Hibbett Sports Inc. (HIBB – Free Report) is no stranger to troubles plaguing the entire sporting goods industry. The sporting goods stocks have been suffering as customers are jumping on the dot-com bandwagon, leaving lesser options for brick-and-mortar retailers. While Hibbett has recently launched e-commerce site and updated distribution centers, the company seems to have waited a bit too long for making the move. However, how much the company’s recent entry in e-commerce will help in recouping this industry trend, remains to be seen.
For now, we note that shares of Hibbett have declined 67.8% year to date, significantly wider than the industry’s demise of 15.2%. That said, let’s delve deeper and find what’s hurting this Zacks Rank #5 (Strong Sell) company’s performance lately.
Dismal Sales Surprise Trend
The company’s share price decline can primarily be attributed to its dismal sales surprise history, which reflects top-line miss in nine of the past 10 quarters. Coming to recent results, though the company posted narrower-than-expected loss per share for second-quarter fiscal 2018, both top and bottom lines compared unfavorably with the prior-year period. Sales missed estimates again, continuing with its negative surprise trend.
Moreover, comparable-store sales (comps) were a letdown, marred by sluggish traffic, softness across all categories, increased promotional activities and difficult launch compares. Further, a challenging retail environment played spoilsport.
Soft Outlook & Downtrend in Estimates
The company substantially trimmed guidance for fiscal 2018 due to the soft second-quarter results and expectations of the persistence of a tough retail environment. While the company projects soft sales through the rest of the year, it now anticipates comps decline in the mid to high-single digit range, compared with the prior guidance of negative 1% to positive 1%. Additionally, it envisions earnings for fiscal 2018 in the range of $1.25-$1.35 per share, down significantly from the previous forecast of $2.35-$2.55.
The dismal quarterly performance and an unenthusiastic guidance led to a significant decline in the Zacks Consensus Estimate in the last seven days. The Zacks Consensus Estimate for the third quarter and fiscal 2018 dipped to 22 cents per share and $1.30 per share, respectively, from 25 cents and $1.38.
In addition to the soft sales trend, Hibbett is witnessing strained margins for quite a while now. This is clear from the fact that the company has witnessed reduction in gross and operating margins in the past few quarters. Notably, its gross margin contracted 160 basis points (bps), 180 bps and 70 bps, respectively, in first-quarter fiscal 2018, and the fourth and third quarters of fiscal 2017. Similarly, operating margin fell 330 bps, 350 bps and 330 bps, in the aforementioned quarters respectively.
Coming to the recently reported second-quarter fiscal 2018, the company’s gross margin contracted 440 bps, while it reported operating loss of $5.2 million. The decline in margins was due to unfavorable impact of promotions as well as markdowns related to clearing of excess and aged inventory, along with logistics and store occupancy cost deleverage.
Looking ahead, Hibbett anticipates gross margin to contract 250-285 bps in fiscal 2018, compared with its previous guidance of 55-75 bps reduction. Gross margin in fiscal 2018 is anticipated to be hurt by increased markdowns to lower aged inventory, continuation of the highly promotional retail environment, along with persistent logistics and store occupancy deleverage due to lower comps.
Growth Strategies Look Promising
While the external environment remains challenging, Hibbett is encouraged by the progress it is making on internal initiatives, particularly the launch of its new e-commerce site. The company observes that initial results from the website launch have exceeded expectations. Further, it has successfully re-launched its loyalty program to re-engage existing customers while attracting new ones. The initial response to the refreshed loyalty program has also been positive. The fact that these initiatives were well-received by customers is evident from the acquisition of new customers, which is crucial for future growth. The company revealed that these initiatives have attracted new customers from locations where it does not have stores.
Going forward, the company anticipates its small market strategy along with the growth of omni-channel capabilities to enrich customers’ experience, consequently positioning Hibbett well for long-term growth.
However, we would like to see more pronounced growth in its top line before we become optimistic on this sporting goods retailer.
Meanwhile, investors may consider better-ranked stocks in the retail space including The Childern’s Place Inc. (PLCE – Free Report) , Five Below Inc. (FIVE – Free Report) and Sally Beauty Holdings, Inc. (SBH – Free Report) , all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Childern’s Place has gained nearly 22.4% in the past year. Moreover, it has a long-term earnings growth rate of 9%.
Five Below has gained a nearly 26% year to date. Moreover, it has a long-term earnings growth rate of 28.5%.
Sally Beauty has a long-term EPS growth rate of 5.6%. Further, the stock has improved 4.1% in the past three months.
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