Opportunity Strikes! Hibbett, Inc Falls Flat On Strong Results

Key Points

• Hibbett, Inc put in a solid quarter that failed to impress analysts. 
• Short interest may help drive it to lower prices. 
• The is already undervalued and pays a healthy dividend that could begin growing soon. 

Hibbett Sports (NASDAQ: HIBB) reported a strong Q3 but strength is in the eye of the beholder. The company’s robust growth and outlook for the year is strong for investors but not so much for the analysts who had been expecting so much more. The takeaway is that strength in the market is ebbing despite the performance and the weakness could spill over into other names as well. 

Dick’s Sporting Goods (NYSE: DKS) and Foot Locker (NYSE: FL) reported much better quarters and gave better guidance but that doesn’t mean consumers will agree. So far, the 2022 holiday shopping season hasn’t been that impressive. The opportunity is that Hibbett Sports is still growing, it is still producing solid cash flow, paying its dividend and buying back shares while trading at less than 7X its earnings. With shares pulling back from recent highs the question of when to start buying the stock come to the fore. 

Hibbett Sports Fails To Impress With Strong Results 

Hibbett Sports had a good quarter in which it was able to grow revenue and earnings by double digits. The $433.16 million in revenue is up 13.5% over last year’s 15% gain driven by comp store traffic and eCommerce. Comp-store sales are up 9.9%, nearly 52% versus 2019, while eCommerce is up a stronger 22%. The bad news is that earnings missed the Marketbeat.com consensus estimate by 300 basis points and there is more bad news to come. 

The company’s margins are coming under pressure and pricing actions are not able to keep up. The company’s gross margin fell by 240 basis points and was offset only slightly by leverage-related savings. The SG&A expenses declined as a percentage of sales but not enough to offset the decline in the gross margin which left the earnings well below the consensus estimates as well. The $1.94 in GAAP EPS is up 15% from last year’s $1.68 but it missed the consensus by more than $0.50 which is what traders care about. 

Turning to the guidance, the news gets better but you have to take it on faith. The company reiterated its full-year fiscal 2023 guidance which implies quite a strong quarter in Q4. Taken at face value, the company is expecting $9.75 in GAAP earnings at the low end of its range which compares well to the consensus of $9.80. The part you have to take on faith is that earnings will top $3.00 in Q4 which may be asking a lot. $3.00 in quarterly EPS isn’t the company’s strongest quarter in history but it's close and this time around there isn’t any stimulus money to help out. And there is the inventory position to worry about as well. Inventory is up 54% YOY and 83$ YTD which has it in a precarious position relative to consumer trends of late. 

Hibbett Sports Returns Capital To Shareholders 

Hibbett Sports pays a healthy dividend that yields about 1.5% relative to the pre-release share price. That yield comes with a low payout ratio, a solid balance sheet and some expectation for growth if not a history of it. The company has only been paying a dividend for less than 2 years but at a steady quarterly pace that leaves ample room for distribution increases (as many of its competitors are known to do). The company also buys back shares and repurchased about 1.0% of the market cap or $9 million during the quarter. 

Hibbett's price action is pulling back sharply in the wake of the report and is down more than 7.0% in premarket action. This move could lead the stock down to much lower levels and the 13% short-interest will help it get there. Because shares are below $63 in premarket trading, the next best target for support is near the 150-day moving average at $58.75. What this means is a near-term downtrend could grip the market but there is evidence of strong support at lower levels. Once the market begins to bottom it will give a clear signal to buy this undervalued income stock at a deeper value and better yield.