On Sep 4, 2014, we issued an updated research report on Dick's Sporting Goods Inc. (DKS), following its better-than-expected top and bottom-line results for the second-quarter fiscal 2014.
The company’s adjusted earnings of 67 cents a share met the upper end of its guidance range of 62–67 cents and simultaneously surpassed the Zacks Consensus Estimate of 65 cents. However, due to lower merchandise margins and higher operating and shipping expenses, adjusted earnings dropped 5.6% year over year.
Moreover, despite persistent weakness in the golf and hunting businesses, total sales grew 10.3% to $1,688.9 million, coming ahead of the Zacks Consensus Estimate of $1,653.0 million. This growth was driven by continuous store openings, enhanced e-commerce operations and a 3.2% jump in comparable store sales (comps) during the quarter.
Dick's Sporting’s unique strategy of offering exclusive branded merchandise, sourced from leading producers, provides it with a platform to better compete with other players. Also, we appreciate the company’s decision of reducing exposure to its underperforming golf business, as the category has been grappling with weaker demand owing to sluggish U.S. recovery.
The company also enjoys a healthy financial status and it continues to efficiently utilize its cash flows to achieve its long-term growth target via omni-channel development and store openings, along with funding dividend payments and share buybacks.
However, Dick’s Sporting remains vulnerable to the sluggish economic recovery and cautious consumer spending. Further, risks of sourcing merchandise from overseas markets may weigh on the company’s results going forward, which compels us to be on the sidelines.
Dick’s Sporting currently has a Zacks Rank #3 (Hold).
Key Picks from the Sector
Other better-ranked retail stocks include Citi Trends, Inc. (CTRN) with a Zacks Rank #1 (Strong Buy), Bed Bath & Beyond Inc. (BBBY) and Jumei International Holding Limited (JMEI), each holding a Zacks Rank #2 (Buy).
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