In order to combat these challenges, DKS has implemented a few initiatives to reignite growth. These include improving the store experience, investing in two new fulfillment centers to offer faster two-day delivering, and bolstering its eCommerce channel.
Based on its improved Q1 results and its increased guidance for FY20, it seems that the company’s strategy is paying off.
For the quarter, it posted EPS of $0.62, beating analysts' $0.58 expectation, with revenue up 0.6% yr/yr to $1.92 bln, in-line with the consensus.
The company also raised its guidance for FY20, forecasting EPS of $3.20-$3.40 vs. its prior outlook of $3.15-$3.35 and ahead of the $3.26 consensus at the mid-point.
Click here to access the earnings press release.
The metric that best demonstrates the steady improvement in its results, though, is consolidated same store sales performance. Over the past four quarters, same store sales have trended in a positive direction, going from (4.0)% in 2Q18 to (3.9)% in 3Q18, then to (-2.2)% last quarter, and finally to 0% this quarter.
Furthermore, DKS stated that same store sales turned positive in March and remained positive in April and that it expects to report a positive number in 2Q19.
The company primarily credits the improved athlete experience in its stores, as well as an optimized product assortment, as the catalysts behind its improving comps.
A couple examples include new training and learning experiences in some of its stores, such as a multi-day footwear training summit and "HitTrax" batting cages that allow customers to test different bats.
While DKS has created a more experience-oriented model in its stores, it has also reallocated floor space to prioritize higher growth categories and eliminate exposure to weaker categories like hunting and electronics.
Additionally, the company has improved its in-store technology, recently launching a new app it calls "Merch Search". This app provides instant, real-time product information, such as detailed product descriptions, inventory availability, and alternative product recommendations.
These efforts aim to differentiate DKS stores from an online buying experience, but DKS also understands that it needs a strong digital channel to compete effectively.
For the quarter, eCommerce sales were up 15% and represented about 13% of total net sales. We wouldn't characterize that performance as soft, but it is lagging compared to some other sporting goods companies.
For instance, Hibbett Sports (HIBB) reported that Q1 eCommerce sales surged by 50%, and Nike's (NKE) 3Q19 digital sales jumped by 36%.
Its two new fulfillment centers in NY and CA, which will be completely dedicated to its eCommerce channel, should help boost its digital sales. When they open in 3Q19, they will enable DKS to provide two-day delivery for most of its online orders.
Key Takeaways: DKS has faced its share of adversity over the past few quarters, which was reflected in the weak revenue growth and same store sales numbers.
But the company's strategy to reinvigorate its stores and focus on stronger product categories has turned the tide.
The future also looks bright as the company's two new fulfillment centers are set to come online in Q3 this year, providing a significant catalyst for its digital channel.