Dick's, Cabela's, Hibbett, or Big 5: Where Does the Best Upside Lie?

Where’s the upside in sports retail after a weak quarter?

May 6, 2014 at 3:02PM

The sports-retail industry tends to perform in tandem, as demand at one store is usually a reflection of how others perform. So far, to start the year, Big 5 Sporting Goods (NASDAQ:BGFV), Cabela's (NYSE:CAB), and Hibbett Sports (NASDAQ:HIBB) have all reported poor earnings. Dick's Sporting Goods (NYSE:DKS) is the only company that had a somewhat decent quarter. With that said, is it time to give up on sports retailers, or is there value somewhere in the space?

Soft start creates large losses
Big 5's stock fell nearly 20% after guidance failed to impress investors. Like other sports retailers, Big 5 had a strong 2013 due to demand in firearms, thus its 6.1% decline in revenue year over year wasn't too big of a surprise.

However, comments regarding a soft start to the second quarter weren't taken lightly, as investors appear almost intolerant to excuses of poor weather and the prior year's firearm demand. With guidance for low-negative to positive-single-digit comparable sales, investors might be forgetting that 2014 is comparing to a year in which comps grew 4.4%.

No mention of soft start saves Cabela's
Cabela's fell in much of the same boat as Big 5 in its first-quarter report. The company's comparable sales in the quarter fell a whopping 21.7%. However, unlike Big 5, Cabela's stock has managed to keep its head above water and trade slightly higher following the report.

In retrospect, investors know that Cabela's comp sales grew 24% in the first quarter of 2013. Cabela's also did a great job at explaining how firearms and ammunition played a part in this year's decline, falling 39% and 32%, respectively, in the quarter. Also, there was no harsh or worrisome language regarding current demand, which is likely why the stock avoided the big drop.

Where do margins go?
Hibbett Sports is largely considered the most efficient of sports retailers, having an industry-best operating margin of 13.3%. However, despite a 1.7% increase in comparable-store sales in its last quarter, shares are currently 10% lower following earnings, as both the gross profit and net income fell in comparison to the year prior.

Clearly, Hibbett remains a stock tied to high margins and its ability to maintain its profits. Therefore, guidance for flat to slightly positive gross margin growth for 2014, combined with positive comp growth, should signal a stock recovery. However, after a year of declining margins, the question is whether investors are confident in this guidance.

The best thus far
Dick's is currently trading flat since reporting earnings, although the quarter itself was solid. Like Hibbett, growth was not a problem, as revenue increased 7.7% and the company guided for full-year comp growth of 3% to 4%.

Also, surprisingly, Dick's saw net income growth for the quarter. Albeit, its profit margin did decline by 70 basis points; but still, given the declines that we've seen stemming from January and February, Dick's had without question the best quarter of the bunch.

Where's the best investment?
Cabela's remains the most tied to firearms and ammunition, and for this reason, its stock soared 170% from 2012 till the end of 2013. However, after such large gains, upside appears limited, especially in a company that'll struggle to find growth this year.

At 20 times earnings, Hibbett isn't especially expensive. But with an operating margin declining in the first quarter to complement slight declines in fiscal 2014, the stock might have limited upside moving forward.

As for Dick's, it remains the quintessential sports-retailer investment. And at 19.3 times earnings, it could very well continue to perform well. This is a company that'll continue to grow and improve margins, making it a good long-term buy.

Final thoughts (the most upside)
It's a tough pill to swallow that Big 5 lost 20% of its already beaten-down valuation by mentioning weak initial traffic. This is a company that's still expected to grow in 2014, thus implying that the back end of the year could be solid.

Not to mention, Big 5 was far behind the curve in establishing a fully integrated e-commerce platform and is in the process of rolling it out to consumers. Hence, this is likely a driving force to create a better second half of the year.

As a result, with Big 5 trading at 9.5 times earnings, it's cheap; and with a 2.6% dividend, Big 5 pays by far the best dividend in the space. With that said, you can't go wrong with Dick's, but Big 5 looks like an intriguing oversold, long-term, and cheap investment opportunity within this space.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Brian Nichols 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information