Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Hibbett Heading for a Surprise

By Rich Duprey - Updated Nov 15, 2016 at 12:53AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite seemingly lowered guidance, the sporting goods retailer could surprise investors.

A short-sighted market often creates a profit opportunity.

When the masses seem to be looking at raw numbers and not the meaning behind those numbers, that can mean opportunities for individual investors to exploit. Such seems to be the case with Hibbett Sports (NASDAQ:HIBB), a sporting goods retailer that had a decent fourth quarter but seemingly warned of a difficult first quarter on the way.

Like its competitors, Big 5 Sporting Goods (NASDAQ:BGFV) (based in the northwest) and K2 (NYSE:KTO) (which has an international presence), it was unaffected by fickle weather patterns that plagued some other sports retailers.

Yet after reporting 25% sales growth and a commensurate 27% increase in earnings for the last quarter of fiscal 2007 -- yeah, we've mentioned before the oddity of Hibbett's fiscal year -- the southeast U.S.-based sporting goods company said fickle fiscal years could be a problem. It cautioned that investors should expect to see earnings below forecasts for the first quarter of 2008. Where analysts were expecting earnings of $0.41 per share on projected revenues of $145 million, Hibbett's own guidance said earnings will instead be in the range of $0.32 to $0.35 per share. As a result, the company's shares were driven down more than 8% in pre-market trading.

How is that meaningful for investors? While there does appear to be a slight weakness to the guidance, there are a couple of factors at play here. First is the fact that fiscal year 2007 had an extra selling week in it. While that obviously helped the fourth quarter's numbers, it also detracts from the next quarter's results. The shift in that one week alone is expected to impact earnings by $0.02 to $0.03 per share. It also serves to move approximately $0.02 per share of stock compensation expense out of the fourth quarter and into the first.

Those two items add $0.05 per share to Hibbett's guidance, and you now have a forecast of around $0.40 per share, which is just shy of analyst projections. So is it a little weak? Sure, but perhaps not worth the $74 million loss of market cap the pre-market trading would suggest.

Hibbett has been a fairly consistent performer, although it has experienced flagging same-store sales at times. That held it back last year, but also factors into first-quarter planning. On a fiscal-year basis, Hibbett expects a 1% to 3% decline in same-store sales. On a calendar-year basis, however, it sees a 2% increase. Same-store sales measure sales at stores open for more than a year, and while this is an important metric for the retail industry, it should not be viewed exclusive of other factors.

For that reason, Hibbett believes comparing the projected first half of 2008 with last year's first half is a more meaningful comparison than just looking at individual quarters. While management often looks to put the best face on a situation -- you can be sure if Hibbett was expecting blowout numbers next quarter they'd be trumpeting them instead of shifting the outlook -- there's at least some sense to the company's reasoning.

On a half-year basis, then, the sporting goods retailer's earnings of $0.54 to $0.57 per share compared to the $0.47 per share earned in the year-ago half, while also expecting 4% growth in comparable sales.

Hibbett had a relatively strong fourth quarter, and the first half of the year typically generates less than half of the company's revenues. Also, there are seasonal factors affecting the coming first quarter. All this makes me think the sell-off in Hibbett's stock represents an opportunity for investors.

For more on companies that peddle products for players, check out:

Subscribers to Motley Fool Stock Advisor have been good sports about enjoying their market-beating returns. A 30-day trial subscription is available to you at no cost simply by clicking here.

Fool contributor Rich Duprey owns shares of K2, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hibbett Sports, Inc. Stock Quote
Hibbett Sports, Inc.
$69.08 (-4.27%) $-3.08
Big 5 Sporting Goods Corporation Stock Quote
Big 5 Sporting Goods Corporation
$21.10 (-6.01%) $-1.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.