Hibbett (HIBB) Is Running Up The Score Today, But Its Future Is Clouded With Unfavorable Comparisons
5:25 pm Monday, December 06th, 2021
Hibbett (NASDAQ:HIBB) is running up the score today after Baird upgraded the stock to Outperform from Neutral. The sporting goods retailer, which mainly sells footwear, apparel, and light sporting equipment, has had its shares reach new heights over the past year as the pandemic’s impact on work and leisure bolstered enthusiasm for outdoor activities and demand for athletic wear. However, shares have cooled off significantly over the past couple of weeks, falling ~25%. Factoring in the most recent dip, the stock now trades at an attractive valuation of 6.3x FY22 earnings, putting it nearly in-line with its competitors Dick’s Sporting Goods (DKS, 7.3x), Academy Sports & Outdoors (ASO, 6.6x), and Big 5 Sporting Goods (BGFV, 6.7x).
The company’s clustered expansion strategy, through which it focuses on opening new stores close to existing stores, has been a huge plus amid the current supply-constrained environment. Because it has multiple locations in close proximity, HIBB can take advantage of efficiencies in logistics. It also helps in building a better understanding of the local sports market. The storefronts are also relatively small, averaging just 5,800 sq. ft. (DKS’s storefronts average nearly 50,000 sq. ft.), which aids the company’s efforts to focus on high demand products and maintain a healthy stock.
Those strategies have thus far been enormously successful. Quarterly revenue growth for the two years leading up to the pandemic averaged around 12% yr/yr, and growth has more than doubled to over 24% for the past eight quarters. Furthermore, in FY21, HIBB has grown quarterly sales by an average of 32.6% yr/yr. Same-store sales have also been robust, growing +87.3% in Q1 (Apr), only falling -6.4% in Q2 (Jul) while lapping +79.2% growth from the year-ago period, and increasing +13.0% in Q3 (Oct). HIBB is also expected to end FY21 with annual comps in the high teens after already achieving robust FY20 comps of +22.2%.
However, after reporting such substantial numbers over the past two years, HIBB is going into 2022 facing incredibly challenging comparisons. Even as consumers shift their tastes toward engaging in more outdoor activities and as remote work helps prop up athletic wear, HIBB will no longer have a major catalyst in the form of a strong recovery in team sports and school reopenings.
In addition, sporting goods retailers’ shares are being heavily shorted. Short interest in HIBB is around 26% of its float shares, somewhat similar to DKS at 16%, ASO at 23%, and BGFV at 33%. This has fostered fairly volatile conditions for the stock, which could also lead to a large sell-off if future earnings reports fail to meet expectations.
Bottom line, skies are sunny for HIBB today after it was upgraded to Outperform, but its future is a little cloudier. With the robust back-to-school season and excellent recovery in team sports, which helped boost HIBB’s bottom line in Q3, mostly in the rear-view mirror, HIBB’s future growth relies on secular trends in outdoor activity and athletic wear. Although we remain bullish on the continuation of those trends in 2022, HIBB is facing difficult comparisons, and the trends may not be enough to tackle such giant numbers. As such, we think it may be better to wait on a further pullback before entering this stock.
