Dick’s Is Growing But The Comps Are Getting Harder
There is a reality check going on in the market and Dick’s Sporting Goods (NYSE:DKS) is only another example. The later-reporting company’s, the ones whose Q4 seasons overlap the calendar Q1 period, are foreshadowing a lackluster Q1 reporting season. We know it’s still more than a month until the big banks kick off the peak of the season but it’s not too soon to be on alert. The good news is that the outlook for 2021 is good, the problem is that we’re on the cusp of really tough comps for the key pandemic plays and the comps are going to be tough. Dick’s Q1 2020 season will be easy to beat, revenue fell 31% that quarter, but the next three will not because the company has sustained a steady 20% YOY comp ever since.
"It's clear that our strategies over the past several years are working and have set us up for long-term success. As we enter 2021, our business has so much momentum, and we have been pleased with our start to the year. Our focus in 2021 will center around enhancing our existing strategies to accelerate our core and enable long-term growth,” says Lauren Hobart, CEO, and president of Dick’s Sporting Goods.
Dick’s Pandemic Gains Are Priced In
Dick’s Sporting Goods had a very good 4th quarter in which revenue accelerated from the previous and grew 19.9% from last year. The analysts were expecting closer to $3.07 billion so it is better than expected but a slim beat at best. On a comp basis, sales grew by 19.3% versus the 17.1% expected and is an acceleration from last year’s +5% gain. Comp’s were driven by eCommerce which grew 57% in the quarter to 32% of sales or up 700 basis points from last year. For the full year, eCommerce sales grew 100% and are a driving force of the company’s success. Our team can account for several bike helmets, some frisbees, and tennis balls among other items.
Bottom-line results were a little mixed but there is the re-amortization of some debt to factor in. At the GAAP level, EPS of $2.221 missed by $0.08 while the adjusted $2.24 beat by $0.12. Putting these figures in terms of growth, GAAP earnings are up 71% from last year and adjusted 66%. Dick’s Sporting Goods earnings got a boost from inventory drawdown during the quarter as well. The company reported inventory down -11.3% from last year which is good on several fronts. The company is carrying less baggage on the balance sheet for one and it can focus on higher-sales and margin items when it restocks.
Looking forward is where the problem is, at least for the early morning traders. The company is expecting to see its revenue in a range of -2% to +2% this year with a clear bias to the upside in our opinion. Not only are the pandemic tailwinds still blowing but there is the upcoming reopening and resumption of close activity ie gyms, school sports, organized athletics, etc to factor in.
We Love Dick’s Sporting Goods Dividend
Dick’s Sporting Goods is not one of the higher-yielding dividend stocks on our list of favorite dividend growth stocks but it is a payout to be coveted. The company is distributing about 20% of its earnings with a strong balance sheet, growing business, ample free cash flow, and a solid history of increases. The company has been increasing the payout for 6 years at an 18% CAGR and should be increasing it again with the next declaration. We expect it could be a big one.
The Technical Outlook: DKS Is Set Up To Buy
Shares of DKS got a boost in the prior session perhaps due to results from its near-competitor Hibbett Sports. Hibbett Sports reported a similar growth story and gave a similar outlook and its shares rocketed higher on the news. There is also the high 18% short-interest to consider, more than enough reason for any stock price to fall. Regardless, pre-session trading has price action down at the short-term EMA, if that level holds up and we think it will, share prices should recover fairly quickly due to short-covering if for no other reason. Longer-term, Dick’s Sporting Goods growth, balance sheet, and dividend warrant a multiple much greater than 11X so we are expecting a significant increase in share prices.
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