Dick's Sporting Goods Inc: Down 30% in 2015, Is a Turnaround in Sight?

After an absolute walloping in 2015, a year marked by an uptick in American consumer spending, is there any hope for a rebound in shares of Dick's Sporting Goods (DKS -0.89%)? Investors continue to grapple with challenges to the traditional brick-and-mortar retail model. As shoppers transition to e-commerce, many other retailers have been scrambling to establish their own online presence. Is Dick's Sporting Goods succumbing to this competition, or are the headlines weighing down the stock overblown?

2015 business results in review
Shares may have shed nearly 30% last year, but Dick's posted solid results across the board. Here is a breakdown of how the business performed over the past four quarters:

Source: Dick's Sporting Goods

These certainly don't look like the numbers of a stock that just had a terrible year. On the contrary, high single-digit to low double-digit revenue and earnings growth are solid by just about anyone's calculation. Analysts expect Dick's to continue posting high single-digit to low double-digit earnings growth in each of the next five years. Looking at the 2015 business results, the recent bearish trading does seem a bit overblown.

Headwinds to business and stock growth
While I believe Dick's is currently trading at a bargain, there are some reasons for concern. The first, mentioned at the outset, is the slow transition to online sales. Dick's is the largest brick-and-mortar full-line sporting goods store in the United States. Total online sales as a percentage of revenue for the third quarter was just 8%, compared with 7.3% the same time last year. The company has paid little attention to growing its online business, instead focusing on growing its physical footprint and specialty store feel through new store openings (42 net new locations in 2015). As online retailers continue to eat up market share, this could be a drag for Dick's stores going forward.

Another potential drawback is the lack of exclusive deals and apparel the company has been able to secure with suppliers. Some competitors, such as Foot Locker, have been able to forge close ties with popular apparel companies like Nike and Adidas, offering exclusive gear to drive store traffic.

Nike and Under Armour have also been increasing their own direct-to-consumer sales through their online stores. Under Armour's most recently reported direct-to-consumer sales as a percentage of total revenue increased 28% from a year ago, while Nike's was up about 29% from a year ago. This headway suppliers are making should be concerning to Dick's shareholders as these sales cut the retailer out of the loop.

Tailwinds to business and stock growth
There are also some positive steps the company is taking to position itself for the long-term. The first is Dick's strong growth in opening new stores. It has also remodeled two locations and plans to continue revamping older properties to drive foot traffic.

Dick's has similarly seen success in its strategy to offer a specialty store feel to shoppers who prefer the in-person shopping experience. Same store sales have increased at a positive clip for the first three quarters of this fiscal year: 1% in the first quarter, 1.2% in the second, 0.4% in the third.

Despite investing to expand its footprint, the company has been able to return capital to shareholders. Since authorizing a $1 billion share buyback plan in 2013, the company has repurchased over 10 million shares. Another $245 million is still available with the current authorization, and this is in addition to the current dividend yield of 1.4%.

Strong growth in store count and success in returning value to shareholders underpin the 2015 results. Longer term, the company will need to keep pace in the digital age and find ways to refresh its stores to keep customers coming back, but shares of Dick's Sporting Goods are oversold and currently trading at a value.