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Dick's Sporting Goods: Pullback Presents Buying Opportunity

 December 27, 2012 09:51 AM

(By Mani) Dick's Sporting Goods, Inc. (NYSE: DKS) has pulled back significantly on concerns about the weather as it dropped 12 percent in the past three months. However, the pullback presents a significant opportunity to build positions in the shares.

Shares are trading at just 15.2 times the consensus 2013 estimate, below the hardline average of 15.8 times despite the company's above average growth rate. It has among the highest sales and gross margin opportunity in its space and should have the best gross profit dollar growth of any name in the industry except Tractor Supply Co. (NASDAQ:TSCO).

"While the weather hasn't been overly favorable for DKS, we remain comfortable with our estimate of a 3.9% comp this quarter, in line with DKS guidance and just below consensus of 4.3%," Deutsche Bank analyst Mike Baker said in a client note.

[Related -Dick's Sporting Goods Inc. (DKS) Q3 Earnings: Opening The Door To Another Miss?]

Last year, when the weather was particularly unfavorable, Dick's still comped at 0.1 percent, which was in line with their 0 to 1 percent guidance, and made 88 cents a share, also in line with their original guidance of 87 to 89 cents.

"If they can pull the quarter out last year, we think they can do it again, helped by strong inventory management strategies," Baker noted.

True, a 4 percent comp would represent a deceleration on a stacked basis against the 0.1 percent last year, but on a three year stacked, the trend would be relatively consistent.

[Related -Dicks Sporting Goods Inc (DKS): What To Watch At Analyst Day?]

Meanwhile, First Data from Bloomberg seems to indicate November finished stronger than it started, probably indicative of a strong Black Friday, but has lulled in early December. This is consistent with the pattern that has played out over the past few years as more holiday shopping has occurred early and late in the quarter. Warm weather early in December probably hasn't helped much, as well.

Dick's Sporting Goods is the 2nd largest specialty sporting goods retailer in the U.S. As of October 27, 2012, the Company operated 511 Dick's Sporting Goods stores in 44 states, 81 Golf Galaxy stores in 30 states.

Dick's footprint has continued its westward expansion, recently entering California in a meaningful way through its Chick's acquisition. Dick's is an authentic, sporting goods retailer offering products for a wide variety of athletic endeavors and attempting to cater to the sports enthusiasts, from beginners to advanced athletes.

The Pennsylvania-based sporting goods retailer's third quarter sales grew 11 percent to $1.31 billion, reflecting a 5.1 percent rise in consolidated same-store sales, as well as growth of the company's store network.

Net income increased to $50.14 million or 40 cents per share from $41.48 million or 33 cents per share in the prior-year period.

For fiscal 2012, Dick's Sporting raised its adjusted earnings outlook to a range of about $2.53 to $2.55 per share from the prior range of $2.47 to 2.51 per share. Analysts currently expect the company to earn $2.56 per share for the year.

The company now projects consolidated same store sales for the year to increase about 5 percent, up from the prior range for an increase of about 4 to 5 percent. This compares to a 2.0 percent increase in fiscal 2011.



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