The Best And Worst News From Dick's Sporting Goods Q2 Report

Forward View Consulting has maintained its Buy rating on Dicks Sporting Goods Inc DKS after the company's second-quarter earnings surpassed the Street's view by $0.14 and raised its full-year outlook.

The Good

Forward View said the best news is the liquidation of The Sports Authority and Sports Chalet stores has largely finished, thus nullifying a temporary headwind. The 31 former Sports Authority leases acquired by Dick's are far less important than the elimination of a key competitor.

"By moving beyond the competitors' liquidations ahead of schedule, Dick's Sporting Goods can enjoy fresh opportunities heading into football and back-to-school season. The Olympics, of course, also offer beneficial marketing and sales possibilities," analyst Nathan Yates wrote in a note.

Related Link: Dick's Locations That Once Competed With The Sports Authority Stores Are Now Outperforming

"In the sporting goods sector, it's rare that a major retailer has such an opportunity to steal market share. While it's difficult to forecast exactly how much of Sports Authority's business will shift to Dick's, no other retailer is likely to benefit more. Dick's is the gold medal winner right now," Yates continued.

The Bad

The analyst noted that there's not much bad news to discuss, but Dick's modest Golf Galaxy business was disappointing in the second quarter.

Yates noted that Dick's faces both opportunities and threats in golf. The opportunity may come in the form of Golfsmith, which is reeling on bankruptcy, and the threat is from Nike Inc NKE, which will no longer be manufacturing golf clubs and balls.

Yates raised his earnings estimates by $0.01 for the fourth quarter and by $0.14 for FY17 due to reduced competitive pressure. The analyst's FY16 total revenue forecast has risen by $245.5 million.

The analyst pointed out that around $3.2 billion of annual sporting goods sales have been dislocated by the bankruptcies of The Sports Authority and Sports Chalet. Even if Dick's only captures 10 percent of the pie, the company's revenue will see a 4 percent benefit next year.

"Based on our own estimate, look for closer to a 6–7 percent revenue boost from industry consolidation alone. That's akin to turbocharging an already strong retailer," Yates highlighted.

The analyst also raised his target price to $64, while shares of Dick's Sporting Goods were currently up 0.40 percent to $57.86 at time of writing.

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