Is this a momentary slip or a permanent injury for Hibbett Sports (Nasdaq: HIBB)? Although investors didn't take too kindly to the latest earnings report -- the share price fell by as much as 2.7% this morning -- I'm betting on the former.
I see plenty to like. Earnings rose 25%, to $0.15 a share. Buybacks helped the per-share figure, but net income still grew by a very respectable 16%. Same-store sales, meanwhile, increased 2.6%.
Earlier this month, however, the company warned that per-share results would fall below its $0.20-$0.24 expectations. It attributed the weaker results to declining sales at its urban stores and an overall softness in consumer shopping.
Unlike competitors such as Dick's Sporting Goods (NYSE: DKS), Hibbett operates high-end stores in small marketplaces. It focuses on local merchandise and sports very high margins, which grew further in the quarter: Gross and operating margins expanded by 50 and 60 basis points, to 32.8% and 6.8%, respectively. By comparison, Big Five Sporting Goods (Nasdaq: BGFV) recorded an operating margin in its latest quarter of just 5.2%.
The company's focus on local markets has served it well in the past. Here is a company that actually welcomes the addition of a Wal-Mart (NYSE: WMT) to a community, since the megaretailer helps draw the crowds to the shopping centers where Hibbett has its own stores.
The third quarter is looking brighter for the company. Although the period has just begun, Hibbett has already seen positive results from its back-to-school efforts, and comps have increased by the mid-single-digits. For the year, earnings are now expected to come in at $1.07-$1.20 a share, down from $1.30-$1.35.
Just as shoppers looking for high-end merchandise can stop by Hibbett and pick up a few quality items, investors may want to use dips in the stock price to do the same.
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Fool contributor Lawrence Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. He doesn't have any positions in the companies mentioned.
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