Up 48% YTD, Dick’s Sporting Goods Still Has Room to Run
The retail sector had an excellent earnings season. In fact, retail stocks have been the best performers of the broad consumer discretionary sector so far in 2024.
All in all, retail inventory is up about 16% year-to-date as of March 14, while specialty retailers have averaged a 10% return year to date. This figure outperforms the S&P 500, which is up about 8% YTD.
The specialty retail sector got another boost on Thursday. Dick’s Sporting Goods (NYSE:DKS) was one of the best performers of the day. Shares of the major sporting goods retailer surged more than 15% on Thursday after reporting strong fourth-quarter results. As of Thursday afternoon, the company’s stock price was up 48% YTD to over $216 per share. So some investors may be wondering if there’s any more gas left in the tank.
Best sales quarter in history
You can’t do much better than Dick did in the fourth quarter. This completely obliterated revenue estimates, with net income of $296 million, or $3.57 per share, up 36% from the previous year. Adjusted net income rose 31% to $320 million, or $3.85 per share, well above analysts’ estimates of $3.35 per share.
Dick’s also had a strong quarter, with sales of $3.9 billion, up 8% year-over-year. Not only did this beat expectations by 2%, but it also marked the best sales quarter in the company’s history. Additionally, comparable store sales increased 2.8% in the fourth quarter.
Dick’s’ overall net sales for fiscal 2023 increased 5% to $12.9 billion, compared to a 0.5% decline in fiscal 2022, with same-store sales up 2.4% for the year, making these results strong across the board. Revenue for the year was $1 billion, or $12.18 per share, up 13% from the previous year.
“We finished the year with an incredibly strong fourth quarter and holiday season, driven by our industry-leading product mix and strong execution,” Lauren Hobart, president and CEO, said in the earnings report. “Even excluding the additional weeks, this was the largest revenue quarter in the company’s history, with gross and EBT margins increasing significantly during the fourth quarter. Driven by increased transactions, our annual composition grew by 2.4% and our market share continued to grow.”
The company also ended the year with $1.8 billion in cash and $1.5 billion in operating cash flow, and reduced debt by 4% to $1.48 billion. With a strong balance sheet, Dick’s raised its dividend 10% to $1.10 per share with a yield of 2.1%, marking its 10th consecutive year of dividend increases.
Thursday’s rally sent Dick’s stock up to about $220 per share before falling to about $216 per share, still up about 15% on the day.
The good news is that the stock still appears to have room to run based on its valuation and outlook. The stock is still a good value, trading at 14x forward earnings, which appears to be more in line with Dick’s 2024 guidance.
The company is calling for earnings of $12.85 to $13.25 per share, which would be a 5.5 to 9 percent increase over 2023. Dick’s projected net sales are expected to be between $13 billion and $13.1 billion, up slightly from 2023. It is expected to rise by about 1-2%. Management also expects the company to continue growing market share in 2024.
“We look forward to another strong year in 2024,” Hobart said. “We plan to increase both sales and profits through positive compensation, higher merchandise margins and improved productivity. “With the continued success of our new store formats and omnichannel experiences, we will accelerate our investments in our growth strategy to advance our business and continue to capture market share in a fragmented $140 billion industry.”
Dick’s Sporting Goods received numerous target price upgrades following its earnings report, and it’s easy to see why. Even at its all-time high, this stock is likely to rise further.
