This Company’s Resisting Recession

People tend to cut back during a recession. 

But when it comes to their children, they tend to keep spending. 

Dick’s Sporting Goods (DKS) has the largest database in youth sports and is the biggest omnichannel sporting goods retailer in the U.S. 

The company’s sales grew at a blistering pace in 2021.

Because of its dominance in the space, financial pros have made it their most searched sporting goods retailer over the last month. 

This is the second brick-and-mortar store (Best Buy is the other) we’ve covered recently with all the trappings of a solid investment. 

Let’s find out why.

Dick’s Sporting Goods Business

Dick’s is America’s largest sporting goods retailer, with over 850 stores in 47 states. 

The company controls 8% of the U.S. sporting goods market share. 

Dick’s has been able to guard off the likes of Amazon.com by creating a top-notch experience for consumers, including visual presentations, in-store technology, and interactive sports experiences.

Additionally, management bolstered margins by selling exclusive vertical brands available only in its stores and on its site.

Dick’s boasts the largest database in youth sports and over 140 million athletes in its database. 

Approximately 79% of its sales were in store and 21% online in 2021. 

On November 3, DKS announced the launch of DSG Ventures, a $50 million investment fund focused on companies that directly serve athletes and their communities.

Financials

DKS’ sales exploded in the last six years, going from $8.5 billion in 2016 to $12.2 billion in 2021. Its 12-month trailing revenues are $11.9 billion. 

During the pandemic, the company benefited from growing at-home fitness trends, and outdoor sports were one of the only vestiges of normalcy during lockdowns.

The firm has repurchased $361 million of shares and distributed $82.9 million in dividends in the first half of 2022. 

DKS has $1.9 billion in cash and $4.4 billion in total. It’s in an excellent financial position, as evident in its 1.8x current ratio. 

Valuation

DKS trades at a P/E GAAP ratio of 9.4x, distinctly cheaper than its five-year average of 12.3x. 

But this is higher than competitors Academy Sports and Outdoors (ASO) at 5.8x, Foot Locker (FL) at 6.4x, Hibbett (HIBB) at 8.1x, and Big 5 Sporting Goods (BGFV) at 6.3x.

Investors have been willing to pay a premium for market leaders. 

DKS trades at a price-to-sales ratio of 0.7x, notably higher than its five-year average of 0.5x. Its competitors trade at lower price-to-sales ratios ranging from 0.27x to 0.56x.   

Profitability

DKS delivers a gross profit margin of 37.1%, slightly higher than its competitors. 

However, its net income margin of 10.4% smokes the competition. 

BGFV has a net income margin of 4.3%, FL 5.5%, HIBB 6.7%, and ASO 9.7%.

Moreover, DKS outshines them with an EBIT margin of 14.4% and a return on equity of 47.9%.

Dick’s generates $687 million in cash from its operations, significantly higher than ASO at $526 million, FL at $162 million, HIBB at $34.1 million, and BGFV at -$9.5 million.

Growth

Dick’s revenue growth slowed to 1.55% YoY after a gangbuster 2021. 

While that’s not as strong as ASO at 3.76%, it beats FL at 0.54%, HIBB at -3.2%, and BGFV at -12.5%. 

Our Opinion 8/10

Generally, a weak economy doesn’t bode well for Dick’s. 

However, the company’s omnichannel strategy, focus on youth sports, and vertical branding have allowed it to weather the storm. 

In fact, the stock has outperformed the overall market year to date. 

We believe DKS is a strong investment for the coming years and is a steal if you can get it near $100.