Is Dick’s Sporting Goods Still a Good Investment?

Should you buy Dick’s based for its e-commerce growth and other strategies?

Mar 1, 2014 at 1:31PM

Americans love to spend money on outdoor recreation in two forms: the purchase of gear and vehicles for outdoor recreation, and on trips and travel. For every dollar spent on gear and vehicles, an estimated $4 is spent on trips and travel. The outdoor-recreation industry has the distinction of expanding even during the recession, notching about 5% annual growth during the period between 2005 and 2011. This industry in the U.S. is generating around $646 billion in yearly sales and 6.1 million direct jobs.

Considering the industry's size and growth, it is a good idea to examine Dick's Sporting Goods (NYSE:DKS), a prominent player in the outdoor sporting-goods segment, and see how it stacks up against peers like Cabela's (NYSE:CAB) and Big 5 Sporting Goods (NASDAQ:BGFV).

Dick's is outperforming others
A look at revenue growth over the past five years, as shown in the chart below, clearly establishes Dick's as the leader of the pack, closely followed by Cabela's; Big 5 trails the others by a wide margin.

DKS Revenue (TTM) Chart

Dick's revenue (trailing-12 months) data by YCharts

In the third quarter of fiscal 2013, Dick's reported strong performance in the athletic footwear and apparel and team-sports segments. This fueled comparable-store sales growth of 3.3%, on top of a 5.1% jump during the year-ago quarter, despite softness in the fitness and outdoor-apparel categories. On the back of positive comps and new store openings, revenue jumped 6.7% year over year.

Looking ahead
In 2014, Dick's is planning to reallocate square footage to higher-growth categories including youth and women's apparel. However, during the fourth quarter, the company still expects cautious consumer spending.

Retailers are quick to blame bad weather and weak consumer spending, and Dick's is no exception. It squarely blamed both for its bad second-quarter performance. The weather was particularly horrible toward year-end, and this could be a spoiler for the fourth quarter. Although Dick's witnessed good indicators for cold-weather outerwear during the third quarter, I think much of the optimism for the fourth quarter could be tempered as a result of inclement weather. If this happens, then this could be a buying opportunity as the stock declines.

Dick's digital initiatives, including the e-commerce channel, could come to its rescue. In the third quarter, they accounted for 6.5% of revenue. The e-commerce channel has the advantage of round the clock access and ordering, even if the bad weather prevents consumers from going out and shopping. Dick's is increasing product offerings at various price points in the ship-from-store channel to bolster its e-commerce segment.

Peers' moves
Cabela's did not blame the not-so-great weather when it posted its fourth-quarter results this month. However, declining sales of firearms and ammunition continued. As a result, consolidated comps declined 10.1% year over year. Excluding firearms and ammunition sales, comps were down 3.5% versus the year-ago quarter.

Going forward, Cabela's expects sales to shift away from firearms and ammunition and into higher-margin categories like hunting apparel, footwear, men's casual apparel, and non-shooting hunting equipment. Also, its new format stores are outperforming the legacy store base by more than 50% in sales per square foot and more than 60% in profit per square foot. This reinforces the retail growth strategy of the company, and the new format stores will be a game changer going forward.

Big 5 Sporting Goods' growth story is centered on a three-pronged strategy: e-commerce, new store openings, and increasing store efficiency. Expenses for its new e-commerce platform will have an earnings-per-share impact of $0.01 in the fourth quarter of fiscal 2013. The platform is expected to roll out in fiscal 2014. This will allow direct-to-consumer purchases, leveraging the company's new distribution center.

As a result of the new e-commerce platform rollout in 2014, Big 5 can address a larger market than its current store-based presence that's limited primarily to the western region. In addition, this may also allow it to expand its stores in other geographical regions as the brand gains traction in areas where it has no presence.

Bottom line
All three companies are focused on online sales for growth, but in my opinion Dick's looks to be in a solid position. Apart from the e-commerce initiative, the company is focused on pushing its higher-selling products that should result in higher sales. Also, with a P/E ratio of just below 20, Dick's isn't very expensive, and a forward P/E ratio of 16.7 means that there is bottom-line growth expected in the future.

Start investing ASAP
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Meetu Anand has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers