Sporting Goods space is broken. I'd come short of hashtagging the word #fact. But the writing is in the cosmos. That's why I like DKS Long.
HIBB Guide down very similar to what FL did/said, though comp trend and miss is worse for HIBB. In part, bc it's HIBB, and it's margins are 50% too high.
HIBB just took down full year guidance by 10% -- again. Remember that in Feb it preannounced a 20% 4Q miss and then took down FY18 by 10%. Apparently not enough by a factor of 2x.
I’m short HIBB. But that’s not the callout today. It’s DKS, which is a Best Idea Long. Consider the set-up…
TSA Ch11 last year was the first domino. Then the industry was kicked in the gut (with both feet) by the following factors...
- Eastern Mountain Sports bye bye
- Bob's strores ditto
- Gander Mountain same
- Citi Sports closes all 26 store
- Sports Chalet goes bust along w EMS and Bob's
- Academy? (KKR 6x levered deal – similar size as TSA and nearly 10% of UA's revenue)
- FL missed.
- HIBB missed (twice).
- Nike futures decel
- UnderArmour blew up
- LULU missed big
Is the space broken? Damn straight it’s broken.
Maybe I’m off my rocker on this, but that’s why I like DKS. I can point to four lines on the P&L that I think are getting better as a result.
1) Real Estate: Real Estate profile improving with full certainty, as it picks up prime leases from those going punk.
2) Comp: Nike pumping DKS with significantly better product – bc it NEEDS to.
- Adidas will follow
- UnderArmour will follow
- Private label will flex on price/terms
3) GM%: Anniversary the golf/hunt/TSA malaise of 2016. Gun registrations down 24% in 4Q.
4) SG&A: Just peeled off costs related to paying 3rd party e-comm costs while building its own platform.
Am I on high-alert w DKS given all the misses we’ve seen in recent weeks? Fer sure.
- Are the misses/guides in part due to Easter shift? In part. Setting up for 2Q comp rally? I think so. But there’s clearly more happening here. A lot more.
- Can I be wrong on one of my four P&L points? You bet. I probably am.
- Am I wrong on two? Possibly…but I don’t think so.
But even if I’m wrong on half, I still think DKS grows earnings this year and next 15% or better. If I’m right, it grows over 20% -- and it’s trading at sub-12x that number. I also think that what people are missing here is the multi-year duration. Is this a 3-year call? No? Is it 6-12 months? Yes.
DKS might operate in similar locations as KSS. But the stories cannot be more polar opposite.
