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Sporting Gains at Hibbett

05/06/2019 5:00 am EST

Focus: CONSUMER

Benj Gallander

President, Contra the Heard

Hibbett Sports (HIBB) had a strong fourth quarter and the stock soared by more than 20% the day of the earnings release, recalls Benj Gallander, value investor and editor of Contra the Heard.

The results were a pleasant surprise, given the questions around the recent acquisition of City Gear and the poor results shown by competitors, including Dick’s Sporting Goods (DKS).

HIBB’s annual top line passed $1 billion for the first time in the organization’s history. EPS exceeded estimates and same-store sales grew 2% versus an expectation of zero to one1%. Online sales, which accounted for just over one-tenth of revenue, were up 60%.

The online platform was launched just over 18 months ago, and has gone from zero to $100 million. That's outstanding. The City Gear integration appears to be performing as expected, too, but it’s early days yet.

Jeff Rosenthal, who has been with HIBB for 21 years — the last nine as CEO — announced his retirement on the latest conference call. He started out in the industry selling shoes for $5 an hour.

Rosenthal will stay on the board after he is replaced. Asked about a timeline for his departure, he indicated at least six to eight months, if not longer. He stressed that he and the board want to get the transition right and that he wants to be heavily involved as a director. This sounds like solid succession planning.

The City Gear integration will be key, and will proceed in tandem with a streamlining of HIBB’s footprint. Management expects to close 95 stores while opening 10 to 15 in the coming year.

Last year, 84 closed and 32 opened. Many of these closures will take place in smaller towns, which sell predominately sporting good merchandise as opposed to footwear and athletic specialty gear.

In the next fiscal year, comparable-store sales should be flat and earnings per share are expected to meet or exceed last year's results. The share buyback will remain in place, but at a slower pace.

The story at Hibbett Sports is unfolding well. The shares remain a buy in our model portfolio at prices up to $20. Our long-term, multi-year price target is a move to the $43 to $47 range.

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