Hibbett Downgraded to Strong Sell on Bleak Preliminary Sales - Analyst Blog

Zacks Investment Research downgraded Hibbett Sports Inc. ( HIBB ) to a Zacks Rank #5 (Strong Sell) on Aug 13, 2014.

Why the Downgrade?

Hibbett Sports has witnessed sharp downward estimate revisions after reporting dismal preliminary results for the second quarter of fiscal 2015. The results reflected weak comparable store sales due to lower-than-expected traffic trends as customers are still cautious with their purchases. Consequently, the sporting goods retailer provided disappointing earnings guidance for the second quarter and also curbed its expectations for fiscal 2015.

The company expects revenue for the second quarter to be nearly $194 million, marking an increase of 4.2% from $186.2 million in the prior-year quarter. However, revenue for the quarter is expected to fall short of the Zacks Consensus Estimate of $203 million. Meanwhile, comparable store sales (comps) growth is projected to be about 0.1%.

The company sees gross margin of 33.4% compared with 34.3% reported in the second quarter of fiscal 2014. The 90 basis points contraction is due to higher markdowns to get rid of the slow moving and aged 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.

Looking ahead, the company anticipates that gross margins will continue to bear the impact of higher markdowns in the near-term, though a slight moderation is expected toward the end of fiscal 2015.

Coming to earnings, the company sounded cautious about its estimated earnings for the second quarter, while it slashed its forecast for fiscal 2015, let down by the weak comps and gross margin performance. The company expects second quarter earnings per share in the range of 30-32 cents as against 40 cents earned in the prior-year quarter. The company expects to report second-quarter fiscal 2015 results on Aug 22, 2014.

For fiscal 2015, the company now anticipates 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 stood to grow in the low-to-mid single-digit range.

The Zacks Consensus Estimate for second-quarter 2015 and fiscal 2015 decreased 26.2% and 7.3%, respectively, to 31 cents and $2.68 per share over the last 7 days. For 2016 as well, most of the estimates were revised downward over the same time frame with the Zacks Consensus Estimate declining 8.2% to $3.02 per share.

Other Stocks to Consider

Not all stocks in the retail sector are performing as disappointingly as Hibbett. Other stocks worth considering in the retail sector include Skechers USA Inc. ( SKX ), Barnes & Noble Inc. ( BKS ) and Iconix Brand Group Inc. ( ICON ). While Skechers holds a Zacks Rank #1 (Strong Buy), Barnes & Noble and Iconix Brands carry a Zacks Rank #2 (Buy).

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

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

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