Hibbett Sports, Inc. (HIBB)

Hibbett’s runway mis-priced by Mr. Market (Feb 12th 2016)

Thesis: At the current price of $31, the base-case valuation of $43 indicates a BUY with a 30% margin of safety. HIBB’s slip in margins and short-term pessimism about the retail industry has led to a mispricing.

What does it do?
Hibbett Sports Inc. (HIBB) operates small-box (5000 sq. feet) Sporting Goods retail stores in small counties in the United States with a population ranging from 25-75 thousand. It sells premium branded apparel and equipment, and almost always is located at strip centres, where a Wal-Mart store is the crowd-puller.

How has it done so far?
HIBB has had a stellar performance over the past 10 years:

  • Number of stores near-doubled from 527 to 988 – 
while maintaining profitability.
  • ROIC has ranged from 13-17% (after accounting for 
Operating Leases), WACC ~10%. HIBB’s low CapEx 
has resulted in growing FCFs.
  • Debt-free ROEs have ranged 18-30%.
  • Owners Value Creation of $9.3/sh via growth in BV/sh, 
which is 2.5x 2006 BV/sh.
  • Management has proven to be prudent operators and 
exemplary capital allocators.

Does it stand out?
HIBB is a narrow-moat business with operational strengths:

  • Focused locations in small counties in the U.S. allows 
them to exploit lack of competition and tailor product- 
mix according to local interests.
  • Small-box store strategy allows for flexible and efficient 
store growth.
  • Laser-focus on inventory management and distribution 
helps cutting costs.
  • Highly trained staff – especially important for advanced 
athletic equipment. This is a moat that cannot be 
encroached by e-commerce giants such as Amazon.
  • GCO, FINL and BGFV are competitors most like HIBB. They fare much poorer to HIBB in overall profitability.
  • Threat: DKS, a Sporting Goods Superstore, has indicated plans to enter smaller-market locations.

What does the future have in store?

  • HIBB has at least 5-7 years of growth with its existing strategy.
Continue building new stores and expanding existing
stores within small counties within the U.S. There are
over 3,000 counties in the U.S.
Intends to grow store-count by 30% (1,300 stores) by
  • Clustered expansion program allowing for Economies
of Scale.
Continued attention to logistics management
  • Continued focus on its own e-commerce platform.
  • No plans for international growth.


Estimated Intrinsic Value/sh range: Worst-case $27, Base-case $43, Best-case $60.

FCF growth CAGR has been 16% over the last 10-years. There is no evidence of a loss in HIBB’s quality as a business – nor any major threats from competition. Even so, Price-implied expectations are 0% FCF growth in the future – a rather unlikely scenario.

Total Return to Shareholder

Based on the assumptions above and a buy-price of $31, we project a TRS of 21% CAGR (2.1x initial investment), for a 4-year time horizon.

One thought on “Hibbett Sports, Inc. (HIBB)

  1. Pingback: Hibbett Sports, Inc. (HIBB) – An update | KIP Capital Blog

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