I could argue that the pre-market sell off isn’t warranted. But it’s tough to argue with a market reaction and be right – on the day, at least.
- The bad…the comp was definitely light at 2.4%. Looks like it came from e-comm. DKS still learning how to operate the business it took over from GSIC. Does it matter that it’s one of the only specialty retailers that’s comping? No. If you ‘extend the trend’ into 2H (which I hate doing), then the comp compares definitely get very tough.
- GM% weak. SG&A much better.
- EPS hit. Guide in-line. New non-GAAP charges related to TSA, but only $0.04.
- In other words, the market is saying that there is no way our high-teens EPS growth number this year is doable. Do these numbers cast appropriate doubt? Yes, definitely. But as I said yesterday, with sentiment SO bad – on the space, on the fundamentals, and on management credibility, we gotta focus on the research call.
Here’s the link to our deck.
Event: REPLAY | Dick's Sporting Goods, Inc. (DKS)
As I noted, there are four pillars to our TREND call.
- Real Estate portfolio getting SIGNIFICANTLY better (see analysis in the deck that proves this). In today’s print, new store productivity accelerated materially from 82% to 96%. That simply does not happen in retail anymore.
- Comp getting better bc Nike and other vendors NEED it. Definitely did not accelerate meaningfully this quarter. Underlying comp improved from 1.3% to 1.5% trend line at a time when Retail Comps elsewhere are falling apart. Does the lack of meaningful acceleration mean that it won’t happen later this year as ASP accelerates and DKS actually starts marketing the better product assortment (it failed this time around)? No. But no one cares today.
- GM% should get better as lap TSA clearance, golf, hunt, etc… We saw a sequential improvement in underlying trend (ie less bad) – ie down 14bps 2-yr vs -58bps in prion qtr. But we were looking for +20bps.
- SG&A looked significantly better – not bc of cost cuts (a la KSS, JCP, etc…) but because dupe costs with running 2 e-comm business are lapped.
Is this a great print, no. But it is certainly not bad on a stand-alone basis. Unless the company drops a bombshell on this conference call, we’re likely not changing our FY17, or 18 numbers.
If our numbers are right it’s trading at sub 11x our numbers. If the consensus is right, it’s at about 12.5x. If the company misses the consensus, then who knows. But we’re relying on the research call. I’m not throwing in the towel today on our TREND call, even though the consensus view will be “see I told you so – it’s a crappy business”. It might be, buit that does not mean EPS growth won’t accelerate in 2H when everyone doubts it.