Amid inflation, the sporting goods market has struggled, with retailers like Academy Sports + Outdoors (ASO, Financial) and JD Sports Fashion (JDDSF, Financial) facing difficulties. However, Dick's Sporting Goods (DKS, Financial) defied this trend in Q2, achieving top and bottom-line beats on strong comparable sales growth. DKS also raised its FY25 EPS and comp growth guidance.
Why are shares falling? DKS left its FY25 revenue guidance at $13.1-13.2 billion. Management noted a calendar shift affecting Q3 sales and earnings due to earlier back-to-school sales. The dynamic economy also led DKS to remain conservative. With shares near all-time highs, expectations are high, making minor issues trigger profit-taking.
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DKS posted a significant earnings beat in Q2, with a 54.9% year-over-year increase to $4.37 per share, supported by a 7.6% rise in total sales to $3.47 billion and a 4.5% comp growth. EBIT margins surged by 380 bps year-over-year to 13.9%, driven by strong merchandise margins and lower shrink.
- Comp growth was fueled by a 3.5% increase in average ticket and a 1.0% rise in transactions. Footwear and athletic apparel were in high demand.
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DKS's store remodeling plans have been key to its strong performance. The company is building 100,000 square-foot "House of Sport" locations with features like batting cages and hockey rinks. Nineteen locations are planned by year's end. DKS is also revamping 50,000 square-foot stores, with four opened in Q2 and nine more planned for the year.
- Mall operators have observed increased traffic and sales per square foot where House of Sport locations are situated, highlighting their appeal.
- Ahead of the back-to-school and holiday shopping seasons, DKS ended Q2 with inventory 11% higher year-over-year, focusing on differentiated items and categories to drive growth into 2024 and early 2025. Consequently, it raised its EPS forecast to $13.55-13.90 from $13.35-13.75 and same-store sales growth outlook to 2.5-3.5% from 2.0-3.0%.
Although not reflected in today's stock price, DKS delivered an impressive Q2 performance, showcasing the success of its updated store layouts and focus on popular categories. DKS's commitment to enhancing the in-store shopping experience remains crucial, especially for sporting goods. Sharp pullbacks present attractive entry points for long-term investors.
