Retailers shocked the markets last week when almost all the major department stores reported better-than-expected earnings. The beleaguered sporting goods industry hopes to maintain the positive momentum this week when Dick's Sporting Goods and Foot Locker announce their quarterly results.
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The two retailers have seen sales decline in recent quarters thanks to increased competition from online and athleisure sellers such as Lululemon. And if not for the liquidation of Sports Authority, both stocks might be in worse shape this year. Shares of Dick's are up 55 percent year to date, while Foot Locker is down 6 percent over the same time frame.
Year-to-date stock performance
Dick's is emerging as the biggest victor from the demise of its chief competitor. At an auction in late June, the company beat out fellow sporting goods competitors for the right to Sport's Authority Holdings's brand name and other intellectual property. The transaction cost Dick's a meager $15 million. For an additional $8 million, Dick's also won 31 Sports Authority store leases. The impact of the proceedings is expected to have long-term benefits but will have little bearing on tomorrow's report.
Analysts at Estimize are looking for earnings per share of 69 cents, down 10 percent from the same period last year. That estimate has dropped 11 percent since Dick's most recent report in May. Revenue is anticipated to grow by 4 percent to $1.9 billion, a marked slowdown from previous quarters.
The auction winnings complement the company's current strategy for expansion. Management has indicated that it expects to add 36 new Dick's Sporting Goods stores this year while relocating another nine. This doesn't include the 31 Sports Authority store leases acquired in June.
More importantly, Dick's has been growing its e-commerce platform to fend off competitive threats. During the first quarter, reported online sales accounted for 9.2 percent of total sales, compared to 8.5 percent from a year earlier. This number should continue to rise as the company devotes more resources to this important and growing part of the business.
Guidance last quarter would suggest earnings prospects still remain bleak though. Same-store sales are projected to be down 1 percent to 4 percent after growing 0.5 percent last quarter.
Foot Locker, on the other hand, is expected to post more modest gains. Analysts are calling for earnings per share of 92 cents on $1.77 billion in revenue, according to crowd-sourced consensus data. Compared to a year earlier this represents a 9-percent increase on the bottom line and a 4-percent bump on the top line.
Much its success can be credited to the growing popularity of basketball shoes. Foot Locker has established itself as the preeminent mall-based supplier of basketball shoes, leaps and bounds ahead of close competitor Finish Line. This distinct segment accounts for a large portion of its sales with yearly releases of Michael Jordan's and LeBron James's signature shoes driving those gains. Foot Locker is more than proficient in several of the other lines it carries as well, mainly running and casual footwear.
The biggest concern for Foot Locker comes from its high exposure to international markets. Last year roughly 30 percent of total revenue was generated from business outside of the United States. With the dollar continuing to make gains on other major currencies, revenue growth could take a slight hit.
Experts still believe this stock is on pace to break out. An analyst at Susquehanna recently reiterated the firm's positive rating and $73 price target citing persistent strength in athletic footwear.
Strong reports from both Dick's Sporting Goods and Foot Locker would fuel what many believe is a broader bounce back in the overall retail sector.
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