Can a stock rally 25% in a day without getting a takeover bid? Yes, if it's Dick's Sporting Goods (DKS) and the company's finally hitting not on all, but enough cylinders to cause the shorts to cover and the longs to go nuts with the stock of this once white-hot retailer.
If you don't know Dick's, you have missed out on one of the great shopping stories of a generation, a stock that went from $2 and change in 2002 to $62 and change in 2016.
But then, in 10 very short months, the stock plummeted to $24 as everything that could go wrong did go wrong and the stock, the company, the category and the industry all went bad at once.
How bad did it get? Here's two interesting stats from Wednesday's report card: same-store sales declined 2.5% and transactions fell 3.7% and yet the company's value still increased by 25%. Can you imagine what would happen if the comparable store sales were actually positive?
After Wednesday's performance you don't really need to imagine, though, do you? It's pretty clear that's exactly what is going to occur, which is really the reason why so much value was added in one session.
Let's go through the clinic that Dick's didn't mean to put on but ultimately gave you anyway, because Dick's is the perfect metaphor for the moment.
First, Dick's stock should never have gone up to $62 to begin with. That's because investors got all bulled up about the fact that its principal competitor, Sports Authority, closed. Just plain out closed. Not shut down slowly. Not liquidated over time. But just bang shut, kind of like what happened to Toys R Us this year.
Investors figured that Dick's had the category to itself. But what Dick's really had was way too much inventory, and inventory is the bane of a retailer's existence because too much inventory means a whole lot of sale merchandise and even losses on merchandise, which few in the razor-thin margin business of retail can handle.
It sounds too simple to believe, but if you wanted to cut to the heart of the enthusiasm on the call, I point you to this classic insight from CEO Ed Stack: "Our inventory was down, and our sales were up...It's helped drive the margins positive and we expect that to continue through the balance of the year."
Or, put it another way, the sporting goods industry has finally gotten itself back on track and Dick's is the leader in that segment so it will be the biggest beneficiary.
Now we know from Manny Chirico, the CEO of PVH Corp. (PVH) , the amazing apparel company, that it's the best time he's ever seen for his company in more than 20 years of his work there. So, Dick's is part of an even bigger wave of consumption as PVH touches far more doors than Dick's does.
Still, it's not just the Sports Authority channel inventory that's gotten under control, easing promotional concerns, or that the consumer's spending, as Manny an attest to. Dick's has also made some fundamental changes that are typical of all the successful brick-and-mortar retailers. Dick's, candidly, didn't seem to see the revolutionary speed with which the consumer adopted the internet in general and Amazon (AMZN) , in particular, in the Christmas of 2016, which we now know was the holiday of death for most brick-and-mortar outfits. That's when management learned that most customers' purchase decisions started online. It's when it dawned on most retailers, including Dick's, that if you didn't have the lowest prices on or off line, the most inventory handy when the customer wanted it, a superior private-label offering, as well as real expertise at the store level and a dynamic loyalty program, Amazon would wipe you out.
One by one, in what is a very short period of time, Dick's checked off every single box needed to stymie Amazon from crushing it. Plus it brought everything in-house to control all aspects of the supply chain.
Now, consider the retail and apparel companies that are thriving here: Tiffany's (TIF) , Ralph Lauren (RL) , Action Alerts PLUS holding Kohl's (KSS) , Macy's (M) , lululemon (LULU) , Costco (COST) Under Armour (UAA) , Nike (NKE) , Home Depot (HD) and PVH. In each case, these companies have checked off the identical boxes. Those that have only partial checks, like Target (TGT) , Walmart (WMT) and Lowe's (LOW) , still have work to do, although I think Target's further along than Wall Street does. And those that have failed, such as J.C. Penney (JCP) and Sears (SHLD) ? I just don't see a way they can come back.
Retail's brutal. But this Christmas will be known as the resurrection of retail, or at least those who recognized what went wrong, pivoted, and got it right. Their stocks? They are headed higher and need to be bought any time they get hit. That's how good things now are with the companies, the consumer, supply and demand.
