Monday, November 14, 2011

HIBB: Think Thoughts On Hibbett Sporting Goods

HIBB: Think Thoughts On Hibbett Sporting GoodsTallahassee, FL 11/14/11 (StreetBeat) --Hibbett Sporting Goods, Inc. (Nasdaq: HIBB) entered FY3Q with strong momentum, according to the company, and we believe that full-quarter results will reflect a consistent and healthy pace of sales. The athletic footwear and apparel cycle continues to exhibit good momentum, thanks to new technologies, such as light-weight running shoes, and products. In addition, we believe Hibbett has made substantial progress managing its inventories and merchandise allocation. We anticipate that these, and other measures such as the deployment of price optimization tools, will support consistent, and strong growth. We also view Hibbett as a growth retailer generating high returns on capital.

KEY POINTS:
- On Friday morning, Hibbett Sports is scheduled to report financial results for its FY3Q (October) followed by a 10:00 am EST conference call. We estimate that EPS grew 23% in the quarter to $0.54 from $0.44

- We estimate that sales increased 8.6% in FY3Q to $181.8 million, including a 5% improvement on a same-store basis. Hibbett started the quarter on a strong note, according to management comments on the FY2Q earnings conference call. The company noted that a later back-to-school start in a number of markets pushed some sales from July into August resulting in a 7% comp increase during the first 19 days of FY3Q. With a plethora of new footwear styles and colors attracting consumers, we look for continued strong sales at Hibbett for the duration of FY11 and FY12.

- We estimate the gross margin increased 72 basis points in FY3Q to 36.00%. We assume that improvements in the merchandise margin accounted for a majority of this increase with warehouse and occupancy expense leverage making up th remainder. We believe the deployment of E3, the merchandise planning and allocation software tool, has resulted in a more effective merchandise mix at each store as well as a better balance of product. We expect that these improvements have resulted in less product marked down for clearance and, hence, higher gross profit margins (see Exhibits 1 and 2).

- We are modeling a slight decrease in the core expense ratio. Following a large reduction last year, we are currently expecting the store operating, selling & administrative expense ratio to decline by 7bps to 21.20% as the benefits from the 5% comp we are expecting are partially offset by investments in systems. Depreciation expenses, however, are likely to show a 14bps drop as a percent of sales reflecting the modest pace of store openings and increase in landlord construction allowances.

- We believe that Hibbett remained debt free in FY3Q while continuing to repurchase its stock. The company is likely to generate cash from operations well in excess of its capital spending plans ($72 million versus $12 million, in our estimation) in FY11. We also assume Hibbett will repurchase $50 million shares of its stock this year.

COMPANY DESCRIPTION:
Hibbett Sporting Goods, Inc. is a rapidly growing operator of sporting goods stores in small- to medium-sized markets in the Southeast, Southwest, Mid-Atlantic, and lower Midwest regions of the United States. As of July 30, Hibbett operated 802 Hibbett Sports stores, 18 smaller-format Sports Additions athletic shoe stores, and 4 larger-format Sports & Co. superstores in 26 states. Hibbett's primary format and growth vehicle--a 5,000-square-foot Hibbett Sports store--is mainly located in strip centers (about 80% of the store base). The remainder of the units is in enclosed malls.

Hibbett was originally organized in 1945 as Dixie Supply Company, a marine and small aircraft business. In 1951, the company started targeting school athletic programs in North Alabama, and in 1960, it sold the marine operation. The company went public in October 1996 with 79 stores, adopted its current name, and began a period of rapid expansion.

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