While Dicks Earnings Were 'Better Than Feared,' Brean Cuts Price Target To $47

Brean Capital’s Eric Tracy mentioned that Dicks Sporting Goods Inc DKS announced “better than feared” 1Q results, with the EPS a penny ahead of the consensus and the estimate.

Tracy maintained Buy rating on the company, while lowering the price target from $50 to $47.

1Q Results

The analyst stated that while the 1Q results were largely in line with expectations, with the EPS marginally ahead of expectations and in line consolidated comp, driven by improving golf and outdoor trends, offset by weaker than anticipated apparel growth.

Gross margin declined 10 bps year on year to 29.9 percent, “as occupancy de-leverage and higher shipping expenses more than offset merchandise margin expansion,” Tracy noted.

However, SG& A deleveraged almost 100 bps, driven by continued strategic investments.

Guidance Lowered

Dicks Sporting Goods lowered its guidance for FY16, which Tracy believes reflects the expected pressures from the TSA liquidation.

“While the guide down largely de-risks estimates and margin impact will be more limited than we expected,” the analyst said, while pointing out that this could lead to a near term headwind to share gains.

The company also reduced its 2Q comp guidance from 4 percent to 1 percent.

Although Tracy expressed optimism regarding Dicks Sporting Goods’ FY17 setup, the analyst also noted that comp acceleration was “not a foregone conclusion as apparel underperformed in 1Q.”