Undervalued Hibbett, Inc. Pulls Back To Support

It's Been A Game-Changing Year For Hibbett, Inc.

To say that Hibbett, Inc NASDAQ: HIBB had a game-changing year is a bit of an understatement. The company's internal efforts to grow revenues were accelerated by pandemic trends that continue to blow. Revenue growth has long since surpassed the pre-pandemic levels and looks like it will grow again in the year to come The company's guidance not only points to sustained business strength but it is also underappreciated by the market.

Hibbett, Inc. Reports A Contraction In Revenue

Hibbett, Inc. reported a small -5.1% contraction in revenue versus last year's second quarter but this is not the red flag that it could be. To start, the comp versus last year is very tough because last year saw revenue surge 75% in the wake of the pandemic shutdowns and government stimulus checks.  This year's -5.1% decline isn't alarming, it is in fact less than what the analysts were expecting. The $419.26 in consolidated revenue beat the consensus by $107.47 or nearly 3500 basis points showing just how strong this year’s earnings are.

On a comp-store basis, sales fell -6.4% with a -3.8% decline in brick-and-mortar sales compounded by a 20.4% decline in e-commerce sales. On a two-year basis, sales are up 66% driven by a 72.8% increase in comp-store sales. On a year-to-date basis, sales are up 30% versus last year and 63.4% versus 2 years ago. All very good metrics and the good news doesn’t end here.

Moving down the report, the company reported a 200 basis point improvement in gross margin over last year. The improvement in margin was driven by the higher sell-through of premium merchandise and a lower promotional environment offset by rising input costs specifically wages and shipping. Regardless, bottom-line results were very strong with the GAAP $2.86 beating the consensus by $1.86  and lead the company to raise full-year guidance.

Hibbett Raises Guidance And Improves The Value

Looking forward, the company is expecting full-year growth to run in the mid-teens with an improvement in margins versus last year. The caveat is that margins are expected to shrink versus the first half of the year due to rising cost pressures. The salient point is that EPS guidance of $11 to $11.50 is $2 above the $9.08 expected by the consensus. In our view, this also raises a question about the company's valuation. 

If Hibbett was worth the 9X earnings consensus as indicated by Marketbeat.com  before the earnings report was released then it is undervalued now. The stock is trading 8.15X EPS at the lower end of the guidance and 7.8X earnings at the high end relative to 10.7X EPS for Dick’s Sporting Goods and 8.5X earnings for Shoe Carnival. In our view, this means Hibbett Sports should be trading at least $10 to $20 or nearly 25% higher than where it is now.

The Technical Outlook: Hibbett, Inc Pulls Back To Support

Shares of Hibbett, Inc got a boost from the Q2 earnings report and FY guidance but was unable to hold the gains into the open of the session following the release. Price action sold off on fears of supply chain worries and rising cost pressures despite the company's robust performance and guidance outlook. In our view, this is providing a buying opportunity in a stock that is in an obvious uptrend. While the near-term outlook is still a little uncertain, the weekly chart shows a stock in a very strong uptrend and consolidating near the highs of the movement. Price action may move down to test support at the $80 level but we would expect to see strong support at that range. Longer-term, we see Hibbett Sports breaking out to new highs and confirming a continuation of the trend.