Can Dick's Sporting Goods Make a Comeback?

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Nov 25, 2014

Dick’s Sporting Goods (DKS, Financial) recently released not-so-impressive results for the third quarter. Despite posting a considerable improvement in revenue, the company couldn’t impress investors with its bottom-line performance. The company posted a weak profit, which beat consensus estimates by a fraction. The reason behind this weak performance by Dick’s is the weak performance of its Golf and Hunting segments. These were already underperforming, and it has again disappointed with a weak performance. The company is expecting these segments to be weak in the future. Let us have a look at some of Dick’s strategies and business.

The problem at Dick's

In the recently reported quarter, Dick’s revenue rose by 9% to $1.5 billion; this is better than the company posted in the same quarter last year. The company’s reported revenue also came in line with the consensus estimates. This happened as a result of growth in the company’s sales in other segments except Golf and Hunting. Dick’s comp sales on the other hand improved by 1.1%; however, the analysts had been modeling some more growth in sales. The company highly disappointed with its poor profit results. Its profits declined to $49.2 million from $50 million as compared to the same period last year.

Dick’s  is suffering, which is clearly evident from its continual weak performance in the recently reported third quarter. However, there are some key points Dick’s is counting on to make a comeback and is expecting the women's apparel segment's sales to improve in the coming quarters. But the main reason to worry for the company is its declining golf and hunting segments. In fact, Dick’s took grave steps in the past, cutting around 100 jobs on the back of continued weak demands in the golf galaxy division. In addition, Dick’s is seeing no signs sooner for the recovery of hunting segment. This might take away further market share from the company.

Looking for opportunities

Dick’s is seeing some good opportunities to at least excel in the women’s and athletic youth apparel. These segments had been performing well and have delivered good improvement from continuous two quarters. The company is now looking for allocating strategy that can drive its sales high, strengthening its business and improving profitability.

Moving on, Dick’s is focusing on the expansion strategy as well as it thinks that the opening of new stores might strengthen its distribution channel on its e-commerce platform. Dick’s has already opened around 24 stores including fully remodeled five stores. It has opened a new Golf Galaxy store and is aiming at optimizing its ship-from-store fulfillment. In addition to this, the company is also reducing its shipping costs, accelerating the merchandising delivery to the customers. The new opening by the company is expected to strengthen the online store which will result in improvement in sales that will help the company gain good market share in the future, attracting more investors lately.

Dick’s is also focused on improving its pick in stores facility which is attributed to its Omni-channel offering. The company has undertaken these initiatives as these advances made by the company will benefit the existing customers as the customers will have ease to shop and also they will get what they desire. This will also be a growth driver for it as this will also attract new customers to Dick’s.

Conclusion

Dick’s is cheap with trailing P/E of 18.00. The earnings are also expected to show steady improvement, which can be seen by its forward P/E of 15.09. However, in the long term, its earnings are not so impressive as its earnings are growing with a CAGR of 12.84% which is not more than the industry average of 16.30%. Considering all these aspects, it can be seen that Dick’s Sporting is a good pick as of now and the long term investors can wait for the company to gain further market share.