Shares of Dick’s Sporting Goods (NYSE: DKS) are moving higher in the wake of the Q2 earnings report but that is a current event and the price action was trending higher long before. The reason is a shift in the institutional activity that has short-sellers scrambling to maintain their positions. The institutions were selling heavily at the end of 2021 and in the first quarter of 2022 with net activity still bearish in Q2 but that’s changed. Not only has total activity dwindled to near nothing but the net of activity in Q3 has turned bullish. That may not seem like a big deal but it is when the institutions own nearly 80% of a company and its shares are 30% short. A burst of institutional buying sparked by something like a strong earnings report and an increase in the guidance could be what it takes to get a short-squeeze underway.
"Our second quarter performance demonstrates the strength of our core strategies and the foundational improvements we have made across our business over the past five years. In fact, we delivered approximately the same EBT in Q2 as we did in all of fiscal 2019. The state of our industry is strong, and we remain in a great lane. DICK'S is the clear market leader, and as a result of our transformation, we are well-positioned to extend our lead and deliver long-term sales and earnings growth,” says Ed Stack, CEO of Dick’s Sporting Goods.
Dick’s Sporting Goods Reports Strong Quarter, Raises Guidance
Had a good quarter but it’s all about perspective. The company brought in $3.11 billion in net revenue for a decline of 4.9% over last year. The decline is not something investors want to see but is against a strong 20% comp last year, 140 basis points better than expected, and the quarterly revenue is still up 38% versus the pre-pandemic quarter. The takeaway is that sequentially, the results are bad but not as bad as expected and the underlying business is very healthy although there was some margin compression to be concerned about as well.
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The salient point here is that margins compressed by more than 600 basis points on a GAAP and adjusted level but were once again better than expected and led to outperformance on the bottom line. The company reported $3.68 in adjusted earnings which are down from last year but beat the consensus estimate by $0.12 to outpace the top-line outperformance by another 200 bps. A mitigating factor in the margin is the inventor which is up strongly as well.
The company reports inventory is up 49% versus last year and has them well-positioned for the back-to-school season although there is risk in the news. Rising inventories are becoming a problem in some other areas of the retail world and could lead to additional margin compression down the road. Target (NYSE: TGT) and Walmart (NYSE: WMT) are the most obvious choices but Lowes, Home Depot (NYSE: HD), and other key retail names have reported similar increases in their inventory.
Until then, the guidance for the year is favorable and has opened the door to outperformance relative to the analyst's consensus. The company upped the FY guidance for adjusted EPS to $10 to $12 versus the consensus of $10.82 and it may lead to a round of upward revisions from the analysts.
The Technical Outlook: DKS At Resistance
The price action in Dick’s Sporting Goods popped in the wake of the earnings report but the gains may already be over. The stock is sitting just below a key resistance point that may cap gains for the duration. If, however, the market can get above the $115 to $117 range, bullish momentum could build and take the stock up to retest the post-pandemic high. Trading at 10X its earnings it is a value compared to other front-line retailers.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| DICK'S Sporting Goods (DKS) | $225.21 | 0.0% | 1.95% | 16.10 | Moderate Buy | $244.95 |
| Target (TGT) | $132.40 | +0.4% | 3.38% | 14.04 | Hold | $160.57 |
| Walmart (WMT) | $92.68 | +2.6% | 0.90% | 38.04 | Moderate Buy | $93.69 |
| Home Depot (HD) | $396.14 | +0.9% | 2.27% | 26.91 | Moderate Buy | $426.00 |
| Lowe's Companies (LOW) | $250.22 | +1.2% | 1.84% | 20.87 | Moderate Buy | $280.85 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
