Dick’s Sporting Goods stock sinks as retail woes deepen
Shares fall 13.7%, but company remains in expansion mode
As sporting goods chains continue to fall, shares of Dick’s Sporting Goods stumbled Tuesday after it reported disappointing first-quarter sales, especially when it comes to its sports apparel.
The earnings report came days after a shake-up in the company’s executive leadership and after the company last week admitted a “computational” blunder that resulted in a $23.4 million overstatement in fourth-quarter profit.
In the first quarter ended April 29, sales at stores open at least a year — an industry measure aimed at excluding growth of new stores — increased 2.4%, falling short of the company’s projected increase of 3% to 4%. For the full year, Dick’s projects those sales will rise 1% to 3%, reflecting a decline from last year’s 3.5%, and a 10% increase in store inventory.
The news sparked a steep fall in Dick’s Sporting Goods stock, which tumbled 13.7% Tuesday to close at $41.04 a share, down $6.53.
Despite first-quarter revenue and earnings growth, Dick’s is grappling with intense online competition, which is draining store sales of products such as electronics.
The company is also facing “broader distribution in the athletic apparel business that we hadn’t anticipated,” Dick’s CEO Edward Stack told investors.
Online competition and high lease costs have contributed to the liquidation of several competitors, including national chain Sports Authority and Midwestern chain MC Sporting Goods.
Going-out-of-business sales at several dozen Gander Mountain stores are expected to weigh on Dick’s sales in the second and third quarter, although some Gander Mountain stores are expected to continue operating with new merchandise.
To be sure, Dick’s maintains a healthy balance sheet, and Stack said “we remain extremely confident in our strategies and are excited about this future growth of our business.”
But the company’s long-term challenges are coming into sharper focus.
Efraim Levy, a CFRA Research analyst who track’s Dick’s, said the market’s response to the earnings report was an overreaction because there was “nothing earth-shattering.”
Still, “investors are fidgety when it comes to retailers, and any signs of a slowdown in samestore sales warrants concern,” he said.
To some extent, the sector’s problems mirror the broader retail industry’s troubles. Store sales for companies in the sporting goods, hobby store, book and music sector tumbled 6.9% during the 2016 holiday shopping season while online sales jumped 19%, according to payment technology company First Data, which has a data analytics arm. Unlike online sellers, stores have to pay for often costly leases, which hampers their ability to keep prices low.
Dick’s on Thursday announced that its chief operating officer, André Hawaux, would retire at the end of the second quarter. The company’s chief marketing officer, Lauren Hobart, was promoted to president and will oversee stores and customer and digital operations.
The company remains in expansion mode, with plans to add 43 new big-box stores, eight new Golf Galaxy locations and eight new Field & Stream stores in 2017. That includes 15 warehouse-style store locations, eight Golf Galaxy stores and two Field & Stream locations that already opened in the first quarter.
Stack said the company is slowing its pace of new store openings for now but could accelerate later.
“Over the next couple of years, we expect the price of real estate to come down significantly because of all the store closings” in the sector, he said.
With 75 more stores operating at the end of 2017’s first quarter than were open a year earlier, Dick’s enjoyed a 9.9% increase in net sales to $1.83 billion for the quarter.
Net income rose 2.3% to $58.2 million, or 52 cents on an earnings-per-share basis.
“We remain extremely confident in our strategies and are excited about this future growth of our business.” Dick’s Sporting Goods CEO Edward Stack