A Post Mortem on Dick's Sporting Goods' Earnings

5/23 - "First-quarter net income at Dick's fell 4% to $20.8 million, or $0.18 per share. Net sales jumped 11% from last year to $912.1 million, although same-store sales dropped by 3.8%. Unfortunately, comps for its Golf Galaxy concept plunged by 7.4% on a pro forma basis...Dick's said to expect earnings of $1.22 per share to $1.36 per share in 2008 (compared to $1.33 per share in 2007). It also said it believes comps will decrease by 3% to 5% during the year."

"...it looks like Dick's is going to have a tough time this year, so I can't say I'm exactly ultra-bullish on this stock. After all, consumers are nervous and pulling back, and showing signs of nesting. Investors might be a little better served looking at stocks that provide home-centric entertainment -- after all, speaking of a different type of gamer, Activision (Nasdaq: ATVI) and GameStop (NYSE: GME) have been bucking the macro trends, so they seem to be in positions of strength at the moment (although I'm sure many might argue whether either looks exactly cheap right now).

For the time being, though, I'm not sure I believe Dick's stock is a good defensive play for investors' portfolios. "

5/22 - "The company significantly reduced its previous 2008 guidance. However, given the magnitude of the reduction, we believe the new low end of EPS guidance ($1.22) takes into account all reasonable negative scenarios for the year, and should not need to be lowered going forward."

"In addition to a weak consumer, we believe Dick’s is suffering from the lack of strong trends in the sporting goods market, especially given the strong trends last year such as Heely’s, Crocs and Under Armour...As the company noted on the call, it was the last of its competitors to feel the consumer slowdown, which we believe is due to the company’s focus on the core athlete who is less likely to reduce spending on sporting goods than a more casual user. We also believe this consumer is more likely to return to their normal sporting goods purchases sooner when the economy improves."

"Although we don’t expect the consumer to turn around in the near term, we believe Dick’s will be well positioned for the eventual turn, and we note that the company still has significant store growth opportunity over the next several years. Given that shares are currently trading at approximately 16.8x our forward 12-month estimates, the lowest they have traded at over at least the past five years, we believe they are compelling at current levels."

"Reducing 2008 EPS estimate to $1.24 from $1.51, 2009 EPS estimate to $1.53 from $1.87 and price target to $25 from $30. Our $25 price target is 20x (20% long term estimated EPS growth rate) our new 2008 EPS estimate of $1.24."