Is Hibbett Sports Stock an Opportunity After the Selloff?

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Hibbett Sports Inc. (NYSE:HIBB) is a lesser-known competitor to Dick’s Sporting Goods (NYSE:DKS). It operates sporting goods stores in small- to mid-size markets, predominately in the South, Southwest, Mid-Atlantic, and Midwest regions of the United States. The company’s stores offer a range of merchandise, including athletic footwear, team sports equipment, athletic and fashion apparel, and related accessories. As of February 1, it operated 927 stores consisting of 910 Hibbett Sports stores and 17 Sports Additions athletic shoe stores in 31 states. The company, through its subsidiary, Hibbett Team Sales Inc., also sells its merchandise directly to educational institutions and youth associations. Its stock has been pressured of late, trading right along its 52-week low of $50.67. Is this selloff an opportunity or a value trap?

Net sales were up in the most recent quarter, so performance-wise it is doing well. Sales increased 9.1 percent to $261.9 million for the 13-week period ended May 3, 2014, compared with $240 million for the 13-week period ended May 4, 2013. Comparable-store sales increased 4.1 percent. Gross profit dipped very slightly. It saw 37.5 percent of net sales for the 13-week period ended May 3, 2014, compared with 37.9 percent for the 13-week period ended May 4, 2013. Store operating, selling, and administrative expenses were 18.7 percent of net sales, a slight decline compared with 18.8 percent of net sales a year ago. Net income was also up. Net income was $28.4 million compared with $26.2 million a year ago. And finally, earnings per diluted share were up to $1.09 compared with $1 for the year-ago quarter.

Jeff Rosenthal, president and CEO, said: “We were pleased with sales during the first quarter, which were driven by strong demand in our core footwear and brand focused apparel businesses. In addition, we opened a record number of new stores and fully converted operations to our new wholesale and logistics facility. Looking forward, the continued success of new stores and the efficiencies of our new wholesale and logistics facility will be a catalyst for sustained, profitable growth for the company. Our team is focused on the execution of our strategic priorities and delivering sound results for our shareholders. We are confident that we can achieve the financial and operational goals for Fiscal 2015 and beyond. For the quarter, we opened 16 new stores, expanded 4 high performing stores and closed 4 underperforming stores, bringing the store base to 939 in 31 states as of May 3, 2014.”

The company has cash. It ended the quarter with $110.3 million of available cash and cash equivalents on the consolidated balance sheet, no bank debt outstanding, and full availability under its $80 million unsecured credit facilities. Further improving the outlook for the company was that during the first quarter the firm repurchased 198,000 shares of common stock for a total expenditure of $10.8 million. This leaves approximately $218.8 million of the board repurchase authorization remaining for future stock repurchases.

Looking ahead, the company expects to see earnings per diluted share in the range of $2.78 to $2.98 for 2015. This will be a result of an increase in comparable store sales in the low- to mid-single-digit range and the opening of approximately 75 to 80 new stores and 10 to 15 expansions. The company will close 15 to 20 failing stores. The company also sees elevated expensed in fiscal 2015 related to the store activities.

The company is well managed. Sales and revenues are up, new stores are opening, and inventory is maintained. The company has a strong balance sheet and no debt. Gross profit dipped ever so slightly, but this fluctuates quarter to quarter. Given the decent outlook for 2015, I think the stock is on sale at its current levels, provided the company can execute on its expansion plans.

Disclosure: Christopher F. Davis holds no position in any stock mentioned and has no plans to initiate a position in the next 72 hours. He has a Buy rating on Hibbett Sports and a $58 price target.