Morningstar

Dick's: One of the Few Retail Growth Stories in 2017

The margin expansion opportunity for this specialty retailer will become more apparent as 2017 progresses.

Securities In This Article
Dick's Sporting Goods Inc
(DKS)

While investments are likely front-loaded and guidance only suggests modest margin expansion versus full-year 2016 adjusted operating margins of 7.1%, we believe Dick's margin expansion opportunity will become more apparent as 2017 progresses. While details are still developing, we see the merit in Dick's vendor consolidation plans, where the company will eliminate as much of 20% of its vendors and replace their products with more exclusive products from existing top 10 vendors as well as Dick's own private label products (where management expects $1 billion in contribution this year), both of which have positive growth and margin implications. We continue to see a path to operating margins in the 9% range the next five years that the market has not priced into the stock at this point. We're not planning material changes to our $62 fair value estimate and view shares as undervalued after today's pullback.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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