It's not a matter of if, but when Dick's Sporting Goods (NYSE: DKS) completely exits from the hunting and firearms market. The sporting-goods retailer recently agreed to sell eight of 35 Field & Stream stores, part of a chain almost wholly dedicated to the hunting segment, indicating that Dick's plans an eventual full retreat from the space.
Sportsman's Warehouse (NASDAQ: SPWH) will purchase the eight locations for $28 million, allowing it to return to the store expansion that it shelved as it sought to invest in its online capabilities and reduce its debt.
The sale is a win-win for both companies: Dick's has found other pursuits outside of the firearms industry that are more profitable, while Sportsman's Warehouse has greater gun sales due to its rival's self-inflicted wounds.
Shooting itself in the foot
Dick's Sporting Goods angered hunters and gun owners by implementing a number of policies to restrict access to firearms in its stores, while also lobbying for more gun-control laws. It suffered an immediate and severe backlash from gun owners and enthusiasts who significantly curtailed their patronage of Dick's stores.
The impact was felt across all Dick's, as hunters stopped shopping for gear and accessories in other departments too. The company admits that while the hunting category as a whole is weak due to larger issues in the firearms industry, its own actions caused additional harm to the business.
It took Dick's Sporting Goods a full year to recover the lost ground, but now the recovery is starting to pay off. The boycott of its business by hunters caused the retailer to add more products that carry higher margins, such as baseball gear, licensed products, and outerwear, while expanding the presence of private-label apparel like CALIA, Alpine Design, and a new, discount brand, DSG.
Sales rose 0.6% in the first quarter and comps were flat, which doesn't sound like much of an improvement. But because the company was still feeling the effects from the overhang of the hunting season, it was a better-than-expected result.
Similarly, Sportsman's Warehouse benefited from Dick's stumble. Hunters looking for a new retailer willing to meet their needs turned to Sportsman's Warehouse, where hunting and shooting sports account for almost half (48%) of sales. It saw a 5.8% jump in same-store sales over the past year, and second-quarter sales rose 4% due to new store openings, but also higher demand for firearms. Comps were up 1.7% for the period.
While hunting is a lower-margin business, Sportsman's Warehouse has been looking to increase its market share in firearms, and the purchase of the new stores gives it an opportunity to do that.
Dick's Sporting Goods has said for a while its hunting business is under strategic review, and that includes the Field & Stream stores. It began removing the hunt category from a handful of stores last year, then expanded that to 125 Dick's locations.
With the sale of the eight Field & Stream stores to Sportsman's Warehouse, the conclusions of the strategic review are clear: It's only a matter of time before Dick's removes the hunt business from the rest of its stores, and offloads the remaining 27 Field & Stream locations. At that point there will be a complete separation of Dick's Sporting Goods from shooting sports.
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