Shares of Dick's Sporting Goods (DKS +2.92%) were soaring this week, according to data from S&P Global Market Intelligence. The sports apparel and equipment retailer is posting strong comparable sales growth yet again, driving its earnings to new heights. It has been on a tear in recent years, up over 500% in the last five years alone.
As of 1:26 p.m. ET, shares of the stock are up 17.2% this week. Here's why.
Improved sales, trimmed-down footprint
In the quarter ending May 4, Dick's Sporting Goods posted 5.3% comparable sales growth and 6.2% overall revenue growth. Comparable sales growth measures the revenue growth from existing stores. A 5.3% positive reading shows investors that Dick's is driving traffic and more spending at its stores with its focus on sports retailing.
The company has trimmed down its real estate footprint in recent years and is now focused on less store density and more online sales. In Q1, Dick's had a real estate footprint of 39.4 million square feet, down from 39.2 million a year ago. Higher sales and lower real estate costs is a way to drive earnings higher, which is what Dick's is delivering. Earnings per share (EPS) are up 262% since before the pandemic, which is great news for shareholders.
For the full year, management has raised its comparable sales growth guidance from 1%-2% to 2%-3%. This would be a slowdown from the first quarter but still strong growth. Dick's Sporting Goods is in a strong position operating as the leader in its retailing niche of sporting goods at the moment.
NYSE: DKS
Key Data Points
Is the stock a buy today?
After this week's pop, Dick's Sporting Goods stock now has a price-to-earnings (P/E) ratio of 18.5. This is close to a 10-year high if you exclude a period of unprofitability during the COVID-19 pandemic. In 2022, it traded at a P/E well below 10 for many months.
A higher P/E means higher expectations for earnings growth and durability in future years. Dick's seems to have a durable business, but with no store growth and single-digit comparable sales growth it is hard to see how this business will have a significantly larger sales base five to 10 years down the line. For that reason, investors should temper their expectations for Dick's stock. A low-growth business that has gone up 500% in the last five years will likely not go up 500% over the next five years.
