Dick’s Sporting Goods (DKS) continued to see sales of golf and hunting equipment retreat in the most recent quarter, but Street-matching earnings let DKS stock rise in early trades.
The golf and hunting categories have been under pressure for some time. In the case of golf, the sport appears to be in long-term decline as younger players abandon or show no interest in the game. Indeed, golfers played the fewest number of rounds last year since 1995, according to Golf Datatech.
At the same time, sales of firearms and other hunting gear are coming up against tough comparisons. The last few years have seen tremendous demand for rifles and guns on fears that the federal government would restrict their sale after a number of high-profile school shootings.
But those fears proved to be unfounded, and now gunmakers and retailers like Dick’s Sporing Goods are stuck with too much inventory amid too little demand.
Weakness in golf and hunting led Dick’s Sporting Goods to post lower profit in the most recent quarter. Earnings fell to $49.2 million, or 41 cents per share, in the third quarter, down from $50 million, or 40 cents per share in the year-earlier period. Wall Street was looking for earnings of 41 cents per share, according to a survey by Thomson Reuters.
Sales, however, rose 9% to $1.5 billion, which came up shy of analysts’ estimate, hurt by a same-store sales decline of nearly 9% at the company’s Golf Galaxy Stores.
As CEO Edward Stack said in a press release that surprised no one:
“Our third quarter earnings were at the higher end of our guidance, but continued pressures in golf and hunting kept our comp sales at the lower end of our expectations.”
No Hope for Dick’s Sporting Goods in Guidance
Furthermore, Dick’s Sporting Goods isn’t expecting any kind of hot turnaround anytime soon. For the fourth quarter, DKS forecast earnings of $1.18 to $1.28 per share, essentially bracketing the Street estimate of $1.21. Same-store sales are projected to gain just 1% to 2% in the current quarter.
DKS stock had a couple of volatile swings in early trading, jumping up some 3% before dropping to a decline of about 2% by mid-day Tuesday. DKS stock is still off 20% for the year-to-date, lagging the broader market by roughly 30 percentage points.
DKS stock will likely stay under pressure until it figures out how to stop the bleeding in the golf business. Hunting sales will eventually come back on their own as inventory levels normalize, but the long-term decline in golf remains an albatross on Dick’s Sporting Goods’ top line.
Unfortunately for anyone holding DKS stock, the solution is to make the golf division even smaller. That way, at least it has a chance of finding some kind of equilibrium with demand, but it will have to keep hurting total sales until it gets there.
DKS stock has been a big-time market beater through the current bull market, but looks to be seriously handicapped for the foreseeable future. And it’s not even cheap enough yet to look like a deep value play.
All those headwinds make Dick’s Sporting Goods a no-go area until it comes up with a credible plan for the increasingly irrelevant golf business.
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As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
