Successful E-Commerce Launch Makes Hibbett Sports A Buy, Says BofA

If retail is the Titanic, Hibbett Sports, Inc. HIBB has snagged a lifeboat, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Rafe Jadrosich upgraded Hibett Sports From Underperform to Buy with a price target raised from $14 to $30.

The Thesis

After suffering three consecutive years of declines, the sporting goods retailer is expected to return to growth in fiscal 2019 and is now facing its easiest compares since the 2009 recession, Jadrosich said in a Tuesday note. (See the analyst's track record here.) 

Jadrosich said he expects comps to inflect positively in 2018 following a highly successful e-commerce launch at the beginning of the third quarter that added five points to total same-store sales and helped move a bevy of aged products.

While e-commerce margins were initially below store margins, online sales could eventually bring higher margins as they scale. The analyst said he expects e-commerce to be accretive to 2018 EPS numbers.

“Importantly, we believe e-commerce is not cannibalizing from store sales, and adding customers in markets where HIBB does not have a store,” Jadrosich said. 

Despite an overall promotional athletic environment with heavy discounting, the analyst expects footwear to grow at a mid-single-digit or faster pace due to better allocations of product from industry leaders Nike Inc. NKE and adidas AG (ADR) ADDYY.

BofA said branded apparel is expected to improve, led by cooler weather and a favorable NCAA Football Championship that featured Alabama and Georgia, where 18 percent of physical store locations reside.

“We believe HIBB’s risk-reward is favorable given its low P/E multiple, healthy balance sheet, buybacks and high short interest," the analyst said. 

More encouragingly, Hibbett Sports is reading the sports-retail shift that continues to move away from technical apparel and into fashion-focused items.

"We are in a very strong sports lifestyle phase,” sports industry expert Matt Powell recently told Benzinga. 

Price Action

Hibbett Sports shares were up 2.25 percent at $24.95 in afternoon trading Tuesday.

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