The sporting goods industry seems to be in doldrums, as customers are jumping on the dot-com bandwagon, leaving lesser options for brick-and-mortar retailers. Consequently, the sporting goods space has grown extremely competitive and promotional, thus creating pressure on margins and bottom line. While most retailers are trying all means to enhance omni-channel capabilities, competition from online giant Amazon.com Inc. (AMZN - Free Report) still remains a major threat.
Well, this has been a major concern for big-wigs including DICK’s Sporting Goods Inc. (DKS - Free Report) , Hibbett Sports, Inc. (HIBB - Free Report) , Big 5 Sporting Goods Corporation (BGFV - Free Report) , Foot Locker Inc. (FL - Free Report) and The Finish Line, Inc. (FINL - Free Report) , as evident from their recent performances and tepid outlook. Moreover, DICK’s Sporting and Finish Line are particularly troubled by the fact that some of their most significant vendors like NIKE, Adidas and Under Armour have resorted to considerable direct-to-consumer selling. To top it, the swoosh brand’s plans to sell directly on Amazon raises further concerns for the sporting goods retailers.
Incidentally, Finish Line curtailed its fiscal 2018 view after posting preliminary numbers for the second quarter on Aug 29. While Finish Line crashed 18.4% on the news, the domino effect of this debacle sent shares of Foot Locker, DICK’s Sporting and Big 5 Sporting and down by 1.5%, 1.6%% and 5.1%, respectively.
Industry Versus S&P 500
While DICK’s Sporting, Hibbett and Big 5 Sporting form part of the Zacks Miscellaneous Retail industry, Foot Locker and Finish Line are sports footwear retailers that belong to the Zacks Apparel and Shoes Retail space. Given the aforementioned turmoil, it is not at all surprising that these industries currently stand among the bottom 11% and bottom 38% out of the 265 Zacks Industries, respectively. Furthermore, the respective industries have slumped 17.3% and 37.1% in a year, against the S&P 500 market’s 12.2% growth.
That being said, let’s take a closer look at some fallen pieces, which have performed worse than the industry.
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Pennsylvania-based DICK’s Sporting Goods has seen its shares plummet as much as 54.9% over the past year, clearly lagging the industry’s decline. This Zacks Rank #5 (Strong Sell) company reported a negative earnings surprise in the second quarter of fiscal 2017. The company bore the brunt of the industry woes that led to soft margins.
Also, DICK’s Sporting’s hunting business remains particularly challenging, which along with the overall boulders in the retail landscape compelled management to lower its fiscal 2017 earnings per share and comparable-store sales (comps) views. This has also caused a downward movement in the Zacks Consensus Estimate for fiscal 2017. The current Zacks Consensus Estimate for fiscal 2017 has fallen by 19.3% to $2.93 in the last 30 days.
Moving to Hibbett Sports, this Zacks Rank #5 stock has a dismal sales surprise history, reflecting a top line miss in nine of the last 10 quarters. Though it posted narrower-than-expected loss per share for the second quarter of fiscal 2018, both the top and bottom lines compared unfavorably with the prior-year period. Moreover, comps were a letdown, marred by sluggish traffic, softness across all categories, and increased promotional activities.
The company also substantially trimmed guidance for fiscal 2018 due to the soft results and expectations of the persistence of a tough retail environment. Consequently, the current Zacks Consensus Estimate of $1.30 for fiscal 2018 has rolled down by 44 cents in a month. These miseries have led Hibbett to nosedive 68.8% in a year.
Well, Big 5 Sporting has performed no better. This California-based retailer posted lower-than-expected top and bottom-line results in the second quarter of 2017. Further, comps were hurt by soft demand and the company provided soft comps and earnings outlook for the third quarter, partly due to a tough retail environment.
The Zacks Consensus Estimate for the third quarter has crashed considerably from 43 cents to 28 cents in the last 30 days. Well, this Zacks Rank #5 stock has tanked 41.8% over the past year, reflecting investors’ shattered confidence in the stock that was once an industry outperformer.
Let’s also delve deeper into footwear retailer Foot Locker that has lost a substantial 46.4% in a one-year period. This New York-based company came under pressure following the company’s disappointing second-quarter fiscal 2017 performance, where earnings marked its second consecutive miss and sales saw its fourth straight quarter of negative surprise.
Results were largely dented by a challenging retail landscape and changing consumer spending patterns, which are making operating environment tough. The murky quarter called for a view cut, as this Zacks Rank #5 company now expects comps to decline in the range of 3-4% in remaining of 2017, with the bottom line projected to slide in the band of 20-30% during the second half.
Margins are also expected to remain pressured. Moreover, we noticed that the Zacks Consensus Estimate for fiscal 2017 has fallen steeply from $5.10 to $3.95, over the last month.
Finally, we suggest getting rid of Finish Line, more so after yesterday’s disaster. Notably, this Zacks Rank #4 (Sell) company reported preliminary numbers for second-quarter 2018, wherein consolidated net sales slipped 3.3% to $469.4 million, on account of a 4.6% fall in comps. Moreover, the Indiana-based retailer stated that its gross margin has been pressurized owing to increased promotions.
Based on the sales and margin woes, as well as expectations of the difficult trends to linger, management curtailed its comps and bottom-line views for the fiscal. The company now envisions comps to descend in a range of 3-5%, whereas adjusted earnings are now forecasted between 50-60 cents per share.
Notably, Finish Line’s bottom line has underperformed the Zacks Consensus Estimate by an average of 14.5% in the trailing four quarters. The Zacks Consensus Estimate for fiscal 2018 has gone down by 2 cents over the last 30 days. Unfortunately, Finish Line has plunged 64.6% in a year.
Well, these bellwethers remain focused on developing their omni-channel operations to keep pace with the evolving consumer trends. However, it may take a while for these efforts to offset the barriers that are currently lying in the path of these crestfallen stocks.
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