Great News for This Stock From the Recent Analyst Day

Dick's Sporting Goods  (NYSE: DKS  )  recently had its analyst day, and the stock responded quite positively. There are still plenty of catalysts for the stock:

  1. The new Field and Stream concept
  2. 2014 guidance is possible at the analyst day, and the company has a low bar to beat
  3. Increased guidance on store expansion makes the original 900 store goal more feasible
  4. The company is testing smaller store concepts, something investors have been hoping for
  5. The company has a plan in place to reach double-digit margins
  6. Dick's is growing its e-commerce and omni-channel platforms, while increasing margins in the business at the same time
  7. The company is investing in more employees, which investors have been hoping for
  8. The company is taking share through its store-inside-a-store concepts with the major apparel companies
  9. With only 9% market share, the company could easily increase its position in the market

The new Field and Stream concept
The most important catalyst for the company is the new Field and Stream concept, which is similar to a Cabela's  (NYSE: CAB  )  or Bass Pro Shop type store. This catalyst affects almost every other catalyst for the business, including store expansion, store size, and margin expansion. Dick's Sporting Goods just recently opened its first Field and Stream concept, and during the company's recent presentation management commented that there were 3000 people lined up outside the store for the opening and that "the store's first month performance was better than any store, of any type of concept, that the company has ever opened." This was the biggest news from the presentation.

The store size is 35,000 square feet, which is both smaller than the average Dick's Sporting Goods store and the average Cabela's store (average size of a Dick's store is 50,000 sq ft and the average Cabela's is 100,000 sq ft). Furthermore, management noted that the consumer does not like to shop at Dick's for outdoor goods, so this will create more incremental sales than just store expansion (and hopefully justify smaller store concepts for Dick's by reducing the outdoor segment of the store).

Additionally, considering that a large percentage of Cabela's and Bass Pro Shop sales are still catalog based, physical outdoor stores are currently under-penetrated (as shown by Cabela's plan to increase its own store base), so the feasibility of store growth is very realistic. The concept's out-performance and growth should help Dick's sustain above-average revenue growth going forward.

Analyst Day provides path to higher 2014 estimates
On the company's second quarter earnings call, management lowered guidance for the rest of the year due to three main concerns:

  1. A retail macro slowdown due to a consumer shift in spending to autos and housing
  2. A slowdown in the golf category
  3. A possible slowdown in store growth

During the recent analyst day, management noted that they have seen a pickup in sales, and although they are still being conservative, they have increased confidence in the business after its recent results. Plus, its challenges are macro-based and not company specific. Dick's, as well as most of the industry, has also seen a recent pickup in golf (especially considering the company's leverage to Taylor Made). After the performance of Field and Stream, management also became more confident on store growth.

Considering that analysts' estimates for Dick's 2014 earnings dropped from $3.30 to $3.10 after the second quarter call, there is an opportunity for management to beat expectations for 2014. When asked about 2014 at a recent presentation, management noted that it will "be fairly easy to beat 2013 results next year."

Analysts expect 9% revenue growth next year. This is basically just store expansion. Any positive comps (off an easy comparable in 2013) or e-commerce growth would allow the company to beat the revenue estimates. Additionally, the company should repurchase at least 7.5% of the outstanding stock over the next 18 months and it has already called for margin expansion through its growth initiatives, so 20% earnings-per-share growth is a much more realistic expectation. A low bar has been set for 2014.

The bottom line
With management's recent positive commentary at both the analyst day and recent presentation, investors should take a look at Dick's Sporting Goods now before analysts raise their estimates.

No Pitch


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