One of the disadvantages of buying stuff online is that you
can't hold it, touch it, try it on or test it out.
This is not such a big deal when you're buying books and DVDs
and whatnot. Nobody needs to hold a book to know there are words
and pages inside.
But it can be a problem when you're buying something that
requires the right fit and feel, such as athletic shoes, golf
clubs and baseball mitts.
Consumers can get around this problem by taking what's become
known as the "showroom" route. This means a customer shops for
something in person at a bricks-and-mortar store, then goes
online to make the purchase at a discount.
Until recently, sporting goods retailers, such asDick's
Sporting Goods (
), didn't have to worry too much about the threat of showrooming.
But talk that online retail giantAmazon (
) plans to offer more sporting goods has changed the
One threat, watchers say, is that Amazon will elbow its way
into the market for premium athletic shoes and clothing offered
by companies such asNike (
) andUnder Armour (
). These two categories are important sales generators at
traditional bricks-and-mortar stores.
Amazon's interest in sporting goods has become a big enough
topic of conversation that Dick's executives were asked about it
during the company's first-quarter conference call last
Joseph Schmidt, Dick's president and chief operating officer,
said his company "certainly keeps an eye" on what Amazon is
doing. But he downplayed the potential impact on sales of premium
shoes and athletic wear.
"From a premium standpoint, which is a bit more where we play,
(Amazon) doesn't have access to a lot of that product," Schmidt
said. "Nike doesn't sell them on a direct basis. Under Armour
doesn't sell them on a direct basis. So some of that premium
product, they don't have access to."
Many analysts sound a similar refrain. In a May 17 note,
JPMorgan analyst Christopher Horvers said Dick's has a
"differentiated assortment of products that creates a bigger moat
against Amazon" compared with other retailers that have been hurt
by Amazon, such as electronics chainBest Buy (
Meanwhile, Horvers added, Dick's has worked hard to boost its
own online business as a way of offsetting the threat from Amazon
and other online retailers.
Last year, Dick's upgraded the functionality of its website
and added dot-com kiosks to all of its stores. More enhancements
are expected this year and next year.
"These in-store and online investments position DKS
offensively and defensively in the category," Horvers noted.
"This is critical, as Amazon is a threat long-term. It is up to
Dick's to have a great in-store strategy with differentiated
product while also having a great dot-com strategy."
For now, Dick's seems to be succeeding on both fronts. The
company has run off double-digit or better EPS growth in 10 of
the last 11 quarters.
It logged first-quarter earnings of 45 cents a share, up 50%
from the prior year and 7 cents above estimates. Revenue rose 15%
to $1.28 billion, also above views.
Same-store sales gained 8.4% companywide. Comps rose 7.3% at
Dick's Sporting Goods locations and 12.6% at its Golf Galaxy
Meanwhile, online sales increased by one-third vs. the
"Solid results in the quarter were mainly driven by increased
sales resulting from the opening of new stores,
better-than-expected comps and improved margins," Zacks Equity
Research said in a note.
Dick's Q1 gross margin climbed 110 basis points from the prior
year to 30.8%, Zacks said. Adjusted EBITDA rose 34.7% to $125.3
million. Its EBITDA margin expanded 150 basis points to 9.8%.
The company's stock price touched a record high of 51.65
following its first-quarter earnings report. Shares have since
fallen back some, however, and currently trade near 46.
Dick's ended the first quarter with 486 of its namesake stores
in 44 states. It also operates 81 Golf Galaxy stores in 30
states. It plans to open a total of 40 Dick's stores this
Most company watchers are bullish on Dick's growth prospects
over the next couple of years.
Analysts polled by Thomson Reuters expect Dick's to grow
earnings per share 24% this year and 14% in 2013.
"Dick's is well poised to benefit from market share gains,
near- and long-term store expansion opportunities, and
proprietary product offerings," Citigroup analyst Kate McShane
noted in a report.
The biggest potential head winds are economic and competitive.
A weak or backsliding economy would likely weigh on the company's
sales and profits.
In terms of competition, Dick's battles for market share on a
number of fronts: against online retailers, other sporting goods
and apparel chains and big-box stores such asWal-Mart (WMT).
"The sporting goods market is highly competitive in nature,
and Dick's failure to compete effectively in terms of price,
quality or product will thwart its growth potential," Zacks said
in its report.