Can Dick's Sporting Goods Meet its Goals?
Josh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As Dick's Sporting Goods (NYSE: DKS) prepares to report earnings on Nov. 13, individual investors and institutional holders alike will be waiting to load up on company information heading into the 2012 holidays. With increasing competition and a marketplace that is constantly re-inventing itself, many challenges lie ahead for the sporting goods retailer.
Like any stock approaching its earnings date, it is our responsibility as investors to do our homework and get a firm grip on a company's long term vision. With this long term focus intact, earnings season can act as a benchmark for us to measure the company's progress. Today, I will take a look at a few of the most important things to watch for as Dick's Sporting Goods reports its earnings and gives an outlook towards the future.
Currently, analysts are expecting an average EPS of $.37 for the current quarter on revenue of $1.3 billion. This would represent about a 10% increase year over year for both EPS and revenue, but would actually be a slowdown in comparison to Dick's 5-year income growth rate of 19%. Topping these numbers would be great to see (shocking, I know), as the company recently revised guidance down to $.36.
However, the more important expectations could be in 2013, where analysts are looking for $2.88 EPS, which gives Dick's a forward P/E of 17.55--quite a discount to its current 24.25.
Short Term Goals
Shipping- With large aspirations of fighting off online competitors, Dick's Sporting Goods is looking to roll out a new "Pick-up-in-store" service in 2013. By developing this new shipping style, Dick's could cut down on shipping time for the customer, cut costs for themselves, boost inventory turnover, and increase margins all in one move.
In almost the exact opposite sense, Dick's is also currently testing out a new Ship-from-store delivery style. This would cut down shipping time by avoiding shipments from warehouses and would allow them to compete more directly with eBay and Amazon.
The implementation of these new shipping options could generate a generous boost in EPS for the nation's largest sports retailer. Definitely something to watch for next year.
E-Commerce- In September of 2012, Dick's Sporting Goods announced that it expects to triple its revenues in the E-Commerce segment of its operations in just 5 years. This translates to a 25% increase yearly, and could be a huge boon for driving revenue growth down the road, especially if it can implement its new shipping strategies.
Growing from $97.6 million in 2009 to $184.5 in 2011, Dick's has seen its E-Commerce business explode in percentage terms. Moreover, what is truly exciting about this growth is that it still only accounted for 4% of Dick's 2011 fiscal year sales. This leaves a substantial growth runway for Dick's Sporting Goods if it can effectively market and ship its products down the road.
Look for continued growth in this segment, as it is one of the company's major growth drivers. This E-Commerce growth could help push items that don't necessarily need to be bought in person at the store (golf tees, golf balls, repeat purchases, etc.).
Long Term Goals
Store Expansion- With 490 stores built in 44 states as of late July, Dick's Sporting Goods has plenty of room to grow across the southern and western parts of America. With 142 new stores targeted to be built in Florida, Texas, and California alone, the growth runway can quite clearly be seen.
In addition to these 3 states, Dick's provided insight that they believe America's nationwide store potential is over 900 stores, or an almost 90% jump from their current number. This does not include Dick's second line of stores, Golf Galaxy, which they currently have 81 of.
Storefront expansion is a number to keep a close eye on as the company continues to reach its target of 900 or more stores nationwide. With updates coming out quarterly, it'll be clear to see how fast it is going to try to expand.
Dividend Growth and Share Repurchases- With a new $.125 quarterly dividend being distributed just prior to 2012 and the recent completion of a $200 million share repurchase program, Dick's has begun to greatly reward investors for their ownership. At 1%, their dividend is not ground breaking, but with any future dividend growth it could become a great source of income.
As for the share repurchases, I believe that if they are utilized at lower prices, they could also be a huge boost to EPS. However, with the stock price going from $10 to $50 in less than 4 years, it is tough to say when the stock looks truly cheap.
Dominate the Competition- With a variety of direct competitors, such as Hibbett Sports (NASDAQ: HIBB), Foot Locker (NYSE: FL), and Finish Line (NASDAQ: FINL), Dick's is in a crowded marketplace. With its expansion plans, Dick's is looking to enter Hibbett Sports' territory, which could be a hard feat to pull off. Operating 837 stores, Hibbett is prominent throughout the South and Midwest, areas Dick's still has yet to fully saturate. Furthermore, Hibbett boasts an 8% profit margin, 3 points higher than Dick's, and is growing its EPS at an 18% clip over the last 5 years.
In a very similar case, the Pacific Coast-based Big 5 Sporting Goods (NASDAQ: BGFV) will be fighting Dick's Sporting Goods as it moves onto the West Coast. However, having 100 less stores than Dick's and only $5 million in cash versus Dick's $350 million, it will be very difficult for them to slow down the nation's largest sports retailer.
Furthermore, with Foot Locker and Finish Line, the focus is more closely tied (sorry) to shoes, but is still equally as important as they share many of the same brands. It is essential for Dick's to continue pressuring these peers, as they not only have to beat them, but outperform their fringe competitors Wal-mart, Target, Bass Pro Shops, Cabela's, superstores in general, and various private entities as well.
With these facts on hand, I am looking forward to the upcoming earnings report on the 13th. By considering these goals, both Dick's Sporting Goods' and my own, I will be able to make an informed decision and determine if Dick's valuations warrant a position in my portfolio.
joryko has no positions in the stocks mentioned above. The Motley Fool owns shares of Dick's Sporting Goods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.