Dick's Sporting Goods (NYSE:DKS) has established itself as a market leader in sporting goods retailing. And though, like many rivals, its sales and earnings have suffered along with a plummet in consumer spending, its prospects remain solid, as does long-term share appreciation potential.
First Quarter Review
Net sales improved 5.2% to $959.7 million as the opening of nine namesake stores and a single Golf Galaxy location offset a 6% fall in same-store sales, which was made up of a 4.6% drop at Dick's and dreadful 19.7% fall at Golf Galaxy. The drop at Golf Galaxy mirrors the challenges that pure play golf club and accessory manufacturer Callaway Golf (NYSE:ELY) is seeing, as it reported a 26% fall in sales during its first quarter.
During the quarterly conference call, management detailed that outdoor, athletic footwear and golf sales at the Dick's stores were above the company average, while apparel and team sport merchandise came in below. It also cited hunting firearms and ammunition inventory as quite lean, with demand holding up quite well and perhaps indicative of a consumer spending environment that will remain focused on the bare necessities, such as food.
Competition and Costs
Regional rival Hibbett Sports (Nasdaq:HIBB) reported similar struggles as equipment comps fell and footwear grew. However, HIBB's apparel comparable sales were positive, and overall sales grew a much stronger 8.1% as total comps moved ahead 2.4%. Big 5 Sporting Goods (Nasdaq:BGFV), which operates in the West, reported negative total sales growth as comps also fell. Each of Dick's rivals pointed out that sales and profits came in ahead of expectations.
Dick's boasted that comps and earnings exceeded its previous guidance as inventory was under "tight control" and overall expense management helped income statement line items, such as selling and administrative costs, fall to 23.56% of sales. It still couldn't offset the top-line difficulties as it reported GAAP diluted earnings fell to 9 cents per diluted share, though this also came in ahead of estimates. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
Outlook
Management also increased the low end of its full-year guidance range. It now expects diluted earnings of 85 cents to 97 cents as comps should fall somewhere between 6% and 9% after a 4.8% increase for all of 2008. The current plan is to open 20 new Dick's stores, and one Golf Galaxy store was opened this quarter.
Bottom Line
Though some regional retailers are holding up slightly better than Dick's and big-box behemoths such as Wal-Mart (NYSE:WMT), it remains substantially bigger than the pure-play competition and sells plenty of merchandise that can't be found at more general retailers. Management also noted that certain smaller mom-and-pop sporting good shops have had to close their doors during the current downturn. This bodes well for Dick's which, despite a healthy appetite for acquiring rivals, sports a relatively small debt load as compared to total capital and can reasonably be expected to supplement organic growth with acquisitions. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
