How in the *!@$ Did the CEO of a $3 Stock Do This??
He made a $450 million deal with Nokia…a $395 million deal with Microsoft…an $828 million deal with Cisco…and a $29.26 BILLION deal with Apple.. How did the CEO of a stock trading for just $3 do it? And just how high will the stock go as a result?
The nation’s largest sporting goods retailer took a beating Wednesday after reporting Q2 results.
Dick’s Sporting Goods Inc. (NYSE: DKS) missed sales estimates as it pulled back from some underperforming businesses and suffered a decline in sales from a key brand, Under Armour (NYSE: UAA). Same-store sales fell 4%, exceeding the 0.6% fall analysts were expecting, and net sales came in lower than the consensus estimate of $2.236 billion at $2.177 billion.
Earnings per share (EPS), however, came in at $1.20 per share, beating the consensus estimate by $0.14.
The company also raised its earnings guidance for 2018. The company now expects earnings between $3.02 and $3.20 per share for the year, compared to the previous guidance of between $2.92 and $3.12 per share, which indicates the company is excited about its business going forward.
While sales of Under Armour products at Dick’s suffered “significant declines” as a result of UnderArmour expanding its distribution to midtier department stores like Kohl’s (NYSE: KSS) and Macy’s (NYSE: M), but Dick’s CEO Edward Stack said he is confident that sales will pick up.
“We’re in the process of replacing that business and also looking at how we can grow the Under Armour business going forward, and we’re pretty excited about their pipeline beginning in 2019,” Stack said.
Stack noted that Dick’s is upbeat about Under Armor’s HOVR “zero-gravity” line of running shoes.
“And we’re excited about the products that will be put in more of a premium authentic athletic environment as opposed to more of a discount midtier distribution,” he said.
The company also has an upcoming exclusive product with Dwayne “The Rock” Johnson, the former pro wrestler turned film and TV star, whose Project Rock 1 shoes—which were designed by Under Armour—sold out in 30 minutes this past May.
“He’s a hot commodity right now. Everybody loves him. This is one of the areas that this is exclusive to us that we’ll be expanding,” Stack said on the earnings call.
Dick’s has had a rough couple of years as e-commerce companies like Amazon (NASDAQ: AMZN) have caused a shakeout in the retail landscape. However, while competitors like Sports Authority and Sport Chalet declared bankruptcy, Dick’s survived as the lone publicly-traded nationwide general sporting goods retailer.
“The sporting goods industry is experiencing consolidation as competitor bankruptcies are leaving behind significant market share,” Dick’s said in its annual filing statement.
Where Dick’s has a leg up on its remaining competition—including Amazon—is in having both an e-commerce and brick-and-mortar presence. Sporting goods remains a business where shoppers still prefer to feel and hold equipment in person before purchasing and prefer to have a physical store they can go to with any questions or issues regarding equipment, making it less likely customers will purchase from a purely-online shop like Amazon.
In Q2, Dick’s online sales, athletic clothes, and its exclusive brands like CALIA by Carrie Underwood and Reebok posted double-digit growth from last quarter, proving that the company’s move toward focusing on its digital presence and private labels is starting to pay off.
Dick’s inventory level shrunk in Q2, indicating the company is making smarter merchandise decisions and won’t be caught carrying too much stuff. The company is also opening fewer stores this year as it focuses on investing more on improving its online delivery speed and offering more competitive prices.
Susquehanna analyst Sam Poser said Dick’s Q2 earnings results were not as bad as the tumble in the stock suggests.
“While we recognize that the same-store sales missed expectations, DKS appears to be managing its transformation to a more focused higher margin business well,” Poser wrote in a note to clients. “We recommend buying the stock on its current weakness.”