Some Reasons Dick’s Sporting Goods Look Like a Buy

Sporting goods retailer Dick’s sporting goods (NYSE: DKS) has lagged the market this year, but its stocks have gained some momentum recently after the company released fourth quarter results. Several factors have contributed to Dick’s doing well. For example, the cold weather in the US set most businesses back, but it gave Dick’s an edge as cold-related items saw strong sales.

Going forward, Dick’s has taken a number of initiatives to grow its business. Can it continue to thrive in the face of competition from? Foot locker (NYSE: FL) in the shoe market as well as the other well-known sporting goods retailer, Cabelas (NYSE: CAB)? Let’s take a look at Dick’s recent performance and his future strategies.

Good performance
Dick’s did well in the fourth quarter as its revenue rose from $ 1.81 billion to $ 1.9 billion, which is in line with the consensus estimate. Omni-channel growth was the main driver of this revenue. Consolidated earnings also rose to $ 138.6 million from $ 129.7 million a year ago.

Dick’s has performed impressively despite a shorter vacation season and cold weather. In fact, the cold had a positive effect on sales. Revenue in the same store in the fourth quarter rose 6.3% due to its investments in advertising, payroll, and pricing. Sportswear saw strong sales, as did licensed clothing, team sporting goods and shoes.

Strategies to watch
Dick’s has also improved its omni-channel network. As part of this, the company opened 40 stores and strengthened its mobile capabilities over the past year, including the development and launch of a new tablet site. With the new tablet site, the traffic could be increased considerably and the conversion rates increased by 30%.

Dick’s offers options to its customers – they can shop online or in-store – and this will ultimately increase demand for its products. In order to meet the increasing demand, Dick’s will open around 50 stores this year. In addition, it will make other changes to its online shop.

In order to expand its e-commerce business, Dick’s has begun testing the “buy online, pick-up in store” function in certain locations in order to offer additional functions to its customers and to integrate its business and e-commerce activities.

In terms of specialty concepts, Dick’s opened 79 Golf Galaxy stores in 2013, while closing three of its underperforming stores in the fourth quarter. The sports retailer has worked hard to improve the customer experience. It opened two new Golf Galaxy stores this year in its new, larger prototype, which has increased market penetration. There are also plans to open a Golf Galaxy website. In 2014, Dick’s also plans to open a new Golf Galaxy store and relocate two stores with a similar format.

Dick’s is shareholder friendly and returned $ 320 million to shareholders in 2013. The company achieved that by paying $ 64 million in quarterly dividends and approximately $ 255 million in share buybacks. The company plans to buy back an additional $ 745 million of its shares in the future, and its low payout ratio of 19% suggests it has room for a dividend hike as well.

In the long term, Dick’s is hoping to have $ 10 billion in revenue with an operating margin of 10.5% by 2017, and it’s a step in the right direction.

Assess the competition
However, competition from the likes of Foot Locker and Cabela remains.

Foot Locker sells athletic shoes from manufacturers such as Under armor and Nike. Like Dick, the company can benefit from the innovative shoes from Nike and Under Armor. However, Foot Locker is larger in size and range than Dicks. Foot Locker has more than 3,300 stores in malls in the US, Canada and Europe. By comparison, Dick’s has just over 600 stores in the United States. Foot Locker plans to increase its market penetration through the website, as well as opening new stores and renovating existing stores this year. So Foot Locker threatens Dick’s shoe segment.

On the other hand, Cabela’s hunting gear sales have picked up pace due to its omni-channel model. Cabelas advertises its products through platforms such as radio, television, catalogs, email and other digital communications. Customers can shop through their physical stores or the online channel. Cabela’s already has a pick-up service in store, while Dick’s is only now testing this strategy.

Bottom line
Despite facing serious competition from its rivals, Dick’s has held up well so far. Dick’s did well in the last quarter in a tense scenario and has a number of initiatives underway to improve its business. Additionally, a cheap forward P / E of 16 and forecasts that require robust earnings growth of nearly 16.5% for the next five years make Dick’s a stock worth considering for your portfolio.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

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