Dick’s Sporting Goods Scores Nice Q4 Sales

Dick’s Sporting Goods DKS posted strong sales growth in 2022′s fourth quarter and offered positive 2023 guidance, sending its shares up about 10%. Given its momentum, we expect to lift our $82 fair value estimate by a high-single-digit percentage amount but still view its shares as overvalued. While we think Dick’s operating model is improved and believe its earnings will remain well above prepandemic levels, we also view it as a no-moat retailer in a highly competitive space.

Dick’s recorded 5.3% same-store sales growth in the quarter, nicely above our 0.5% forecast and an impressive result in a tumultuous market in which many retailers struggled to clear inventories. Its transactions rose 7.6% and more than offset an unusual average ticket size decline of 2.3%. However, Dick’s did have to resort to some clearance pricing as its merchandise margin dropped 640 basis points as compared with a very strong 2021 fourth quarter, leading to a 32.4% adjusted gross margin that fell short of our forecast by 150 basis points. In the long run, we think Dick’s can hold its gross margins around 34%-35%, well above prepandemic levels of about 29%-30%, due its merchandising, store enhancement, and omnichannel efforts.

Dick’s guided to flat to 2% same-store sales growth in 2023, slightly better at the midpoint than our 0.5% forecast. Comparisons will be easier in the first half of the year due to some inventory challenges in early 2022. Dick’s also guided to an 11.7% pretax margin (20 basis points above our estimate) and EPS in the range of $12.90-$13.80 (which does not include likely share repurchases). Based on this outlook and its outperformance as compared with peers, we expect to lift our 2023 sales and margin expectations slightly.