Dick’s Sporting Goods has recorded solid results in the second quarter, as its core business continues to grow, while Foot Locker slipped back into decline.
For the quarter ended August 1, the core Dick’s business saw total sales grow 5.6 per cent and comparable sales improve 4.9 per cent.
On a two-year basis, total sales soared 10.8 per cent, which is well above inflation and represents a very handsome market share gain across many categories, according to GlobalData MD Neil Saunders.
The analyst attributed the momentum to strong World Cup activations that drove incremental purchasing, as well as an early back-to-school season.
“A sharp focus on maintaining competitive prices was important here, although this has also resulted in a hit on margins – something that’s unfortunate but, in our view, necessary to maintain share,” he said.
Over at Foot Locker, comparable sales tumbled 3.6 per cent, a sharp reversal of the 0.6 per cent uplift in the first quarter, amid a weak sneaker market
“These consequences can be seen in the recent results from JD Sports and others. And comparatively, Foot Locker is actually holding up better, though its comparable numbers are flattered by the closure of underperforming locations,” Saunders said.
The analyst noted some early signs of progress at the business, including better store presentation and a more disciplined approach to inventory. However, he said that the rebuilding will take longer than anticipated, which means the division will create a severe drag on performance in the short term.
On the bottom line, net income slid 10 per cent, which Saunders attributed to Dick’s benefiting less from a tariff refund than some other retailers.
“The company did receive a reasonably generous $59 million in the current quarter, but this was diluted by the loss from Foot Locker and a number of other factors such as increased discounting and promotions. This left overall net income sharply down on the prior year, even though profit in the core Dick’s business improved,” he explained.
For the full year, the company expects comparable sales to increase 2.5-4 per cent at Dick’s and flat to down 2 per cent at Foot Locker.
“The core business is powerful enough to produce some solid growth across the balance of this year. The refurbishment of existing stores – which is much needed in some locations, will also provide upside,” Saunders said.
“However, this is now a more complex business that must do two things: Keep the core moving forward and reinvent a problematic subsidiary. That puts Dick’s in a very different position and will color its valuation,” he added.
