DKS report - Zacks Investment Research



Dick’s Sporting Goods Inc. |(DKS – NYSE) |$50.04 | |

Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: Flash Update: Store Open

Prev. Ed.: Jun 19, 2013, 1Q13 Earnings Update

Flash News Update

On Jul 8, 2013, DICK’S Sporting Goods took another small step in its store expansion plan by announcing the opening a new outlet at Chico Mall in Chico, Calif. Celebrations to mark the store’s opening will begin on Jul 12, and last through the weekend.

MORE DETAILS WILL COME IN THE IMMIMENT EDITIONS OF ZACKS RD REPORTS ON DKS.

Portfolio Manager Executive Summary [Note: only highlighted material has been changed]

Dick's Sporting Goods Inc. (DKS), a sporting goods retailer, together with its subsidiaries, offers sporting goods equipment, apparel, and footwear for men, women, and children.

Of the 22 firms in the Digest group covering the stock, 16 assigned positive ratings and 6 firms rendered neutral ratings, while none of the firms provided a negative rating on the stock.

The following are the summarized opinions of the diverse brokerage viewpoints:

Positive or equivalent (72.7%; 16/22 firms): The firms remain impressed by DKS’ strong quarterly performance characterized by robust same-store sales growth, on the basis of regained strength in sales compared with last year, impressive gross margin and aggressive capital allocation. The company’s prospects seem bright with expansion in merchandise margin, improvement in earnings outlook and better-than-expected sales trends. Simultaneously, the company is strengthening its e-Commerce business with the rollout of DKS’s ship-from-store scheme, driving product availability and improved margins.

Overall, the firms prefer DKS for its health and wellness trends, product innovation and company-specific sales and margin drivers. The firms believe that the company’s private label initiatives and more disciplined markdown strategy are expected to help sustain margin expansion over the next several years. Further, the company continues to build a strong vendor relationship, bringing in an element of exclusivity and driving more favorable mix dynamics, shielding the company against online competition. This also drives incremental sales as DKS continues to roll out its ‘store within a store program’ with Nike, Under Armour and The North Face and is developing a Nike micro-site within its e-Commerce site.

The firms note that Dick’s Sporting is ranked higher in the list of the best performing companies in 2012 based on its favorable sales and margin dynamics for the near and longer term. Primary drivers for the future include leading footage growth potential, acquiring established brands, developing and testing retail concepts, launching e-Commerce technologies and creating new marketing strategies.

Neutral or equivalent (27.3%; 6/22 firms): The firms with a neutral stance believe that Dick's Sporting distinguishes itself with its best-in-class performance, reporting positive comps, while expanding merchandise margins. While the neutrally biased firms remain impressed by the company’s long-term top-line growth and margin expansion opportunities, some of them remain concerned about the company’s inventory, undefined capital allocation and core DKS comps growth.

The firms believe DKS’s competitive position, quality of management, and consistency of earnings growth have justified a premium to industry multiples.

On the flip side, the firms note that a major long-term risk Dick’s Sporting might face is a potential product overlap and a price premium to online competition. Additionally, the firms believe that the stock could be vulnerable to further pressure resulting from deteriorating macroeconomic conditions impacting the entire industry, cannibalization of sales, higher borrowing costs, and the continued risk of promotional pressure in the near future, as the industry consolidates.

June 19, 2013

Overview [Note: only highlighted material has been changed]

The firms identified the following factors for evaluating the investment merits of DKS:

|Key Positive Arguments |Key Negative Arguments |

|Dick's Sporting is the best specialty concept among large-format sporting |Option expenses are heavy for DKS and can affect the company negatively. |

|goods’ retailers. The company has a greater mix of high-end merchandise |Dick's Sporting faces increased competition in both sporting goods and |

|categories, where it seeks to maximize its brand potential. |mass merchant categories. |

|With scope for growth and apparently no serious near-term threats to its |Any marked slowdown in the athletic performance apparel market is |

|core big box, DKS has the possibility of becoming one of the big growth |expected to negatively impact DKS’ sales trends. |

|stories in retailing. |Logistics and distribution are becoming more difficult as the company |

|Dick’s remains well positioned to gain market share as it leverages its big|expands. |

|box positioning with key vendors, continues to expand its proprietary | |

|product assortments, and maintains its superior presentation. | |

Pittsburgh-based Dick's Sporting Goods Inc. is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel, and footwear in a specialty store environment. As of May 4, 2013, the company operated 520 Dick's Sporting Goods stores in 44 states, and 81 Golf Galaxy stores in 30 states. Dick’s also owns e-Commerce websites and catalog operations for Dick's Sporting Goods and Golf Galaxy. Its website is . The company’s fiscal year ends on Jan 31.

June 19, 2013

Long-Term Growth [Note: only highlighted material has been changed]

The firms believe that DKS continues to maintain its position as the best-in-class retailer. Further, the company will experience growth in share price throughout the year due to its strong top line and earnings performance. Based on these, investors are becoming more confident about DKS's ability to accelerate store growth relative to its peers over the next couple of years.

Overall, Dick's Sporting Goods continues to be the finest performer, with strong square footage growth, less exposure to fashion trends than other specialty retailers, and a strong brand offering with Under Armour, The North Face, and Nike. Significant room for growth exists in several populous states (relatively a few stores in Calif., Texas, and Fla.). The firms forecast mid-teens square footage growth over the next several years, as Dick’s expands into new markets in the western part of the United States as well as the existing markets.

Dick’s Sporting drives growth by expanding its store base, strengthening its e-Commerce business, and continuing to develop its margin rate accelerators. On the stores front, the company has initiated a new store growth strategy of expanding into smaller markets. This new strategy provides a range of new expansion opportunities for the company and has led to an alteration of the company’s store growth target in the U.S. to over 1,100 stores from the earlier goal of about 900 stores.

Further, the company is making remarkable progress in its e-Commerce business, where it is on track to implement new capabilities that will improve the profitability of this business.

Latest development in the company’s e-Commerce initiatives is the ship-from-store program, which is progressing well. The firms believe the company’s e-Commerce sales will largely improve from this initiative as it significantly lowers the delivery time.

Looking ahead, the company’s strategy to drive sustained long-term growth will be based on investing in new stores, consistently building its omni-channel capabilities, boosting margins through inventory management, increasing the prominence of private brands and relentlessly shifting its product mix to higher-margin merchandise categories.

Dick’s Sporting is focusing on achieving 20% margin growth in the next several years. Of late, an excellent product mix and effective inventory management have been the leading contributors to growth in merchandise margins.

In order to augment its private labels and brands portfolio, the company has been continuously looking for lucrative acquisition deals. Earlier this year, it entered into one such deal, agreeing to buy the intellectual property rights to the Field & Stream brand, following the acquisition of Top-Flite brand last year. Longer term, the firms believe these acquisitions would enable the company to achieve its strategic goal of increasing private-brand penetration. Management aims to grow private brands to 20% of sales from the existing 15% of sales in the next three to five years.

The firms believe that DKS is the best long-term growth story in hardlines retail. The company has the opportunity to more than double its current store base. Dick’s Sporting’s stores feature the best shopping experience in the segment and its relationship with vendors continues to improve. The firms expect DKS to look for additional opportunities to reaccelerate store growth.

June 19, 2013

Target Price/Valuation [Note: only highlighted material has been changed]

|Rating Distribution |

|Positive |72.7%( |

|Neutral |27.3%( |

|Negative |0.0% |

|Avg. Target Price |$59.00( |

|Maximum Target |$63.00 |

|Minimum Target |$57.00( |

|No. of Analysts with Target Price/Total |17/22 |

Risks to the target price include inability to identify and obtain appropriate store locations; logistical issues caused by geographic expansion; inability to adapt to changes in consumer tastes; inability to effectively integrate and operate acquired Golf Galaxy and Chick’s stores; consumer weakness due to macroeconomic factors; relatively high debt levels; competition in the space; logistics and distribution becoming potentially more difficult as the company expands and potentially higher interest rates hurting valuations.

Recent Events [Note: only highlighted material has been changed]

On Jun 14, 2013, Dick's Sporting announced the addition of a new store in Florida at the Cordova Mall in Pensacola. Located at the Cordova Mall, 5100 N 9th Avenue, this will be Dick’s Sporting’s 22nd store in Florida and its 524th store across the country. This latest store’s offerings will include over 40 convenient in-store services carried out by DICK'S certified PROS in Golf, Bike, Hunting, Fishing, Team Sports and many more. The store will cater to the needs of athletes of all ages in the Pensacola community, enabling them enhance their skills.

On Jun 4, 2013, Dick's Sporting announced its plans to open a new store at the East Washington Place in Petaluma, California. The store commenced operations from Jun 7. Located at the new East Washington Place, 401 Kenilworth Drive, Suite 1030, this store will be Dick’s Sporting’s 28th store in California and its 523rd store across the country. This latest store’s offerings will include over 40 convenient in-store services carried out by DICK'S certified PROS in Golf, Bike, Hunting, Fishing, Team Sports and many more.

On May 21, 2013, Dick's Sporting Goods reported 1Q13 earnings per share of $0.48 a share, up 6.7% from the year-ago level and in line with the midpoint of the company’s guidance range of $0.47–$0.49 per share. The quarterly earnings also remain in line with the Zacks Consensus Estimate of $0.48 per share. During 1Q13, net sales grew 4.1% to $1,333.7 million, but fell short of the Zacks Consensus Estimate of $1,368.0 million.

Revenue [Note: only highlighted material has been changed]

Provided below is a summary of total revenue as per Zacks Digest:

|Revenue ($ M) |1Q12A |

|Copy Editor |Sumit Singh |

|Content Ed. |Sumit Singh |

|Lead Analyst |Sumit Singh |

|QCA |Sumit Singh |

|No. of brokers reported/Total | |

|brokers | |

|Reason for Update |Flash |

-----------------------

July 8, 2013

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download