Athletic Apparel Preview: Who's Best Positioned For The Long Term?

Athletic apparel retailers - Dicks Sporting Goods Inc

, Foot Locker, Inc.

and Hibbett Sports, Inc.

- are reporting quarterly earnings this week. Dicks Sporting Goods will be reporting its first quarter numbers on May 19, while both Foot Locker and Hibbett Sports are expected to announce their respective earnings on May 20. Brean Capital expects a combination of cyclical and structural headwinds to weigh on the first quarter earnings of athletic apparel retailers,"with structural liquidation and depth / intensity of promotional cadence a notable downside risk over the next 6-12 months." "We view DKS and HIBB as most likely to be negatively impacted NT, given high degree of overlap in assortment (with HIBB likely facing additional pressure from structurally constrained model), with impact to FL / FINL from high market overlap somewhat offset by limited overlap in assortment (estimate fw just 15% of TSA mix)," analyst Eric Tracy wrote in a note. Over long-term, the analyst favors Dicks Sporting Goods and Foot Locker saying they should be positioned for share gains in a healthier landscape despite acknowledging that their respective models/store fleet may be different, and smaller long-term. "Those retailers that: 1) have scale, 2) brand vendor (NKE, UA , VFC, Adidas) support in form of SiS, exclusive product, 3) evolved owned omni-channel platforms and 4) merchandise/create consumer experiences, will likely be the last players standing," Tracy highlighted. Following are the analyst's views on the first quarter results of the three athletic apparel retailers: Dicks Sporting Goods – Buy, PT $50 The analyst expects first quarter revenue growth / EPS of 3 percent/$0.49 (in line with consensus, guidance for $0.48-$0.50), based on comp growth of 0.4 percent (consensus +0.5 percent) and weaker margins. For FY16, Tracy still expects EPS estimates of $2.94 (consensus of $2.95, guidance for $2.85-$3.00), predicated on comp growth of 1.3 percent (consensus of 1.4 percent, guidance for comp growth of 0 - 2 percent). The analyst said the market overly estimated the near-term share grab benefit of TSA liquidation. However, Tracy continue to like the long-term story and "would be more aggressive buyers on further pullbacks." Foot Locker – Buy, TP $78 Tracy expects first quarter EPS to grow 6.4 percent to $1.38 (consensus $1.39), and sees comp growth of 3.5 percent versus consensus of 4.5 percent (and company guidance for mid-single digit growth). "While we believe a tough comparison (2Q15 comps running +DD through 5/22/15 earnings call, SC 2.5 won't launch until late May) could mute color on 2QTD trends (potentially flat to +LSD), we continue comps momentum can sustain through balance of the year," Tracy noted. In addition, the analyst's FY16 EPS estimate of $4.74 (up more than 10 percent y/y, slightly below consensus of $4.77) is predicated on comp growth of 3.9 percent. "LT, we are firm believers that FL will be key select retail partner with vendors (NKE, UA, ADS) and will ultimately be an industry retail share taker," Tracy highlighted. Hibbett Sports – Sell, TP $30 The analyst forecast first quarter EPS of $1.19 (consensus: $1.20), up 8 percent from last year and sees comp sales growth of 3.0 percent (slightly ahead of consensus expectations of +2.3 percent). Tracy expects full-year EPS of $2.92 (below consensus for $2.98, towards the low end of guidance for $2.90 - $3.05), based on comp growth of 1.5 percent (consensus of 2.2 percent). "While HIBB continues to invest behind the development of an ecomm operation (likely a FY18 event, in our view), we believe this likely exacerbates NT pressure from liquidations (particularly as competitors online promos ramp), while investment spend likely also mutes EPS flow through," Tracy said. "Ultimately, we believe HIBB will cede share to more well-positioned, select retailers that have adapted their models to meet consumer Omni-channel needs," Tracy continued. At the time of writing, shares of Dicks Sporting Goods fell 2.63 percent to $38.49, Foot Locker slipped 1.79 percent to $57.56 and Hibbett Sports dropped 2.75 percent to $31.15.