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The coronavirus pandemic has hammered retailers, from apparel stores to specialty shops, and has forced dozens of well-known brands into bankruptcy. But Dick's Sporting Goods (NYSE: DKS) has been an exception from the start. While many retailers have reported sluggish sales over the past 12 months, Dick's has consistently put out strong numbers.
For the quarter ended Jan. 30, Dick's saw $3.13 billion in revenue -- a nice little increase over the $3.07 billion Wall Street had predicted. Meanwhile, its earnings per share were $2.43 versus analysts' $2.28 estimates.
Dick's also reported a fourth-quarter net income of $219.6 million, up from $69.8 million a year prior. And same-store sales grew 19.3% -- a significant jump given that many people still aren't shopping in person due to coronavirus-related fears.
Based on all these numbers, you'd think Dick's would be in a pretty strong position right about now. But despite a strong fourth quarter, the retailer is predicting a slowdown in sales in the months ahead.
Specifically, Dick's anticipates that same-store sales could decline as much as 2% or grow by as much as 2% in the next year, which would be a steep drop compared to 2020's overall same-store sales growth of nearly 10%. As such, investors in Dick's will need to keep tabs on the retailer in the coming months -- as will real estate investors, as slowing sales could impact them as well.
Why sales could slow down for Dick's
In the course of the past year, consumers have been forced to upend their lives and spend more time than ever at home or outdoors, where the likelihood of transmitting COVID-19 is lower. As such, Dick's saw an uptick in demand for personal fitness equipment -- items that allow consumers to work out at home or take better advantage of being outdoors.
But things could soon turn a corner with regard to the pandemic as vaccines are widely rolled out, and while that would, of course, be a good thing in theory, it could also cause a decline in sales for Dick's. If people are allowed to get back to normal, they may opt to spend less time at home, thereby minimizing the need for sporting equipment to use in their basements or backyards. And if gyms are able to reopen safely at full capacity, many workout enthusiasts will no doubt rush to return to their beloved fitness centers, thereby negating the need for equipment purchases.
Furthermore, people may simply opt to spend less time working out when they have less downtime on their hands -- a likely byproduct of the pandemic coming to an end. As such, it's not outrageous to see Dick's calling for a slowdown in sales.
If that happens, though, and Dick's makes the decision to shutter underperforming locations, that could end up hurting real estate investors. Many malls, in fact, rely on Dick's to serve as an anchor tenant, and in an age when so many department stores are closing their doors, losing Dick's could be downright catastrophic.
Of course, there's no need to jump the gun and predict widespread Dick's closures. The retailer had a strong fourth quarter and hasn't announced mass closure plans. But if sales do decline as predicted, the impact could trickle down not just to stockholders but to mall REIT (real estate investment trust) investors as well, and that's something that ought to be on their radar.
Furthermore, the slowing sales trend may not impact Dick's alone. Once consumers aren't as homebound, they may increase spending in categories like travel and entertainment, and the money they spend there could take the place of the retail purchases they've had the flexibility to make in the past 12 months.
Now it's possible to argue that some retailers will thrive once this shift takes place. Professional attire and beauty sales, for example, could rise as more people return to an office. But on the other side of that equation, loungewear sales could plummet.
Ultimately, there's no reason to panic about a general downtick in retail sales just yet, as only time will tell what direction consumers go in. The extent to which the U.S. economy recovers quickly will play a role in sales volume, too, and that's something that's hard to predict right now. But it never hurts for real estate investors to be mindful of these factors as they assess their portfolios and make decisions that could impact their bottom line.
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