About Dick’s Sporting Goods
One of the founding members of MacroHint recently ran a 10k at the university he attends.
After running just north of six miles and perspiring like a dog, panting for some Gatorade relief, he walked over to the runner celebration area and heard over the loudspeaker system that a part of the event was sponsored or paid for by none other than Dick’s Sporting Goods.
That is quite literally the motivation that led us to write a stock analysis article on the specialty sporting retailer.
And heck, sports are fun too.
For those who aren’t as well familiarized with Coraopolis, Pennsylvania-headquartered Dick’s Sporting Goods, the company is a retailer that is solely focused on marketing and selling sporting equipment with other smaller, supplemental product offerings and subcategories such as camping and other outdoors-related activities such as fishing and hunting.
Some consider them a sport and some don’t.
At any rate, the company sells practically anything from breathable workout shirts, mileage tracking digital watches, athleticwear shoes, jerseys and a host of so much more in its approximately 850 nationwide stores.
One of the good things about Dick’s’ assortment is that it can be tailored to pretty much any and all seasons, as many (if not most) sports are seasonal by nature which could be a very valid initial deterrent for those concerned with the company’s narrow assortment blend, however, it can easily be said that Dick’s Sporting Goods has plenty of sporting equipment and gear to go around, regardless of the time of the year, positioning itself for year round sporting success.
Before delving into the company’s core financial figures, it should be mentioned that given our commentary in previous stock analysis articles, particularly involving retailers, we haven’t held the most favorable views, especially as it relates to the naturally low profit margins.
Nevertheless, Dick’s is different in that it is indeed a specialty retailer that practically dominates the brick-and-mortar sports retailer sector, which we assume allows it to beef up its margins while delivering intentional, direct value to its consumer base(s).
Now, let’s delve.
Dick’s Sporting Goods’ stock financials
With a current share price of $139.07, a prevailing market capitalization of $11.74 billion, a price-to-earnings (P/E) ratio of 12.95 and an annual dividend it shells out, $4.00 (currently yielding 3%), the company’s stock (NYSE: DKS) isn’t off to a bad start at all as its present share price appears to be trading modestly below the fair value benchmark of 20 along with the fact that the company offers its shareholders a hardy annual token of its appreciation in the form of $4.00 each year, per share.
Moving right along, the company’s executive team is in charge of around $8.9 billion in total assets as well as approximately $6.4 billion in total liabilities.
Things could have definitely been worse as it relates to the company’s total asset-total liability breakdown, as retailers have often been caught up in having far too much inventory, causing not only internal operational issues but also putting financial strain and compounding pressure on its balance sheet.
Thankfully, this doesn’t immediately appear to be the case with Dick’s Sporting Goods as its total assets still outweigh its total liabilities by a healthy margin, especially since it operates in the retail sector.
It’s definitely a positive that even after all of the turmoil, shutdowns and other twists and turns endured by the general retail sector that this company is apparently equipped to punch through some more rough air that is likely to be waiting around the corner, as interests keep rising.
Onto the company’s income statement, Dick’s’ total revenue over the last five years has shown some encouraging signs, specifically as it stood at around $8 billion during both 2019 and 2020 and due to its previous investments in establishing and increasing its omnichannel presence (in-store and e-commerce), saw a rather sharp increase in total revenue in 2021, as the company’s total revenue that year was reported to be just north of $9.5 billion, rising again in the last two years to the neighborhood of $12.3 billion (each year).
It is clear that Dick’s Sporting Goods is intent on unlocking value and it prepared itself more than well during the onset of COVID-19.
This past and current execution is impressive, to say the least, and it also gives us confidence that Dick’s’ executive team is filled with forward-thinking, growth-focused innovators despite it already being a well established player in the retail arena.
From the perspective of the company’s cash flow statement, at first blush you really wouldn’t have been able to tell that 2020 was a bad year for its broader retailer counterparts because it certainly wasn’t anything out of the ordinary for Dick’s.
For instance, the company’s net income, again, likely due to the stellar execution of its omnichannel strategy, grew between 2020 and 2021, from $297 million to $530 million, respectively.
Additionally, the company’s total cash from operations held up quite nicely as it surged from $405 million to around $1.5 billion during the same time frame.
Dick’s has clearly developed a track record of doing retail right and not only preparing but embracing the changes that are always inevitable in the space.
We’re just letting the numbers talk.
Dick’s Sporting Goods’ stock fundamentals
As alluded to in previous stock analysis articles on other prominent retailers, margins tend to be both low and competitive and as evidenced by Dick’s’ trailing twelve month (TTM) net profit margin, the net profit margins are certainly competitive but also, much larger than that of the general retail sector.
More specifically, while most retail operators are known for having TTM net profit margins somewhere around a measly 1% or maybe 2%, Dick’s’ stands at 8.43% while the industry’s average is pegged at 8.08%, according to TD Ameritrade’s platform.
As suspected, operating and dominating (to a large extent) a specialty retail sector such as sports has its way of lending the ability to turn out higher net profit margins in comparison to other retailers with a much broader assortment that can most certainly drag its margins down, indefinitely.
All in all, as it relates to the company’s TTM net profit margin we tip our hats to Dick’s for staying competitive and keeping its net profit margin on the higher end relative to its competitors.
Also according to TD Ameritrade’s platform, the company’s TTM returns on both assets and investment are a bit lower than that of the industry’s averages, however, we think this can be attributed to the fact that it is still growing, especially as it pertains to its online capabilities and if this is the case, we take no issue whatsoever.
Growing pains.
A consideration for Dick’s Sporting Goods
After the shock and awe of what is likely to come in the coming months or perhaps years (i.e., the recession or even the potential for an economic depression waiting around the corner), Dick’s’ balance sheet is structured in such a way that it can probably afford to make a sizable, scalable, strategic acquisition in order to keep growing its footprint around the United States.
One company that we think can certainly help is privately owned, Fargo, North Dakota-based sporting goods chain, Scheels.
With somewhere in the neighborhood of 33 locations, we think it would be beneficial if Dick’s pondered buying out the company given its strong operating model, high-margin merchandise, loyal customer base and perhaps most of all, the leg up on Dick’s that Scheels currently has, its rather extensive presence up north, particularly in sports hungry regions such as Minnesota, North Dakota, Montana and various other territories within the heart of the Midwest as well.
However, as we have written in other previous theoretical acquisition segments, this one might be particularly difficult as Scheels is still owned and operated by who else but the Scheel family.
At the end of the day, if Dick’s Sporting Goods can feasibly acquire a fantastically well run competitor and operator such as Scheels and put up a full and fair bid, it can eat more and more regional market share and continue growing its operating base as well as its omnichannel capabilities.
Should you buy Dick’s Sporting Goods stock?
Acquisition or not, Dick’s is one of the few companies that we can say was not a pharmaceutical firm but in fact a retailer that did incredibly well in pivoting its strategies during the onset and progression of COVID-19 and its related variants.
Retail is challenging enough without COVID-19 but somehow the company stuck to its mission and its previous strategic investments and came out of the brunt of the pandemic arguably stronger than ever.
And this company still has a lot of growth levers ready to pull at its disposal.
With its performance in the past and the value drivers it is tapping into along with its current stock price reportedly trading well below fair value, we have no current reservations in giving Dick’s Sporting Goods’ stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.