Sporting goods retailer Sports Authority (NYSE:TSA) today pre-announced financial results for the fiscal third quarter ending Nov. 1 and for the fiscal year ending Jan. 31, 2004, with the company's shares rising on news of improved earnings guidance -- yawn -- and slim Q3 same-store sales growth.

Over the last several years, Sports Authority has purchased seemingly all of its publicly traded competition. It merged with Gart Sports in August, expanding a portfolio that already included former investables Oshman's and SportMart.

Now its prime pure-play peer is Dick's Sporting Goods (NYSE:DKS), a Pittsburgh, Pa.-based chain with approximately 150 stores. (Sports Authority owns about 380, all told.) For a closer look at Dick's and its position relative to Sports Authority, consider Matt Richey's excellent June article -- where he suggests that Sports Authority's position in the business is hardly safe.

While acquisitions have helped the company steadily improve its top line in recent years, there's more to the story. It turns in slim operating and net margins, though it's worth noting that its 4.4% operating margin for the fiscal year ended this January was its best in years. Fiscal 2004 could be similarly improved with a strong second half.

But Sports Authority's slim margins are reflected in the cash flow statement, where limited net income and heavy capital expenditures have meant the company has little history of free cash flow. And while it may aspire to "category killer" status, it must still fight the likes of Wal-Mart (NYSE:WMT) in the sporting goods business, while Foot Locker (NYSE:FL) and others battle on the apparel and shoes side.

Those dynamics seem unlikely to change anytime soon. But with the company's shares setting new 52-week highs today -- and commanding a hefty premium to projected profit growth -- investors should consider carefully how much Sports Authority's leadership position in the sporting goods market is really worth before buying in.

Among the encouraging signs are indications that inventory management and gross margins will improve with the integration of Gart.

Dave Marino-Nachison can be reached at