Shares of retailer Dick’s Sporting Goods (NYSE:DKS) popped conspicuously higher amid a soft session on Wall Street. With investors digesting concerns about ever-rising interest rates, DKS stock moved up about 1.5% in the early afternoon session. News broke that Dick’s would buy outdoor retailer Moosejaw from Walmart (NYSE:WMT). Although the development theoretically bodes well for footprint expansion, it also carries consumer economy risks.
According to the accompanying press release, the acquisition will expand Dick’s outdoor portfolio. Presently, its specialty retail brand Public Lands leads this segment. Further, the buyout will reaffirm Dick’s commitment to long-term business opportunities in the burgeoning multibillion-dollar outdoor category. Management expects the deal to close in March of this year.
Notably, the release did not include the cost of the deal. Per CNBC, Walmart purchased Moosejaw for $51 million in February 2017. As well, the news agency notes that the move represents a rare one for Dick’s. On paper, the acquisition should complement Moosejaw’s brick-and-mortar strengths with Dick’s acumen in the e-commerce space. Thus, the deal may be accretive for the chart performance of DKS stock.
Further, as CNBC pointed out, throughout the coronavirus pandemic, quarantining Americans gravitated toward outdoor activities. In this manner, they can enjoy much-needed time off while still significantly mitigating infection risk.
Key Advantages for DKS Stock
Almost certainly, Dick’s will attempt to tap into the positive momentum that the Covid-19 crisis engineered for the outdoor industry. Research from Penn State noted that during the pandemic, outdoor recreational activities increased 20%. This dynamic prompted the emergence of a new group of outdoor enthusiasts, noted CNBC.
Another advantage undergirding DKS stock centers on scale. A Walmart spokesperson told the news agency that Walmart leveraged its brand to bolster Moosejaw’s relevance. “While Moosejaw operated as a standalone business, it was able to leverage Walmart’s scale and customer reach to propel the Moosejaw Madness.” Dick’s hopes to achieve even better results as it already commands a substantial presence in the outdoor industry.
Finally, Moosejaw benefits from an enviable demographic dynamic. Specifically, its primary demo is the 18-to-24-years category. Combined with brand loyalty, Moosejaw can grow with its core customer base. Over time, this should help lift DKS stock.
Consumer Economy Concerns Weigh Heavily
Although DKS stock enjoys potential benefits from the deal, it also carries significant risks. Primarily, demand for the outdoor segment could be waning. According to Canada’s CBC last year, “[a]fter an abrupt spike in demand for outdoor recreation equipment during the COVID-19 pandemic, sporting goods stores in Ottawa and the Outaouais say business is gradually returning to pre-pandemic levels.”
Another concern for DKS stock centers on the expense associated with outdoor activities. With consumers facing pressures from historically high inflation, their motivation to open their wallets has diminished. As well, they may not necessarily go for branded products if generic ones will suit them just fine.
Finally, prospective investors of DKS stock should note that web traffic and engagement slipped significantly from October to December last year, according to Similarweb. Therefore, additional research may be necessary before diving in.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
