The United States’ largest sporting goods retailer, Dick’s Sporting Goods (click ticker for report: ) reported strong second quarter results Tuesday morning. The firm’s revenue grew 10% year-over-year to $1.4 billion, approximately in-line with the Street’s expectations. Excluding a large write-down of its investment in JJB Sporting Goods of the United Kingdom, the firm earned $0.65 per share, higher than consensus expectations and 25% higher than a year ago. Dick’s Sporting Goods expects to open 21 new stores during the third quarter and post same-store sales growth of 4%. For the full-year, the firm expects to earn $2.47-$2.51 per share, slightly higher than the range it previously guided to ($2.45-$2.48).
The company posted strong same-store sales growth, driven by a 4.4% positive increase at Golf Galaxy and a 2.9% increase at Dick’s Sporting Goods. Not surprisingly, the firm pointed to strength from the apparel business driven by Nike (click ticker for report: ), Under Armour (click ticker for report: ) and North Face (click ticker for report: ). Management also noted strong performance from technical running and hunting/outdoor sports as large drivers. Generally speaking, we didn’t gain much insight from the report regarding implications on other companies, except that we believe Nike and Under Armour will continue to outperform other brands. Management also spoke to increasing (television) marketing to focus on branding rather than general newspaper advertisements. For example, recent commercials with Green Bay Packers star Clay Matthews emphasize purchasing Nike at Dick’s as much as promoting general awareness of the store itself.
Although we’ve heard concerns about implications on Under Armour’s business given Dick’s write-down in JJB, we think those concerns are completely overblown. The write-down can be primarily attributed to accounting principles rather than JJB actually being worth nothing. Additionally, few, if any, retailers are performing well in Europe. Though Dick’s is a key partner and driver of Under Armour’s growth, we think the firm will be able to pursue its own strategy rather than rely entirely on Dick’s in the region. For one, Under Armour has a partnership in place with Tottenham of the English Premiership and will look to optimally position itself in the market going forward.
Ultimately, Dick’s second quarter was good. Inventory per square foot grew just 4.1% year-over-year (despite higher-cost products), slightly greater than same-store sales expansion. Management mentioned that clearance inventory is down 2.3% year-over-year, suggesting new product fulfillment methods are leading to better inventories on a store-by-store basis. New stores continue to be productive, and we aren’t concerned about the company’s plan to shift some store openings into 2013. Though many have proclaimed big-box retail (large brick-and-mortar locations) is dead, firms ranging from hhgregg (HGG) to Ross Stores (click ticker for report: ) have recently fought to acquire premium real estate. We’d much rather Dick’s focus on building stores that can generate high returns on invested capital than achieve growth for growth’s sake (at the expense of shareholder capital).
Still, we think shares are a touch overvalued at current levels, and the firm scores just a 3 on our Valuentum Buying Index (our stock-selection methodology). We’re avoiding Dick’s Sporting Goods’ shares at this time.