Hibbett's Q2 May Face Margin Pressure Amid Choppy Spending Trends: Analyst

Telsey Advisory Group analyst Cristina Fernandez reiterated an Outperform rating on Hibbett, Inc. HIBB, with a price target of $60.

Hibbett is reporting Q2 earnings before the markets open on Friday, August 25.

While spending on consumer discretionary categories remains choppy and the environment for athletic footwear promotional, the analyst believes Hibbett's Q2 expectations are achievable, and the company should have made progress in reducing inventory levels.

The analyst models Q2 EPS at 76 cents vs. FS at 74 cents.

Hibbett is participating in the Yeezy drops taking place in August, which could provide a modest boost to sales and online traffic, the analyst adds.

The analyst sees an operating margin contraction of ~430 bps in Q2 to

4.1% vs. FS at 3.6%.

For the quarter to be reported, the analyst assumes a gross margin contraction of 180 bps to 32.6% due to the higher promotional activity and occupancy deleverage.

The analyst forecasts an operating expense deleverage of ~250 bps to 28.6% due to the new store growth, wage inflation, higher incentive comp, and an increase in data and transaction processing fees.

Long-term, the analyst believes Hibbett is well positioned with a differentiated retail footprint in small and underserved markets. 

For FY23, the analyst projects EPS estimate is $7.40 with operating margin compression of ~230 bps to 7.6%.

For FY24, the analyst models EPS of $9.30, with an operating margin expansion of ~50 bps to 8.1%.

Price Action: HIBB shares are trading lower by 5.8% to $40.00 on the last check Tuesday.