Credit Suisse said Sportsman's Warehouse Holdings Inc (NASDAQ: SPWH) will be a better beneficiary from the bankruptcy of Gander Mountain Company (OTC: GMTN) versus Dicks Sporting Goods Inc (NYSE: DKS).
“DKS may not benefit as much as hoped, based on mix, and the initial store closure plan; SPWH, the closest public peer, is in a much stronger position based on a comparison of financials, which is not reflected in its stock,” analyst Seth Sigman wrote in a note.
Dicks Not An Obvious Beneficiary
Gander Mountain filed Chapter 11 on Friday, the second largest sporting goods retailer in the last 12 months to do so following The Sports Authority. The latest development takes the bankruptcy store count to nearly 1,000 in this space over that period.
Gander Mountain became another victim to online competition, competition with vendors, and aggressive promotions. Gander generated $1.32 billion in sales in 2016, across 160 stores and a direct business, which accounted for 14 percent of sales.
Sigman said Dicks Sporting Goods isn't an obvious beneficiary as Gander Mountain’s filings show that 53 percent of its mix is hunting and shooting, which isn't core to the Dicks format. The scenario is very different from the The Sports Authority liquidation where overlap of mix, customers and stores were all very high.
“[W]e assume a market share capture rate for DKS at under 10% of the GMTN sales. That would equate to a benefit of just under 1% to comps in a full liquidation scenario,” Sigman highlighted.
How Sportsman’s Fare Against Gander Bankruptcy
The analyst noted Gander's challenges aren't a good read through for the closest public peer Sportsman’s Warehouse due to different mix and Gander’s much weaker financials. Though their hunting exposure is similar, Gander leans more to more apparel/ footwear, which has been more impacted by online.
“The direct store overlap is low for SPWH, so it's not the most obvious beneficiary, but it may edge up SPWHs position to the number three outdoor specialty chain, or potentially number two after considering the merger of Cabelas Inc (NYSE: CAB) and Bass Pro,” Sigman added.
Despite Sportsman’s shares were weak amid industry concerns, the analyst said the Gander’s filing should remind the market of the strength of Sportsman’s operating model and its growth opportunities in a fragmented sector.
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