Dick's Share Gain Story Still Has Legs

Deutsche Bank’s Mike Baker believes Dicks Sporting Goods Inc DKS's “share gain story still has legs,” and the company has “positioned itself to compete in the new retail landscape better than most in the sporting goods space.”

The analyst maintains a Buy rating on the company, while lowering the price target from $67 to $62.

Q4 Results

Dick's Sporting Goods reported fourth-quarter comps of 5 percent, at the higher end of the guidance range, with EPS of $1.32, slightly ahead of the guidance.

The comps at the company’s core Dick’s stores were robust, rising 5.3 percent, driven by e-commerce, which grew almost 27 percent during Q4 and contributed nearly 500 bps to the segment comp.

Golf Galaxy reported a 13 percent rise in comps, the best in many years, However, comps at Field & Stream decline in the mid-single digits, with industry sales of ammo and firearms continuing to be weak against a backdrop of tough compares.

“Pro forma gross margins increased approximately 90 bps - better than expected but this does exclude approximately $47 million, or $0.29 per share, of inventory write downs from suppliers who will no longer supply to DKS,” Baker mentioned.

The Bear Case

The analyst pointed out that the key bear argument focuses on the FY17 comps, pointing to the fact that Dicks Sporting Goods' share gains are already accounted for in the stock valuation and are likely to be short-lived.

The bear case models forecasts comps closer to the guidance range of 2-3 perfect, below the estimate and the consensus.

Baker went on to say that while the “bears would argue that the 1Q 2017 and FY 2017 comp guidance plays right into their hands, we believe bulls would argue the exact opposite — namely that the guidance sets up FY 2017 for beat and raise potential.”

Related Link: DICK'S Sporting Goods Reports Fourth Quarter and Full Year 2016 Results

Related Link: Has Under Armour Already Captured All Its 'Low-Hanging Fruit'? _____ Image Credit: By Mike Mozart from Funny YouTube, USA (Dick's Sporting Goods) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons