Canaccord Genuity on Monday downgraded shares of Hibbett Sports following the retailer’s wide miss of second-quarter estimates due to sluggish sales and rising operating costs.

As reported, shares of Hibbett Sports Inc. plummeted $8.88, or 30.2 percent, to $20.53 Friday after the company earlier in the day announced a second-quarter loss; Wall Street had expected a profit, and lowered guidance for the rest of 2018. On Monday, shares fell another 90 cents, or 4.4 percent, to $19.63 on the downgrade.

The loss in the quarter came to 6 cents for the period compared with loss per share of 15 cents last year. Wall Street was expecting earnings of 6 cents.

In a note, Camilo Lyon, the lead analyst at Canaccord, wrote that SG&A rose 15.7 percent, higher than the investment firm’s 10.7 percent estimate as a result of higher advertising, omni-channel and healthcare costs during the quarter. Lyon added, “Many of which are likely to weigh on 2H EPS as well.”

Lyon’s team was also disappointed that comps only grew 4.1 percent, missing Canaccord’s estimate of a gain of 6 percent, given that Hibbett was facing easy comparisons against an 11.7  percent drop in the 2017 second quarter.

With branded apparel running ahead double-digits and footwear up mid-single digits, the shortfall came from accessories, off mid-single digits; licensed products, falling high-single digits and team sports, off-single digits.

Finally, gross margins, up 248 basis points, were slightly below Canaccord Genuity’s estimate as the investment firm also felt Hibbett would manage a bigger gain against depressed margins a year ago.

Canaccord Genuity lowered the company’s rating on HIBB to “Hold” from “buy” and the company’s price target to $21 from $31.

Lyon wrote, “While we acknowledge the progress the company is making in terms of product mix in branded apparel and footwear, the deterioration in accessories, team sports and licensed businesses coupled with the higher SG&A expense profile is creating a more subdued earnings profile with less upside potential. With this backdrop, HIBB has become a ‘show me’ stock and will likely not get multiple expansion until it proves it can create consistency in its results.”

Other investment firms lowered their price targets and estimates but maintained their ratings on Hibbett.

Susquehanna International Group’s Sam Poser reduced his price target from $33.00 to $25.00 but kept his “positive” rating on the stock.

In a note, Poser noted that footwear and branded apparel accounts for about 80 percent of sales and trends in those categories “remain strong.” He said Hibbett’s inventories, down 10.2 percent year-over-year, are in good shape and Hibbett’s newer online platform is helping clear slower selling merchandise. Finally, he was encouraged that Hibbett officials pointed to a “substantial sales recovery” in the first week of the third quarter that made up for much of the weakness at the end of the second quarter.

Poser wrote, “Cleaner inventory levels and improved product flow will help drive SSS in 3Q19 and for the balance of the year, in our view. Additionally, we believe HIBB will benefit from an enhanced omni-channel presence. We think the launch of the mobile app in April, as well as its buy online, pick-up in-store (BOPUS) and reserve (ROPUS) capabilities, which are set to fully launch in 3Q19, will support SSS in 2H19.”

At Stifel, Jim Duffy kept his “hold” rating on the stock while lowering his price target from $26.00 to $22.00. Duffy wrote in a note to clients, “Reflecting weaker-than-anticipated results in 2Q and our loss of confidence given the failure to demonstrate momentum against a healthy consumer/product flow backdrop, we are lowering our estimates and target price. Stabilization in retail productivity is proving elusive, and with the shift to ecommerce, margins face structural headwinds. Without greater confidence in the sustainability of retail traffic (>90  percent of sales) or drivers for margin inflection in 2019 we remain Hold rated on HIBB.”

Photo courtesy Hibbett Sports