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DICK'S Sporting Stock Remains a Lucrative Pick for 2019

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DICK’S Sporting Goods, Inc. (DKS - Free Report) witnessed solid momentum in 2018, gaining from its strategic efforts that include omni-channel expansion and exclusive merchandising strategy. Robust growth in private brands, and outdoor and athletic apparel as well as solid e-commerce operations is also aiding growth.

In a year’s time, shares of this sporting goods retailer have rallied 13% against the industry’s 0.4% decrease. This Zacks Rank #2 (Buy) stock has also outperformed the S&P 500 index’s decline of 5.9%.

This upside can also be attributed to the company’s superb earnings surprise trend. DICK’S Sporting outpaced the earnings estimates for the fifth straight time, when it reported third-quarter fiscal 2018 results.

Let’s Delve Deep

DICK’S Sporting’s continued focus on developing every possible avenue to generate higher sales is impressive. The company remains on track to build the best omni-channel experience for athletes by strengthening its store network and expanding e-commerce presence. As part of the long-term strategy, management plans to make significant investments in e-commerce, technology, store payroll, Team Sports HQ and private brands to boost growth.

In third-quarter fiscal 2018, the company’s e-commerce penetration improved to about 12% of net sales, up from 10% in the prior-year period. Moreover, e-commerce sales grew 16% year over year in the fiscal third quarter.

DICK’S Sporting’s unique merchandising strategy is an added positive. In fact, the company is witnessing gross margin expansion backed by this strategy, which is all about optimizing inventory in order to make shelves available for popular and private label brands. Its exclusive branded merchandise, sourced from leading manufacturers, allows the company to better compete with its rivals.

Moving ahead, the company is keen on investing in the supply chain to improve in-stock levels as well as the speed and reliability of online delivery. These investments are expected to enhance customer satisfaction and inventory turnover besides expanding merchandise margins. In third-quarter fiscal 2018, merchandise margin improved 213 basis points (bps) driven by lower promotions and better product cycles. Solid merchandise margins also drove gross margin, which improved 72 bps.

Additionally, DICK’S Sporting boasts healthy financials that help the company in making right investments. Its shareholder-friendly moves are commendable as well. Moreover, it continues to efficiently utilize its cash flows to accomplish long-term growth target through omni-channel development and store openings as well as via funding share repurchases and paying quarterly dividends.

Despite the aforementioned strengths, we remain wary of DICK'S Sporting’s soft top line that missed estimates for the second straight quarter. Persistent weakness in the company’s low-margin hunting and electronics businesses has also been hurting comparable store sales.

However, management had virtually detached all the underperforming hunting products from its 10 namesake outlets and replaced them with compelling assortment categories such as baseball, licensed products and outerwear. These changes are expected to improve DICK'S Sporting’s performance going forward.

Bullish FY18 Earnings View

For fiscal 2018, DICK’S Sporting envisions earnings per share in the range of $3.15-$3.25, up from the prior guidance of $3.02-$3.20 and $3.01 earned last fiscal. The Zacks Consensus Estimate for the current fiscal year stands at $3.22.

Further, the company has solid earnings growth potential evident from its expected long-term earnings growth rate of 6.2%.

Want More Solid Retail Stocks? Check These

Sally Beauty Holdings, Inc. (SBH - Free Report) delivered average positive earnings surprise of 1.3% in the last four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tractor Supply Company (TSCO - Free Report) , carrying a Zacks Rank of 2, has outpaced the earnings estimates in the trailing four quarters by an average surprise of 4.6%.

The Michaels Companies, Inc. (MIK - Free Report) is also a Zacks Ranked #2 stock. It has an expected long-term earnings growth rate of 8.7%.

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