Boasting a market capitalization of $10.34 billion, DICK'S Sporting Goods, Inc. (DKS) is a prominent sporting goods retailer offering a wide array of products, encompassing hardlines such as sporting goods equipment, fitness gear, as well as an extensive selection of apparel, footwear, and accessories.

In light of the recent third-quarter earnings disclosure by the company, this article aims to analyze the fundamentals of DKS to ascertain whether it presents a compelling investment opportunity. Let us understand in detail.

Following a less-than-stellar performance in the second quarter, marked by a 23.3% decline in earnings, the company attributed this downturn to "shrink" – an industry term encapsulating theft and damaged inventory.

While other national retailers have issued warnings to investors about the growing problem of theft, DKS stood out as one of the first to explicitly identify theft as the primary contributor to its underwhelming quarterly financial performance.

Nevertheless, despite the underwhelming second-quarter results, Ed Stack, the Executive Chairman of DKS, expressed high enthusiasm and optimism about the future of the company by highlighting the positive outcomes generated by their recent ventures, specifically mentioning the success of the new concepts such as DICK'S House of Sport and the next-generation 50,000 square foot DKS’ store.

Coming to the third quarter results announced yesterday, DKS’ seems to have experienced a rebound in sales and profits. This positive turnaround prompted the retailer to revise its full-year guidance after slashing it last quarter over theft concerns.

However, the company executives have expressed a sense of caution leading up to the holiday season, aligning with the sentiments of other retailers who share concerns about the potential for subdued demand.

Moreover, in a strategic move on November 17, DKS launched its 2023 holiday gift guide and Black Friday deals online. This unveiling prominently features renowned brands like Nike, Jordan, Adidas, and more while showcasing exclusive offerings such as CALIA and VRST, available exclusively through DKS.

This endeavor underscores DKS' proactive approach to capitalize on the approaching holiday season, aiming to elevate its revenue and enhance the festive shopping experience for customers.

In terms of price performance, the company’s shares have plunged 17.1% over the past three months. However, the stock gained 11.2% over the past month to close the last trading session at $121.59.

Here are the factors that could affect DKS’ performance in the near term:

Mixed Financials

For the fiscal third quarter that ended on October 28, 2023, DKS’ net sales increased 2.8% from the prior-year quarter to $3.04 billion. However, the company’s net income and EPS came in at $201.11 million and $2.39, down 11.9% and 2.4% year-over-year, respectively.

Furthermore, during the same period, DKS’ gross profit grew marginally from the year-ago value to $1.06 billion, whereas its income from operations declined 16.1% year-over-year to $272.94 million.

Robust Profitability

The stock’s trailing-12-month net income margin of 8.03% is 82.6% higher than the 4.40% industry average. Its trailing-12-month Return on Common Equity (ROCE) of 42.05% is 282.5% higher than the industry average of 10.99%. Furthermore, DKS’ trailing-12-month cash per share of $22.71 is 869.6% higher than the $2.34 industry average.

Mixed Valuation

In terms of forward non-GAAP P/E, DKS is trading at 10.07x, 32.1% lower than the industry average of 14.84x. Its forward EV/EBITDA multiple of 7.54x is 21.9% lower than the industry average of 9.65x.

However, the stock’s forward Price/Book ratio of 3.31x is 36.3% higher than the industry average of 2.43x. Furthermore, its forward non-GAAP PEG of 2.00x is 31% higher than the industry average of 1.53x.

Mixed Analyst Estimates

Street expects DKS’ revenue for the fourth quarter (ending January 2024) to increase 5.3% year-over-year to $3.79 billion, while its revenue for the fiscal first quarter (ending April 2024) is projected to decline 10.7% year-over-year to $3.04 billion.

POWR Ratings Reflect Uncertainty

DKS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DKS has a B grade for Quality, consistent with its higher-than-industry profitability.

On the other hand, the stock has a C grade for Value in sync with its mixed valuation and a C grade for Stability justified by a 24-month beta of 0.96.

Within the Athletics & Recreation industry, DKS is ranked #25 out of the 36 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Sentiment.  Get all ratings of DKS here.

Bottom Line

While DKS has actively pursued strategies to bolster earnings, the company's future remains uncertain, as indicated by the evaluation of its mixed valuation, financials, and analyst estimates.

This uncertainty is further underscored by the cautious sentiment among company executives, echoing concerns prevalent among other retailers regarding the unpredictability in demand as the holiday season approaches. In light of these factors, it could be wise for investors to closely observe this stock, awaiting a potentially more favorable entry point.

How Does DICK'S Sporting Goods, Inc. (DKS) Stack Up Against Its Peers?

While DKS has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Athletics & Recreation industry: American Outdoor Brands, Inc. (AOUT), Gaia, Inc. (GAIA), Skechers U.S.A., Inc. (SKX), with an A (Strong Buy) and B (Buy) ratings. For exploring more Athletics & Recreation stocks, click here.

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DKS shares were trading at $121.65 per share on Wednesday morning, up $0.06 (+0.05%). Year-to-date, DKS has gained 3.52%, versus a 20.19% rise in the benchmark S&P 500 index during the same period.

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