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Strong Footwear Sales Fueled Hibbett Sports Double-Digit Same-Store Sales Growth

Despite narrowly missing earnings expectations, Hibbett Sports stock climbed nearly 15 percent following the release of its third-quarter earnings report on Friday afternoon, thanks to double-digit increases in same-store sales growth and net revenue along with an improved year-end outlook.

In a Nutshell: It was the fourth consecutive quarter of same-store sales growth at Hibbett Sports in Q3 as the retailer continued to whittle down its retail fleet, closing 19 underperforming stores in the three weeks ending Nov. 2. As of the end of Q3, Hibbett Sports operates 1,097 stores in 35 states. Non-recurring impairment and store closure charges likely affected income by about 8 to 12 cents per diluted share so far this year, Hibbett said.

Hibbett’s late-2018 acquisition of streetwear retailer City Gear played a significant role in the large increase in its net sales during the quarter. However, as a percentage of expenses, Hibbett said it would not include sales from City Gear until the fourth quarter.

Additionally, Hibbett CEO and president Jeffry O. Rosenthal said the retailer would begin offering consumers new ways to shop next year as it continues to expand its omnichannel capabilities.

“Our seventh way to shop will be buying online and shipping to our stores (BOPIS). This will be available in the first half of next year,” Rosenthal said in a quarterly conference call with Wall Street analysts. “We were also considering some technology collaborations, where we will mix-and-match ways of shopping to produce new and exciting experiences for our customers. Who knows how long this list will grow in the future. But one thing is for sure, Hibbett will be ready to help our customers however they want or will want to be served.”

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Sales: Including the addition of $43.7 million from the City Gear acquisition, Hibbett Sports recorded $275.5 million in sales, 27 percent over the comparable period last year. Wall Street expectations averaged about $260.75 million.

Same-store sales were up 10.7 percent in the quarter. Gross margin increased by 20 basis points, due to lower occupancy costs as a percentage of sales. E-commerce sales were 10.5 percent of total sales in the quarter.

Footwear was the primary driver behind the business’s successful quarter of sales, helped along by activewear and accessories that complement footwear products, Hibbett said. According to senior vice president and chief merchant Jared S. Briskin, Nike sportswear also played a vital role in the success of its merchandise in the quarter.

“Q3 was exceptionally strong as a delayed back-to-school period, an impactful launch calendar and early fall apparel selling drove double-digit comp improvement. Our results have been clearly influenced by improved engagement with our consumers, investments in the footwear business, and sharp focus on connecting our other categories back to footwear,” Briskin explained.

“Nike sportswear was exceptionally strong during the quarter, led by Air Force 1 and numerous Max Air franchises. A strong launch calendar on Jordan Retro and sportswear also led to significant gains,” Briskin added. “Adidas business was driven by Yeezy Ultra Boost and NMD. Strong results were also achieved by Vans, Brooks, Champion and an improvement in Under Armour footwear for back-to-school.”

Hibbett Sports expects full-year comparable sales to increase in the mid-single digits, up from its previous prediction of a low-single-digit increase.

Earnings: Hibbett recorded net income of $2.3 million for earnings per share of 13 cents in the third quarter. This was slightly below the 15 cents predicted by Wall Street but an improvement on the 8 cents and $1.5 million it earned in the comparable period last year.

The retailer now expects EPS of between $2.30 to $2.50, not excluding the impact of 75 cents to 85 cents it expects from the City Gear acquisition. This is about 15 cents higher than its previous outlook of $2.15 to $2.25.

CEO’s Take: Rosenthal said the business has continued to focus on improving online sales throughout the year, integrating City Gear into its e-commerce platform during the third quarter. It was likely Hibbett’s best quarter in more than six years, he added.

“Our 10.7 percent increase in comparable sales in the third quarter represents our strongest quarterly increase since the first quarter of fiscal 2013 and our fourth consecutive quarter with positive comparable sales. The business continues to perform very well as evidenced by the positive comparable performance in both our brick-and-mortar locations and our e‑commerce business,” Rosenthal explained. “This sales growth has been made possible by our team’s execution of our strategic focus to lead with sneakers and connect toe-to-head concepts within our apparel and team sports businesses.”