On Oct 4, 2013, we downgraded sporting goods retailer,
DICK's Sporting Goods Inc.
), to Underperform based on lower-than-expected bottom-line
results in two of the last three quarters.
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Why the Downgrade?
Estimates for DICK's Sporting, the mid-cap retailer specializing
in sporting goods, have been declining since it reported
second-quarter results on Aug 20. DICK's Sporting's
second-quarter fiscal 2013 earnings of 71 cents per share fell
short of the company's guidance as well as the Zacks Consensus
Estimate of 74 cents.
Following the release of second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 has gone down 7.0% to $2.64
per share in the last 60 days. The Zacks Consensus Estimate for
fiscal 2014 also declined 6.6% to $3.10. With the Zacks Consensus
Estimates for both fiscal 2013 and 2014 going down, the company
now has a Zacks Rank #5 (Strong Sell).
Cause for Concern
DICK's Sporting witnessed a dismal performance in two of the last
three quarters due to the sluggish consumer environment and
unfavorable weather conditions. Apart from the earnings decline,
our cautious stance on the stock's future performance is guided
by the company's lowered earnings and comps outlook for fiscal
2013. DICK's Sporting now expects earnings per share in the range
of 37-39 cents. Comps, adjusted for the calendar shift in fiscal
2012, are expected to range approximately from flat to an
increase of 1%.
Moreover, the stock remains vulnerable to a sluggish economic
recovery and cautious consumer spending. The sporting goods
retail industry is a consumer-driven industry and hence is very
sensitive to the health of the economy as sports is majorly a
leisure activity. Spending on sporting goods is heavily dependent
on the personal disposable income of consumers. The current
macroeconomic challenges such as high household debt and
unemployment levels may restrain consumers' spending on sporting
Risk of sourcing merchandise from overseas markets may prove
detrimental to the company's performance. A significant portion
of DICK's Sporting's merchandise is manufactured in countries
outside the U.S. such as China, Taiwan and South Korea.
Accordingly, the company is exposed to political, social and
economic risks associated with the operations in these countries.
Further, an adverse movement in foreign currency exchange rates
may dent the company's operational performance.
Other Stocks to Consider
Other stocks worth considering in the beverage industry are
Five Below Inc.
Ulta Salon, Cosmetics & Fragrance Inc.
). All of these stocks carry a Zacks Rank #2 (Buy).