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Dick’s Sporting Goods (DKS)

This sporting goods retailer’s stock has recently been upgraded by several analysts, including Barclay’s who noted the company’s recent acquisition of Affinity Sports as one reason to ‘Buy’.
Dick’s Sporting Goods (DKS)
From Canaccord Genuity Research

Dick’s Sporting Goods (DKS) reported stellar Q2 results, with comp/EPS of 2.8%/82c far exceeding guidance and Street expectations. The beat was largely driven by two factors 1) faster completion of Sports Authority (TSA) liquidations and 2) a strong licensed business that benefited from the Cavaliers and Penguins championships.

Importantly, we believe Q2 was just a sample of the long market share gain opportunity in front of DKS as the stores that operated in the same market as closing TSA stores outperformed the rest of DKS fleet. In addition, ecommerce (+26%) also accelerated in Q2, gaining market share, we believe.

While management was prudently conservative with its largely unchanged 2H outlook due to the potential for sales to have been pulled forward during the liquidations, updated full year comp guidance of 2%-3% implies a decelerating two-year comp trend in 2H. We see upside to guidance as we believe the boost DKS is getting from the TSA sales recapture coupled with the TSA IP/customer data that has yet to be leveraged is only going to boost comps at an accelerating pace going forward.

We recently estimated $1B incremental sales opportunity available to DKS from 1) sales recapture from initial 140 TSA stores closed = $370M, 2) ~31 store leases DKS has the right to take over = $372M, and 3) e-commerce opportunity of $250M, totaling $992M. With evidence of our thesis unfolding, we raise our PT to $70 and reiterate our BUY.

Camilo Lyon and Pallav Saini, Canaccord Genuity Research,, 617-371-3711, August 16, 2016