Story Stocks^®

Amid an inflationary environment, the highly discretionary sporting goods market has remained down for the count, with retailers, including Academy Sports + Outdoors (ASO) and JD Sports Fashion (JDDSF), struggling lately. However, as a testament to its focus on the end consumer experience, Dick's Sporting Goods (DKS -6%) bucked this trend once again in Q2 (Jul), registering top and bottom-line beats on robust comparable sales growth. DKS also raised its FY25 (Jan) EPS and comp growth guidance.

So why are shares falling? DKS left its FY25 revenue guidance unchanged at $13.1-13.2 bln. Management mentioned that due to the impact of a calendar shift, which pulled back-to-school sales forward, it estimated an unfavorable effect on Q3 sales and earnings. Furthermore, the economy remains dynamic, forcing DKS to remain relatively conservative. With shares nearly carving out fresh all-time highs yesterday, expectations remain elevated, placing DKS's quarterly reports under a microscope. As a result, minor blemishes can result in profit-taking.

• Consistent with the past three quarters, DKS registered a sizeable earnings beat in Q2, boasting a 54.9% jump yr/yr to $4.37 per share supported by a 7.6% improvement in total sales to $3.47 bln and +4.5% comp growth. EBIT margins surged by 380 bps yr/yr to 13.9%, pulled higher by buoyant merchandise margins driven by a healthy sales mix and lower shrink.
  • Fueling DKS's robust comp growth was a 3.5% increase in average ticket and a 1.0% transaction bump. Categories in highest demand during Q2 were footwear and athletic apparel.
• DKS's ambitious store remodeling plans have been central to its upbeat quarterly numbers. The company is constructing 100,000 square-foot "House of Sport" locations focused on giving customers the best shopping experience by providing batting cages, hockey rinks, and many other features. The company plans on having 19 locations opened by year's end. DKS has also been revamping its more common 50,000 square-foot locations, opening four during Q2 with plans to open nine more during the year.
  • Management remarked that mall operators are observing increased traffic sales per square foot across the mall where House of Sport locations are situated, illuminating how magnetic these new stores are proving to be.
• During the back-to-school season and ahead of the holiday shopping season, DKS ended Q2 with its inventory 11% higher yr/yr, leaning into differentiated items and categories, which it anticipates will drive growth into the second half of 2024 and into early 2025. As a result, it hiked its EPS forecast to $13.55-13.90 from $13.35-13.75 and same-store sales growth outlook to +2.5-3.5% from +2.0-3.0%.

It may not be showing up in today's dull price action, but DKS delivered another impressive quarterly performance in Q2, reflecting the continuous success of its updated store layouts and focus on categories resonating most amongst consumers. We continue to like DKS's attention to fortifying the in-store shopping experience, especially given the importance of becoming familiar with sporting goods products in person. As such, sharp pullbacks offer attractive entry points for buy-and-hold investors.