Dick's Sporting Goods beats earnings, revenue estimates

Morningstar Equity Analyst David Swartz joins Yahoo Finance Live to discuss Dick's Sporting Goods earnings report, athletic apparel retailers, and the state of the consumer.

Video transcript

RACHELLE AKUFFO: Tonight shares of Dick's Sporting Goods ticking higher after that retailer beat Wall Street's expectations on revenue and adjusted earnings per share. The company also reaffirming its 2023 forecast. For a deeper dive, let's bring in David Swartz of Morningstar, equity analyst.

So David, I want to get your takeaways on this. Because I know that they have this beat, and we know that the CEO, Lauren Hobart, really talk about strong comps and healthy transaction growth as well. What really stood out to you from what you saw from Dick's?

DAVID SWARTZ: Yeah, it was a fine quarter. The revenues were almost exactly what I had projected, at 5.3%, I was at 5.0%. So the sales were fine. I think there was some concern, though, about the costs.

The operating costs were substantially higher than what I expected. And in fact, the company would have actually missed my adjusted EPS estimate if not for a very low tax rate. The tax rate in the quarter was only 7%, which is well below Dick's normal levels.

If not for that, the company would have actually missed my EPS estimate, which was $3.30. The company reported $3.40. So I think it was a little bit mixed, because I think the sales were strong, gross margin was strong, but the costs are going up quite considerably despite the strong sales trend.

RACHELLE AKUFFO: And we mentioned on the call, in their notes, they talked about how confident they were in their ability to drive sales and profitability growth in 2023. But you note that this is a no-moat retailer. They're at a very competitive space at the moment. What's your takeaway on the moat that they do have and what they really need to do to be as competitive?

DAVID SWARTZ: Dick's has had a great stretch. The last three years, Dick's has been reporting just incredible numbers. They've had individual quarters in which they've had higher EPS than they've have had in entire years before the pandemic. So, Dick's has really been doing well. But the thing is that the sporting goods market is extremely competitive.

They have many-- there's no real barriers to entry in sporting goods. There's a lot of sporting goods competitors. Dick's would point out its strengths, including its strengths in youth sports and its relationships with vendors like Nike. But Nike and others have relationships with other vendors, too.

And they also have their own channels through which they sell. We've seen Foot Locker. As you've just discussed, Foot Locker has been struggling because Nike has pulled back from Foot Locker a little bit. Dick's does have that risk. And because Dick's is a very traditional brick-and-mortar retailer for the most part, we don't really think it has a competitive advantage.

But we do think that it's definitely improved its business greatly over the last few years. And there's little question that Dick's is a stronger company than it was five years ago. And consequently, I have raised my fair value estimate on the company multiple times in the last few years.

I do still think the stock is a bit overvalued. My fair value estimate before today was $89, and I raised it by a little bit depending on how I evaluate the rest of the year. But I do think it's perhaps a little bit pricey considering that it's in a very competitive space.

RACHELLE AKUFFO: What's [INAUDIBLE] happened with Dick's? When you look at some of these other predominantly sports-related [? retailers ?] like Nike, Adidas, Under Armour, you also have athleisure brand, Lululemon, as well. How do you [? describe ?] what has happened with the overall consumer?

DAVID SWARTZ: Yeah, I think we've seen very mixed results. Some companies are reporting strong numbers, some companies are really struggling a little bit. Certainly, Lululemon has done extremely well, that's been the case for years. Under Armour, it's showing some signs of progress, but it's not really there yet. Under Armour just got a new CEO.

Some of these companies have really been in a lot of turmoil. Adidas, certainly, another the company with a CEO change. We've seen a lot of turmoil in the industry, a lot of mixed results as far as sales go. And so I don't think we're looking at a very strong year this year. But I think everybody anticipated that, and they're hopeful that next year will be better.