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Dick's Knows How to Compete

Competition in the retail market for sporting goods is intense, with both big-box retailers and regional chains hawking athletic equipment and apparel. This morning, Dick's Sporting Goods (NYSE: DKS  ) proved again that it is serious about growing rapidly and profitability, despite the opposition.

Dick's posted first-quarter sales growth of 28% as it continues to open new stores; it also acquired golf retailer Golf Galaxy in February. Same-store sales advanced a mediocre 0.1% after strong comps in last year's first quarter, but that didn't stop diluted earnings from jumping 81%, coming in at the high end of internal projections and above analyst expectations.

Management also expects strong full-year results and a year-over-year earnings improvement of 18%. It plans to open 45 new namesake and 17 Golf Galaxy stores, adding to the existing 294 and 65 locations, respectively.

Going forward, Dick's must maintain brisk expansion to keep investors happy. At current levels of $55.43, the stock trades at around 19 times forward earnings, which is actually reasonable -- Dick's has grown sales close to 24% annually over the past five years, and it's managed to leverage into much higher earnings and cash flow expansion.

However, I keep coming back to the number of competitors in the industry. Retailing giants Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) are major sellers of sporting goods, along with many regional rivals such as Hibbett Sports (Nasdaq: HIBB  ) and Big 5 Sporting Goods (Nasdaq: BGFV  ) . Privately held company The Sports Authority is another major rival, with 400 domestic locations.

Despite the crowded, cutthroat competition, Dick's continues to grow aggressively. We'll soon find out whether it can grow without any major acquisitions and related cost-cutting benefits. I'll continue to observe the action from the stands, waiting for a better margin of safety to invest in the shares. But so far, I've been left behind, as the stock price continues to run in tandem with Dick's impressive operating performance.   

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.

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