In a historic economic expansion and 10 plus-year bull run for the markets, the strength of the US consumer has been one of the most important drivers of increasing corporate revenues and earnings.

While traditional retailers have in some cases suffered from stiff online competition, the best -run retail companies have not only survived, but are absolutely thriving.

Dick’s Sporting Goods (DKS Quick QuoteDKS - Free Report) is definitely among the best in that category.

The company began in 1948 as a single retail store aimed primarily at fishermen that was seeded with a $300 loan that founder Dick Stack received from a family member. Dick’s current CEO, Ed Stack, is the founder’s son and has been running the company – along with two of his siblings – since 1984. The company went public in 2002, but in a sense remains a family business.

As the largest sporting goods retailer in the US, Dick’s currently operates approximately 730 retail locations and also owns the Golf Galaxy and Field and Stream specialty store chains - aimed at golfers and outdoor enthusiasts, respectively. They maintain an extensive internet presence - with all of their products available online as well as in stores.

In November 2019, Dick’s turned in a nearly perfect quarterly earnings report in which they exceeded analyst estimates for both revenues and earnings and significantly raised full year guidance.

The company delivered third quarter 2019 earnings of $0.52/share, beating the Zacks Consensus Earnings Estimate of $0.38/share by nearly 37%. Gross revenues of $1.96 billion were 5.6% higher than the prior-year period. Consolidated same-store sales were up 6% and e-commerce sales grew by 13%.

Dick’s also raised its full-year 2019 earnings guidance to a range of $3.63 – 3.73/share, up from a previous range of $3.30 – 3.45/share.

That increase in guidance sent analyst estimates soaring, earning Dick’s a Zacks Rank #1 (Strong Buy).

In the wake of several deadly mass shootings, Dicks has taken an aggressive and somewhat controversial stand on the issue of gun control by eliminating the sale of some types of firearms, and discontinuing the sale of any guns or ammunition to customers under the age of 21.

Dicks had been one of the country’s largest retailers of firearms and analysts and investors rightfully worried about the potential effect of that the loss of revenues from hunting enthusiasts.

Those customers tend to be strong advocates of second amendment rights who might see the move to limit the sales of firearms as an intrusion on those rights.

The decision came in February of 2018 and by the end of the year, Dick’s estimated that they had lost approximately $150 million in sales of guns in ammunition.

It turns out those initial investor fears were unwarranted because overall same store sales at Dick’s have actually been increasing significantly, including that 6% jump in the most recent quarter.

The hunting and shooting items that Dick’s stopped selling actually turned out to be fairly low-margin business – and one in which they often went head-to-head with the nation’s largest discount retailer, Walmart (WMT).

Dick’s selection of women’s and performance athletic apparel sell in greater dollar volumes and at higher profits than the firearms products they replaced. That’s largely due to an advantage of scale Dick’s enjoys because of its sheer size. They feature popular brands like Nike, Adidas and UnderArmour, but they also have several private-label brands that are available exclusively at Dick’s.

The company has developed a line of women’s apparel and footwear called Calia with celebrity Carrie Underwood and also a brand of high-performance compression athletic garments called Second Skin that take aim at UnderArmour’s most popular items.

It’s a powerful one-two punch. Name-brand items bring customers into the stores, but intense price competition and higher wholesale prices often mean reduced margins on those goods. Offering customers choices of in-house brands gives Dick’s the chance to also sell those customers items with a lower retail price, but at bigger profits.

Dick’s shares saw a significant rally after that blowout earnings report, yet remain very attractively valued. They’re still trading at less than 13 times 12 month forward earnings estimates - significantly cheaper than the S&P 500 which is currently trading at almost 19 times next year’s expected earnings.

They also pay a reliable dividend with a current yield of 2.4% annually and bought back approximately $100 million in stock last quarter.

Initial reports on the 2019 holiday shopping season suggest that retail sales at stores like Dick’s were stronger than ever. With record low unemployment and rising wages, the economic situation in the US points to more big retail numbers this quarter.

Dick’s Sporting Goods is likely to be a big beneficiary when they report Q4 2019 results next month.

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