Can Dick's Sporting Goods Exit the Penalty Box?

Investors sent Dick's Sporting Goods in to the penalty box, but is the company setting itself up to score on a powerplay?

Jun 6, 2014 at 9:00AM

It was an extremely ugly day for Dick's Sporting Goods (NYSE:DKS) shareholders when the stock collapsed following the company's first-quarter results on May 20. However, despite the top- and bottom-line misses, Dick's Sporting Goods is a good investment. Here's why.

Moving away from golf
Dick's Sporting Goods reported a first-quarter comparable-store sales gain of 1.5%, missing the company's prior guidance of a 3% to 4% gain. One of the main culprits was weakness in golf sales. Dick's Sporting Goods' golf shortfall was due to industry-related issues, not because of weather or company-specific issues.

According to the National Golf Foundation, around 400,000 players gave up on the sport last year, which obviously doesn't bode well for Dick's Sporting Goods. As a result of declining interest in the sport, golf sales declined in the high single digits at Dick's Sporting Goods, while Golf Galaxy saw sales decline by 10%. The good news is excluding golf and hunting, Dick's Sporting Goods saw a 6.6% comp gain in the quarter, showing that the underlying business is still very strong.

Dick's Sporting Goods recently decided to reallocate floor space to better sell higher-margin and popular categories. As such, the company will allocate space toward women's athletic apparel, which is delivering comps in the low teens. Additionally, youth athletic apparel, according to management's comments, is "even better than the women's business."

By replacing troubled segments and allocating prime shelf space to higher-margin categories, Dick's Sporting Goods could make its stores more attractive. Meanwhile, it doesn't have to sacrifice its image as a retailer that offers a complete assortment of sporting goods.

Consumers are still shopping
Dick's Sporting Goods said during its first-quarter conference call that new store productivity was 98.1%, implying new stores are performing in line with existing stores.

In terms of e-commerce, Dick's Sporting Goods now ranks as No. 72 on the Internet Retailer Top 500 list, up from No. 94 last year; the company made improvements to its e-commerce platform including search engine optimization capabilities. Dick's Sporting Goods continues to roll out its buy online/pick up in store capabilities. Additionally, all stores include ship-from-store fulfillment capabilities.

Dick's Sporting Goods could benefit in the coming few quarters and see increases in sales from higher-margin fall athletic apparel, back to school footwear, and a potential pickup in soccer-related sales due to the World Cup. That being said, investors should not be surprised to see a drastic improvement in the company's earnings report when it finalizes its floor space reallocation.

The safer, but similar, play
While the case could be made that Dick's Sporting Goods can successfully turn itself around, Foot Locker (NYSE:FL) doesn't need to make that case given the fact that its business is still strong. Foot Locker reported comparable-store sales growth of 7.6% and double-digit revenue growth in its first-quarter results on May 23.

Much like Dick's Sporting Goods, Foot Locker sees store transformation as a viable strategy to drive sales of high-margin items, and it is already paying off! Richard A. Johnson, Foot Locker's chief operating officer, said during the company's first-quarter conference call:

The premium tees, tanks, fleece, and shorts that hook to our footwear did well, especially in Jordan and Nike signature basketball. Our remodeled stores showcase this apparel particularly well, and apparel sales were up in these stores.

Foot Locker management said that the majority of its stores have yet to be remodeled, providing investors with a teaser of what to expect over the coming quarters and years. Additionally, Foot Locker plans to open Kids Foot Locker stores in certain markets given the high-margin nature of the category.

Foolish take
Investor sentiments were relatively low heading into the earnings report but worsened after the company's revised guidance to the downside was much worse than feared.

Dick's Sporting Goods shares lost significant value and are currently trading near 52-week lows. Investors are perhaps underestimating the company's national scale and superior vendor relationships. Additionally, despite recent headwinds, management is taking an active approach in shifting merchandising with consumer preferences and improving its e-commerce site.

Dick's Sporting Goods remains a good company, and with investor sentiment severely low, now may be a good time to buy shares. On the other hand, investor sentiment on Foot Locker is high, as the company continues to impress investors with strong results. Dick's Sporting Goods is obviously the riskier of the two companies, but investors with an appetite for risk should choose Dick's Sporting Goods over Foot Locker.

R.I.P. Internet -- 1969-2014

At only 45 years old... the Internet will be laid to rest in 2014. And Silicon Valley is thrilled. Because they know... The Economist believes the death of the Internet "will be transformative." In fact, the CEO of Cisco Systems -- one of the largest tech companies on the planet -- says somebody's going to bank "14.4 trillion in profit from one concept alone."

Click here for a FREE video that gives you what you need to capitalize on the little-known company behind this concept.

Jayson Derrick 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers