Dick’s Stock Already Priced For Big Wins

By Ryan C. Fuhrmann | March 13, 2012 AAA

Sporting goods giant Dick's Sporting Goods (NYSE:DKS) closed out its fiscal year by reporting respectable sales growth and very impressive earnings levels. The firm's investment appeal is currently questionable, but there is no denying that Dick's is the strongest player in a crowded sporting goods field.

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Full-Year Recap
Sales advanced 7% to $5.2 billion. Comparable store sales eked out 0.1% growth for the fourth quarter, keeping its year-long momentum. The year also benefited from new store growth, as Dick's opened a net new 25 locations to bring its year-end store count to 444. During the year, it also remodeled a dozen stores and relocated two locations. It did close a dozen of its Golf Galaxy locations to end the year with 81 locations. Total selling square footage was 27.6 million at the end of the year.

Cost controls on the sales and operating side allowed operating income to jump nearly 40% to $432 million, or 8.29% of sales that was up strongly from 6.35% of sales in 2010. Lower interest expense and an investment gain helped send net income up 45% to $263.9 million. Share buybacks boosted earnings per diluted share further to $2.10, or 40% growth. Free cash flow came in at $208.6 million, or approximately $1.66 per diluted share. (For related reading, see A Breakdown Of Stock Buybacks.)

For the coming year, Dick's projects earnings between $2.38 and $2.41 per diluted share. By management's estimation, this will result in annual operating growth of as much as 19.3%. It expects comps in the range of 2 and 3%, and plans to open 40 new stores while relocating four locations during the year. Analysts currently expect sales growth of 10.5% and total sales of $5.8 billion.

The Bottom Line
Dick's continues to compete extremely well in the crowded market for sporting goods and related apparel. Cabela's (NYSE:CAB) is a big box archrival, though it specializes in outdoor equipment. Smaller pure play rivals include Big 5 Sporting Goods (Nasdaq:BGFV), Hibbett Sports (Nasdaq:HIBB) and Sports Authority (privately-held). Niche, mall-based footwear providers include Foot Locker (NYSE:FL) and Finish Line (Nasdaq:FINL).

One of Dick's key advantages is that it's a considerably larger company than most of its rivals. Last year, its earnings exceeded that of its combined pure-play rivals above. Dick's also considers its private label brands to be a key differentiator that leads to higher margins. Management sees the potential for at least 900 stores across the nation, before concerns of market saturation appear. At a forward P/E of 17, much of this future growth is already built into the stock price, though the company does stand out for its consistency and ability to steadily grow profits. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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