In March, while placing sporting goods company Hibbett (HIBB) under the spotlight, I wrote that despite a challenging retail market, it was a “compelling option for value investors.” It seems I was not alone in coming to that conclusion, as a month later, JD Sports (JDSPY), a British sports-fashion retail company, announced its acquisition of Hibbett while agreeing to pay shareholders a hefty 20% premium of $87.50 per share in cash at closing.
The transaction is targeted to close in the second half of 2024, subject to regulatory approvals and other customary conditions. Hibbett’s share price has since jumped up to trading just shy of the proposed bid price, so at this point, there is little upside for shareholders to warrant taking on the risk of the deal falling through and the share price significantly dropping as a result. Investors interested in shifting to holding JD Sports might want to wait for the dust to settle post-merger and verify that the deal has been accretive.
Why Hibbett Is an Attractive Acquisition for JD
Hibbett Sports is a recognized player in the sporting goods industry. It operates various retail outlets, including Hibbett stores, City Gear stores, Sports Additions athletic shoe stores, and an array of online platforms.
Upon completing the transaction, Hibbett will enter the JD Sports family of athletic footwear and fashion retail brands, leading to its exit from public trading. The company will maintain its leadership structure, with Mike Longo as the President and CEO, while Jared Briskin will assume the role of the Chief Operating Officer.
Hibbett is particularly enticing for JD Sports because it reaches underserved communities that remain inaccessible for most brands. The company utilizes an omnichannel strategy focusing on underserved “urban” communities. This contrasts with JD Sports, which operates superstores and A-mall locations. There is almost no store overlap between JD Sports and Hibbett, which the management team at JD Sports considers complementary despite the apparent cultural differences between the companies.
Over the prior two decades, Hibbett’s revenue remarkably expanded five times from 2001 to 2020. The COVID-19 pandemic caused a global drop in the athletic shoe industry’s revenue, and economic challenges since, including inflationary pressures and rising interest rates, have made it difficult for the industry to bounce back fully.
However, for the first quarter of 2025, Hibbett reported revenue of $447.16 million, which slightly fell short of the analysts’ expectations of $453.91 million, though it was in line with the company’s internal forecasts amid a challenging athletic footwear and apparel retail market. Interestingly, despite the dip in sales, the company’s gross margin increased by 210 basis points to 35.8% of net sales. This increase was primarily driven by a higher average product margin, owing to a less promotional and clearance environment.
Other variables contributing to an improved gross margin included reduced freight and shipping expenses and lower logistics costs. This helped drive earnings per share (EPS) of $2.67, which exceeded consensus estimates of $2.58.
The management team staying in place increases the likelihood of Hibbett maintaining solid margins. With forecasts suggesting the athletic footwear market is projected to experience a growth rate (CAGR) of 4.08% until 2028, the acquisition could be a solid contributor to JD Sports’ bottom line in the years ahead.
What Is the Price Target for HIBB Stock?
Analysts following the company have taken a cautious stance amidst the current developments. For example, Baird analyst Justin Kleber recently reiterated a Hold rating on the shares while keeping the price target at $87.50. He noted that the pending acquisition by JD Sports creates a degree of uncertainty that tempers the outlook for the stock since the acquisition pauses the ability to forecast future performance.
Based on seven analysts’ recommendations and price targets, Hibbett Sports’ overall rating is a Hold. The average price target for HIBB stock is $78.25, representing a potential -10.51% change from current levels.
HIBB Stock in Final Analysis
JD Sports’ decision to acquire Hibbett for a substantial premium has unlocked its value for shareholders. Yet, uncertainties surrounding the acquisition and the potential risk to the share price if the deal falls through are reflected in the downside of analysts’ average price target for HIBB. At this point, the risk-reward balance tilts to the negative, and investors may want to take money off the table and revisit after the successful conclusion of the merger.
