Dick's Sporting Goods (DKS) to Benefit from The Sports Authority's Woes - Sterne Agee CRT

January 20, 2016 9:07 AM EST
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Price: $77.52 -2.2%

Rating Summary:
    24 Buy, 23 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 4 | Down: 15 | New: 18
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Stern Agee CRT analyst, Sam Poser, thinks The Sports Authority's financial troubles will directly benefit Dicks Sporting Goods (NYSE: DKS). No change to Buy rating or $55 PT.

Financial problems are leading TSA closer to bankruptcy, and/or the closure of a significant number of stores. On Friday, TSA missed a $20M interest payment. Stern Agee's checks indicate that TSA is preparing to close up to 200 of its ~450 stores in 2016. ~23% of Dick's stores are in the immediate area of a TSA store, which should provide for rapid SSS acceleration once the TSA stores are closed.

Dick's Sporting Goods is the clear beneficiary of TSA's troubles: TSA is the #2 player in the sporting goods space with ~450 stores, versus Dick's with 645 stores. ~23% of Dick's stores (over 150) are located nearby a TSA store. Any potential store closures in those areas will serve an immediate boon to SSS at Dick's stores. Importantly, for the stores that are not located close to Dick's, any store closures would provide Dick's an easy entry point into those vacated locations.

Guidance calls for EPS of $1.10- $1.25 on SSS of -2% to +1%. The analyst believes that SSS will benefit from the recent surge in sales of guns and firearms. Also, increased promotions pre- & post-Christmas drove strong SSS. Based on checks, DKS should recoup much of the markdown dollars from its vendors. 4Q15 guidance assumes that GM will decline, reflecting weaker merchandise margin as a result of increased promotions needed to liquidate seasonal product

For an analyst ratings summary and ratings history on Dick's Sporting Goods click here. For more ratings news on Dick's Sporting Goods click here.

Shares of Dick's Sporting Goods closed at $34.36 yesterday.

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Sterne Agee, Sam Poser