Short Sellers Provide Entry Into Hibbet, Inc At Rock Bottom Prices Hibbet, Inc (NASDAQ: HIBB) shares are pulling back nearly 10% in premarket action after what we consider to be a rosy report. While the Q1 results are mixed and earnings...

HIbbet, Inc Pulls Back Despite Rosy Outlook

Hibbet, Inc (NASDAQ: HIBB) shares are pulling back nearly 10% in premarket action after what we consider to be a rosy report. While the Q1 results are mixed and earnings are below expectations the guidance is positive and accompanied by some news we (and the market) want to hear. Hibbet, Inc says supply chain headwinds have improved, inventory is up, and the company is well-positioned for the summer.

The takeaway for us is that this company's earnings are strong, there is growth in the forecast, and the dividend is safe. More, we think the company could raise the dividend with the next declaration and it may be a large increase indeed. The company has only paid a dividend for four quarters but the metrics are heavily biased in favor of distribution increases. Not only is the payout a respectable 2.0% but the payout ratio is a super-low 7% of the Marketbeat.com EPS consensus and the balance sheet is a fortress.

Hibbet, Inc Has Rough Quarter, Sort Of

Hibbet, Inc had a tough quarter impacted by supply chain headwinds that cut into sales. The company did not quantify the loss but did say inventory levels improved significantly near the end of the quarter. Regardless, the $424.05 million is down 16.3% and is in line with the expectations. The decline is due to an incredibly tough comparison to last year that was supported by stimulus checks and social distancing so not a surprise. On a comp-store basis, sales are down -18.9% versus last year but up 23% versus the pre-pandemic level and expected to remain strong going forward. On a channel basis, B&M sales declined 22% while eCommerce gained 4.1%. eCommerce, it should be noted, is up 117% versus 2019 and is expected to grow in size and as a percentage of the net. As it is, eCommerce sales are up 630 basis points as a percentage of sales in the 2-year comparison.

The problem for the company, the real problem, is deleveraging and inflation. Deleveraging fixed costs, increased input costs, and higher freight cost the company about 440 basis points of margin at the gross and operating level and left earnings well below forecast. The $2.89 in GAAP earnings is down 42% YOY and missed the consensus by $0.26 but that's the worst of the news. Looking forward, the company predicts its inventory position will support sales and drive revenue and earnings above the Marketbeat.com consensus. Execs are looking for flat revenue growth versus down 2.5% and for EPS of $9.75 at the low end of the range compared to the $9.64 average estimate which is good but might be optimistic. While there is some risk in the guidance, we do not think it is worth the premarket selloff that it caused.

Hibbet, Inc Returns Cash To Shareholders

Hibbet, Inc is returning cash to shareholders in the form of dividends and buybacks and it is doing so without increasing its debt. The company repurchased about $22.4 million worth of shares during the quarter and can be expected to repurchase more shares as the opportunities arise. The dividend is worth about 2% to shareholders and $3.3 million in cash to the company bringing the total returned in Q1 to $25.7 million. That leaves about $13.6 million in cash flow the company is using to build its cash position and inventory. Inventory, by the way, is up 72.6% versus last year and should continue to grow as the company adds stores. Hibbett is forecasting 30 to 40 new stores in under-served areas which we think is a good strategy, it's working for Tractor Supply Company.

The Technical Outlook: Hibbett Moves Down To Support

The price action in Hibbett moved down almost 10% in premarket trading to retest a key support target and that support is already showing its face. Support at the $40 looks very strong and is turning into a bottom that we think is buyable. The move to this level was caused in large part by short selling and it looks like short-covering is in order. Because the short interest is nearly 20%, the short-covering rally could be lengthy, vigorous, or both. Assuming the market follows through on what we are seeing, we think this stock could easily get up to the $65 region and then possibly move higher.