Hibbett Sports Inc.
) came up with disappointing financial results for the second
quarter of fiscal 2014 on Friday, in line with its preliminary
results announced on Aug 7. Further, the company reaffirmed its
recently lowered fiscal 2015 earnings guidance.
Though the sporting goods retailer's second-quarter earnings of 32
cents per share witnessed a 20% fall from the year-ago comparable
quarter's earnings of 40 cents per, it came at the higher end of
the company's recent cautious forecast of 30 - 32 cents per share.
Moreover, it surpassed the Zacks Consensus Estimate by a
penny. Bottom-line results for the quarter were let down by
weak comparable store sales (comps) and gross margin performance
compared to last year.
Hibbett Sports Inc - Earnings Surprise |
Highlights of the Quarter
Net sales increased 4.1% year over year to $193.9 million but fell
short of the Zacks Consensus Estimate of $196 million. Sales
results missed our estimate mainly on weak comparable store sales
due to lower-than-expected traffic trends as customers are still
cautious with their purchases as revealed in the company's
preliminary results earlier this month. Comparable-store sales for
the quarter increased 0.1%.
While the company failed to impress with its second-quarter comps
performance, it remains optimistic about the future, given the
improved traffic trends since the latter half of July, which has
continued into the back-to-school season. Currently, the company's
comps are in the low single-digit range.
Hibbett's gross profit increased a marginal 0.8% to $64.4 million
from $63.9 million in the year-ago comparable quarter. However,
gross margin contracted 110 basis points (bps) to 33.2% during the
quarter. The contraction was due to higher markdowns to get rid of
the sluggish inventory. Another factor weighing on the company's
gross margin in the second quarter is the projected increase in
store occupancy and logistics expenses, as a percentage of sales,
due to weaker comps.
During the quarter, store operating, selling and administrative
expenses increased 6.9% to $46.6 million, while as a percentage of
revenue it expanded 20 bps to 21%.
Gross margin contraction impacted the company's operating margin.
Hibbett's operating margin for the quarter contracted 200 bps to
7.1% compared with 9.1% in the year-ago quarter. In dollar
terms, operating income fell 19.4% year over year to $13.7 million.
Hibbett ended the quarter with a strong balance sheet comprising
$81.4 million in cash and cash equivalents, no outstanding debt and
full availability under its $80 million credit facility.
During the quarter, Hibbett bought back 423,263 shares for $22.5
million. As of Aug 2, 2014, Hibbett had nearly $196.4 million
remaining under its share repurchase program worth $250.0 million,
authorized on Nov 15, 2012.
During the quarter, Hibbett enhanced its store network by opening
16 new stores and expanding one high-performing store, while it
shut five stores. As a result, the company's total store count at
the quarter-end was 950 in 31 states. Square footage grew 6.4% to
5.5 million square feet as of Aug 2, 2014.
Fiscal 2015 Guidance
Following the second-quarter results, the company reiterated its
recently cut fiscal 2015 guidance that estimates earnings per share
of $2.63-$2.73 with comps growth in the low single-digit range.
Earlier, the company had projected earnings to be in the
$2.78-$2.98 per share range, while comps were expected to improve
in the low-to-mid single-digit range.
Hibbett now expects earnings per share to come in the range of
$2.75-$2.98 compared with the earlier guidance range of
$2.78-$2.96. Comps for the fiscal are still projected to rise in
the low-to-mid single digit range. The company anticipates flat to
slightly positive gross margin in the upcoming fiscal year.
Further, SG&A expense as a percentage of sales in fiscal 2015
is expected to increase by a couple of cents based on higher health
care costs and marketing and IT costs.
However, Hibbett remains on track to expand its store base in
fiscal 2015 by opening about 75 to 80 new stores.
Despite the weak quarterly results, the company remains confident
of incremental revenue contributions from its new stores, as
results in these stores have been encouraging, reflecting improved
new store productivity.
Other Stocks to Consider
Currently, Hibbett carries a Zacks Rank #5 (Strong Sell).
Better-ranked stocks in the related sector include Barnes &
Noble Inc. (
) and Jumei International Holding Limited (
), both carrying a Zacks Rank #2 (Buy). Another stock worth
considering in the broader retail space is The Men's Wearhouse Inc.
), which has a Zacks Rank #1 (Strong Buy).
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