We recently initiated coverage on sporting goods retailer,
Dick's Sporting Goods Inc.
), with a long-term Neutral recommendation and a target price of
Our neutral stance on the stock is guided by the company's superb
quarterly performance, raised fiscal 2012 outlook and a
commendable store growth strategy, offset by heavy dependence on
consumer's disposable income along with the seasonal nature of
business and risks associated with sourcing from foreign
Dick's Sporting's adjusted earnings for the second-quarter
2012 surged 25% year over year to 65 cents per share, beating the
Zacks Consensus Estimate of 64 cents. Benefiting from new store
openings along with enhanced e-commerce capabilities, the
company's net sales augmented 10% to $1,437 million.
Buoyed by strong quarterly performance, Dick's Sporting now
expects earnings for fiscal 2012 to be in the range of $2.47 to
$2.51 per share, up from the previously forecasted range of $2.45
to $2.48. Moreover, Dick's raised its comps growth range to 4% to
5% from 3% to 4% forecasted earlier.
Dick's Sporting's unique strategy of offering exclusive branded
merchandise, sourced from leading manufacturers, provide it with
an edge over cut-throat competition from players like
Foot Locker Inc.
Hibbett Sports Inc.
). Furthermore, the company leverages its strong vendor
relationships to source overstock and closeout merchandise at
substantial discounts, in order to achieve dual objectives of
boosting gross margin while offering compelling value to
Further, the company continues to progress well with its growth
initiatives, which include expanding its store base and bringing
in technological advancements to better serve its patrons. The
company leverages an extensive network of stores to effectively
penetrate into its target markets, which in turn, enables the
company to generate healthy sales and gain a market share.
For fiscal 2012, the company plans to open approximately 38
Dick's Sporting Goods stores. Over the long term, the company
targets reaching the 900 stores mark in the U.S., and bolstering
from its current store base of 500.
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Apart from expanding its store base, Dick's Sporting is also
focusing on buyers' needs to generate growth opportunities that
will augment sales. The company aims at providing topnotch
shopping experience to its customers and has introduced a new
mobile application for iPhones and Android Smartphones. The app
facilitates consumers to locate the company's stores in any
particular area and provides the ease of directly buying goods by
using the application.
We believe that the company's strategic measures of solidifying
its store base and using technology to provide better customer
services will enhance its relationship with clients and help
attract and retain customers as well as promote its offerings.
On the flip side, the consumer-drive nature of the sporting goods
retail industry makes it very sensitive to the health of economy.
Spending on leisure items like sports goods proves hard on
consumers' pockets in a challenging economy, thus, impacting the
profitability of retailers like Dick's.
Additionally, Dick's Sporting's business is seasonal in nature
and typically generates stronger sales during the fourth quarter,
which is characterized by the holiday and winter sports selling
seasons. As a result, the company is exposed to significant risks
if the seasons fail to deliver expected operating performance.
However, Dick's Sporting Goods retains a short term Zacks #2 Rank
(Buy rating) for the next 1-3 months, as it remains on track with
its store expansion strategy, which should help boost the
company's top and bottom lines.