Dick’s Sporting Goods (NYSE:DKS) slid Tuesday after being downgraded by Citi to neutral from buy. The Wall Street firm said it expects near-term gross margin pressure to continue.
The analysts explained that while Q4 earnings should reflect strong sales and will likely exceed EPS estimates, margin erosion could be rearing its head. A promotional environment could show “sales are coming at a cost,” according to Citi.
“We expect near-term GM pressure to continue (driven by excess inventory in the marketplace) and for F23 guidance to reflect another year of sales/margin give back,” the team concluded. “With DKS up against difficult multi-year comparisons in 2023 (esp 2H), it’s tough to see how they can sustainably grow sales/EPS, particularly if demand slows in key categories of apparel/footwear (~55% of sales).”
Given the recent outperformance of the stock, rising over 20% in the past six months, the risk reward is balanced in the view of the bank’s analysts. As such, the team moved from a Buy to Neutral rating. The team also trimmed their price target to $140 from $143.
Dick’s was in the news last week with word announced it has agreed to acquire leading outdoor retailer Moosejaw from Walmart. The acquisition will expand DICK’S outdoor portfolio – currently led by its specialty retailer, Public Lands – and reaffirm its commitment to the long-term business opportunity in the growing multibillion-dollar outdoor category.
DKS shares went south $2.02, or 1.6%, to $127.74.