Dick's Sporting Goods Inc.'s Results Point to Opportunity in Hibbett Sports, Inc.

Dick's Sporting Goods'  (NYSE: DKS  ) first-quarter earnings report caused a 15% stock collapse, as management pointed to several macro trends that are contributing to company hardships. Thus, in looking at its quarter, we might have a better idea of what to fundamentally expect from peers Hibbett Sports (NASDAQ: HIBB  ) , Cabela's (NYSE: CAB  ) , and Big 5 Sporting Goods (NASDAQ: BGFV  ) . One in particular seems to offer investors a unique opportunity in the space. 

Two segments crush the sector
There are two core reasons that shares of Dick's were trading lower by 15% on Tuesday. The first is that the company lowered its full-year earnings-per-share outlook by $0.30 to $2.77, and the second is that the company cited weak traffic in a quarter where weather was not a factor.

Specifically, the company's total comparable sales grew just 1.5%, which fell far below its guidance for a 3% to 4% increase. The reason for this miss can be attributed to two segments: golf and hunting.

Last year, firearms and ammunition were big sellers due to regulatory concern. Therefore, sales in this segment were expected to fall in 2014; but as noted by CEO Edward Stack, "[hunting] was even weaker than expected." As for golf, its Golf Galaxy stores saw a whopping 10.4% decline in comparable sales, which was clearly unexpected.

With that said, Dick's operates the largest stores on a square foot basis, 30,600 on average; but Cabela's is close behind, and Big 5's stores are also large. Furthermore, both Big 5 and Cabela's are also major players in the golf and hunting categories, which combined might signal continued hardships for both of these companies.

One company that's least affected
If there are any strong points to take from Dick's quarter, investors might notice that excluding Golf Galaxy, comparable sales did rise 2.3%. Furthermore, total revenue increased 8.3%, which is far better than what investors have witnessed in other retailers throughout the sector during the first quarter.

Therefore, if we exclude the continued weakness in golf and hunting, Dick's quarter wasn't that bad, which leads us to believe segments like apparel and sports equipment were strong. For this reason, Hibbett Sports, although trading lower by 2% in response to Dick's quarter, might not be too fundamentally affected by problems faced by Dick's.

For one, Hibbett is not a gun or golf company but rather focuses on apparel, footwear, team sports, sports equipment, etc. These are all segments, especially footwear, where the sports-retail industry has been strong; and with Hibbett's liabilities being fewer, it might still impress Wall Street when it reports earnings on Friday and be saved from significant downside pressure.

Unlike Dick's, Hibbett is not a growth story but rather a company of efficiency and high margins. Hibbett's operating margin of 13.3% is the highest within the space; it's accomplished due to selling high-margin goods and also by operating small stores of 5,331 square feet on average that are not as vulnerable to unexpectedly soft consumer traffic, as they have smaller inventories. Hence, Hibbett might be falling lower on Tuesday for the wrong reasons, and don't be surprised to see a strong earnings report on Friday.

Final thoughts
Dick's, Cabela's, and Big 5 Sporting Goods are all largely connected in the sports-retail space, but Hibbett's business model focuses more on fitness apparel. With that said, Dick's quarter insinuates that many of the goods sold by Hibbett might be performing well, as the company still grew considerably despite the poor performance in guns and golf. Albeit, Hibbett's stock has fallen 16% in 2014, as it too suffered from weather-related weakness to start the year.

However, the last three months were expected to show a recovery; and for Hibbett in particular, Friday's quarter might very well be the beginning of a recovery, not a continued collapse, making it an intriguing value opportunity in the face of peer weakness.

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