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Hibbett Sports: Too Early to ‘Dissect’ Trade War’s Impact

As early trading commenced Friday morning, it looked like Hibbett Sports would escape the second quarter with a modest 5 percent improvement in share price on better-than-expected losses—however, as stocks fell for apparel and footwear brands and retailers throughout the day following the latest volleys in Trump’s protracted trade war with China, the sporting goods retailer suffered as well.

In a Nutshell: In March, Hibbett Sports announced a restructuring of its business, including investments in omnichannel technologies and a plan to close 95 Hibbett stores throughout its current FY20 fiscal year. Since then, both margins and inventory levels have seen improvement and Hibbett’s digital sales have regularly increased by double digits from quarter to quarter.

Yet what could have been a strong turnaround as a result of these investments was quickly squashed once the markets opened on Friday morning. Despite opening up more than 5 percent in early trading, Hibbett Sports has fallen over 12 percent at the time of writing as U.S. apparel and footwear retailers across the board struggle with trade uncertainties.

Speaking before the stocks slumped, Jared Briskin, senior vice president and chief merchant of Hibbett Sports, said tariffs and the trade war are not yet on the retailer’s radar.

“There’s been some talk and some noise regarding next year, but I still think it’s very early to really dissect what that full impact will be,” Briskin said during the retailer’s quarterly conference call. “But for this year we’re pretty confident that there will not be much of an impact if any at all.”

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Sales: Revenue at Hibbett Sports increased by 19.6 percent in the second quarter to total $252.4 million, still below the average analyst expectation of $255.86 million in sales due to the addition of City Gear, a streetwear retailer Hibbett Sports acquired in 2018, to its sales totals. Without the addition of the $42 million earned by City Gear in Q2, the retailer’s total sales would have grown a little over 3.5 percent from the comparable period last year.

Same-store sales grew by 0.3 percent in the quarter, not including City Gear sales, and e-commerce sales represented about 8.6 percent of all sales in the quarter—also growing by 0.3 percent over the comparable period.

Hibbett said that footwear sales were up for the eighth consecutive quarter and continued to grow in the low-single digits, driven primarily by double-digit growth in women’s footwear. Of the brands that received the most attention, Hibbett said that Nike did particularly well in Q2 on the back of its Air Force One silhouettes.

However, the retailer complained of “volatility in school start dates” and said that later school starts had pushed sales from late July into August as shoppers wait “until the very last minute” to do their back-to-school shopping.

After starting the year with low expectations to feel out the effects of its transformation initiatives, Hibbett Sports has raised its full-year guidance to include a 1 percent to 2 percent increase in same-store sales, up from the previous range of 0.5 to 2 percent.

Earnings: The net loss for Hibbett Sports, as expected, was $2.4 million in the second quarter. This led to an EPS of negative 13 cents for the athletic retailer, lower than the 16-cent loss that was expected. Of that loss, 9 cents came as a result of a retirement package being prepared for the exit of current CEO and president, Jeff Rosenthal.

The retailer also raised its full-year earnings guidance, bumping expectations up from a range of $1.35-$1.50 to $1.70-$1.85.

CEO’s Take: Rosenthal, in one of his last quarters with the company, said that Hibbett Sports was being led to success by a number of strategic initiatives that were put into place at the end of his tenure.

“I am pleased with the second-quarter results. We believe our strategic initiatives are taking hold as we recorded our third consecutive quarter of positive comparable sales. Looking ahead, we expect a solid finish to the back-to-school season as well as momentum from strong product offerings in the back half of the year,” Rosenthal said in a statement.

“We are encouraged by City Gear’s early performance as they enter the second half with a strong inventory position along with the planned migration to the Hibbett digital platform. Based on the strength of the first half and our confidence in the second half, we have updated our annual guidance. As we move forward, we will continue to drive the business with our strategic focus on leading with sneakers and connecting toe-to-head concepts with active apparel and accessories.”