HOTT Hot Topic, Inc. (MM)

Sporting goods retailer, Hibbett Sports Inc. (HIBB) reported strong fourth-quarter fiscal 2013 results, driven by a robust sales performance, an improvement in comparable store sales as well as operational efficiencies. Hibbett’s fourth-quarter earnings of 73 cents per share beat the Zacks Consensus Estimate by a penny and climbed 23.7% from the year-ago quarter. The fourth quarter of fiscal 2013 includes an extra week compared with the fourth quarter of 2012.

Highlights of the Quarter

Bolstered by strong business during the holiday season, net sales of this Zacks Rank #3 (Hold) company jumped over 14.0% year over year to $217.4 million. We believe that Hibbett’s sharp focus on expanding its store network in mid-sized and smaller markets, as well as better product mix are other major factors behind this growth. However, Hibbett’s net sales remained slightly below the Zacks Consensus Estimate of $218.0 million.

Comparable store sales (comps), on a 13-week basis, witnessed an increase of 4.9%, marking the 13^th consecutive quarterly increase for the retailer. Monthly comps reflect a hike of 5.1% in November and 8.2% in December. However, due to delayed tax refunds Hibbett’s comps in January declined 3.7%, resulting in a negative impact of 1% for the quarterly comps. During the quarter, Hibbett experienced positive comps growth at all its categories.

Hibbett’s gross profit surged 15.2% to $78.5 million from $68.2 million in the year-ago comparable quarter. Gross margin expanded 35 basis points (bps) to 36.1% during the quarter. The year-over-year improvement in gross margin was primarily driven by reduced warehouse and store occupancy costs, as a percentage of sales, partially offset by lower product margin.

During the quarter, store operating, selling and administrative (SG&A) expenses, as a percentage of revenue, declined 56 bps to 20.32% from 20.88% in the comparable year-ago quarter. The year-over-year improvement in SG&A expenses was mainly due to lower store labor expenses and favorable debit card transaction fees. As a percentage of sales, Hibbett’s depreciation and amortization expenses expanded 16 bps from last year, due to lower costs for leasehold improvements for new stores.

A healthy gross margin, coupled with continued operational momentum, drove a 23.4% increase in operating income and an expansion of 108 bps in operating margin, during the quarter. The company reported an operating income of $30.9 million compared with $25.1 million in the same period last year. Operating margin for the reported quarter came at 14.22% versus 13.14% reported in the fourth quarter of fiscal 2012.

Fiscal 2013, in Brief

Hibbett’s net sales for fiscal 2013, which included an extra week compared with fiscal 2012, increased 11.8% year over year to $818.7 million and remain almost in line with the Zacks Consensus Estimate of $819.0 million. Comps on a 52-week period basis improved 6.9%. Driven by an expansion of 69 bps in gross margin, along with an improvement of 50 bps in SG&A expenses as a percentage of sales, Hibbett’s operating margin increased 140 bps to 14.17%.

Consequently, Hibbett’s earnings for the fiscal surged 26.5% to $2.72 per share compared with $2.15 reported in fiscal 2012. Moreover, earnings for the period outdid the Zacks Consensus Estimate of $2.70 per share.

Financials

Hibbett ended fiscal 2013 with a strong balance sheet with $76.9 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.

During the quarter, Hibbett bought back 203,662 shares for $11.0 million. Moreover, during fiscal 2013, the company bought back 903,794 shares by deploying $49.9 million. As of Feb 2, 2013, Hibbett has nearly $245.4 million remaining under its ongoing share repurchase program – worth of $250.0 million –authorized on Nov 15, 2012.

Stores Update

During the fourth quarter, Hibbett expanded its store base by opening 27 new stores and launching 4 high performing stores, while it shuttered 2 underperforming stores. As a result, the company’s total store count at the end of the fiscal stood at 873 in 29 states.

In fiscal 2013, the company opened 54 new stores and expanded 13 high-performing stores, while it closed 13 underperforming stores.

Fiscal 2014 Outlook

Buoyed by better-than-expected results, continued sales strength as well as improved cost management and margins, Hibbett projects fiscal 2014 earnings to come between $2.85 and $3.05 per share. Comparable store sales for the fiscal are expected to increase in the mid-single-digit range.

Further, Hibbett expects to expand its stores network in fiscal 2014 by opening about 65 to 70 new stores. Additionally, the company plans to open nearly 18 high-performing stores and close 15 to 20 stores during fiscal 2014.

Hibbett remains focused on mid-sized and smaller markets with population sizes of 25,000 to 75,000, which offer a strategic mix of branded and localized merchandise. It serves a niche market by strategically aligning its merchandise to regional/local sporting and community interests. We believe this gives Hibbett a competitive edge over its peers, such as Dick's Sporting Goods Inc. (DKS), Hot Topic Inc. (HOTT) and Big 5 Sporting Goods Corporation (BGFV).

 
BIG 5 SPORTING (BGFV): Free Stock Analysis Report
 
DICKS SPRTG GDS (DKS): Free Stock Analysis Report
 
HIBBET SPORTS (HIBB): Free Stock Analysis Report
 
HOT TOPIC INC (HOTT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research