Dick's (DKS)

Sporting goods retailer Dick’s Sporting Goods (NYSE:DKS) announced better-than-expected revenue in Q4 CY2024, but sales were flat year on year at $3.89 billion. On the other hand, the company’s full-year revenue guidance of $13.75 billion at the midpoint came in 1% below analysts’ estimates. Its GAAP profit of $3.62 per share was 2.8% above analysts’ consensus estimates.

Company Overview

Started as a hunting supply store, Dick’s Sporting Goods (NYSE:DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.

Some of us spend our leisure time vegging out, but many others take to the courts, fields, beaches, and campsites; sports equipment retailers cater to the avid sportsman as well as the weekend warrior. Shoppers can find everything from tents to lawn games to baseball bats to satisfy their athletic and leisure needs along with competitive prices and helpful store associates that can talk through brands, sizing, and product quality. This is a category that has moved rapidly online over the last few decades, so these sports and outdoor equipment retailers have needed to be nimble and aggressive with their e-commerce and omnichannel presences.

Retailers offering sporting and outdoor goods include Academy Sports and Outdoor (NASDAQ:ASO), Sportsman’s Warehouse (NASDAQ:SPWH), and Hibbett (NASDAQ:HIBB).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $13.44 billion in revenue over the past 12 months, Dick's is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Dick’s sales grew at a mediocre 9% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as its store footprint remained unchanged.

This quarter, Dick’s $3.89 billion of revenue was flat year on year but beat Wall Street’s estimates by 3.2%.

Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, a deceleration versus the last five years. We still think its growth trajectory is satisfactory given its scale and implies the market is forecasting success for its products.

Number of Stores

Dick's listed 856 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Dick’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.9% per year. Given its flat store base over the same period, this performance stems from not only increased foot traffic at existing locations but also higher e-commerce sales as demand shifts from in-store to online.

In the latest quarter, Dick’s same-store sales rose 6.4% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Dick’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.5% gross margin over the last two years. Said differently, Dick's paid its suppliers $64.54 for every $100 in revenue.

This quarter, Dick’s gross profit margin was 35%, in line with the same quarter last year and exceeding analysts’ estimates by 1%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Dick's has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer retail business, producing an average operating margin of 10.8%.

Looking at the trend in its profitability, Dick’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Dick's generated an operating profit margin of 9.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Dick’s EPS grew at a remarkable 33.2% compounded annual growth rate over the last five years, higher than its 9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q4, Dick's reported EPS at $3.62, up from $3.57 in the same quarter last year. This print beat analysts’ estimates by 2.8%. Over the next 12 months, Wall Street expects Dick’s full-year EPS of $14.04 to grow 5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Dick's has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.5% over the last two years, quite impressive for a consumer retail business.

Taking a step back, we can see that Dick’s margin dropped by 3.5 percentage points over the last year. If its declines continue, it could signal higher capital intensity and investment needs.

Dick’s free cash flow clocked in at $394.5 million in Q4, equivalent to a 10.1% margin. The company’s cash profitability regressed as it was 5 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t put too much weight on this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing short-term swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Dick’s five-year average ROIC was 23.2%, beating other consumer retail companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

Dick's reported $1.69 billion of cash and $4.49 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.96 billion of EBITDA over the last 12 months, we view Dick’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $27.62 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were glad Dick's revenue outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this quarter was not very good, and shares traded down 5.6% to $199.60 immediately after reporting.

Updated: May 16, 2025 at 10:26 PM EDT

When considering an investment in Dick's, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are a lot of things to like about Dick's. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its wonderful same-store sales growth is among the best in the consumer retail sector. On top of that, its EPS growth over the last five years has significantly beat its peer group average.

Dick’s P/E ratio based on the next 12 months is 12.5x. Looking at the consumer retail space right now, Dick's trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $212.82 on the company (compared to the current share price of $182.80), implying they see 16.4% upside in buying Dick's in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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