Where to go next
From the 10-K: “Lack of available retail store sites on terms acceptable to us, rising real estate prices or other costs and risks relating to our stores, or our ability to open new stores”
They are addressing this risk by turning their attention to smaller markets than they have in the past. This factor should not be a problem, unless interest rates go up significantly, making the cost of financing expansion much higher. The company has stated a long-range goal of doubling its number of stores.
How’s this for a standout statistic on the company’s balance sheet at quarter’s end: outstanding borrowings under their credit facility totaled ZERO. This not only protects the company from interest rate increases but gives it access to capital to move quickly on expansion opportunities that arise.
Disillusioned sports fans (or consumers)
From the 10-K: “Performance of professional sports teams, professional team lockouts or strikes, or retirement or scandal involving sports superstars”
This risk might seem of minimal potential negative impact, but consider that annual sales of NFL licensed merchandise alone are more than $3 billion. Although there are some teams like the Green Bay Packers with a national fan base, team merchandise sales in any given area tend to be focused on the teams in that city or region. If the team has several down years in row, merchandise sales can be affected. The never-ending parade of scandals in sports also dampens fan loyalty. If fans feel betrayed by a team or individual player, why would they pay $100+ for a jersey?
For Dicks Sporting Goods Inc (NYSE:DKS), this isn’t a significant risk because it offers so many different products across so many sports — and apparel in total accounts for less than 30% of revenues. Like all retailers, though, Dick’s faces the risk of consumers in general becoming disillusioned about the economy and deciding to postpone purchases of non-essential goods (like a new set of golf clubs). If you are pessimistic about the sustainability of the recovery, this risk should be of concern to you as you evaluate Dick’s as an investment.
What we learned
Dick’s Sporting Goods should continue to grow its base of stores at a brisk pace. The downturn in the recent quarter’s same store sales should not discourage investors. Remember, for the full year 2012, same store sales were up 4.3% and net sales rose a very healthy 12%. Cabela’s numbers were outstanding but keep in mind they have a store count of just 44 compared to more than 500 for Dick’s. It’s easier to grow rapidly from a smaller base. Cabela’s gives investors an opportunity to take advantage of the growth of the outdoor adventure sports market. Dick’s participates in the growth of sporting goods market as a whole.
Dicks Sporting Goods Inc (NYSE:DKS) is a creative company that develops innovative new store brand concepts and continually upgrades the shopping experience in its existing stores. The company is also very well managed from a financial standpoint. Dick’s Sporting Goods certainly deserves consideration as a retail company to add to your portfolio.
The article What Risks Could Spoil the Fun for This Sporting Goods Retailer? originally appeared on Fool.com and is written by Brian Hill.
Brian Hill has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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