Dick's Sporting Goods Is In Great Shape

Back in November I had named Dick's Sporting Goods (NYSE: DKS  ) one of the sporting goods retail industry's MVPs. The company is one of the few big-box retailers doing it right, outperforming even internal expectations. A few months later, and the company hasn't lost a bit of its appeal -- it's only gotten better. With surprisingly strong traction at its core brand stores and the beneficial element of small-format specialty stores, the company is a model of what brick-and-mortar retailers should be doing today. While it's not the fastest-growing store in town, Dick's Sporting Goods remains an industry champ.

Recent numbers
In November of last year, Dick's management reported same-store sales growth of roughly 3% -- far exceeding its own guidance of 1% and stunning investors considering the overall retail environment. Well, in the final quarter of 2013, things were even stronger. Systemwide same-store sales grew a tantalizing 7.3% on the back of tremendous strength at the core Dick's Sporting Goods stores and a greater mix of sales sourced from online channels. Golf specialty store Golf Galaxy saw a sharp drop in same-store sales -- down more than 11% on a calendar-adjusted basis. Investors should keep in mind, though, that the company includes e-commerce sales as a part of same-store sales figures. The online channel now represents more than 11% of total sales and is increasing fast.

Sales grew 8% in the quarter to just under $2 billion, while the bottom line bumped up 11% to $1.11 per share, surpassing the high end of previously issued guidance and above analyst estimates.

The numbers benefited from an increase in traffic at the stores and well-placed promotions.

Dick's also owns a nascent small-format concept store, Field & Stream, specializing in outdoors apparel and equipment. Management noted in its conference call that the brand openings this past year were fantastic, with great response from customers.

Why it's working
Many big-box retailers suffer because their product offering is increasingly available online with greater variety and at better prices. Dick's Sporting Goods avoids some of this by selling things that people want to get their hands on before a purchase -- golf clubs, baseball bats, shoes, workout equipment, etc. The switch to e-tailing for sporting-goods companies hasn't been as immediate and has allowed the players to develop their own e-commerce solutions and stay ahead of the game. This is evident in Dick's Sporting Goods' 65% growth in e-commerce throughout 2013.

The company is also growing at a good clip, with 50 namesake stores, eight Field & Streams, and one Golf Galaxy on deck for 2014. Dick's currently has roughly 560 core-brand stores.

The fundamentals are a beauty for the retail industry. Margins have improved both on the operating and gross levels. The company holds zero debt on its credit agreement and has more than $150 million in cash on the books.

This is the second quarter in a row that Dick's Sporting Goods has drastically outperformed its own expectations. Either management is aiming low in hopes of surprising the market, or the model is just firing on all cylinders. I'm inclined to think the latter, and recommend that retail-oriented, growth-hungry investors take notice.

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