Hibbett Sports Has Small Town Shoppers Running Light

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You don't have to live in a big city to buy cool running shoes.

In small and midsize towns across some 26 states,Hibbett Sports ( HIBB ) fills a void that evenWal-Mart ( WMT ) can't satisfy: the latest color-splashed, lightweight running shoes fromNike ( NKE ), Adidas and other sneaker brands.

And let's not forget high-tech performance apparel fromUnder Armour ( UA ).

"We go to small, isolated markets," said Hibbett Chief Executive Jeffry Rosenthal in a phone interview.

Typical Hibbett markets include Selma, Ala.; Pine Bluff, Ark.; Jesup, Ga.; Hazard, Ky.; and Paris, Texas.

Birmingham, Ala.-based Hibbett operates 835 stores, mostly in the Southeast and Texas.

They're small stores, averaging only 5,000 square feet. They're typically set in a strip center in the shadow of Wal-Mart to feed off the giant retailer's traffic.

"We like to be near them. In small towns, they are the centers of commerce," Rosenthal said. "We don't carry the same products."

Hibbett has been enjoying a free ride on a rising industry tide as well: the surge in athletic footwear and apparel the last two years.

High-Tech Shoes

Innovations such as lightweight running shoes and high-tech performance fabrics have sparked consumer demand. And bright colors have lately been a factor in running shoes' popularity as fashion items.

Hibbett has posted 10 straight quarters of same-store sales gains, the most recent rising more than 11%.

"The key to Hibbett's strategy is being the only game in town outside the Internet," said analyst Jonathan Grassi of Longbow Research.

Except for a small slice of affiliate revenue, Hibbett doesn't generate e-commerce revenue itself. But Rosenthal says the firm is laying the groundwork with new infrastructure, including a new and bigger distribution center, which will also support new-store growth.

"In the next 18 to 24 months, we'll have our e-commerce strategy," he promised.

Meanwhile, Hibbett had done fine without one. Profit has grown in double digits for 11 straight quarters and is expected to keep up the pace the next two years. First-quarter earnings grew 29% over the earlier year to 98 cents a share.

Analysts polled by Thomson Reuters see earnings rising 23% in the current fiscal year ending in January, to $2.65 a share.

Next year's profit is seen going up another 18% as the company benefits from new information-system programs that take effect. They include inventory management, pricing optimization and labor scheduling.

Operating income has already doubled since 2009, to $93.5 million in fiscal 2012.

Sterne Agee analyst Sam Poser cites Hibbett as "the best growth story in our coverage," and a company that "does not rest on its laurels."

Companies in his coverage include athletic footwear and apparel outfits such asDick's Sporting Goods ( DKS ),Foot Locker (FL),Finish Line (FINL) andCabela's (CAB), among six others.

Compared to Hibbett, Dick's is a giant with stores 10 times its size.

"We do not view Dick's as a threat as they rarely enter small markets, and if they do, Hibbett tends to get back on track within two years," Poser wrote in a client report.

Grassi says that 25% of Hibbett stores have a Dick's store within five miles.

Hibbett customers are far from affluent. But they don't' seem to balk at relatively high prices, either.

"Most of our customers are paycheck to paycheck," Rosenthal said. "But moms still spend money on their kids when it comes to sports and back to school no matter what the economy is like."

Hibbett's culture of customer service attracts "soccer moms" buying for their kids, Grassi says.

Consumers haven't shown much resistance to price increases in footwear and apparel, Grassi says. That's because products come with some form of innovation.

In addition to Nike's line of featherweight running shoes, Under Armour's new $100 Spine running shoe is expected to spark sales as they roll out in Hibbett stores through the summer and fall.

Rosenthal told at least one analyst that initial Spine sales were strong.

It's not all about running shoes. Last year, Hibbett stores were overrun when the new Air Jordan Retro II men's basketball shoe came out, priced at around $180.

Hibbett also caters to hometown tastes, stocking all manner of products geared to local team sports, including college football.

"We look at customers' needs and wants and adjust assortments to a particular demographic," said Rosenthal.

NFL Apparel

Hibbett could soon get a boost in its already strong business selling NFL apparel in the wake of Nike's new licensing deal with professional football. Nike recently took over from Adidas' Reebok.

"Nike has a freshness that should drive demand," Grassi said.

A bump in sales from NFL merchandise should start showing in August and September as the NFL season kicks into gear, with the bulk of the spike in coming months, he says.

About 80% of Hibbett's sales come from footwear and apparel with the rest from sporting equipment and accessories.

Sales of accessories, including socks, were up in the "mid teens" in the last quarter, Grassi says. "High-priced socks from Under Armour and Nike" were hot sellers, he said.

Hibbett's store base hasn't yet peaked, Rosenthal says.

"We still have a lot of growth ahead of us," he said, adding that the concept can accommodate up to 1,300 stores across the U.S.

But growth has slowed since 2009 as commercial real estate construction lost steam, putting a crimp in potential new store locations. But Rosenthal says square footage should grow 5% this year. That's a slight increase from the 3% to 4% growth the last two years.

"New-store construction is still tight, but it seems to be getting a little bit better," he said. "As soon as (construction) opens we'll grow faster."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: DKS , HIBB , NKE , UA , WMT

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