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Factors Setting the Tone for Hibbett's (HIBB) in Q2 Earnings

Zacks Equity Research

Hibbett Sports, Inc. HIBB is slated to release second-quarter fiscal 2020 results on Aug 23, before the market opens. The company reported positive earnings surprise of 24.8% in the first quarter of fiscal 2020. This marked its second straight positive earnings surprise, with a third consecutive sales beat.

However, the company’s earnings surprise history mirrors a dismal performance, with a miss recorded in two of the last four quarters. Consequently, it has average negative earnings surprise of nearly 31.6% for the trailing four quarters.

The Zacks Consensus Estimate for the company’s loss for the fiscal second quarter is pegged at 13 cents, which was narrowed in the last 30 days from the previously estimated loss of 16 cents. Further, the estimate indicates that the company is likely to witness wider loss than a loss of 6 cents reported in the prior-year quarter. Nonetheless, the Zacks Consensus Estimate for its revenues is pegged at $271.1 million, implying an increase of 28.4% from the year-ago period’s reported figure.

Hibbett Sports, Inc. Price and EPS Surprise


Hibbett Sports, Inc. Price and EPS Surprise

Hibbett Sports, Inc. price-eps-surprise | Hibbett Sports, Inc. Quote

Let’s see how things are shaping up prior to this earnings announcement.

Factors Likely to Influence 2Q20

Hibbett is steadily gaining from its omni-channel initiatives, including store rationalization and e-commerce capabilities. The company’s internal initiatives, which cover improving e-commerce penetration and expanding loyalty program, are likely to reflect continued top-line gains in second-quarter fiscal 2020. Notably, management remains focused on expanding customer base by connecting with more customers through e-commerce and selective store expansion.

Furthermore, Hibbett is on track with store rationalization as it continues to strengthen its foothold. The company targets to grow to more than 1,500 stores in underserved markets. By focusing on increasing store productivity, management accelerated store closure plan beside reinforcing the omni-channel business. Currently, management remains on track to shut down roughly 95 Hibbett stores in fiscal 2020. In addition, the company expects 80-85 net store closures for the fiscal year.

Hibbett expects its small market strategy along with growth of omni-channel capabilities to enrich customers' experience, consequently positioning it well for long-term growth.

Driven by these positives, management raised its earnings outlook for fiscal 2020. Adjusted earnings are now envisioned to be $2.00-$2.15 per share, up from $1.80-$2.00 mentioned earlier and $1.77 reported in fiscal 2019.

However, the company issued bearish guidance for comps and gross margin. Comps are anticipated to be down 1% to up 1%, whereas it rose 2.2% in fiscal 2019. Moreover, higher SG&A expenses might hurt operating margin moving ahead.

Despite an upbeat earnings view for fiscal 2020, Hibbett expects comps to be up 0.5-2%, whereas it rose 2.2% in fiscal 2019. Including non-recurring costs, gross margin is estimated to contract 25-35 basis points (bps). These non-recurring costs are mainly related to the integration of City Gear coupled with store closure expenses. Further, adjusted gross margin is expected to decline 35-45 bps in fiscal 2020, while it expanded 50 bps in the last fiscal year.

While SG&A expenses were favorable in the fiscal first quarter, the same has been taking a toll on operating margin for the last few quarters. In fiscal 2020, SG&A expenses, as a percentage of sales, are likely to increase 10-15 bps. On an adjusted basis, SG&A expenses are expected to remain flat to down 10 bps. Additionally, higher spending toward expansion of e-commerce capabilities might result in higher costs in the near term and hurt margins.

What the Zacks Model Unveils

Our proven model does not conclusively predict that Hibbett is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Stocks with a Zacks Rank #4 or 5 (Sell-rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hibbett currently has a Zacks Rank #3 and an Earnings ESP of 0.00%. While the company’s favorable Zacks Rank increases the predictive power of Earnings ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Burlington Stores, Inc. BURL currently has an Earnings ESP of +0.35% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation TGT presently has an Earnings ESP of +1.04% and a Zacks Rank #2.

Ross Stores, Inc. ROST currently has an Earnings ESP of +1.79% and a Zacks Rank #3.

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