Why This Earnings Report Is a Bad Sign for the Athletic Industry This Holiday Season

Concerns that the athletic sector will fall victim to an overreliance on promotions this holiday season were likely reignited when Hibbett Sports reported third-quarter earnings today.

The Birmingham, Alabama-based athletic specialty retailer said its sales during the period ending Nov. 3 fell 9 percent to $216.9 million, missing sales forecasts of $217.3 million. Its profits also tumbled 80 percent year over year to $1.5 million, or 8 cents per diluted share, absorbing costs related to the firm’s acquisition of City Gear.

Adjusted earnings were 14 cents per share, falling 2 cents shy of the 16 cents analysts had expected.

Although president and CEO Jeff Rosenthal touted the firm’s e-commerce initiatives — including enhancements to Hibbett’s mobile app and a new buy-online pickup in store service — as bright spots for the holiday quarter, he also validated investors’ concerns that the season will be highly promotional.

“I think it’s as promotional as it was last year,” Rosenthal told investors in response to an analyst question during the third-quarter conference call. “In some cases, it’s a little bit more aggressive but still pretty promotional going through the fourth quarter, and I expect that to stay that way.” (Hibbett’s 2017 holiday quarter was also widely perceived as too discount-laden.)

Rosenthal’s sentiments seemed to mirror those of industry insider and The NPD Group Inc.’s senior sports industry adviser, Matt Powell, who told FN this month that he perceived a discount-heavy holiday season on top of last year’s deep promotions.

“It certainly feels to me that [reliance on promotions] started sooner and much more aggressively than it has in the past,” Powell said. “My impression was 2017 was the most promotional holiday we’ve ever seen. Given that fact and that business [this year] is relatively sluggish, my assumption is, retailers and brands are going to have to be aggressive again this year to offset last year, and that seems to be playing out.”

What’s more, Hibbett trimmed its full-year outlook and now expects adjusted earnings per diluted share in the range of $1.55 to $1.65 compared with previous guidance of $1.57 to $1.75. Comparable sales are now forecast in the range of flat to 1 percent, compared with previous guidance of down 1 percent to up 1 percent.

The results weren’t all bad for the company though: Hibbett’s Q3 comparable sales edged up 0.1 percent during the quarter to top the 0.2 percent decline analysts had predicted. It also logged a 62 percent gain in e-commerce sales.

Hibbett SVP and chief merchant Jared Briskin also noted strength in the firm’s shoe business, with men’s gaining high single digits thanks to “a strong pipeline of product.” Women’s and kids, however, were down; the latter was hurt by less product availability compared with the prior year, Briskin said.

“From an inventory perspective, we remain much fresher than a year ago and are confident that our assortments will resonate with our consumer,” he added.

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