Dumpster Diving for a Bit of Hibbett Sports

 | Aug 16, 2017 | 12:00 PM EDT
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There's no way to sugarcoat what happened on Tuesday among retailers; it was a bloodbath. The carnage was particularly devastating within sporting goods, precipitated by Dick's (DKS) earnings miss. Second-quarter earnings came in at $0.96, 5 cents below consensus estimates.

However, the real damage was due to lowered company guidance, which pegged full-year earnings per share in the $2.80 to $3.00 range, well below the previous $3.62 consensus. Dick's punishment was a 23% drubbing.

Elsewhere, in smallville, double-net Hibbett Sports (HIBB) took its own 16.5% sympathy shellacking. That was just the tip of the iceberg for the 1082 store chain, whose shares are down nearly 70% year to date. Just three weeks ago, the company announced that second-quarter same store sales may be down as much as 10%. Since then, HIBB shares are down 43%. For perspective, HIBB made it through the 2008-2009 market debacle and never closed lower than $13.61. On Tuesday, Aug. 15, shares closed at $11.65 -- as meaningless as that comparison may be.

For what it's worth, HIBB is getting closer to net/net territory, and now trades at 1.35 times net current asset value, and 0.74 times tangible book value per share. The company ended last quarter with $75.3 million, or $3.53 per share in cash and no debt. However, there is a lot riding on second-quarter results, which are scheduled to be announced this coming Monday.

It won't be a good quarter; that, we already know. Beyond the company's dreadful same-store sales pre-announcement, consensus estimates are calling for a loss of $0.20 -- a big step down from the previous month's positive $0.15 consensus.

As ugly as the picture is, I believe that the stock's punishment might well be an overreaction; enough so, in fact, that I initiated a position in the name yesterday. You can call it dumpster diving, if you like; truthfully, the damage may not be over. Investors are so sour on the sector, that it may continue to come under pressure.

HIBB is trading at six times next year's already reduced consensus, and for such a small name, the consensus is rather large at 16 analysts.

Right or wrong, this company has one other interesting attribute: it continues to buy back shares. Shares outstanding have been reduced by more than 25% since 2011. That may look terrible at this point, given the fact that the company has bought back more than 7.0 million shares during that timeframe, at prices well above yesterday's close.

In fact, last quarter, HIBB repurchased 748,000 shares at an average cost of $29.81. I am typically a fan of the stock buyback, because it can signal confident management. In this case, they either blew it, were overconfident and poorly allocated capital, or are being overly punished. We'll find out on Monday if they went back to the well last quarter and retired more shares. If they still believe in the business, yesterday and today would be a great time to grab some additional shares. I bought in well below what management has paid for shares, and time will tell whether that was a good move.

The Amazon AMZN monster remains a big player in this tale, as it does for many retailers. Shopping trends continue to change, as does consumer behavior. The question at this point is whether there is still room for brick and mortar -- in this case, a 35-state chain that's been around since 1945 and still has aspirations to get to 1500 stores. If so, what's it all worth? The current enterprise value of just $167 million says not much.

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