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Dick’s Sporting Goods Overcomes Tariff Threat; Retail Set To Shine

Posted on Tuesday, November 26th, 2019 by Thomas Hughes

Dick’s Sporting Goods (DKS) has been under pressure all year. The threat of trade war and tariffs overshadowed the company’s earnings potential but that is over now. Dicks reported earnings this morning and now the stock is up more than 20%. If there was ever a time to buy retail this is it.

Going into the report analysts had been expecting Dicks to post modest revenue growth, about 2.7%. The actual results were much better than forecast and exactly double the forecast. The strength in revenue trickled down to the bottom line leaving EPS at $0.52 per share of $0.14 above the consensus.

For anyone worried about traffic, comps rose by 6.0% and also twice the consensus. Along with an increase in traffic the company also saw an increase in ticket average and an improvement in margins.

Guidance for the full year was increased for the 3rd time this year due to the 3Q strength. The company is now expecting 2019 EPS in the range of $3.63 to $3.73 and well above the consensus. Company CEO Edward Stack is very optimistic about the 4th quarter/holiday shopping season so there is a real chance the guidance is still too low.

From the 3Q press release

"We are very pleased with our strong third-quarter results, as we delivered a 6.0% comp sales increase and meaningful gross margin expansion. We saw increases in both average ticket and transactions, as well as growth across each of our three primary categories of hardlines, apparel and footwear," said Edward W. Stack, Chairman and Chief Executive Officer. "As we head into the holiday season, we remain very enthusiastic about our business, and we are pleased to increase our full-year sales and earnings outlook for the third time this year.”

What makes the results so powerful is that the analysts had been expecting strength, but not quite this much. At least 15 of the 20 or so sell-side analysts that track the stock had upped their ratings and/or price target in the 90 days leading up to the release. With guidance on the rise, the analysts will have to reevaluate their positions and this means another round of upgrades to drive prices higher.

Dick’s Sporting Goods, The Technical Outlook

Shares of DKS began moving immediately after the 3Q earnings were released. The initial surge in prices resulted in a gap-up at the open and that was only the beginning of today’s rally. By midday, the stock was up 20% on more than 12X average daily volume. The $48 level may provide some resistance to higher prices but, based on the outlook, it is not likely to last long.

Dick’s Sporting Goods Overcomes Tariff Threat; Retail Set To Shine

Dick’s Is Not The Only Retailer To Shine 

Dick’s is not the only retailer to post stellar 3Q results. Reports from Chico’s FAS (CHS) and Best Buy (BBY) point to solid gains among apparel and electronics retailers.

Chico’s FAS reported a small YOY decline in comps, revenue, and earnings but a much smaller decline than forecast. The news investors are keying in on is the 10% sequential improvement in comp sales that proves the company’s turnaround efforts are bearing fruit. Chico’s also updated its guidance for the full year to account for 3Q results and expectations for the 4th quarter. Shares of CHS are up 15% on the day and confirm a reversal that has been underway since late summer.

Dick’s Sporting Goods Overcomes Tariff Threat; Retail Set To Shine

Shares of Best Buy are up more than 11% after the company blew past 3rd quarter consensus, raised guidance for the full year, and gave an upbeat view of the holiday season. Guidance for the year is now $5.81 to $5.91, a full nickel above the previous range and above the current consensus. The share price is up on more than 4X average daily volume, well above the previous one year high, and well on their way to breaking out to a new all-time high.

Dick’s Sporting Goods Overcomes Tariff Threat; Retail Set To Shine

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