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Dick's Sporting Goods Earnings: Is DKS Due for Another Strong Quarter?

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Dick’s Sporting Goods (DKS - Free Report) will report its third quarter financial performance before the opening bell on Tuesday, November 26. The retailer has seen its shares rise over 24% year-to-date and has outpaced the broader non-food retail market’s 20.2% run.

The sports gear retailer has faced backlash from the hunting community after the company opted to turn away from the firearm market. The negative impact from losing a portion of its customers has forced the company to search for a new identity.

Dick’s Broadens Appeal

Dick’s elected to ban the sale of firearms in all of its stores last year and has been on a road to recovery ever since. The backlash felt from hunters and gun enthusiasts was extensive as they would often not only shop for hunting supplies but throughout the entire store as well. In response, when Dick’s finished eliminating the hunting section from some of its stores, it filled up the extra space with merchandise with broader appeal such as baseball gear and outdoor recreational apparel.

Dick’s is using the extra space in its stores to try and attract different customers. The company aims to attract more women through its CALIA line of apparel and it also launched a new Alpine Design brand and a discount label, DSG. Dick’s has also used the extra space to make its stores more of an experience destination, which could help it attract younger consumers.

The company added HitTrax Batting Cages in some of its stores, which allows customers to try out baseball bats and see associated performance metrics on the screen. Adding new fashion and implementing cool features like the batting cages are what have prompted the retailer to double down on its brick and mortar locations.

Moving Forward

The strategic moves Dick’s employed to fill up the extra space helped drive comparable store sales to increase 3.2% in the second quarter. Dick’s has noted the success it has seen with the different ways it has used the extra space and is now set to open seven new physical locations to add to its existing 725 locations. Some may think that Dick’s commitment to expanding its brick and mortar footprint in a market where e-commerce continues to crowd out retailers may be questionable.

However, Dick’s has steadily grown its e-commerce business over the past several years and saw its digital sales grow 21% in Q2. In this digital sales increase, Dick’s noticed that 80% of these sales occur within reach of a physical store. This indicated that consumers like to browse the physical store then finish the transaction later in the digital storefront or like to buy online then pick up in store. Either way, the development of additional brick and mortar locations may help the company continue its growth campaign.

Our Q3 consensus estimates forecast earnings to decline 2.56% to $0.38 per share and for sales to pop 2.54% to $1.9 billion. Looking ahead to the company’s full fiscal year estimates, EPS is projected to climb 4.63% to $3.39 and total revenue is predicted to jump 2.43% from the year ago quarter to $8.64 billion.

Bottom Line

As Dick’s doubles down on its brick and mortar bet, investors should monitor how the company’s digital sales respond to the initiative. With the holidays coming up, Wall Street will be looking for digital sales to sustain or accelerate. Investors should also note how management plans to grow the in-store experience as this department will be crucial to keeping its stores relevant to consumers in the digital era.

The stock is currently hovering around 6% below its 52-week high and a strong report with encouraging forward guidance could send it to a new high. Dick’s sits at a Zacks Rank #3 (Hold).

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