Dick’s Sporting Goods: The Prize for Survival

It’s good to go out on top, and Ed Stack should know. Stack announced he will retire as CEO of Dick’s Sporting Goods (NYSE:DKS) in February, after 36 years at the helm. His father was the eponymous Dick. But when Ed joined the “chain” it had just two stores. Now it has 850 and DKS stock is trading near a record.

An image of a Dick's Sporting Goods retail location
Source: Jonathan Weiss / Shutterstock.com

The company recently reported net income of $177 million, $1.84 per share fully diluted, on revenue of $2.4 billion for the quarter ending in October. The “whisper number” on earnings had been just $1.55 per share. Shares jumped from $56 before earnings to $58 on Nov. 25.

When Ed goes fishing, he’ll know where to go for his gear.

Hobart’s Hand

Dick’s ended the October quarter in a strong financial position, with $1.1 billion in cash and nothing drawn on its revolving credit.

The new boss is Lauren Hobart, who joined in 2011 after 14 years at Pepsico (NASDAQ:PEP).

Hobart, unlike Stack, who became CEO at age 29, starts with extensive experience. She once ran the marketing of Pepsi’s carbonated drinks and spent time at JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC). She has been president since 2017 and sits on the board of Yum Brands (NYSE:YUM).

With Hobart as president, Dick’s pivoted well to online sales, moving a lot of home fitness and athleisure apparel. The company now has clear leadership in its niche, following the bankruptcy of Modell’s. That followed the 2016 bankruptcies of Sports Authority and Sport Chalet and the 2019 bankruptcy of Gander Mountain. Dick’s participated in the consolidation, picking up Galyan’s in 2004, Golfsmith in 2016, and some of the G.I. Joe’s after its 2009 failure.

The $45 billion sporting goods industry has been shrinking for years, except in guns, a market Dick’s exited in 2019.

The “big box” has been taken over by the bigger box, Walmart (NYSE:WMT). The industry’s biggest player, Nike (NYSE:NKE), also cut out the middleman and gets 20% of its revenue directly from consumers. Amazon (NASDAQ:AMZN) and other online merchants also increased share.

Hobart’s Strategy

If we’re going into a new normal, Dick’s should be in for more growth. Dick’s stores are bigger, with more employees, and try-out areas like putting greens and baseball batting cages. But the chain also lets customers check shoe sizes and see inventory before they visit. It’s a classic omni-channel strategy that worked for Best Buy (NYSE:BBY).

Dick’s “Black Friday” sales began early as retailers stretch the day into weeks in order to limit crowding. Its Christmas ad focuses on e-commerce and takes place in a distribution center. It was created by Anamoly in New York.

But analysts see success and demand more. Fewer than half the analysts following Dick’s at Tipranks say buy it. The rest mostly have it as a hold, and one is screaming sell. The average one-year price target is just $5 ahead of its Nov. 25 price.

The Bottom Line on DKS Stock

At its Nov. 25 market cap of $5.2 billion, Dick’s sells for about 60% of its $8.7 billion in sales. Retailers have notoriously thin profit margins. Dick’s last year brought just 3.4% of sales to the net income line.

But Dick’s is a conservatively managed company. It’s the kind that adds ballast to a balanced portfolio. While the stock currently yields just 2.13%, the dividend has nearly tripled in the last five years. Despite analyst fears, income investors can buy it on dips and make money.

At the time of publication, Dana Blankenhorn had a long position in AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/dicks-sporting-goods-prize-for-survival-dks-stock/.

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