Wednesday, December 15, 2021

A Small Cap Equity holding: Dick’s Sporting Goods (DKS, $138.59): “Let’s play ball!” By: Ryan Kreie, AIM Student at Marquette University

 Dick’s Sporting Goods (DKS, $138.59): “Let’s play ball!”

By: Ryan Kreie, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Dick’s Sporting Goods, Inc. (NYSE:DKS) is the leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sporting equipment, apparel, footwear, and accessories. They primarily retail goods from major athletic brands like Nike, Adidas, Reebok, Under Armour, etc.

• ECommerce sales have continued to grow with the launch of their mobile app and new pick-up and delivery options.

• Youth sporting events are back in person which has driven people to acquire the necessary goods for their events after an extended offseason.

• Dicks has increased their sales per store dramatically (about 19%) due to decreases in costs due to moving business online. Gross profit has seen an increase of 5% each of the last two years for Q2.

• Their stock price is up roughly 150% YTD primarily due to their adaptation to the pandemic and their transition to a larger focus on eCommerce.

• Dicks continues to surpass previous year’s numbers in eCommerce despite all business being online last year.

Key points: Dick’s sporting goods has come out of the pandemic extremely well. They have the potential to end the year with outstanding performance due to the holiday season. During the second quarter, they generated revenues of 3.27 billion and expect to exceed this number in Q3 when they release their earnings on 11/23/2021. Their EPS also grew to 4.66 in Q2 which is a 33% increase compared to the previous quarter.

Their current strategy has been focused on increasing their eCommerce presence and sales while reducing the rate of opening new physical stores. They recently released a new mobile app that helps facilitate the integration between their brick-and-mortar stores and their online platforms. This includes ship-from-store, buy-online, pick-up in store, curbside pick-up, and marketing campaigns. 70% of online orders were fulfilled by their physical stores in FY 2021. Also, 90% of all sales were facilitated through their stores by either online fulfillment or in-person sales. ECommerce sales now account for 19% of net sales compared to 12% in 2019.

Dicks is a unique business seen more as a one-stop shop for all your sporting good needs. Few competitors offer what they do on a large scale, which gives them a significant competitive advantage. With high barriers for entry into the industry their growth can be sustained as many competitors have gone out of business because they did not adapt.

What has the stock done lately?

In the past 3 months alone the stock price is up 31.58%. This is a continuation of constant growth since the onset of the pandemic. This constant upward trajectory is promising to investors as Dicks continues to innovate new ways to reach their customers in the most efficient ways. They also released that they would repurchase $400 million in shares during FY 2021 to distribute capital back to investors.

Past Year Performance: Since a significant dip in stock price due to the pandemic in spring 2020 Dick’s sporting goods has skyrocketed. Dicks has increased 147.42% in the past year and there is still some value to be had. Their 52-week range in stock price has been $51.51 to $147.39. This range is large but was caused by the pandemic. They are still on their way out of the pandemic as they adjust to a larger focus on eCommerce and have some upside left to gain.

Source: FactSet

My Takeaway

Dicks has shown no sign of slowing down since the onset of the pandemic. They have continued to distance themselves from competitors with their increasing eCommerce presence and larger margins. I think Dicks has set themselves up nicely the crush the holiday season and end the year with a stock price of over $150 per share. I believe there is still plenty of upside in them and I recommend that we hold DKS for the foreseeable future as they have shown no signs of slowing down. Their constant growth is something we can count on for months to come.

Source: FactSet