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DICK'S Sporting Goods (DKS) Gains 47% YTD: What's Aiding the Rally?

DICK'S Sporting Goods, Inc. DKS is gaining momentum on the back of its strategic growth endeavors including omni-channel initiatives. Moreover, robust quarterly results coupled with an upbeat view for fiscal 2019 have been further boosting investors’ confidence.

These positives have aided this Zacks Rank #1 (Strong Buy) stock to gain 47.2% year to date against the industry’s 1.4% decline. Further, the company’s expected long-term earnings growth rate of 6.5% highlights its solid prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s Have a Close Look

DICK’S Sporting Goods remains on track to build the best omni-channel experience for athletes by strengthening store network and expanding e-commerce presence. Additionally, the company is making efforts to improve digital marketing efforts by strengthening partnerships.
Management expects omni-channel investments throughout fiscal 2019 to be focused on enhancing in-store experiences for athletes, improving e-commerce fulfillment capabilities, and developing technology solutions to boost athlete experience and employee productivity.

For fiscal 2019, the company has completed its store development program with the opening of six flagship outlets and one Golf Galaxy store in the fiscal third quarter. As part of its long-term plan, the company plans to make significant investments in e-commerce, technology, store payroll, Team Sports and private brands.

Meanwhile, DICK’S is progressing well with the merchandising strategy, which is all about optimizing inventory to make shelves available for popular and private label brands. Further, the company remains focused on private brands including CALIA, Walter Hagen Alpine Design and DSG, which remain key strengths within its assortment.

DICK’S also remains encouraged about its product pipeline for the next fiscal year. These actions will not only improve customer satisfaction and inventory turnover but also boost merchandise margin rates.

Apparently, merchandise margins expanded 60 basis points (bps) in third-quarter fiscal 2019, mainly driven by favorable merchandise mix and lesser promotions. This further boosted gross margin, which expanded 140 bps in the same quarter.

In a bid to boost same-store sales (comps) performance, DICK’S consistent efforts to dispose of underperforming businesses bode well. It had earlier removed the electronics business and remains on track with the removal of the hunting category from its stores. During the fiscal third quarter, it exited eight Field & Stream stores. Although soft comps at hunting business continued to hurt the consolidated comps in the reported quarter, the metric rose 6%.

Going forward, management plans to continue the strategic review of the hunt business, which is part of the Field & Stream format.

Robust Q3 & Upbeat View

In third-quarter fiscal 2019, DICK'S earnings and sales surpassed the Zacks Consensus Estimate and improved year over year. Quarterly results gained from solid comps, which were driven by higher average ticket and transactions coupled with growth at each of its three major categories — hardlines, apparel and footwear. Its brick and mortar stores also delivered positive comps, and e-commerce business remained strong in the reported quarter. Notably, e-commerce sales grew 13% year over year. Moreover, e-commerce penetration improved to about 13% of net sales, up from roughly 12% in the prior-year quarter.

DICK'S witnessed broad-based improvement in its business and remains optimistic about the holiday season. As a result, comps are projected to increase 2.5-3% versus the earlier expectation of low-single digits growth and a 3.1% decline in fiscal 2018. Adjusted earnings are now envisioned to be $3.50-$3.60 per share, up from the earlier guided view of $3.30-$3.45. For fiscal 2019 earnings, the Zacks Consensus Estimate of $3.59 moved up 6.2% over the past 30 days.

Other Key Picks in the Same Space

Hibbett Sports, Inc. HIBB has an expected long-term earnings growth rate of 12.2%. It currently sports a Zacks Rank #1.

Office Depot, Inc. ODP, which presently carries a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 11.1%.

Five Below, Inc. FIVE, also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 24.2%.

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