What happened
Shares of Dick's Sporting Goods (DKS 1.63%) were up 10.8% as of 12:30 p.m. ET on Wednesday after the company reported earnings for the fiscal first quarter, which ended April 30.
The largest sporting goods retailer in the U.S. reported an 8.4% decline in comparable store sales and lowered its full-year guidance. The stock was originally down more than 18% in premarket trading, but value hunters swooped to the rescue.
So what
Entering the quarter, the stock was already looking very cheap at a forward price-to-earnings ratio of less than 6. That is well below the historical average of 16 times earnings that the S&P 500 index has traded over the last century. The sharp rebound in Dick's share price following a disappointing quarter could signal that the company's valuation is getting too cheap.
Last year, adjusted earnings per share more than doubled to $15.70. But it seems the spike in supply chain costs hurting other retailers is starting to hit Dick's hard. Adjusted earnings fell 25% year over year in the fiscal first quarter of 2022.
On a bright note, merchandise margin increased 1.4 percentage points, which management credited to its differentiated product assortment, combined with disciplined promotional pricing strategies.
Image source: Getty Images.
Now what
Management's full-year guidance calls for comp sales to be down between 8% and 2% year over year. Adjusted earnings are expected to be in the range of $9.15 to $11.70. That still puts the stock's valuation at a cheap eight times earnings.
The worries over the economy, inflation, and higher interest rates are causing many investors to sell first and ask questions later. This is bringing valuations down to bargain levels for many apparel stocks.
The company has delivered consistent growth in revenue and net profit over the last 10 years, and it has a loyal customer base. Dick's scorecard members generated over 70% of sales in the quarter.
