Please ensure Javascript is enabled for purposes of website accessibility

Why Dick's Sporting Goods Stock Was Up 23% in May

By Jon Quast – Jun 2, 2020 at 9:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shareholders were left to guess how business was in May, but Q1 results for this retailer now validate investor optimism.

What happened

Shares of Dick's Sporting Goods (DKS -1.94%) rose 22.7% in May, according to data provided by S&P Global Market Intelligence. But investors should keep the monthly move in context. After crushing the market in 2019, the stock is now underperforming the S&P 500 benchmark in 2020, and its share price is still well off previous highs. 

Dick's stock didn't move higher in May on company news. Rather, as investor sentiment warms toward the retail sector in general, Dick's was seen as a strong candidate for the post-coronavirus recovery. And preliminary second-quarter results suggest that's true.

DKS Chart

DKS data by YCharts

So what

Expectations for Dick's were set extraordinarily low in March, as the COVID-19 global pandemic took hold. The company closed all locations as it saw demand weaken. It wasn't surprising considering shelter-at-home guidelines severely limited sporting activities. As Dick's watched its revenue largely evaporate, it was forced to offer convertible notes worth $500 million to help with liquidity.

Dick's stock dropped like a rock with all the negative developments. But over time, investors have started coming back to consumer-discretionary retail stocks -- it's not hard to find retail companies that outperformed the market in May. A few reasons for Wall Street's optimism include federal economic stimulus, a slightly lower infection rate of the coronavirus, and seemingly attractive stock valuations. Indeed, I noted in April that Dick's stock was trading at its cheapest valuation in a decade, according to a few popular valuation metrics. 

Dick's Sporting Goods stock's roller-coaster ride in 2020 was largely based on educated guesses from Wall Street. That's because the company hadn't given shareholders much to go on during this time by way of quarterly earnings guidance. However, shareholders now have the company's first-quarter results to kick off June.

A businessman draws an upward arrow on a chart displayed on a transparent touchscreen.

Image source: Getty Images.

Now what

In Dick's Q1, comparable sales fell a harsh 30% from the first quarter of 2019. This isn't surprising since the company closed all locations for the last couple weeks of the quarter. However, with stores closed, e-commerce sales soared a whopping 110%. That's encouraging.

Dick's provided some guidance for the upcoming second-quarter report that is even more encouraging. Through the first four weeks of Q2, the company's comparable sales only fell 4% despite 44% of locations still being closed to the public. Put another way, Dick's generated 96% of its previous revenue with only 66% of its locations. That's shocking demand.

Now with 80% of stores reopened, Dick's could be set up for a great Q2 if current trends continue. It's encouraging for shareholders. However, even though there's some good news, the company remains cautious. Share buybacks are still on hold as previously announced. The company has also temporarily suspended its quarterly dividend.

Jon Quast owns shares of Dick's Sporting Goods. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dick's Sporting Goods, Inc. Stock Quote
Dick's Sporting Goods, Inc.
DKS
$104.46 (-1.94%) $-2.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.