But at the same time, it also pays to consider the four factors that have led to poor stock price performance in the specialty retail sector:
- Multiple competitors within the industry,
- Additional competition from non-dedicated bricks-and-mortar retailers, such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT),
- A rising competitive threat from Amazon or other internet retailers, and
- A lack of specialization.
This is the same combination that has weighed on book stores such as Barnes & Noble (NYSE:BKS) and Borders; the office-supply retailers Staples (NASDAQ:SPLS), Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX); and the electronics stores Circuit City, Best Buy (NYSE:BBY), hhgregg (NYSE:HGG) and RadioShack (NYSE:RSH). Among those that have survived, all have delivered returns sharply below that of the broader retail sector in the past two years:
Dick’s shares may be working now, but the company faces the similar four-pronged threat as the other retailers that have fallen by the wayside in recent years. The fourth issue — lack of specialization — is key here. The stocks mentioned offered little in the way of specialization to bring shoppers in the door and prevent “showrooming.” Conversely, PetSmart (NASDAQ:PETM) has fended off the first three problems by continuing to provide shoppers with a reason to visit their physical locations rather than taking their business online. Dick’s — which offers no such incentive due to its lackluster in-store shopping experience — is closer to Best Buy than it is PetSmart.
This isn’t the only problem. Dick’s same-store sales growth and average sales per store and square foot (all available here) are at levels that indicate new store openings will be the key to the company’s success. But here, too, the company faces danger — in this case, the potential for saturation. The outlook is therefore spotty even if Amazon doesn’t invade the sporting goods space.
Put it all together, and Dick’s looks like a case where investors would be wise not to ignore the lesson of history. Once a specialty retailer begins to face competition from too many directions, it spells trouble for both margins and market performance. Look for DKS to trade lower in the next 12 to 24 months.