DKS: Sandbag Confirmed

This morning’s preannouncement out of DKS reflects comp store sales up +2% from prior sandbagged guidance of down 6%-4%, and earnings north of $0.54 vs. the prior range of $0.41-$0.46. Let’s not mistake ‘a good quarter’ for ‘beating low expectations.’ With consensus at $0.49 already discounting what appeared to be overly conservative guidance, and the buyside whisper in the $0.50s, we’re not surprised in the lack of action in the stock today.

 

A few key points from the preannouncement include:

  • SSS outperformance began in the last week of November and continued through the holidays
  • Better than expected comp across all major categories
  • F09 full year comp includes Golf Galaxy, F08 doesn’t (note that Callaway last night noted that the golf category finally past its bottom)
  • But all that said, the 1 and 2-year comp trends at DKS are right in-line with peers, and in fact, represent a roll-over from what we saw in 3Q

 

Given the update from DKS, let’s take a look at the natural read through considerations for HIBB and FL. It’s important to note that ~55% of DKS revenue is generated by hardlines with only ~30% from apparel and ~15% footwear. On the other hand, Hibbett’s sales mix is the exact opposite (athletic footwear, apparel, equipment). A few points to note for HIBB in the quarter include Alabama’s national football title, which the company mentioned could add “a few” million to sales (1-2pts in yy rev growth) as well as the pickup in athletic footwear. Highlighted as the most challenging category on its call in November, footwear trends have been improving on the margin since. With the outlook for HIBB’s 4Q comps at -2% to +2%, there appears to be modest upside to this range and earnings.

 

Additionally, with FL’s mix predominantly driven by athletic footwear there is arguably less to glean from this morning’s news other than what we have already highlighted in recent industry trends. Consistent with our view, the focus on FL’s quarter is going to be less about headline results than Hick’s strategic plan for the business (for more detail see our 12/17 post “FL: The Footlocker Wish List”).

 

The bottom line here is that this is not really a big deal. For many reasons we’ve highlighted of late, we think that there will be a meaningful turn in the athletic cycle in 2010. THAT’s when we think we’ll see a meaningful acceleration out of Nike – which is the best play here. UA also makes the cut, as does FL and likely HIBB.

 

DKS: Sandbag Confirmed - Sporting Goods CompTable 1 10

 

DKS: Sandbag Confirmed - Sporting Goods CompChart 1 10

 

 


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