Image Source: Dick’s Sporting Goods
By Brian Nelson, CFA
When it comes to retail exposure, Dick’s Sporting Goods (DKS) is one of our top considerations. The company reported strong first-quarter fiscal 2023 results for the period ending April 29, 2023, that showed 3.4% same-store-sales growth and a 19% advance in non-GAAP earnings per diluted share. For fiscal 2023, management is targeting positive same-store sales expansion and earnings per diluted share in the range of $12.90-$13.80, implying that shares are trading at less than 10x expected fiscal 2023 earnings. The company has considerable long-term operating lease liabilities, but it has a net cash position. Dick’s Sporting Goods raised its dividend considerably recently, and we continue to like shares in the Dividend Growth Newsletter portfolio.
Image Source: Dick’s Sporting Goods
The athlete today has never been better equipped. Youth sports is hardly anything like it was 20-30 years ago when baseball teams used to share a couple old bats and a few hand-me-down helmets that were 5-10 years old. Today, youth baseball players have their own bats, their own helmets, and some even have two bats. This isn’t only 15-18 year-old high school players with such personal equipment, but rather 8-14 year old kids, too. Dick’s Sporting Goods has benefited from trends such as these across all sports, and parents are all-too willing to keep forking over the cash for the latest and greatest gear and equipment (and instruction) for their kids to stay included in the “community.” Even as some sports face declining participation rates, those that stay in the sport are spending more and more each and every year, and Dick’s Sporting Goods is meeting their demands.
Across footwear, apparel and hardlines, we’re looking at a $140 billion total addressable market for Dick’s Sporting Goods, and it only has an estimated ~8% share at this time. We expect the company to continue to drive share gains, perhaps a percentage point or two every few years or so (with the biggest gains in the ‘outdoor’ category), and by our estimates, we think it could command as much as 15% of this market in the long run. It all comes back to its differentiated product assortment, brand engagement and growth (e.g. Yeti, adidas, Columbia, Nike, Marucci and the like), and how it offers an appealing athletic experience from visual presentation to enhanced service and in-store technology and beyond. For one, those looking to try out a new baseball bat can go into The Cage and take some hacks to find exactly the feel they want for their swing.
Image Source: Dick’s Sporting Goods
The company’s ‘GameChanger’ app continues to put its brand in front of youngsters, too, building brand awareness. We view ‘GameChanger’ as the Brownie camera of our day: “Plant the Brownie acorn and the Kodak oak will grow.” In the coming decades, those kids that were hooked on watching ‘GameChanger’ for updates will have Dick’s Sporting Goods top of mind when looking for some new gear or equipment, and the company is delivering in ways that they want either via in-person at its stores, curbside pick-up, or traditional delivery. The company estimates that omni-channel athletes represented more than 65% of sales and were twice as valuable as single-channel athletes. Dick’s Sporting Goods has found a unique way to connect with today’s athlete, and its economic moat will only grow stronger as today’s younger generation become the adult volunteers of tomorrow’s sporting events. We’re sticking with Dick’s Sporting Goods for the long run.
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Tickerized for holdings in the DKS, HIBB, NKE, YETI, ASO, FL, ADDYY, UA, UAA, GOLF, MODG, BGFV, SPWH, HBI, PMMAF, FIGS, LULU, BFIT, PTON, COLM.
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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