Needham funds recently released its 4Q FY2014 commentary. Its portfolio managers – Chris Retzler and John O. Barr - believe the strong dollar is hurting sales of capital goods and consumer goods company which have sizable international presence. So, an ideal strategy for 2015 is to focus on domestic, small cap equities. The fund managers have talked about their holdings like Dick's Sporting Goods (DKS) and CarMax (KMX) which are domestic retailers, and Express Scripts (ESRX), Reis (REIS) and Constant Contact (CTCT) which are predominantely US based. Here's a look at one of these companies – Dicks Sporting Goods.
Dick's Sporting Goods is a full-line sports and fitness retailer offering a broad assortment of high quality, competitively-priced brand name sporting goods equipment, apparel and footwear in a specialty store environment. The Company also owns and operates Golf Galaxy, LLC, a golf specialty retailer. The company's EPS forecast for the current fiscal year is $2.79 and next year is $3.20. According to the consensus estimates, its top line is expected to grow 9% current year and 9.50% next year. It is trading at a forward P/E of 16.83. Out of 31 analysts covering the company, 11 are positive and have buy recommendations, and 20 have hold ratings.
The following table shows revenue, EPS and other key metrics of the company over the last couple of years.
Table1: Financial Data of Dick's sporting goods
Source: Gurufocus Value Screens
The company is undergoing fast expansion and its store count has increased from 561 in the begining of Fiscal 2012 to 690 for the quarter ended November 1, 2014. In the quarter ended November 1, 2014, the company opened 24 new stores. However, one thing which disappointed investors last quarter was the company's low same store-sales increase of just 1.1% ( at the lower end of its guidance of between 1% and 3%). The main culprit was continued pressure in golf and hunting. The company's hunting business comped down mid-single digits in Q3 slightly below its revised expectations as hunting is not rebounding as quickly as management had anticipated. Similarly, the company's golf business comped down in high single digits last quarter.
However, the good news is that the company's hunting business is expected to be approximately flat in the fourth quarter as year-over-year comparisons begin to ease. Also, in its third quarter, the company has reallocated 1000 square feet of its golf equipment area to women's and youth athletic apparel. Customer response to the new product selection and merchandising presentation has been positive. So, going forward, we can expect headwind from the company's golfing and hunting business to dissipiate. San's golfing and hunting, the rest of Dick's business delivered a 4.6% comp increase last quarter. So, we can expect a similar run-rate of comp growth for the fourth quarter and fiscal 2016 (ending January).
In addition to high growth prospect, management is also showing strong commitment to returning capital to shareholders. The company has repurchased over $455 million of stock since the beginning of 2013. The company has a dividend yield of 0.90%. The have also been rumours of the company going private and given the attractive valuation of just 16.83x FY2016 (ending Jan) EPS, we can clearly see why it makes sense. I believe Dick's Sporting Goods is a good GARP (growth at a resonable price) stock to have in your portfolio.
