In this era of "show rooming," where consumers shop the big box stores and then hunt for the lowest price online, one name that doesn't come up very often is Dick's Sporting Goods (DKS). And I wonder why that is. Don't consumers like to save on things like hockey masks, golf clubs and baseball bats? Won't the smartphone revolution eventually pick Dick's apart? Think about it. Some of this athletic stuff can get pricy, especially if you have kids that like to play a lot of expensive sports such as hockey or lacrosse.
Like a lot of mid-cap big-box retailers, Dick's reported a strong fist quarter. For the first fiscal quarter ending April, Dick's reported sales increased 15.1% to $1.3 billion, driven primarily by a sharp 8.4% increase in same store sales. Broken down, store sales rose 12.6% at Gold Galaxy and the ecommerce revenue increased 33.4%.
The company spent $104 million on share buybacks in order to goose up its earnings per share (EPS), which rose 50% on a 15% increase in sales. (Pretty good trick, no?)
Management increased its outlook for fiscal 2012. The company predicted EPS would be between $2.45 and $2.48, up from last years $2.10. (Not to be cynical, but it's pretty easy to see that the company will beat the $2.48 number since management loves to tweak the shares outstanding number.)
With strong revenue growth across a number of chains, if you want to play the consumer discretionary sector, right now the best place to be is mid-cap retail. But will it be in the future? With some 567 stores and the potential for a total of 900 stores across the country, retail investors have to worry that virtually every product can be show roomed nowadays. Prices for tents, golf clubs, and kayaks all can be compared on the Internet.
Dick's is currently well positioned. For products that are widely available, such as baseball mitts and gloves, the company has built a strong ecommerce website and offers free shipping. The company added ship-from-store capability and plans to add pick-up-in-store functionality early next year.
The brick-and-mortar stores focus on customer service with knowledgeable sales associates who can advise you on your golf swing or restring your tennis racket. The company has also done a good job of differentiating its product offerings by selling brands that are not widely available online. Certain branded apparel, including Under Amour (UA) and Nike (NKE), have limited online distribution, so it can be difficult to compare prices on T-shirts or running shorts.
If you look at consensus estimates of $2.87 for fiscal 2014, it's pretty easy to get to a price target somewhere in the low $50s. I'm only willing to pay 18x estimates for a mid-cap retailer, so to me, Dick's would be more interesting on a pullback.
