Dick’s Sporting Goods

DKS : NYSE : US$55.83
BUY 
Target: US$60.00

COMPANY DESCRIPTION:
Dick’s Sporting Goods operates as a sporting goods retailer in the United States. It provides apparel, athletic shoes and accessories for sports. It also engages in ecommerce and catalog operations. Dick’s Sporting Goods was founded in 1948 and is headquartered in Pennsylvania.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
LIMITED Q3 UPSIDE, YET GROWTH
THESIS REMAINS; MAINTAIN BUY
Investment recommendation
DKS will report Q3 results on 11/19 BMO. Despite recently elevated expectations, we see limited upside potential to our $0.38 (0% shifted comp) estimate vs. consensus at $0.39 based on our checks that suggest increased promotional activity was needed to spur traffic in the latter part of the quarter. While we believe footwear and apparel continued to
outperform aided by new UA, NKE, and North Face shops, we believe golf and exercise equipment continued to be drags on the business.

As  for gross margin, increased promotions coupled with DKS’ deliberate strategy to broaden its competitive position around opening price points could result in merchandise margin compression. As such we do not anticipate a change to guidance. That said, we are encouraged by the timely arrival of winter that has spurred traffic across retail and should help drive seasonal business at DKS. In our opinion, DKS continues to have a robust long term growth story, and with any normalization in weather patterns 2014 should present as an easy comparison. We maintain our BUY.
Investment highlights
 With ~68 NKE shops, 66 UA shops, and 80 North Face seasonal outposts opened in Q3, we expect  pparel/footwear to be additive to comp growth. We estimate UA alone added 1.3% to comp, while overall footwear likely benefitted from new running introductions.
 Golf, while expected to be only ~5% of Q3, is still facing headwinds as evidenced by weak Taylor Made results. Separately, we believe guns/ammo are beginning to decelerate as NCIS data was -2% y/y.

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