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Know Why You Should Hold on to DICK’S Sporting (DKS) Stock


DICK’S Sporting Goods Inc. DKS has been a good investment choice for quite a while now, with shares showing solid momentum. This stock’s momentum can be mostly attributed to the company’s progress on strategic initiatives which aided bottom-line beat in recent quarters.

Notably, this Zacks Rank #3 (Hold) stock surged 6.7% in the past month, against the industry’s decline of 2.3%. Moreover, the stock has returned a solid 41.1% in the last six months, indicative of the positive sentiment.

However, we cannot ignore the near-term headwinds that may bother the stock’s growth. These mainly include the softness in hunting and electronic categories as well as the continued decline of margins. That said, let’s analyze why we should retain the stock at this time.

Strategic Initiatives Drive Stock’s Momentum

DICK’S Sporting has been the prime beneficiary of its strategic actions which continually focus on generating greater sales. Apart from strengthening store network, the company remains on track to expand the e-commerce business. Notably, e-commerce penetration improved 19% of net sales from 17.9% in the prior-year quarter. Moreover, e-commerce sales grew 9% year over year, driven by its first successful holiday season on the new web platform.

As part of the long-term plan, the company plans to make significant investments in e-commerce, technology, store payroll, Team Sports HQ and private brands. This reinforces its confidence in driving market share growth in fiscal 2018. Further, these endeavors are likely to enrich customers’ experience and augment the top line.

Focus on Merchandising

DICK’S Sporting is progressing well with its merchandising strategy (announced in fourth-quarter fiscal 2016), which is all about optimizing inventory to make shelves available for popular- and private-label brands. Further, it plans to invest in the supply chain to improve in-stock levels and speed-up delivery. These investments will not only improve customer satisfaction and inventory turnover but also boost merchandise margin rates.

Robust Earnings Trend & Outlook

DICK’S Sporting’s aforementioned initiatives significantly aided earnings performance as is evident from the robust surprise history. It delivered second straight positive earnings surprise in fourth-quarter fiscal 2017. Moreover, it topped estimates for the sixth time in the last eight quarters. Results gained from strengthening of Team Sports, footwear, outdoor equipment and private-brands businesses alongside solid e-commerce growth.

DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise

DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise | DICK'S Sporting Goods, Inc. Quote

Going into 2018, the company expects greater product innovation from its key partners and expansion of the private brands business to ease margin pressures. Further, it plans to make significant investments in the business as it remains confident about the long-term potential and tremendous opportunities in the evolving industry. For fiscal 2018, management projects earnings of nearly $2.83 per share.

Estimates Trend Up

The aforementioned positivity on the stock is further justified by the positive estimate revisions witnessed in a month’s span. Notably, the Zacks Consensus Estimate for the first quarter and fiscal 2018 climbed 6 cents and 14 cents, respectively, to 43 cents per share and $2.91 per share. Moreover, estimates for fiscal 2019 reflect a gain of 5 cents to $3.10 per share.

Near-Term Hurdles

Though the company’s bottom-line performance has been impressive, top line lagged estimates in the last reported quarter due to soft comparable store sales (comps). Additionally, continued softness in the hunting and electronic categories has been perils for top-line growth. Further, the company expects the hunting and firearm, as well as electronics businesses, to experience headwinds throughout 2018, which will hurt the top line. The hunting and firearm business will continue to be impacted by the recent changes to the company’s firearm policies while the electronics business will be hurt by reduced exposure.

Moreover, the company’s margins continue to be strained due to shrinking sales and increased promotions among others. Going forward, the company expects greater product innovation from its key partners and further expansion of its private brands business to lower margin pressures than previously anticipated. However, the company still expects margins to remain negative.

Looking for More Promising Picks? Check These

Some better-ranked stocks in the retail sector include KAR Auction Services, Inc KAR, The Gap Inc. GPS and Nordstrom Inc. JWN. KAR Auction Services sports a Zacks Rank #1 (Strong Buy) while Gap and Nordstrom carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KAR Auction, with long-term earnings growth rate of 11%, has gained 13.7% in the last six months.

Gap has delivered an average positive earnings surprise of 11.1% in the trailing four quarters. It has long-term earnings growth rate of 8%.

Nordstrom has long-term EPS growth rate of 6%. Further, the stock has returned 14.9% in the last six months.

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