Dick's Q2 Results Fuel The 2017 Bull Case

Dicks Sporting Goods Inc DKS reported strong Q2 results, surpassing the already elevated expectations.

Morgan Stanley’s Simeon Gutman maintains an Equal-Weight rating on the company, while raising the price target from $44 to $54.

Strong Q2

The company reported comps of 2.8 percent and EPS of $0.82, well ahead of the consensus.

“The bar for DKS' Q2 moved up throughout the quarter on better comp expectations,” Gutman mentioned.

Related Link: Dick's Downgraded Following 42% Run

The TSA Impact

Comps were robust despite the disruption from the TSA store liquidation, although the low sales disruption due to the TSA store closure indicates incremental earnings upside in 2H16, while also fueling the analyst’s 2017 bull case.

The Q2 comps benefited from merchandise sales, associated with Cleveland’s NBA and Pittsburgh’s NHL championship titles.

“These items were isolated, suggesting they had a material impact on DKS' SSS growth in the quarter,” Gutman explained, while adding that TSA accounted for a majority of the Q2 comp outperformance.

Conservative Guidance

The analyst believes the FY16 guidance appears conservative, with the company raising the comp guidance from -1 to +1 percent to 2.3 percent and the EPS guidance from $2.60–$2.90 to $2.90–$3.05.

2017

Gutman expects 2017 to benefit from several tailwinds, “as a number of one-time costs are set to roll off. DKS should cycle ~$40-50 million of one-time expenses including ~$15 million of Olympics centric marketing and ~$25 million of e-commerce investments/benefits. This equates to $0.23-$0.29 in EPS.”

Full ratings data available on Benzinga Pro.