When it comes to the highly fragmented world of sporting goods, where the five largest players sport a combined 10% market share, it pays to have a well-defined strategy. At this point, the game is still largely played on a regional basis. Sure, there are nationwide common denominators in the form of Wal-Mart (NYSE:WMT), or even eBay (NASDAQ:EBAY), but the specialty retailers are more geographically concentrated.
Fans out West, for example, like to visit The Sports Authority (NYSE:TSA), while Dick's Sporting Goods (NYSE:DKS) has built a firm foothold in the East. But the Southeast, my neck of the woods, is Hibbett Sporting Goods (NASDAQ:HIBB) country. Hibbett doesn't carry the name-brand recognition of its larger siblings, but a few more quarters like the one just completed will go a long way toward rectifying that. The stock has had quite a run over the past year, too. That should also continue to spark interest in the firm.
The Birmingham, Ala.-based company has targeted small to mid-sized markets in the Southeast and operates over 430 stores located in malls and strip centers. Carving out that particular niche continues to pay off for Hibbett, which last week reported a 47.8% jump in first-quarter earnings to $0.34 per share from $0.23 the year before. The addition of eight new stores helped drive revenue growth of 21.3% to $96.5 million. In the firm's press release, President and CEO Mickey Newsome said that "... operating results continue to reflect the benefits of our small market strategy."
Sales growth in apparel, footwear, and team equipment helped push comps 8.8% higher for the quarter. The company managed to cut selling, general, and administrative expenses by a full point and reduce markdowns, expanding operating margins to a record 13.2%. Management likes what it sees and raised fiscal 2005 guidance, forecasting comps in the 5% to 6% range and full-year EPS of $1.06 to $1.09.
Though current growth rates will be difficult to sustain, and margins cannot march ever higher, Hibbett is thriving. For a company with increasing margins, no long-term debt, a return on assets and a return on equity well above industry averages, and 10 consecutive years of earnings growth, a forward multiple of 22 seems reasonable.
Furthermore, ambitious expansion plans are calling for another 65 locations to open this year, which should only enhance operational leverage and generate additional top-line growth. Intense competition precludes the stock from being a slam dunk, but it is still all-star caliber.
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Fool contributor Nathan Slaughter is an avowed devotee of the Southeastern Conference (SEC) and anxiously awaits another LSU triumph in the upcoming College World Series. He owns none of the shares mentioned.
