Tags: Dick’s | Sporting | Goods | DKS

Dick’s Sporting Goods: A Winning Strategy

By    |   Wednesday, 29 February 2012 02:46 PM

You know you’re doing something right when you earn the label “best in breed” from stock research powerhouse Morningstar. That’s exactly what Dick's Sporting Goods (DKS) of Pittsburgh has done by using a winning strategy of focusing on high-end athletic needs.

It’s not just Morningstar. Of 26 analysts tracked by Thomson/First Call, 15 rate Dick’s shares a buy or strong buy, 10 rate them a hold, and just one says to reduce holdings.

Dick’s had 480 stores in 43 states and 81 Golf Galaxy stores as of Jan. 12. Most of the stores are on the East Coast. The company is expanding westward and sees capacity to push its total to 900 stores or more.

The chain was founded in 1948 and is still run by the founding family. Current CEO Edward Stack is the son of Dick’s founder Richard Stack.

Dick’s certainly has rewarded shareholders recently, producing an annualized total return of 55.9 percent over the last three years, easily besting Morningstar’s specialty retail stock average of 34.3 percent.

Upscale focus

The company’s competitive advantage consists of its emphasis on high-performance products designed for serious athletes/enthusiasts, rather than cheaper goods for casual participants. Nevertheless, you can buy products at various skill and price levels.

But Dick’s focus on higher-quality, higher-price products makes it more profitable than its rivals. It also lessens the competition Dick’s faces from other sporting goods and general merchandise retailers who don’t share that emphasis.

Standard & Poor’s analyst Michael Souers has a hold rating on the company’s shares. “We think DKS will gain market share as some smaller competitors cease operations and the company continues with relatively rapid expansion,” he writes.

“We believe DKS has a differentiated strategy in a crowded arena, and we think it has merchandised and managed its products very well.”

Dick’s profit more than doubled to $41.5 million in the quarter ended Oct. 29 from a year earlier. Revenue gained 9 percent to $1.2 billion.

The company next reports on March 6.

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Wednesday, 29 February 2012 02:46 PM
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