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Will DICK's Sporting Follow Sports Authority Post-Slump?
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Shares of leading sporting goods retailer, DICK’S Sporting Goods Inc. (DKS - Free Report) witnessed a massive sell-off yesterday, which initially seemed due to the company’s conservative forecast for first-quarter fiscal 2017. By end of trade, however, the key reason for the sell-off surfaced as being the company’s new merchandising strategy that proclaims proactively curbing 20% of vendor base in fiscal 2017.
DICK’S Sporting stock closed trade at $48.08 on Dec 7, after declining about 8.6%, as the not so happy investors feared this move to bring about a slowdown in market share gains for the company in the latter half of fiscal 2017. This may mean that the company is moving toward the same fate as rival Sports Authority and others in this consolidating sporting goods space.
The investor fears are also reflected by the company’s share price, which has lost 18.4% in the last six months. This marks an underperformance from the Zacks categorized Retail – Miscellaneous/Diversified industry that witnessed a marginal rise of 0.7% in the same period.
Now, one key question that arises – Is DICK’S Sporting really moving toward the same fate as Sports Authority?
Not really, we believe. In fact, DICK’S Sporting has been gaining immensely from the ongoing consolidation in the sporting goods space. The company has made use of every opportunity to acquire intellectual property and store leases from the recent wind down of rivals The Sports Authority, Sport Chalet and Golfsmith. Further, it is striking the right chords to fill in gaps left by these competitors by acquiring their best locations and fulfilling the needs of their customer base. Additionally, it is rigorously focused on building up omni-channel strength. This strategy is helping the company gain significant market share both in-store and online.
The company’s strategy is clearly evident from the fact that it opened three Sports Authority locations under the DICK’s banner in fourth-quarter 2016. Further, the company acquired 30 Golfsmith stores in the quarter, which will be revamped to open as Golf Galaxy stores soon. In fiscal 2017, the company intends to open about 43 new DICK’S Sporting stores, 19 of which will be former Sports Authority stores. These stores will be opened in California, Florida, Texas and the Pacific Northwest, where DICK’S Sporting has a limited presence.
Likewise, the company targets opening nine Golf Galaxy stores in the fiscal, of which eight will be converted Golfsmith stores.
This clearly shows that DICK’S Sporting is ready to take off with the significant market share it has gathered in the last one year. While the company continues to target aggressive market share expansion, we believe the new merchandising strategy is a way to evaluate the health of its business to ensure it is headed in the right direction.
DICK’S Sporting’s new merchandising strategy is all about optimizing inventory in order to make shelves available for popular and private label brands. In the process, the company targets cutting down upon vendor list to focus on strategic vendors that provide both online and offline business. These vendors are not only expected to drive business growth but also differentiate DICK’S Sporting from others in the market.
The company stated that the process has already begun as it has written down $46 million in fourth-quarter fiscal 2016 to remove merchandise that will no longer be displayed. In fiscal 2017, the company anticipates to let go nearly 20% of non-performing vendors.
As part of the strategy, the company plans to retain top 10 vendors while it expects to increase inventory offerings from leading vendors, Nike Inc. (NKE - Free Report) , Adidas AG (ADDYY - Free Report) and Under Armour Inc. (UAA - Free Report) . Further, the company plans to perk up private-label brands, which will be more margins intensive in the long run. DICK’S Sporting expects to expand in-house brand Calia by Carrie Underwood. Further, the company plans to launch two more private-label brands in 2017.
While investors may think the curbing of vendor base means taking a back foot on market share gains, the fact is that these are two different worlds. We believe the company’s aggressive market share gains clearly testify that DICK’S Sporting is all set to capture the displaced share from Sports Authority and Golfsmith. Moreover, the recent merchandising strategy only speaks of this Zacks Rank #3 (Hold) company’s focus on refining offerings to bring sustained profits.
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Will DICK's Sporting Follow Sports Authority Post-Slump?
Shares of leading sporting goods retailer, DICK’S Sporting Goods Inc. (DKS - Free Report) witnessed a massive sell-off yesterday, which initially seemed due to the company’s conservative forecast for first-quarter fiscal 2017. By end of trade, however, the key reason for the sell-off surfaced as being the company’s new merchandising strategy that proclaims proactively curbing 20% of vendor base in fiscal 2017.
DICK’S Sporting stock closed trade at $48.08 on Dec 7, after declining about 8.6%, as the not so happy investors feared this move to bring about a slowdown in market share gains for the company in the latter half of fiscal 2017. This may mean that the company is moving toward the same fate as rival Sports Authority and others in this consolidating sporting goods space.
The investor fears are also reflected by the company’s share price, which has lost 18.4% in the last six months. This marks an underperformance from the Zacks categorized Retail – Miscellaneous/Diversified industry that witnessed a marginal rise of 0.7% in the same period.
Now, one key question that arises – Is DICK’S Sporting really moving toward the same fate as Sports Authority?
Not really, we believe. In fact, DICK’S Sporting has been gaining immensely from the ongoing consolidation in the sporting goods space. The company has made use of every opportunity to acquire intellectual property and store leases from the recent wind down of rivals The Sports Authority, Sport Chalet and Golfsmith. Further, it is striking the right chords to fill in gaps left by these competitors by acquiring their best locations and fulfilling the needs of their customer base. Additionally, it is rigorously focused on building up omni-channel strength. This strategy is helping the company gain significant market share both in-store and online.
The company’s strategy is clearly evident from the fact that it opened three Sports Authority locations under the DICK’s banner in fourth-quarter 2016. Further, the company acquired 30 Golfsmith stores in the quarter, which will be revamped to open as Golf Galaxy stores soon. In fiscal 2017, the company intends to open about 43 new DICK’S Sporting stores, 19 of which will be former Sports Authority stores. These stores will be opened in California, Florida, Texas and the Pacific Northwest, where DICK’S Sporting has a limited presence.
Likewise, the company targets opening nine Golf Galaxy stores in the fiscal, of which eight will be converted Golfsmith stores.
This clearly shows that DICK’S Sporting is ready to take off with the significant market share it has gathered in the last one year. While the company continues to target aggressive market share expansion, we believe the new merchandising strategy is a way to evaluate the health of its business to ensure it is headed in the right direction.
DICK’S Sporting’s new merchandising strategy is all about optimizing inventory in order to make shelves available for popular and private label brands. In the process, the company targets cutting down upon vendor list to focus on strategic vendors that provide both online and offline business. These vendors are not only expected to drive business growth but also differentiate DICK’S Sporting from others in the market.
The company stated that the process has already begun as it has written down $46 million in fourth-quarter fiscal 2016 to remove merchandise that will no longer be displayed. In fiscal 2017, the company anticipates to let go nearly 20% of non-performing vendors.
As part of the strategy, the company plans to retain top 10 vendors while it expects to increase inventory offerings from leading vendors, Nike Inc. (NKE - Free Report) , Adidas AG (ADDYY - Free Report) and Under Armour Inc. (UAA - Free Report) . Further, the company plans to perk up private-label brands, which will be more margins intensive in the long run. DICK’S Sporting expects to expand in-house brand Calia by Carrie Underwood. Further, the company plans to launch two more private-label brands in 2017.
While investors may think the curbing of vendor base means taking a back foot on market share gains, the fact is that these are two different worlds. We believe the company’s aggressive market share gains clearly testify that DICK’S Sporting is all set to capture the displaced share from Sports Authority and Golfsmith. Moreover, the recent merchandising strategy only speaks of this Zacks Rank #3 (Hold) company’s focus on refining offerings to bring sustained profits.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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