Hibbett’s CEO & Family Pocket $28.4 Million in Insider Deals
CEO largely determines whether Hibbett owes him an acquisition related earnout.
April 8, 2021
When Hibbett's Sports (HIBB), an athletic apparel and footwear company with 1,067 stores, acquired 167 City Gear Stores in 2018, it also acquired Michael Longo as its new CEO. Hibbett paid $88 million for City Gear and dangled $25 million more in two potential earnouts if certain performance targets were later met.
Longo, who owned a portion of City Gear, became Hibbett’s CEO and would be entitled to 22.8% of any earnout payments. The earnouts were based on meeting predetermined EBITDA targets, a metric Longo himself would play a large role in calculating. In defining EBITDA, the earnout agreement states the metric may be adjusted and is:
“...subject to the ultimate oversight and authority of the CEO and board of directors of Buyer…”
In large part, it’s Longo who decides if he gets his earnout. Not surprisingly, Longo determined in fiscal years 2020 and 2021 that he and his fellow ex-City Gear owners were entitled to the full earnout amounts. In its 2020 10-K, Hibbett Sports revealed:
“...former members and warrant holders of City Gear were entitled to and were paid the first earnout payment of $10.0 million on June 1, 2020. Based on Fiscal 2021 financial results, former members and warrant holders of City Gear are entitled to the second earnout payment of $15.0 million…”
Longo’s cut of the earnout payments totals $5.7 million. But it’s not Longo’s only insider deal with Hibbett. He and his family extract millions of dollars from the company, which touts its commitment to underserved communities.
Upon acquiring City Gear, Hibbett Sports agreed to honor certain contracts in place between City Gear and entities in which Longo has a direct or indirect interest. Investors should note that these contracts aren’t rolling off after being honored. In some cases, Hibbett is renewing contracts with Longo affiliated firms:
Hibbett Pays Longo Owned Logistics Company $12.4 Million
Until recently, Longo owned a majority interest in Memphis Logistics Group (MLG), which provides logistics and warehousing services to City Gear. In its latest annual report, Hibbett quantified its contracts with MLG:
“In Fiscal 2021 and Fiscal 2020, payments to MLG under the contract were $7.9 million and $7.2 million, respectively.”
Hibbett says Longo fully divested his ownership interest in MLG. While Longo held a majority interest, With the end of Hibbett’s fiscal year coincidentally coinciding with the date of Longo’s divestment, our analysis indicates MLG received $12.4 million while being majority owned by Longo in FY20 & 21.
Hibbett Pays Company Owned by Longo’s Relative $9.9 Million
TIG Construction, according to Hibbett, has historically done most of the new store and store remodel construction for City Gear. In its latest annual report, Hibbett disclosed City Gear:
“... is owned by a close relative of Mr. Longo.”
Records indicate TIG is run by Bruce Longo.
In FY 20 & 21, Hibbett disclosed it paid TIG a total of $9.9 million. Notably, Hibbett omits language in its latest annual report that in the prior year’s annual report suggested Hibbett would no longer be contracting with TIG. The sentence Hibbett included in its 2019 10-K but removed from its latest annual referred to store construction and remodeling and reads:
“These functions are currently being transitioned to the Company's property management department.”
Investors interested in whether Longo continues funneling work to his close relative will have to wait for Hibbett’s next annual report. They’re generally filed at the end of March or early April.
Hibbett Pays Longo Owned Real Estate Company $400,000
Merchant's Capital (MC) owns the office building that serves as City Gear’s headquarters. In its latest annual report, Hibbett revealed:
“Mr. Longo is a 33.3% partner in MC.”
The initial lease term ended on December 31, 2019 but was extended to April 30, 2020 to allow for the transition of City Gear's corporate office to the Company's Birmingham, Alabama location. In FY20 & 21, Hibbett paid $400,0000 in lease payments. Longo’s share totals approximately $133,200.
Related: DKS, BGFV, VFC
Become a DuDil Insider
Get our due diligence alerts before they're published & be first to know.