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Dick's Sporting Goods Poised For Market Share Gains As Q4 Report Looms

Manikandan Raman

Wall Street expects a solid quarter from Dicks Sporting Goods Inc (NYSE: DKS) despite a tough retail backdrop and softer holiday sales.

Dicks Sporting Goods, which reports fourth-quarter results on Feb. 7, is expected to have gained market share amid rationalization of industry, an uptick merchandise margins and strong e-commerce growth.

Share Gain Opportunities In The Offing

Patrick McKeever of MKM Partners continues to expect adjusted EPS of $1.29 versus the Street's $1.29 and guidance of $1.19–$1.31. He also models a 75-bps improvement in gross margin, driven by disciplined inventory management, which is contributing to higher merchandise margins.

McKeever is looking for 5 percent comps, which is slightly above the Street's and compares to in line with the company’s guidance of 3–6 percent.

“While our checks suggest some choppiness in the quarter, we believe Dick's continued to see decent growth in store traffic — drove 420 bps of the 5.2 percent comp gain in 3Q16,” McKeever wrote in a note.

McKeever expects continued strength in footwear, which is benefiting from the rollout of new full service decks and believes private label merchandise continued to do well.

McKeever is Buy-rated on Dicks Sporting Goods, with a target price of $67, projecting continued opportunities of market share growth as 2017 could bring another wave of competitor closings.

For context, privately-held MC Sports filed for bankruptcy in February and is liquidating nearly 70 stores in the Midwest, while there have been reports that Gander Mountain is in financial distress and could also close stores.

View more earnings on DKS

“While there could be some near-term pressure on Dick's during any liquidation sales, the ongoing winnowing of the field presents the company with additional share opportunities and could keep the industry rationalization cycle going well beyond TSA in our view,” McKeever highlighted.

Balanced Risk/Reward

Meanwhile, Baird analyst Peter Benedict also said the company fared relatively well in the fourth quarter amid ongoing TSA-related tailwinds to comps. But, he maintained his Neutral rating on the stock on balanced risk/reward following the recent 8 percent rally.

Benedict projects fourth-quarter comp/EPS of +5.0 percent/$1.31, which are generally in line with the Street's +4.5 percent/$1.30 and at the upper end of plan (3–6 percent/$1.19–$1.31).

“While DKS isn't immune to the headwinds facing other players in the sector (weak store traffic, aggressive vendor DTC efforts), we think they likely fared relatively well over the holidays as TSA share gains remained a discrete tailwind,” Benedict wrote in a note.

That said, the analyst cautioned that though the company expects "double-digit" EPS growth in FY 2017 prior to TSA's demise, it seems like initial guidance may struggle to achieve Street expectations absent a material fourth-quarter beat.

Benedict, who has a price target of $58, sees reasonable near-term risk/reward range to be the mid-$40s to mid/high $50s.

At last check, shares of Dicks Sporting Goods were down 0.46 percent to $52.10.

Related Link: Deutsche Bank Prefers Dicks Sporting Goods After Hibbett Sports' Weak Outlook

Related Link: Keep an Eye on These 5 Stocks for March 6, 2017

Latest Ratings for DKS

Date Firm Action From To
Feb 2017 Oppenheimer Downgrades Outperform Perform
Jan 2017 Goldman Sachs Upgrades Neutral Buy
Nov 2016 Wedbush Initiates Coverage On Outperform

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