DICK'S Sporting Store (DKS) To Open 3 Stores In May, Stock Up

DICK'S Sporting Goods, Inc. (NYSE:DKS) is gaining momentum on the back of growth initiatives like unique merchandising strategy and constant store-expansion endeavours. Recently, the company announced plans to open two DICK’S stores and one Golf Galaxy store this month.

The company’s flagship stores are slated to open in Carolina Place Mall in Pineville, NC, and Parkdale Mall in Beaumont, TX. The Golf Galaxy store will open at the same location in Pineville, where the first flagship outlet is slated to open. The grand opening celebration of the DICK'S Sporting and Golf Galaxy outlets in Pineville will take place between May 10 and 12, while that for Beaumont will be held between May 17 and 19. The opening events will have lucrative opportunities for customers to win prizes besides special guests’ appearances.

Apart from serving customers efficiently in the respective communities and generating higher revenues, store openings usually result in increased job opportunities. In this regard, the company anticipates these store openings to create roughly 160 additional jobs in the above-mentioned locations. These new stores will offer top brands and high-class in-store services. In addition, customers can avail exclusive apparel, equipment and footwear collections from the company’s private labels like Tommy Armour, Field & Stream, Ethos and more. Assortments from leading makers of sports-related products, including NIKE, Inc. (NYSE:NKE) and adidas AG (OTC:ADDYY) , will also be available.

As of May 1, 2019, DICK'S Sporting Goods, which shares space with Hibbett Sports (NASDAQ:HIBB) , operated 727 namesake stores across 47 states, 95 Golf Galaxy stores in 32 states and 35 Field & Stream stores in 16 states. Following the latest addition, the company will operate 728 DICK'S Sporting Goods stores.

In October 2018, management announced the inauguration of four stores. Two namesake stores in Washington and Wisconsinalong with two Golf Galaxy stores in California and Wisconsin. In September, the company inaugurated four flagship stores, including two in Florida, one in Arizona and one in Indiana.

Additionally, the company is focused on boosting its e-commerce operations, which contributed to its fourth-quarter fiscal 2018 performance to some extent. In the fiscal fourth quarter, the company registered e-commerce growth of 17% year over year, after adjusting the calendar shift due to the 53rd week in fiscal 2017. Notably, e-commerce penetration improved to about 23% of net sales, up from 19% in the prior-year quarter. Moreover, in order to improve the speed and reliability of online deliveries, the company is building two dedicated e-commerce fulfilment centres in New York and California, which will be operational in third-quarter fiscal 2019.

Despite its efforts, this Zacks Rank #3 (Hold) company witnessed soft margins in fourth-quarter fiscal 2018. This is likely to linger in fiscal 2019. Notably, gross and operating margins for the fiscal fourth quarter contracted 168 basis points (bps) and 100 bps, respectively. The decline in margins is mostly attributed to a decrease of 37 bps in merchandise margin, higher occupancy costs, and increased freight, shipping and fulfilment expenses due to robust e-commerce growth.

The company’s gross margin is likely to be flat to down slightly in fiscal 2019, owing to expectated double-digit growth in e-commerce sales and expenses related to ongoing investments to improve fulfilment capabilities. Further, it projects operating margin to decline 20-40 bps along with reduced SG&A expenses due to continued investments in the business. We note that the stock has inched up 1.9% in the past three months, underperforming the industry’s growth of 10%.

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