Find Out Why DICK'S Sporting is an Investors' Favorite Stock

DICK’S Sporting Goods Inc. DKS is one among investors’ favorite stocks because of its strategic initiatives, which include investments in e-commerce, store technology and store payroll, as well as DICK'S Team Sports HQ and private brands. Also it looks confident enough with its current strategies and tactics to drive market share growth in the fiscal fourth quarter and through fiscal 2018.

Further, DICK’S Sporting’s long-term earnings growth rate of 6.2% highlights its future growth prospects. Let’s discuss the factors benefiting the company performance.

Solid Q3 Results: Lifts View for FY17

DICK’S Sporting returned to positive earnings trend in third-quarter fiscal 2017, after a miss in the preceding quarter. Moreover, it delivered top-line beat for the second straight quarter and the fifth time in the last six quarters. Results gained from strength in golf, athletic footwear and private brands businesses, alongside solid e-commerce growth.

Following the splendid results, the company has given a favorable fourth-quarter outlook and raised its earnings view for fiscal 2017. Management is projecting adjusted earnings in the range of $2.92-$3.04 per share for fiscal 2017, against $2.80-$3.00 guided earlier. Moreover, it forecast earnings per share to lie in the band of $1.12-$1.24.

Strategic Initiatives Augur Well

DICK’S Sporting has been reaping benefits from its continued focus on developing every possible avenue to generate greater sales. Apart from strengthening its store network, the company remains on track to expand its e-commerce business. This is evident from the fact that this business generated about 10.3% of net sales in third-quarter fiscal 2017, while e-commerce sales grew 16% year over year.

Additionally, the company plans to make significant investments in its business in the fiscal fourth quarter and throughout 2018 as it remains confident of the long-term potential and sees tremendous opportunities in the evolving sporting goods industry. The company mainly competes with Hibbet Sports Inc. HIBB, Big 5 Sporting Goods Inc. BGFV and Cabela’s Inc. CAB to gain a share of the growth in the industry.

Coming back to the plan, the company anticipates increasing investments in e-commerce, the technology in its stores and store payroll to enhance consumer experience. Moreover, the company plans to make significant investments in DICK'S Team Sports HQ, and in the development and support of private brands. These endeavors are likely to enrich customers’ experience and augment the top line.

Effective Merchandising Strategies

DICK’S Sporting has been progressing well with its merchandising strategy (announced in fourth-quarter fiscal 2016), which is all about optimizing inventory in order to make shelves available for popular and private label brands. This unique strategy of offering exclusive branded merchandise provides the company with a platform to better compete with other players. Furthermore, the company leverages strong vendor relationships to source overstock and closeout merchandise at substantial discounts, in order to achieve the dual objectives of boosting gross margin while offering compelling value to customers. DICK’s Sporting targets cutting down nearly 20% of its vendor list in fiscal 2017, to focus on strategic vendors that provide both online and offline business.

Final Thoughts

While all seems well with DICK’S Sporting, soft margins continue to hurt its performances due to highly promotional backdrop. Further, DICK’s Sporting’s excess inventory in the supply chain, broadened distribution strategies from some vendors and lack of innovation and novelty, is likely to keep margins under pressure. The aforementioned impediments are likely to hurt earnings per share for fiscal 2018 as much as 20%, compared with fiscal 2017 levels.

Nevertheless, DICK’S Sporting’s sturdy strategies and investments in ecommerce and private brands highlight its fundamental strength and are likely to drive market share gains in the future.

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