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Yet another solid result out of the athletic footwear/sporting goods industry this morning with HIBB confirming the breadth of industry strength coming in at $0.44 vs. the Street at $0.38 and our $0.40 estimate. Here are a few callouts ahead of the 10am call: 

  • Accelerated store growth is the clear callout in Hibbett’s Q3 results. With 17 net new stores openings in Q3, the company increased its year-end outlook for net additions by 50% with only one quarter left. We suspect the majority of incremental growth is coming from existing real estate opportunities at Movie Gallery and Blockbuster locations in addition to a more aggressive approach to expand into adjacent states – added first store in South Dakota during the quarter.
  • Earnings upside was primarily driven by accelerating comp store sales of +12.5% improving sequentially on both a 1yr and 2yr basis. Similar to what we saw at DKS earlier in the week, top-line sales outperformed what management had suggested earlier in the quarter. Our read through via industry performance data suggests this strength has continued so far in Q4.
  • Margin expansion continues with gross margins up +124bps in-line with our expectations and leverage on the SG&A line (-79bps) despite higher store opening expenses better than expected. Exceeding prior peak operating margins is looking increasingly likely next year.
  • Inventories up +4% on 15% sales growth consistent with peers (FL & DKS). This is worth highlighting again as all three players are maintaining remarkable stability in the sales/inventory spread relative to what we’ve seen out of the vast majority of other retailers this quarter – positive for continued margin expansion into year-end as well.
  • Raised FY outlook:
    • Comp expectations up MSD in Q4. What’s notable is that the company would need 12%+ to keep comps flat on a sequential basis. Much like Ed Stack’s strategy at DKS, management is giving themselves a sizeable cushion in the face of potential consumer weakness. Preliminary Q4 sales will provide further color here on the call.
    • FY EPS increase to $1.63-$1.66 from $1.45-$1.55 reflects additional upside to earnings in Q4 given just over half the difference is reflected in Q3 results.

In addition to more aggressive store growth plans, it appears the company’s bet to accelerate outerwear as a percent of total sales is also helping drive accelerating top-line results. With a clear commitment to reaccelerating square footage growth already underway, not only are earnings headed higher, but so too is the company’s multiple. More to follow after the call.

HIBB: Reaccelerating Store Growth  - HIBB S 11 10

Casey Flavin