Dick's Is A Standout In Retail, But Isn't Getting The Credit It Deserves

Despite Dicks Sporting Goods Inc DKS reporting another quarter of 5 percent comps and robust gross margin expansion, while most retailers had to contend with declining traffic and margin pressure, the stock decline 9 percent on March 7 due to the FY 2017 EPS guidance being issued below expectations.

MKM Partners’ Patrick McKeever maintains a Buy rating on the company, while lowering the price target from $67 to $61.

Buying Opportunity

The analyst mentioned that the first-quarter 2017 guidance was particularly disappointing since it is expected to see significantly higher pre-opening expense and incremental investment spending.

However, McKeever believes the pullback in the stock presents an attractive buying opportunity.

Q4 Results

Dick's Sporting Goods reported a 5.3 percent increase in comps, driven by a 2.9 percent increase in traffic, as well as a 2.3 percent rise in ticket.

Golf Galaxy’s comps rose more than 13 percent, “as the concept also benefited from industry rationalization and market share gains,” the analyst mentioned.

The company gained share across all three of its key merchandise categories, apparel, hardlines and footwear, while also witnessing robust gains in its mall-based stores, which McKeever believes “highlights its appeal as a compelling destination for consumers.”

E-commerce sales rose 27 percent during Q4, missing the 33 percent growth seen in Q3 2016, although it was one of the “best performances in retail” and meaningfully better than the industry growth in the mid-teens.

Looking Ahead

“With the recent re-launch of dicks.com onto the company's proprietary platform, functionality should improve, while costs are reduced,” the analyst stated, while continuing to expect a 30 bps benefit in FY 2017 to Dick's Sporting Goods’ operating margin from the transition and increased marketing to drive higher consumer visibility.

McKeever believes that the company has multiple top and bottom line drivers going forward.

Related Link: Dick'S Share Gain Story Still Has Legs

Related Link: Sports Authority's Loss Isn't Dick's Sporting Goods' Gains _____ Image Credit: By Mjs92984 - Own work, CC BY-SA 4.0, via Wikimedia Commons