With its stock jumping 15% on the news, investors may feel they have missed out on a chance to buy into the stock. So let's take a closer look and see whether the train has left the station, or this is just the beginning of more to come.
Getting into shape
The sporting goods retailer had found its groove prior to the pandemic, posting increasingly positive earnings as it put the debacle of removing firearms and the hunting category from its stores behind it.
While the realignment set Dick's up for the subsequent stellar performance, the transition was unnecessarily dramatic and it roiled the retailer's business, pulling down sales in other departments as consumers took their business elsewhere.
Yet Dick's also realized it had an opportunity to transform itself into a four-seasons sporting goods retailer, not one that just relied upon the lumpy returns of a lower margin, seasonal business. By adding new gear and equipment for other sports, as well as investing deeply in private label goods in trend-right markets, Dick's Sporting Goods has emerged a much stronger retailer.
Referencing its 2019 results, chairman and CEO Ed Stack said the changes "fueled our strongest annual comp sales gain since 2012 and a 14% increase in non-GAAP earnings per diluted share over 2018."
It was poised to replicate that performance this year, but the coronavirus pandemic changed all that.
Flexing its muscles
First-quarter sales plummeted 30% and comps were down 29%, as Dick's was forced to close all of its stores. Yet it still posted a profit, and its e-commerce business more than doubled, setting the stage for the latest quarter's blowout.
The pandemic put health and fitness front and center for many, who now also had the time to pursue these activities. As Stack noted: "The majority of our assortment sits squarely at the center of these trends, and while mindful of the uncertainty in the current environment, we are in a great lane right now."
The retailer is financially sound, with over a billion dollars in cash available and no debt drawn on its lines of credit. It's reinstated its dividend payments without having missed a payout, and stock buybacks will resume.
With all of its stores now reopened, Dick's Sporting Goods looks ready to pick up where it left off before the COVID-19 outbreak.
Ready for a breakout season
There is some concern about the spotty schedule for major league sports and their college counterparts in the fall, with some playing games and others canceling their seasons, but in general the amateur athlete seems to be picking up the pace for the retailer, which bodes well for investors considering buying into the stock.
Although Dick's Sporting Goods trades at 45 times trailing earnings, its stock goes off at just 12 times next year's projected estimates. Moreover, the retailer is trading at just a fraction of the sales it produces, and at just over 13 times the free cash flow it generates, the sporting goods company's stock is trading at an attractive level.
No doubt the raucous quarter it just had can't be sustained and was more about the suppression of consumer demand caused by the lockdowns, but Dick's pushing further into private label goods while keeping a fresh assortment of national name brands on its racks will keep consumers coming back.
Even if growth isn't maintained on its current trajectory, the sporting goods retailerwill still be expanding at a healthy clip. And that should make its stock a buy.