UPDATE: Hibbett Sports shares plummet 30% after profit warning, 'woefully late' e-commerce launch

07/25/17 07:08 AM EDT

By Tonya Garcia, MarketWatch

Sporting-goods chain says second-quarter same-store sales are expected to fall 10%

Hibbett Sports Inc. shares dropped 29% in Monday trading after the sporting-goods retailer issued a second-quarter profit warning that included an announcement analysts say was late in coming: the launch of an e-commerce site.

Hibbett(HIBB)is facing "very challenging sales trends," the company said in a statement, and expects same-store sales for the second quarter to fall 10% (http://www.marketwatch.com/story/hibbett-sports-issues-profit-warning-citing-very-challenging-sales-trends-2017-07-24). Its bottom-line per-share loss is expected to be in the range of 19 to 22 cents. The FactSet consensus has called for a profit of 15 cents per share.

In addition, the company is launching an e-commerce site that will have features like a launch calendar to allow shoppers to add high-profile sneaker releases to their calendars; "True Fit" technology to help customers find their proper size; and information about store availability.

According to Scott Bowman, chief financial officer at Hibbett, the company waited to launch an e-commerce site to make sure it had all the pieces in place, including a new distribution center and omnichannel capabilities. It had a website previously, but it did not allow shoppers to make purchases.

"It is later in the game, but we did take the time to put the infrastructure in place to make sure it was fully integrated with the stores and offer customers a great shopping experience," Bowman told MarketWatch.

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"Later in the game" is an understatement, according to analysts.

"Wait, Hibbett is just launching e-commerce now? Yes," Quo Vadis Capital President John Zolidis wrote in a Monday note. "Hibbett punctuated just how woefully late it is to offering e-commerce by announcing the final launch of this capability in the same press release today with the terrible news on sales and earnings. ... The timing could not be more apropos."

Zolidis noted that the company has only seen same-store sales fall by 10% or more one other time: during the second quarter of 2009, in which same-store sales declined by 10.5%. While Zoldis said he believes it's likely a "company-specific execution issue" that's to blame for the steep decline, he also highlighted the slowing athletic trend and Nike Inc.'s(NKE)pullback from wholesale to focus on the direct-to-consumer channel.

Read:In Nike-Amazon partnership, Amazon's scale could put the Nike brand at risk (http://www.marketwatch.com/story/in-nikeamazon-partnership-amazons-bigger-size-could-put-the-nike-brand-at-risk-2017-06-30)

The slowdown in athletic wear comes after years of average-selling-price increases, which is a risk for sales expectations and will probably lead to eroding margins.

"We don't think Nike's going to leave its wholesale customers in the dust overnight (after all, they still represent about 2/3 of Nike's business) but we see in today's announcement from Hibbett as a possible sign that things are getting more difficult and issues with the company's largest vendor could very well be a factor," the Quo Vadis note said.

Even with these contextual factors, Jim Chartier, an analyst at Monness Crespi Hardt, said the absence of an e-commerce presence is the big problem. "The lack of e-commerce is really what's hurting the company here," he told MarketWatch. "They had in the past said their customer was a cash customer and therefore wasn't really shopping online. It was clearly a miscalculation by management."

Even with the addition of an e-commerce site, the company is "facing an uphill battle," Chartier said. It will be difficult to compete with big players in the athletic space: Dick's Sporting Goods Inc.(DKS) , Finish Line Inc.(FINL)and Foot Locker Inc.(FL) . Dick's e-commerce sales for the year, about $1.1 billion, will probably be bigger than the entirety of Hibbett's sales, which are projected to be less than $1 billion, according to Chartier. The FactSet revenue consensus for 2017 is $998.5 million.

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See:Attention, shoppers: 'Amazon effect' is creating bargain stocks (http://www.marketwatch.com/story/attention-shoppers-amazon-effect-is-creating-bargain-stocks-2017-07-19)

"One of the things that made their stores successful is they're located in smaller towns," Chartier said, with the nearest mall 15 to 20 minutes away, for example. "They benefited from a lack of competition nearby. Online, that advantage disappears."

Hibbett's steep decline in Monday trading is taking the competition down with it. Dick's shares were down 2%, while Foot Locker shares were down 4% and Finish Line shares were down 5.1%.

Hibbett Sports is a member of Bespoke's "Death by Amazon" Index.

(https://twitter.com/bespokeinvest/status/889464613309485060)

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The company is what Hedgeye Risk Management retail analyst Brian McGough calls a "perma-short."

"The consensus estimate is $4.80 four years out. We're at $1.35," Hedgeye wrote in February of 2015. "That 72% variance is the biggest we've ever modeled for a retailer."

On Monday, Hedgeye said that call "might prove bullish."

Hibbett Sports shares are now down 63% in 2017, while the S&P 500 indexis up 10%.

-Tonya Garcia; 415-439-6400; AskNewswires@dowjones.com

 

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07-25-17 0708ET

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