NYSE : US$56.67
BUY Target: US$67.00
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 e-commerce and catalog operations. Dick’s Sporting Goods was founded in 1948 and is headquartered in Pennsylvania
Consumer & Retail — Footwear and Apparel FLEXING ITS MUSCLE ACROSS ALL ASPECTS OF ITS BUSINESS: REITERATE BUY, NEW $67 PT
Consistent with its preannouncement on February 10th, DKS reported Q4 EPS of $1.11 on a very healthy 7.3% comp (traffic +6.3% and ticket +1.6%) with merchandise margins up 33bps. We are most impressed with the strength of DKS’ e-commerce business (+53% in Q4) as well as its improving profitability profile, dispelling the fears of online competition eroding its share. As we look to 2014, the initial Q1 guidance (3%-4% comps and EPS of 51c-53c) looks appropriately conservative given tough weather dynamic with potential upside coming from apparel and footwear (UA/NKE predominately). We view the planned space allocation changes that will shift to higher margin/higher return categories (e.g. women’s/kids apparel) positively. These space changes will be completed ahead of back to school, suggesting potential upside to 2H comps and margins. Undoubtedly, DKS is operating well, and with strengthening aspects of its business (e-commerce, in-store comps, and its margin profile) we reiterate our BUY rating and $67 price target.
While e-commerce profitability is below that of stores (largely due to the fees it pays GSI), it is improving and should eclipse that of stores in 2017 (when the GSI contract terminates). Today, incremental improvements in fulfillment (ship from store, pick up in store, etc.) are already helping and should keep pace with the growth of e- commerce sales. That said, DKS continues to invest (-3c to 2014 EPS) in the multi-banner infrastructure of this important platform