Hibbett Sports Long
Who are they?
Hibbett Sports is a leading American athletic fashion retailer very similar to dick’s and Footlocker with over 1100 stores all over the United States. Some of the brands they sell include Adidas, Reebok, and New Balance however, most of their stock consists of Nike as 65% of the company's sales were generated by Nike products. The products vary from sweaters and shirts and shoes to socks. They get these products from the manufacturers themselves, allowing them to sell at affordable prices. Generally speaking, they are one of the most known athletic apparel stores in America.
Why this stock?
There were around 10 other companies that were coming out with their quarterly reports between today and tomorrow and we decided to go with Hibbett this time around. The reason behind this is that they are one of the last apparel brands to come out with their report, so based on how the previous companies did, we can get a good indication on what the report will look like. At the same time, we aren’t expecting anything over a 5% change which usually means these price changes are logical and depend on the report, making it a much safer investment.
Why long it?
When Amazon came out with their report earlier this quarter, it created a big worry among investors as the world’s largest online store had just revised their holiday sales forecast to something lower. This made many people think the same is going to be true for smaller stores and that the impacts of inflation had found their way to Christmas shopping as well. However, this ended up being only partially true as most American apparel stores had a very good quarter. We believe the same is going to be true for Hibbett tomorrow. When looking at similar brands that reported their quarter recently such as Macy’s and Dick’s, not only did they beat everything, but they also increased their forecast for the year. Something else backing up the fact that this quarter is going well for them is their EPS estimate with it being increased to 2.52 as compared to the 1.86 that they reported last quarter. This number is also higher than their last year’s EPS which is rare to see these days. We believe Black Friday also to have had a big boost on their revenue as consumers in America spent a record amount of money this year on the deals which Hibbett was definitely a part of. This along with other retailers’ reports again shows that inflation hasn’t had a big impact on Americans when it comes to holiday shopping and they aren’t holding back on anything.
Why we could be wrong
Of course, there never is a 100% way to predict the future. Something Hibbet has had that other competitor didn’t, were EPS estimates that they haven’t been able to beat for the past two quarters. Although their stock price still ended up going up, it is still creating worries. The markets have changed drastically over the last 6 months and a failed EPS beat in this market can very easily cause a drop in their stock, especially now that the holiday season is coming up. However, other than the last two quarters, the last time they missed any EPS estimates was back in 2020 which still gives them a very high chance of a beat this quarter. In addition, their EPS estimate isn’t anything crazy and they already have reported this EPS a number of times before. This makes us believe the chances of an estimate beat outweigh the chances of them failing.
Thoughts after research
After doing more research and reading what analysts had to say about this stock, I’m feeling much more confident about my statements. The stock's current pricing implies a positive macroeconomic future and ignores the company's historic underperformance. This is a very huge problem that most other companies are dealing with and it eases the investors minds knowing that Hibbett isn’t currently facing any of those issues. I believe the reason behind this is that their competitive strategy is based on store location. They concentrate their stores in underserved communities in the Southeast. For example, the company has 100 stores in Alabama but only 18 in California. According to the company, by locating its stores in underserved locations, it generates lower rent and labor costs, while facing less competition. Although this strategy is interesting, it does not provide a moat. In order to compete on the same basis, a competitor only has to open stores in the same communities.
Overall opinion
Looking at all of the evidence available and how other competitors did this quarter, we believe that Hibbett will continue the success that other retailers had in this sector and come out with a good report tomorrow. All the events are shaping up nicely for Hibbet as next week will also be Cyber Week, which again will add a boost to their revenue and could mean an upward revision on tomorrow’s report.
Market information
Ticker: HIBB
Report time: Tomorrow before the market opens
Expected EPS: $2.52
Expected revenue: $446M
Estimated movement: +5%
P/E ratio: 8.88
Market cap: 864,443,205