Well, that was certainly a surprise!
After trading down as much as 13% early Wednesday morning, due to first-quarter 2022 financial results that showed same-store sales down 8.4% and adjusted profits falling 29% year over year, Dick’s Sporting Goods (DKS 0.14%) shares rebounded sharply later in the day. By the time the closing bell struck, Dick’s had recovered all its losses, flipped from red to green, and ended the day up 9.7%. So what convinced investors to turn a loss into a win for Dick’s?
IMAGE SOURCE: GETTY IMAGES.
Dick’s by the numbers
It wasn’t the results per se, that’s for sure. In Q1 2022, Dick’s reported a 7% decline in sales to just $2.7 billion with sales from new stores helping to make up for the negative 8.4% same-store sales performance. The company’s operating profit margin skidded 380 basis points to just 12.3%. And with both sales and profits falling, Dick’s net earnings declined 28% to $2.47 per share.
However, management suggested that if investors compare 2022 not to its performance one year ago, in 2021, but rather to the company’s performance three years ago in 2019, things start to look a whole lot better. Compared to Q1 2019, Dick’s sales are actually up 41%. Its earnings are up, too — more than fourfold, in fact, from the $0.61 per share it earned three years ago.
CEO Lauren Hobart says that Dick’s is now enjoying a “secular trend” in which consumers are showing “greater participation in sports and outdoor activities” — to the benefit of Dick’s business. As a market leader in sporting goods retail, Dick’s only expects its business to get better from here.
Just don’t expect to see this improvement right away.
Despite painting a rosy scenario for its long-term prospects, Dick’s did warn that the rest of this year could be rough. Although management still says its performance “will continue to meaningfully exceed 2019 levels,” Dick’s expects its same-store sales to decline from 2% to 8%, and its earnings to fall at least 27%, to somewhere between $7.95 per share and $10.15, vs. 2021.
The good news is, taken at the midpoint of that range ($9.05 per share), Dick’s stock is currently valued at less than nine times earnings. And between Wall Street’s projection that Dick’s will grow earnings 6% annually over the next five years, together with the fact that Dick’s pays its shareholders a 2.6% dividend yield, that would imply a potential total return of 8.6%. That looks like a fair return to me.
