- Retail earnings season continues with DICK'S Sporting Goods issuing Q2 results Tuesday morning.
- It's been a mixed bag so far as some retailers report solid demand while others voice consumers tightening their purse strings.
- DKS has benefited from a surge in outdoor activity, but will the return to normal be a headwind?
- Shares could pullback further despite impressive relative strength lately.
The pandemic was a major tailwind for many individual sports and just getting outside in general. Dick’s Sporting Goods (DKS) no doubt benefited from people gearing up to ‘get into the out there.’ Golf, hiking, cycling, and other apparel are particular areas of strength for the firm that also has a solid omni-channel presence. Still, like many retailers in this environment, managing inventory is a major challenge right now. The stock sports a strong 3-month performance as investors remain optimistic about DKS execution. Mixed signals from Nike (NKE) and Adidas (ADDYY) earlier this earnings season create added uncertainty ahead of next week’s Q2 earnings report.
Three-Month Performance Heat Map: DKS A Retail Standout
According to Bank of America Global Research, Dick's Sporting Goods, Inc is a full-line sporting goods retailer that offers a broad assortment of brand and private label sporting goods apparel, footwear, and equipment in a large box store format. The company also operates specialty standalone golf stores under the Golf Galaxy name and an Outdoor specialty store under the Field & Stream banner.
The Pennsylvania-based $9 billion market cap Specialty Retail industry company in the Consumer Discretionary sector features a trailing 12-month price-to-earnings ratio of just 8.7, according to The Wall Street Journal . Its dividend yield is 1.7%, about even with that of the S&P 500. Importantly ahead of earnings next week, the stock’s short interest ratio is very high at 27.3%. DKS is part of the equal-weight S&P Retail ETF (XRT).
Analysts at BofA see DKS earnings climbing abnormally this year, then retreating in 2023. A steadier EPS growth rate is seen in 2024 and 2025. The firm paid a special dividend almost a year ago, so investors should be on watch for another possible distribution, but that is not the forecast. DKS trades at a reasonable EV/EBITDA multiple and it generates solid free cash flow. So the valuation picture looks favorable.
DKS Earnings, Dividend, Valuation Forecasts
DKS has a confirmed earnings date of Tuesday, August 23 BMO, according to Wall Street Horizon. A conference call begins that morning at 10:00 am ET. You can listen live here .
DICK'S Corporate Event Calendar: Earnings On Tap
Looking closer at Tuesday’s Q2 earnings report, analysts expect $3.55 of EPS, according to data gathered by Option Research and Technology Services. Traders have priced in a 10.5% earnings-related stock price swing using the at-the-money straddle on the nearest-expiring options. DKS has beaten profit forecasts in the past eight quarters using ORATS data.
DKS Options Information: A Big Implied Move
The Technical Take
DKS has rallied impressively off its May low. Nearly doubling in less than three months, shares have found some resistance at a congestion area from January and February. The pause coincides with its October 2021 low. What I like, though, is that the stock has climbed above its flattening 200-day moving average. While most stocks have a negative-sloped 200dma, the DKS long-term trend is not so bearish.
I see support in the mid-$90s if we see a pullback post-earnings. I think the stock will indeed back off on this first try to climb above the year-to-date high. It’s certainly a ‘buy-the-dip' candidate to me, though.
DKS: Shares Pause Under Its 2022 High
The Bottom Line
DKS looks good from a fundamental demand story as well as with its valuation. Technically, shares could pull back toward the 200dma if we see a negative earnings reaction, based on implied moves in the options market.
For further details see:
DICK'S Sporting Goods: Playing Defense Ahead Of Q2 Earnings