Hibbett Sports, Inc. (HIBB), Dicks Sporting Goods Inc (DKS), Foot Locker, Inc. (FL): This Small-Town Retailer Is More Profitable Than the Big Boys

Dicks Sporting Goods Inc (NYSE:DKS) is the largest full-line sporting goods retailer in the U.S. with about 9% market share of the U.S. retail-sporting-goods industry. Despite its size, Dicks Sporting Goods Inc (NYSE:DKS) trailing-12 months (TTM) operating margin of 9% pales in comparison to an operating margin of 14.3% for Hibbett.

In addition, Dicks Sporting Goods Inc (NYSE:DKS) is not spared from the effects of weak consumer sentiment, with same-store sales falling by 0.4% for the second quarter of fiscal 2013.

In a bid to improve sales and profitability, Dicks Sporting Goods Inc (NYSE:DKS) is focusing on e-commerce. Its online business grew by 50% year-on-year in 2012, but still only makes up about 5.6% of its total revenue. Dicks Sporting Goods Inc (NYSE:DKS) is targeting to triple the contribution from e-commerce by 2015 through increasing the depth of product offerings and providing options for buyers to pick up their online purchases in stores.

Unlike Hibbett and Dick’s, which are purely domestic players, Foot Locker, Inc. (NYSE:FL), a specialty retailer of athletic shoes and apparel, has an international footprint with close to 3,500 stores in 23 countries. But size is rarely correlated with profitability. Similar to Dick’s, Foot Locker, Inc. (NYSE:FL)’s trailing-12 month operating margin of 10.3% lags that of Hibbett.

Compared with Hibbett and Dick’s, Foot Locker, Inc. (NYSE:FL) delivered stronger same-store sales performance.  It grew same-store sales by 1.8% for the second quarter of fiscal 2013. Although Foot Locker, Inc. (NYSE:FL) does not disclose the geographical breakdown of revenue on a quarterly basis, I construe that its geographically diversified operations helped to offset the impact of weak consumer-discretionary demand in the U.S.

In May, Foot Locker, Inc. (NYSE:FL) announced its acquisition of Runners Point, a German specialty athletic store and online retailer. This is inline with its plans to expand internationally, particularly in Europe. Based on the purchase consideration of 72 million euros, Foot Locker probably took advantage of a difficult economic environment in Europe to acquire Runners Point at an attractive valuation of a price-to-sales ratio of 0.4.

Conclusion
I like Hibbett for its strong competitive position and advantageous cost structure. However, the market has factored Hibbett’s superior profitability into its share price. Hibbett is expensive, currently trading at forward P/E of 17 and a PEG of 1.2. I will only consider taking a position in the stock at below 1.0 times PEG.

The article This Small-Town Retailer Is More Profitable Than the Big Boys originally appeared on Fool.com is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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