Tuesday, 19 August 2014

Dick's Sporting Goods - golf declines again but share still good value

A quarter on from their major share price de-rating, Dick's Sporting Goods is having a happier time after their latest quarterly disclosure earlier today.  As I write the shares are up around 3% making the recent chart look a little better.

I was brave and made an initial share purchase in the company in the US$42s following May's share price slide and after putting together and publishing this review.  As I concluded there conventional metrics indicated some value:

'Today the company trades on around a x10 EV/ebit multiple and as noted already the company has an effectively net debt free balance sheet.  The company is buying back shares and pays a 1.1% dividend yield'

I also noted that there was a sharp divide in the company's operations between their core sporting goods operations and the more difficult golf/hunting side.  What's the update here?  Well today's Q2 numbers contained this observation: 

'Net sales for the second quarter of 2014 increased 10.3% to approximately $1.7 billion. Consolidated same store sales increased 3.2%, compared to the Company's guidance of an approximate 1 to 3% increase. Same store sales for DICK'S Sporting Goods increased 4.1%, while Golf Galaxy decreased 9.3%'.  E-commerce sales were also up to 6.3% from 5.6% of sales a year ago which is good, if expected, progress.  

However golf was poor again.  This is turning into a bit of a global trend.  Remember adidas' warning of a few weeks ago?:
'a significantly lower contribution from TaylorMade-adidas Golf '

How about hunting?  Slightly better news there:

"The headwinds in our hunting business continued in the second quarter. However, as we look at the entirety of our outdoor business, strength in other outdoor categories offset the declines in hunting, and our total outdoor comps were flat for the quarter. This gives us confidence and enthusiasm for the outdoor business as we continue to grow our Field & Stream and DICK'S stores."

Ah yes, the 'Field & Stream' stores which look very smart.  I think hunting will be ok.  

po field stream a new outdoors store opened by dick s sporting goods ...

H1 ebitda may be down a couple of percent year-on-year but retained guidance (albeit the reduced guidance) still implies the stocks is trading around x10 EV/ebit FY14e.  I also noted that 'in the second quarter of 2014, the Company repurchased approximately 2.2 million shares of its common stock at an average cost of $44.51 per share, for a total cost of $100.0 million. To date, the Company has repurchased $380.6 million of common stock under its $1 billion share repurchase authorization'.  

I always like the signalling power of buybacks and with an ungeared balanced sheet the company's authorisation (equivalent to c. 18% of market cap) shows good intent.  

Still golf - at its biggest influence in a quarter c. 30% of the company's sales - is still a problem.  Lots of structural decline talk around at the moment.  The good news for Dick's share price is that even when this is factored in it does not look expensive.  I remain long in hope of a return to US$50+.  I will be adding to my position if there was a return to the US$42s and then sub US$40.  

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