Dick’s Sporting Goods set to continue ‘outperformance,’ says analyst

By James Rogers

Shares of the retailer rose on better-than-expected earnings and a resilient outlook

An aggressive approach to inventories helped Dick’s Sporting Goods Inc. deliver better-than-expected fourth-quarter results and a resilient outlook on Tuesday, sending shares of the retailer higher.

Dick’s Sporting Goods (DKS) stock rose 9.8% Tuesday, compared to a 1.5% decline in the S&P 500. The company’s stock is up 20.7% this year, beating the S&P 500’s 3.9% gain.

“[Dick’s] delivered much better than expected [fourth-quarter 2022] comp, aggressively cleared inventories to end the quarter up 23% versus +35% last quarter and 49% at mid-year,” wrote DA Davidson analyst Michael Baker in a note published on Thursday. DA Davidson has a buy recommendation for Dick’s Sporting Goods.

Related: Dick’s Sporting Goods shares rise, supported by strong fourth-quarter results, robust outlook

While the retailer’s inventory push resulted in lower-than-expected gross margins and operating margins, Baker said these were more than offset by sales growth. With that in mind, Dick’s Sporting Goods more than doubled its quarterly dividend to $1 per share.

“[Dick’s Sporting Goods] Chairman Ed Stack suggests the dividend increase is a sign of structurally higher sales and earnings, which is a key component of our buy thesis [Dick’s]’ Baker wrote.

The analyst also notes that the company’s stock has risen dramatically since retail stocks bottomed in mid-2022. The stock is up 106% since May 24. “Even so, the stock is trading at just 11.2 times consensus estimates, which is likely to rise,” Baker wrote. “We believe this pressure should continue to support outperformance.”

Related: Dick’s Sporting Goods will sidestep weakness in retail spending, analysts say

Ahead of the results, analysts had predicted that Dick’s Sporting Goods would sidestep the pullback in discretionary spending that has hit many retailers this earnings season.

Of 27 analysts polled by FactSet, 13 have an overweight or buy rating, 13 have a hold rating and one has an underweight rating on Dick’s Sporting Goods.

-James Rogers


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03-07-23 1411ET

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