If you're game,

Hibbett Sporting Goods

(HIBB) - Get Report

may be just for you. This emerging retailer and its clean balance sheet could be your ticket to the marathon.

The Birmingham, Ala.-based sporting goods concern focuses on making the most out of underdog markets. Its 300 stores are typically located in cities with populations of less than 100,000, primarily across the Southeast. And the company has found plenty of room to grow. From 171 stores at the end of 1998, the company will have 332 locations by January 2002.

But Hibbett's just warming up. Management has identified 500 potential markets and wants to grow locations 20% over the next five years. If the company can execute, the story's worth considering.

The Only Game in Town

While the company's stores are just 5,000 square feet -- small by competing standards -- the small-market focus has served Hibbett well. As the only specialty retailer in many of its cities, Hibbett stores are the "go-to" location for many high-end products. SunTrust Robinson Humphrey analyst David Magee estimates the company derives 40% of its sales from footwear, 40% from apparel and 20% from equipment. It also has a wholesale sports-supply business that sells to schools primarily in Alabama.

The small markets reduce competitive pressures, provide a captive customer base and give Hibbett a solid negotiating platform with many vendors as the only distribution outlet in most of its markets. Combined with the company's rapid growth, Hibbett has some juice over wholesalers. "The company continues to see increasing volume leverage with vendors," notes Magee.

Still, small-town retailing can be tricky. You have to know your markets, be crafty merchandisers and be quick to recognize and correct your mistakes. Hibbett has done just that.

After experimenting with a smaller, 4,000 square-foot store footprint during the last 18 months to lower occupancy costs, the company has returned to its original, 5,000 square-foot stores. Interestingly, sales productivity declined significantly in the smaller stores as merchandising felt cramped and sloppy.

The quick analysis and change in strategy is what many investors think makes Hibbett a winner in small-town retailing. While not quite ready to compare the story to

Wal-Mart's

(WMT) - Get Report

, some think the company's strategy and execution make it a solid candidate to be another small-town retail success story.

Nothing but Net

Over the past three years, sales have grown at an average annual rate of 22% and earnings have grown at a 20% clip. Yet, the slowing economy and the smaller store experiment will likely end Hibbett's earnings growth streak. Magee estimates earnings per share will decline by about 5% this year (the year actually ends in January 2002) on sales growth of about 14%.

However, he recently suggested his estimate of $1.55 for the year (vs. $1.63 last year) may overstate the impact of the Sept. 11 tragedy on sales.

"Based on anecdotal industry information, it is our best guess that recent business activity in Hibbett stores is probably approaching levels seen in the days before the attacks," Magee recently told clients. "In fact, sales of some items such as caps and t-shirts with patriotic themes have likely been brisk."

If Magee is right, Hibbett may post modest growth, which should please investors, especially given the difficult economic environment. But given the uncertainty regarding holiday sales and the fear and uncertainty about additional domestic terrorism, sticking with conservative estimates seems prudent.

Two catalysts could fuel Hibbett's growth. The company recently became the exclusive retailer for the Southeastern (athletic) Conference's new licensed apparel line. With stores scattered across the states of SEC schools, the added apparel line will add to sales and possibly create a new class of destination shoppers for Hibbett.

In addition, after a two-year slump in shoe sales, there is a full-court press on basketball shoes. Not only should sales increase, margins would also benefit from higher-priced shoe sales.

Not surprisingly, Magee thinks he may know the reason for the regenerated interest in court shoes, which has additional benefits. "The return of Michael Jordan to the NBA should bolster sales of higher-priced basketball footwear and should also enhance sales of peripheral items like Air Jordan t-shirts, caps and the like."

Target Practice

If Hibbett can sustain its 20% new-store growth rate and regain its earnings-growth momentum, the company could become a household name in the sporting goods business. And while Hibbett has a solid independent game plan, it could attract the attention of its larger brethren.

Key to Hibbett's success is the ability to sustain rapid growth in a smart way. Currently, the company has a very clean balance sheet -- its debt-to-market cap is only 14% -- and has remained disciplined in its strategy.

Of course, the economy remains a wildcard and a potential downturn could have a more serious impact on smaller communities than metropolitan areas. A weaker-than-expected holiday season could cause the company to fall short of its current target.

Yet in the marathon that is retailing, Hibbett Sporting Goods looks to finish the race. The stock has been sprinting lately: Since Sept. 17, it has gained nearly 27%. While that simply gets back to levels seen in late August, its recent run shouldn't be ignored.

Hibbett is trading at 19 times current-year earnings estimates and about 16 times next year's estimates, compared to a historical price-to-earnings ratio of 18 times earnings.

The growth prospects, balance sheet and management are top-notch. We like this stock now and would like it even more as it pulls back into the high $20s, something that is quite likely if the market takes a rest.

Hibbett Sporting Goods does have the goods. It's a solid three-barrel company. Yet its recent run left a half-barrel at the starting blocks. Longer-term, the prospects are solid; shorter-term, a market pullback would likely take Hibbett with it, providing a better entry point for those wanting to enter the game. We like Hibbett and give it two-and-a-half barrels.

For an explanation of our barrel rating system, see our recent description.

Do you have candidates for bottom of the barrel? If so, shoot me an email with the company name, why you think it qualifies and your full name and hometown. If we profile your suggestion, we'll send you a TSC gift to commemorate your pick.

Next week, another unheralded name for you consideration and the first look back at our previous bottom of the barrel picks.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.