We downgraded our long-term recommendation on
Hibbett Sports Inc
) to Neutral from Outperform on Apr 17, anticipating competitive
risk. Our recommendation is also well supported by the stock's
Zacks Rank #3 (Hold).
Why the Downgrade?
We remain apprehensive about Hibbett's growth prospects as its
competitor and leading sporting goods retailer,
Dick's Sporting Goods Inc.
), has decided to enter smaller and mid-sized markets. We believe
that Dick's strategy will not only heighten competition, but will
also pose challenges for Hibbett's retail space acquisitions.
This may increase Hibbett's store occupancy costs and operating
Moreover, Hibbett fears that Dick's recent initiative may
negatively impact its operating performance in the current
fiscal. Following this, the Zacks Consensus Estimates for fiscal
years 2014 and 2015 fell 0.7% and 2.8% to $3.00 and $3.42,
respectively in the last 60 days.
However, we still remain constructive on the stock, given
Hibbett's strong operating performance over the last several
quarters. We expect it to continue posting earnings as well as
revenue growth in the coming quarters. The company anticipates
fiscal 2014 earnings between $2.85 and $3.05 per share compared
with fiscal 2013 earnings of $2.72.
Moreover, we remain impressed by the company's store expansion
program. The company plans to augment its network by adding
approximately 65 to 70 stores during fiscal 2014. Furthermore,
Hibbett's management has already identified over 400 locations
for future stores and has ramped up its distribution center to
support over 1,200 stores from its earlier 1,000 stores. We
believe that the strategy of expanding its store base provides a
strong upside potential to the company.
Additionally, we believe that the strategy of doubling the
size of its distribution facility will bolster growth in
mid-sized and smaller markets, on which the company is
Other Stocks Worth Considering
While we prefer to remain on the sidelines on Hibbett there
are other stocks in the sporting goods retail industry that
warrant a look, such as
Big 5 Sporting Goods Corp.
). Currently, both the companies hold a Zacks Rank #1 (Strong
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