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Dick's Sporting Goods Shoots Ahead in Q1 Despite Lingering Gun Issues

By Rich Duprey – May 29, 2019 at 10:39AM

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As the year progresses, the sporting goods retailer sees its business improve as it leaves the gun issue further behind.

It looks like Dick's Sporting Goods' (DKS -1.01%) gun-related issues may finally be behind it. After a year of seeing its performance weighed down by its decision to ban certain firearms sales at its stores, and removing the hunting department altogether at a number of them, the sporting goods retailer is seeing sales return.

Dick's reported incremental sales growth of 0.6% to $1.9 billion as comparable store sales came in flat. Because analysts had expected comps to fall, and Dick's said they had turned positive in March and stayed that way in April, it suggests the retailer may stay positive going forward.

Collection of sports equipment

Image source: Getty Images.

Profits are expanding

Yet the lingering effects of the gun issue haven't dissipated entirely. The lower comps Dick's experienced in February was part of the hangover from the end of the hunting season, while overall the number of transactions it generated fell in the quarter, suggesting customers haven't returned. Still, it was able to offset that with higher prices and product mix.

Adjusted profits also came in at $0.62 per share, beating last year's $0.54 per share and ahead of analyst forecasts of $0.58 per share. However, Dick's bought back $107 million worth of stock in the quarter, or almost 3 million shares, and over the past year has reduced its share count by nearly 7.8 million. With all other factors being equal, Dick's earnings would have come in around $0.57 per share, still ahead of last year, but maybe not the big Wall Street beat it seems.

Still, the retailer hadn't expected the first quarter to be a blockbuster and said it didn't think growth would return until the second, so its guidance seems to have been fairly accurate. And now Dick's has raised its full-year earnings guidance to $3.20 to $3.40 per share, up from the previous range of $3.15 to $3.35 per share.

Still on the hunt for growth

The sporting goods retailer says it's seeing that its strategy of swapping out guns for items that offer more year-round potential is beginning to pay off. Chairman and CEO Ed Stack said Dick's was able to deliver higher merchandise margins in the quarter, which rose 20 basis points, with President Lauren Hobart adding it "made great progress in executing against our strategic priorities and investments."

Dick's began adding new baseball equipment, licensed products, and outerwear, including store-label brands, like Calia; the recently introduced Alpine Design; and a new, discount DSG apparel line to boost sales and profits.

While gun owners and hunters had long made Dick's a destination to buy firearms, equipment, and accessories, the retailer's controversial decision to pull select firearms from shelves caused an immediate backlash. It led to falling sales in other departments like electronics, as gun buyers tended to also buy more than just firearms gear.

But Stack held firm to his decision and expanded it to begin doing away with the hunting department altogether from his stores. What started out as a test in a handful of stores has been widened to as many as 125 locations and could go further still if it proves successful. It may even completely exit from its 35 Field & Stream stores that are largely dedicated to the category.

National brands still key

At the same time, Dick's also reevaluated other, lower-performing brands. While it has kept the perennial disappointment Under Armour (UA -1.25%) (UAA -0.78%) on store shelves, believing the brand will turn itself around, other brands like Reebok from Adidas (ADDYY -0.34%) were getting kicked to the curb.

It still has Adidas as a top supplier, and analysts at Bank of America pointed to the Ultraboost 19 sneaker as a particularly strong performer, along with Nike's (NKE -0.21%) Air Max 720. Dick's also has high hopes for its relationship with premium cooler maker Yeti (YETI -1.09%), which recently reported wholesale sales to retailers like Dick's jumped 8% year over year.

Dick's Sporting Goods hasn't completely shrugged off the problems it created by angering a significant portion of its customer base, but as the issue grows more distant in the rearview mirror, the retailer should see its remaining business firm up and become more profitable.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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