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Sunday, April 21, 2024
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Dick’s Crushes Quarterly Earnings, Again

  • Over the past 12 months, Dick's Sporting Goods has outperformed most major tech stocks.
  • The company has seen its share price increase 147% under the leadership of Lauren Hobart.
Design: Alex Brooks

A few years ago, Dick’s Sporting Goods ran an ad campaign called “Play Like You Own It” — and, oh boy, have they taken those words to heart recently.

Last Tuesday, Dick’s reported net sales of $3.27 billion for the second quarter of 2021, an increase of 21% compared to Q2 2020 and 45% compared to Q2 2019.

While the topline sales numbers are impressive, the quarter marked wins across the board:

  • Revenue: The $3.27 billion in revenue was driven by increased e-commerce sales and the ability to fulfill orders in-house and reduce associated costs. 
  • Net Income: The company’s net income reached $495.5 million in Q2 2021, up from $276.8 million during the same period last year. 
  • Earnings Per Share: $5.08 adjusted vs. the $2.80 expected by The Street. 
  • Share Price: As of Friday’s close, the company’s stock reached $138.50, a 24% increase on the year and a 147% increase for the past 12 months. 

Big box sport retailers all over have been reaping the rewards of pandemic-fueled consumer trends.

Academy Sports, Hibbett Sports, and Big 5 Sporting Goods each posted high double-digit growth for their respective quarterly earnings, too. The retailers have generally posted strong omnichannel sales — not relying solely on growth in the e-commerce space as many had anticipated.

Apparel, shoes, and equipment make up the bulk of the sales volume for these retailers. Those items may not carry the same edge as, say, Peloton’s digital, subscription-based product offering, but their success over the past 12 months is undeniable. 

Just How Well Has Dick’s Performed?

Pretty freaking well.

If you were to compare Dick’s returns from the past year against Peloton, Facebook, Amazon, Apple, Netflix, Google, and even Tesla, Dick’s has outperformed all of those companies by at least 75%. Take a look at the exact returns:

Dick’s: 147% 

Google: 72%

Peloton: 70%

Tesla: 63%

Nike: 49%

Facebook: 0.47%

Amazon: -1.65%

The tailwinds related to consumer health and wellness and participation in outdoor activities have been strong enough to support Dick’s stock reaching all-time highs, but the company also struck while the iron was hot on another trend: athleisure.

In March, the company men’s athleisure brand VRST, hoping to take on the $83 billion market with its own product offering. According to the NPD Group, men’s activewear accounted for 45% of the total men’s apparel market in 2020, compared to 39% in 2019. In 2020, in-house brands made up about 14% of Dick’s $9.8 billion in revenue.

Athleisure, e-commerce, innovative brick-and-mortar, and consumer tailwinds have all played significant roles in the growth trajectory for the company. But can it be sustained?

Bull Case

The bull narrative for Dick’s has both macro economic and company level factors that make it promising.

The macro components stem largely from the fact that the world is changing, Dick’s is well-positioned, and the overall market for sports and wellness is growing:

  • Secular Changes: At the end of 2020, the Cleveland Clinic conducted a survey to determine behavior changes related to the pandemic. 62% of respondents stated they would be increasing their overall level of fitness. These lifestyle factors, coupled with the fact that wearables and connected fitness are having a moment, will prove beneficial to Dick’s in the long run.
  • Dick’s is the Apex Predator: If the macro shift truly is secular, then Dick’s is in a good spot to capitalize on the shift. As it currently stands, Dick’s has $2.24 billion in cash and equivalents on its balance sheet with another $1.86 billion of undrawn credit on its revolving facility. As brick-and-mortar retail consolidates, Dick’s can use its war chest of cash to build out its asset base through acquisitions. The company also has the ability to double down on its new distribution model of utilizing its own stores as shipping hubs to cut costs. Investing in core competencies will be critical to Dick’s continuing its growth trajectory.

From the company level — higher margins, accelerated e-commerce, and “new concepts” will be drivers of growth in the future:

  • Margin Expansion: On Tuesday’s earnings call, the company noted that it would be shifting its product mix away from lower-margin guns and hunting equipment and place a heavy emphasis on higher-margin women’s apparel and shoes. Margins will also be improved by the company’s new practice of curbside pickups, which cuts shipping costs and increases order fulfillment. Dick’s will also be able to renegotiate two-thirds of its operating leases in the next five years, potentially further decreasing costs.
  • E-commerce: DTC sales through e-commerce are becoming industry standard and Dick’s has built a robust infrastructure to take advantage. When comparing current figures to 2019 (and ignoring the anomalous figures from 2020), the company increased both total sales percentage and its sales mix by 111% and 6%, respectively. A shift to e-commerce and a heavy emphasis on in-house brands will allow Dick’s to grow into a new channel while still maintaining their strong market share in brick-and-mortar sales. E-commerce will also help the company build a moat against competitors like Nike and Adidas who are looking to shift to DTC models of their own. 
  • New Initiatives: The company recently opened an experiential “House of Sport” store in the Rochester, New York area to test out various new features. Features that perform will be implemented into the broader Dick’s ecosystem, with concepts such as wall climbing and batting cages possibly being added to more stores. A second “House of Sport” opened in Knoxville, Tenn. in June. The company is betting heavily on the value of high-quality retail experiences in the near future.

The Final Word

Big box retail tends to feel like an industry of the past. With the number of high-caliber DTC brands rising every day, it seems as though the old model might be slowly put out to pasture. Dick’s, however, has found a strong middle ground upon which to plant its flag.

While the company has utilized astute distribution and logistics tactics to maintain much of its core business, it has also leaned heavily into the channel that could prove to be its biggest challenge from competitors — DTC.

The growth of Dick’s in-house brands could ultimately prove to be the silver bullet needed to ward off its competitors while also helping drive growth. Only time will tell.

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