This Sporting-Goods Store Looks Like a Winner

Source: Dick's Sporting Goods.

In a challenging economic environment for retailers, Dick's Sporting Goods (NYSE: DKS  ) is delivering solid performance for investors and materially outgrowing other companies in the industry, such as Cabela's (NYSE: CAB  ) and Hibbett Sports (NASDAQ: HIBB  ) . This sporting-goods store is looking like an industry winner.

Firing on all cylinders
Dick's Sporting Goods has done a sound job of positioning itself as an industry leader among sporting goods retailers via a differentiated merchandise strategy focused on performance products and an omni-channel business model actively integrating online and bricks-and-mortar operations.

This is yielding substantial financial results for the company: Dick's Sporting Goods delivered better-than-expected sales and earnings for the quarter ended on Feb.1, a period in which most competitors were hurt by the unusually cold winter and the highly promotional competitive landscape.

Net sales adjusted by the extra week in 2012 increased by 12.5% to $1.9 billion during the quarter on the back of a big increase of 7% in adjusted in comparable-store sales. This was better than analysts' expectations, and also comfortably above the company's own guidance for the period, as management was expecting an increase of between 3% and 4% in comparable-store sales.

Management was particularly pleased about growth in e-commerce sales during the quarter, which exceeded the company's expectations and accounted for a 12.2% of total sales during the quarter.

Earnings per share came in at $1.11, comfortably beating the company's guidance of between $1.04 and $1.07 per share, and also above analysts' forecasts in the area of $1.10 per share on average.

CEO Ed Stack was quite confident about the company's prospects during the earnings conference call: "In summary, we have produced record fourth quarter results despite a shorter and more promotional holiday season. We are excited about the opportunities in our business for 2014 and have confidence that we will meet our long-term targets."

Outperforming the competition
Cabela's has been performing quite well in recent years, but the company disappointed investors when it reported earnings for the fourth quarter of 2013 on Feb. 13. Total revenues during the quarter increased 4.9% to $1.19 billion, which was below analysts' estimates of $1.21 billion for the period.

Earnings per share were also below forecasts at $1.32 per share, a 5.6% increase versus the fourth quarter in the previous year, and underperforming estimates of $1.41 per share.

According to management, weakness during the quarter was mostly due to two main factors: "Specifically, the two biggest short-term factors affecting results in the quarter were a much sharper than expected decline in ammunition sales as compared to last year's surge and a softer-than-expected holiday season as evidenced elsewhere."

Hibbett Sports also delivered a disappointing performance for the fourth quarter of its fiscal 2014, with both sales and earnings coming in below expectations. Net sales increased by a lackluster 0.2% during the quarter to $217.6 million versus $222 million forecasted on average by Wall Street analysts.

Gross margin during the quarter fell to 35.8% of sales, versus 36.1% in the same quarter of the previous year, and earnings per share declined to $0.64, compared with $0.73 in the year-ago quarter.

CEO Jeff Rosenthal said in the press release that transitory factors, such as "significant weather-related store closures and a less favorable sales impact this year from the college football championship game" affected Hibbett Sports during the period.

Corporate executives tend to search for excuses for disappointing performance on external variables like weather conditions or macroeconomic headwinds. But the fact remains that many companies in several sectors of the retail industry have reported dismal financial figures during the winter. Industry conditions have been particularly tough for retailers in different categories, and there is no reason to believe sporting-goods stores should be an exception to the rule.

Going back to Dick's Sporting Goods, this makes the superior performance reported by the company look even more impressive when seen in the context of the heavy headwinds affecting the industry and its competitors lately.

Bottom line
Dick's Sporting Goods is not only doing better than expected, but it's outperforming the competition in a remarkably tough environment for the industry. A differentiated merchandise selection and a strong online integration are doing wonders for the company, and that says a lot about the talent and effectiveness of its management team.

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