How Dick’s Sporting Goods (DKS) is Standing Out in the Retail Sector

0:00It's time now for the 360 round to take a closer look at Dick's sporting goods. Shares are trading marginally higher right now. After the sporting goods retailer reported better than expected earnings. The company reported revenue of $6.23 billion versus expectations looking for $6.07 billion. Also raised its annual dividend by 3%. Joining us to take a closer look at the report. Sutra Rita Codali, the vice president and principal analyst at Forester and Mark Herman, the senior consultant research analyst at R5 Capital. Thank you both for being with us. Sutra Rita, let's start with you. What were some of your key takeaways here from this report that we just got from Dick's sporting goods? Well, it's been on an upward trend. It's been doing well given that there are a lot of questions around how the retail industry overall is faring, particularly in a period of low consumer confidence. Dick's has been one of the winners. And it is interesting because typically the winners in this space have been a number of the mass merchants, the multi-category products that tend to focus on commodities,

1:05the Wal-Mart, the Amazon's. So it has been a great surprise to see a specialty retailer like Dick's do well and to be capturing more and more wallet share from shoppers in a time where there is lower consumer confidence. And Mark, you know, what stuck out for you most here in this report? You know, we had a strong quarter. We had the beat on the tops and the bottom lines. Comp sales up 3.1% about 4.5% for the year. You know, what's sticking out to you is the highlights. Well, I think as far as the earnings numbers, they were irrelevant in terms of the forecast because some people had footlocker in their numbers. Some people didn't. So I think it was generally in line to it slightly better. But what really shook out was that was the discussion about footlocker. The company's been testing about 11 stores with a remodel. We've been in three of those stores and we were extremely enthused by what we saw in those stores. And that kind of played out this quarter. The company talked really bullishly

2:05about the cops in those stores outperforming the chain. They talked about closing fewer footlockers and they originally thought and instead remodeling them, we think that's a very bullish sign on where those stores are going. They're cutting inventory out of the stores. They're focusing more on women, we're on Nike's, less on Puma, less on Crocs, more on the really high-end products. And we think that strategy is really working. And Mr. Charita, what are your thoughts about what Mark just said there? And also the footlocker conversation because some of the numbers did include footlocker. Some did not. But it certainly was a big focus because it was a $2.5 billion acquisition. Are you encouraged here that we're seeing early signs of a turnaround? Well, a significant part of what we are also seeing is the pendulum swinging back away from direct to consumer brands more back toward multi-category, multi-brands selling in big box or bigger box locations. And I think that one of the challenges is that large brands like Nike had pulled away

3:07from distribution partners over the years but now seem to be leaning back into those distribution partners. We know that Nike was a huge, huge driver and the major brands were big drivers for these large chains in the past. And to have those brands again is absolutely a support factor for the growth of these companies. Now, which brands will be that on that roster is it brands like On or Hoka or even others and other categories. I think that that is absolutely something where things remain to be seen and they are all options that will keep the growth there for Dix because they now have more of the balance of power in that wholesaler brand distribution network. And Mark, the company said it has not seen its consumers trading down despite some of this economic uncertainty that we're living in this K-shaped economy. Such a read also highlighted some of the higher end brands

4:09that they're focusing on here moving away from some of the lower end brands that they carry. What does that tell you about the health of the sporting goods and athletic apparel consumer? We think it's still very strong. I mean, Dix has said quarter after quarter that they're not seeing trade down. So this was nothing really different for them. But I think it's a positive sign and other things we're seeing would support that. I would just, the only cautionary statement on Dix, I would say is that this company still could be distracted. That was a big concern when they bought footlocker. This was a company that had basically two banners in one country and 860 stores five years ago. Now they have over 2,000 countries, 10 banners, nine to 10 banners and over 3,200 stores. So it's getting more complicated, but the company's doing a fantastic job of managing comp to that. And we do think that they are focusing more even in footlocker, which tends to be lower end. They're focusing that store more towards a higher end consumer.

5:11We really appreciate you both being with us today to take a closer look at the numbers that we got from Dix sporting goods. Holding on to its move to the upside up about three quarters of a percent so far this morning. So Judy Codali, the vice president and principal analyst at Forester and Mark Herman, senior consultant and research analyst at R5 Capital.