Dick's Sporting Goods Set To See Q4 Profit Surge

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The bets are in that sporting good stores will be big winners this holiday season as they lure shoppers with hot brands in athletic apparel, footwear and equipment.

The recreation segment, which includes sporting goods retailers, should outpace the industry during the Christmas period with an estimated 43% jump in the group's fourth-quarter earnings, says Ken Perkins, president of Retail Metrics. That compares with an 11.1% rise forecast for the industry in the fourth quarter, which runs from November to January for most retailers.

Sporting goods retailers are also among the segments likely to see higher same-store sales growth than the industry, says Michael Niemira, chief economist at the International Council of Shopping Centers. He expects the group to see fourth-quarter same-store sales rise 4.5% vs. a year earlier, compared with a 2.5% rise for the entire retail industry.

The sporting goods retail sector, says Perkins, is in a "sweet spot in a "sports-crazed" nation.

And specialty retailers in the segment, such asDick's Sporting Goods ( DKS ) have done a good job of marketing apparel and related logo-branded merchandise, which range from mugs and sweat shirts to pillow coverings, he says.

Largest Retailer

Dick's is the largest specialty sporting goods retailer in the U.S. with 511 stores, as of Oct. 27. It's been on a long-running winning streak with at least double-digit earnings growth in all but two of the last 13 quarters. Analysts polled by Thomson Reuters expect it to keep up the pace in the fourth quarter with profits up 39% to $1.06 a share.

Dick's entices shoppers with features that should continue to work to its advantage during the Christmas period, say watchers. It features a wide variety of hot brands likeNike ( NKE ) andUnder Armour ( UA ), and offers merchandise that's well differentiated from what you find at other stores, says Brian Sozzi, chief equities analyst at NBG Productions. That helps lure customers and enables Dick's to command higher prices, he says.

Another big draw, says Sozzi, are specialty shops within Dick's stores, such as its Nike Fieldhouse and Under Armour All-American shops. These shops create an "experience" for the consumer with the best products from the retailer's key vendor partners and unique products not sold elsewhere, Sozzi says. He says the products are very high margin, high-priced and are rarely marked down. They also make the Dick's store look a lot different than, say, the apparel section of a department store.

Dick's is ramping up expansion of these shops. At the end of the third quarter, it had 159 Nike Fieldhouse and 88 Under Armour All-American shops. It expects to increase that to 171 Nike Fieldhouse shops and 97 Under Armour All-American shops by the end of the end of the year.

Also working to Dick's advantage is its push to increase its gross margins by selling more of its own exclusive brands, such as Walter Hagen, Maxfli and Nickent, says Piper Jaffray analyst Sean Naughton.

It's also increasing its margins by changing the product mix to include more apparel and footwear, which inherently fetch higher margins than the hard goods in the stores, he adds.

Dick's has benefited from a "multiple tail wind" in sporting goods, driven in part by increased awareness of heath and wellness, says SunTrust Robinson Humphrey analyst David Magee.

A recent upgrade to its e-commerce operation has helped boost its business online. Dick's is testing shipping from stores, where products ordered online are shipped directly from stores, a feature that gives Dick's a competitive edge, says Magee.

The company has made a lot of progress on this front, with 115 stores operating under this program at the end of the third quarter.

"Ship from store is an incredibly powerful tool as it reduces delivery time to the customer, while improving productivity and transaction profitability," said Chief Executive Edward Stack on the third quarter conference call, noting it will add more stores to the test in 2013.

He says since the ship from store effort lets Dick's utilize inventory located in its stores which was previously unavailable online to customers, it's been seeing a meaningful increase in its online sales. In the third quarter, it saw a 46.7% increase in its e-commerce business.

Dick's rang up a solid third quarter overall. Earnings rose 25% to 40 cents a share. Sales increased 11% to $1.3 billion. Consolidated same-store sales grew 5.1% vs. a year earlier.

Same-Store Sales

For the fourth quarter, which will have 14 weeks vs. 13 weeks last year, Dick's sees same-store sales rising 4% vs. a year earlier.

Naughton says because of abnormally warm winter weather, during last year's fourth quarter Dick's was forced to take markdowns on high-priced seasonal products such as snowboards and outerwear.

"If we have normal winter weather, it should lead to pretty significant upside for sales and margin expectations in the fourth quarter," he said. "We remain favorable on the stock given current valuation, but we need to see cooler weather trends across the U.S. soon so outerwear starts to sell better."

Another issue is the National Hockey League lockout this season, which could impact the sales and demand for licensed hockey apparel, adds Magee.

But Dick's is expected to enjoy a strong showing for the year. The company forecasts full-year same store sales to increase roughly 5%.

Analysts polled by Thomson Reuters see full-year earnings rising 27% to $2.56 a share. They see a 14% gain in 2013.

Dick's suspended sales of modern sporting rifles nationwide in the wake of the school shooting in Newtown, Conn. It stopped sales of all guns at stores closest to the shooting.

Naughton says the move probably won't have a "material impact" on the company's sales.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: DKS , NKE , UA

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