Categories AlphaGraphs, Analysis, Earnings, Retail

Can Dick’s Sporting retain momentum in Q2 through omnichannel efforts?

Like most American retailers, Dick’s Sporting Goods (NYSE: DKS) is busy revising its business strategy to stay resilient to challenges like the trade war and curbs on firearm sales. Having started 2019 on an encouraging note, the company looks to take the momentum forward.

The Coraopolis, Pennsylvania-based sporting goods retailer is all set to unveil its second-quarter numbers Thursday before the opening bell. The outcome is expected to match the performance in the same period of last year. Market watchers are looking for earnings of $1.2 per share on revenues of $2.21 billion, broadly unchanged year-over-year.

Dick’s Sporting Goods beats Q1 EPS estimate by 3 cents

Earlier, the management had expressed hope of returning to positive same-store sales, beginning in the second quarter. The outlook for full-year earnings per share is $3.20 to 3.40, while comparable sales are forecast to be slightly positive or up 2%.

A Missed Shot

The top-line has been hurt by the continuing weakness in the company’s hunting and electronics segments, primarily due to regulatory curbs on the sale of firearms. Last year, Dick’s Sporting stopped the sale of assault-style guns and ammunition to youngsters. There are reports the company is planning to stop gun sales altogether, after removing firearms from several of its stores.

Related: Dick’s Sporting Q1 2019 Earnings Call Transcript

Also, same-store sales weakened in the recent quarters due to muted store traffic, reflecting the shift in customer behavior and growing competition. An increase in transportation and promotional expenses as well as costs associated with the expansion initiatives, especially in e-commerce, will likely put pressure on margins.

Omnichannel Efforts

The management’s two-pronged strategy of expanding store network, while also ramping up the digital platform, could add to the top-line growth. The omnichannel efforts and improved merchandising are already yielding results. Plans are afoot to launch new brands as the company continues to focus on private brands to meet its sales targets. It needs to be noted that comparable store performance has been positive in the private labels category and for apparels in general.

Also see: Under Armour Q2 loss narrows

Sensing the need to provide customers better store-experience, the company has launched reallocation of store space based on the shopping trends of each region. The other major attractions include the HitTrax facility and batting cages for sportsmen.

Trade War

The government’s decision to exclude categories like sporting goods, apparels and footwear from the latest round of tariffs on Chinese imports has come as good news for Dick’s Sporting, which would otherwise have hampered its holiday sales.

Soon after the positive first-quarter earnings report, the company’s stock made strong gains in April. Earnings moved up 5% to $0.62 per share and topped the estimates, while sales grew moderately to $1.9 billion. Though comparable store sales were flat, the performance marked an improvement from the long steak of declines.

Also see: Nike stock drops after Q4 earnings miss

Last week, shares of Dick’s Sporting slipped to an eight-month low. The stock has gained about 3% since the beginning of the year. It lost 10% in the past twelve months.

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