in the long term. During the current fiscal year, Hibbett still expects to expand its store network by opening about 72 to 75 new stores. The company has already identified more than 500 additional new store opportunities.

Dick's is also a good option
Dick's Sporting Goods, on the other hand, is a much larger enterprise as compared to Hibbett based on market cap, but Hibbett is the leader in terms of revenue growth in the past five years as shown in the chart below.

HIBB Revenue (TTM) Chart

HIBB Revenue (TTM) data by YCharts

The company operates 552 Dick's Sporting Goods stores, with 29.9 million square feet of retail space as at the end of the third quarter. Dick's revenue grew 6.7% in the previous quarter versus the same quarter a year ago. Growth was fueled by new store openings and also due to a 3.3% increase in comps.

Dick's Sporting Goods' e-commerce sales constituted about 6.5% of revenue in the third quarter. Also, in order to expand its product offerings at various price points, Dick's recently inked a deal to serve as the exclusive eCommerce provider of licensed merchandise and sporting goods for ESPN's online fan shop. This will further bolster e-commerce sales as a percentage of total revenue.

As compared to this, Hibbett is still not sure what path to take as far as e-commerce integration to its operations is concerned. Hibbett, in all probability, could start thinking of planning on e-commerce as a sales channel once the new wholesale and logistics facility is completed. In my opinion, Hibbett is missing out on huge opportunities presented by e-commerce as a sales channel going by Dick's Sporting's results.

What about Big 5?
A look at the five year revenue growth chart shows that Big 5 is a clear laggard, outperformed by both peers by a factor of more than three. However, Big 5 posted strong third-quarter results, highlighted by a 15.4% increase in adjusted earnings of $0.45 per share. The increase in earnings was on the back of sales growth and improved margins. It reported 2.9% growth in revenue to $251.8 million in the previous quarter.

Going forward, Big 5 expects fourth-quarter comps growth in low single digits. In addition, Big 5 also anticipates earnings for the quarter to be in the range of $0.20-$0.28 per share. The earnings guidance for the fourth quarter includes a charge of approximately $0.02 per share related to the development of an e-Commerce platform. So, Big 5 would be ahead of Hibbett as far as e-commerce initiatives are concerned and this can be a good growth driver going forward.

Bottom line
Hibbett has performed really well. Looking ahead, the company is looking to grow its store count substantially. However, the only sore point is that it is lacking in the e-commerce channel. Once Hibbett adopts e-commerce, the company should continue to outperform both Dick's and Big 5. Hibbett has gained almost 30% this year, but if its growth plans materialize, it can go even higher.


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