HIBB - Hibbett: Short-Term Concerns Don't Negate Long-Term Story

2024-03-21 01:49:38 ET

Summary

• Now that HIBB has rerated from 6x to 10x FY2025 EPS, concerns center around returns on incremental investments and the factors that dictate those returns.
• Recently updated FY2025 guidance did not do much to alleviate these concerns, as comp and gross margin guidance did not impress.
• However, I still think Hibbett's store base still has value given the lack of local competition surrounding those stores and the store network's replacement cost.
• If comps turn to growth and gross margins expand, I see a case for the stock to reach $125 over time. In a downside scenario, I see a case for the stock to trade at around $60 over time.
• It may be difficult to invest in HIBB in the face of another year of poor comps and a difficult retail environment, but I think the long-term upside outweighs the downside.

Hibbett, Inc. ( HIBB ) maintains a dense network of stores in underserved communities in the U.S. and has a close working relationship with Nike, Inc. ( NKE ) which provides the company to access with highly desirable apparel and footwear products. This story hasn't changed since I last wrote about the company, but the market's perspective of the business has shifted. In August 2023, HIBB was trading around 6x FY2024 EPS, and the stock was priced for an imminent collapse in earnings. The market's view seemed to be that Hibbett would not have the ability to navigate the very difficult retail environment with an overstuffed inventory channel and waning demand....

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