DICK’S Sporting (DKS) Rides on Store Expansion Spree Amid Risks – June 16, 2023
DICK’S Sporting Goods Inc. (DCS – Free report) currently has a solid outlook based on the strength of its overall business, store expansion initiatives and strong operational execution. However, in an environment of high inflation, the company faced rising operating costs and expenses.
This Zacks company at #3 (Hold) has a market cap of $11.6 billion. Over the past six months, it’s grown 22.5% compared to industry growth of 2.2%.
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Let’s dive deeper.
Factors that favor DICK’S Sporting
DICK’S Sporting’s in-store performance has been impressive, starting with previously launched products DICK’S House of Sport, Golf Galaxy Performance Center, Public Lands and Going, Going, Gone! The company opened its third House of Sport store in Minnetonka, MN.
Two types of concept stores were also previously opened, namely OVERTIME by DICK’S Sporting Goods and DICK’S Sporting Goods Warehouse. The focus is on expanding the footprint of its Golf Galaxy business through the Golf Galaxy Performance Center and converting temporary value chain stores into permanent locations. In addition, more than 10 DICK’S House of Sport locations are under construction and are expected to open in 2024.
The company’s compelling assortment and structure transformation initiatives have proven beneficial. In the first quarter of fiscal 2023, DKS net sales were $2,842 million, up 5.3% year over year, driven by strength in its core categories. Consolidated comparable store revenue (comps) increased 3.4%, supported by an increase in transactions and higher average tickets.
Fueled by impressive quarterly results, DICK’S Sporting provided an upbeat guidance for fiscal 2023. For fiscal 2023, the company expects compensation to remain flat and increase by 2%. Adjusted earnings are expected to be $12.9 to $13.8 per share, including 20 cents for the 53rd week.
DKS believes in rewarding shareholders generously through dividend payouts and share buybacks. During the first quarter, it paid $105 million in dividends and repurchased 0.4 million shares for $57.7 million. At the end of the first quarter, the company had $1.4 billion remaining under its existing share repurchase authorization. Healthy cash flow should help provide shareholders with more value in the coming quarters.
Factors affecting the company
The company is witnessing the negative impact of rising costs and operating expenses. For example, selling expenses increased 5.7% year over year in the first quarter, while selling, general and administrative expenses increased 12.8%.
For the quarter, adjusted gross margin fell 28 basis points year over year to 36.2% in the first quarter, reflecting a weak merchandise margin. Rising costs and expenses, if left unchecked, could continue to impact margins and profitability in the coming quarters.
Stocks to consider
Some better rated stocks are BJ’s Wholesale Club Holdings, Inc. (BJ – free report) Arcos Dorados Holdings, Inc. (ARCO – Free report) and BARK, Inc. (BARK – free report). While BJ has a Zacks Rank #1 (Strong Buy), ARCO and BARK have a Zacks Rank #2 (Buy). You can see For the full list of today’s #1 Zacks stocks, click here.
BJ’s Wholesale offers general merchandise, gasoline, coupon books and other ancillary services. The Zacks consensus estimate for BJ’s fiscal year-to-date revenue points to growth of 5.4%, while earnings per share are expected to rise 311.8% over the corresponding prior-year numbers. The company’s average earnings surprise over the past four quarters has been 93%.
Arcos Dorados is a franchisee of McDonald’s restaurants. The Zacks consensus estimate for ARCO’s revenue and earnings per share for the current fiscal year points to growth of 13.4% and 4.4%, respectively, compared to the corresponding prior-year numbers. The company has posted earnings surprise averaging 23.5% over the past four quarters.
BARK is engaged in providing products, services and content for dogs. The Zacks consensus estimate for BARK’s fiscal-year sales points to a 2.4% decline, while earnings are expected to rise 80.7% from last year’s numbers. The company has posted earnings surprise averaging 10.4% over the past four quarters.