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.
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.
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.