Is Dick's Sporting Goods a Long-Term Buy?

Though earnings per share increased nearly 10% to $0.71 per share in the second quarter, Dick's Sporting Goods (NYSE: DKS  ) remains a cautious play and has yet to convince investors and analysts of a bullish outlook. The company trades near its 52-week low and with a forward earnings multiple of roughly 14 times. And even though management revised down its full-year earnings guidance, disappointing investors, the problems plaguing the company are of a macroeconomic nature, not company-specific. Dick's remains a well-run company experiencing short-term issues common to the industry as a whole. Here's what you need to know about Dick's Sporting Goods going forward.

The great problem with retail
As outlined in a previous article, superinvestor Joel Greenblatt wrote about the joys of investing in retail. The stocks are frequently mispriced, due not to internal issues or the inability to merchandise competitively but short- and medium-term fluctuations in the retail environment as a whole.

For a company whose long-term retailing history is strong, these periods provide investors with frequent clearances on shares.

Earnings
As mentioned above, Dick's brought in $0.71 per share on $88.9 million in net income. This comes in nearly 10 points ahead of 2012's $81.3 million. Net sales increased 6.6% to $1.5 billion. On the whole, same-store sales fell slightly, in contrast to company guidance of a 2%-3% increase, though this was driven wholly by Golf Galaxy, whose consolidated same-store sales fell more than 6%. The company's core property, Dick's Sporting Goods, gained nearly 2%.

The sales were undeniably weak, and management cites broad economic tepidity and cooler temperatures as culprits.

Despite the setbacks, this quarter's EPS represented a record for the company, hinting at management's ability to weather unfavorable conditions.

So, recent numbers aside, is Dick's a long-term retail pick?

The call
As a reputable sports goods retailer with strong management and a formidable national presence, Dick's has many of the elements of a stable long-term play. Though Internet retailers pose a threat to all brick-and-mortar businesses, Dick's sells many products that people want to try out in person -- rackets, roller blades, workout equipment, etc. Its product lineup will need a physical selling space for the foreseeable future.

One of the only current drawbacks to the stock is its valuation. Even trading near its 52-week low, Dick's is a bit pricey for a sports retailer -- nearly 14 times forward earnings and 9.4 times EV-EBITDA. Foot Locker trades at just under 11 times earnings and comes with a healthy 2.3% dividend.

Also, as noted in a recent Forbes piece, a company whose business model relies on relatively frequent sunny skies cannot blame poor performance solely on a lack of sun. Dick's management will have to acknowledge other factors, as well as its efforts to rectify any issues in coming quarters.

At a lower price, Dick's looks like it would be a smart long-term holding.

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