DKS - Academy Sports started at Buy Dick's at Hold in Jefferies sports retail review

2023-03-14 08:28:55 ET

In a note establishing coverage of sporting goods retailers, Jefferies selected Academy Sports and Outdoors ( NASDAQ: ASO ) as a top pick.

Equity analysts Anna Glaessgen and Randal Konik advised that the sector has been broadly resilient amid macro uncertainty as of late. Additionally, COVID-driven outdoor product demand has helped lift the sector.

However, elevated inventory levels pose a risk to margins, with promotional activity expected to pose an outsized impact on some retailers more so than others.

“We prefer [Academy Sports] ( ASO ), [its] value-oriented market position drives outperformance over the next 12-18 months, 'sticky' margin improvement, & over 3x unit growth opportunity,” the team explained.

By contrast, Hibbett ( HIBB ) and Dick’s Sporting Goods ( DKS ) were assigned Hold ratings given questions regarding the “staying power” of recently robust sales. Additionally, consumers are expected to trade down amid persistent inflationary pressure in 2023, increasing the upside for Academy Sports in contrast to Dick’s, for example.

Further, inventory risks are more pronounced at both Dick’s ( DKS ) and Hibbett ( HIBB ) in comparison to ASO.

“DKS is best-in-class, but see few upside catalysts on the horizon. DKS is the industry leader, with superior capacity for experiential in-store investment. However, we see few catalysts for upside, and see expectations for '23 merch margin expansion at risk,” the team concluded. “HIBB [is] most at-risk from a rising promotional tide. Greatest exposure to apparel/footwear (90% of sales) presents outsized promotional risk.”

Read more on Hibbett’s recent earnings results .

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