Dick’s Sporting Goods, Inc. (DKS) and Sportsman’s Warehouse Holdings, Inc. (SPWH) are two prominent retailers in the sporting goods industry. DKS in Coraopolis, Pa., provides sporting goods equipment, hunting and fishing gear products, apparel, and footwear and accessories. The company also owns and operates Golf Galaxy, Field & Stream, and other specialty concept stores, e-commerce websites, and GameChanger, a youth sports mobile app. As of May 1, 2021, it operated 730 company-owned stores. In comparison, SPWH in Midvale, Utah, offers a broad range of products, including clothing, camping, fishing, footwear, hunting and shooting, boating, optics, electronics, and other accessories. In addition, the company’s stores provide archery technician services, fishing-reel line winding, gun bore sighting and scope mounting, cleaning services, and issuing hunting and fishing licenses. As of March 31, 2021, the company operated through 112 stores in 27 states.
Despite a travel ban and social distancing restrictions, the sporting goods industry was resilient during the pandemic because people focused on playing individual sports and home workouts. However, increasing vaccination rates and the lifting of travel restrictions have resulted in the rescheduling of big sports tournaments and other outdoor activities this year. As a result, brick-and-mortar store sales and e-commerce sales witnessed huge growth in the first half of this year. The global sporting goods market is expected to grow at a 3.2% CAGR and reach $62.84 billion by 2027. So, both DKS and SPWH should benefit.
But while SPWH’s stock has lost 28.5% in price over the past six months, DKS has surged 11.8%. DKS is a clear winner with 93.6% gains versus SPWH’s negative returns in terms of their year-to-date performance. But which of these stocks is a better pick now? Let us find out.
On November 3, 2021, DKS and Nike, Inc. (NKE) announced a partnership designed to enhance the shopping experience for both DKS and NKE customers. DKS’ app now allows customers to connect their Dick’s Scorecard and NIKE Membership accounts to access exclusive products, experiences, and offers. Both the companies are looking forward to a long-term partnership with each other.
Since March, various lawsuits had been filed against SPWH for possible breaches of fiduciary duty and other law violations relating to its merger with Great American Outdoors Group, owner of the Bass Pro Shops chain, for $18.00 per share in cash. As a result, on December 2, 2021, both companies called off their merger plans after learning that they would not receive clearance from the U.S. Federal Trade Commission (FTC) to close the deal.
Recent Financial Results
DKS’ net sales for the third quarter, ended October 30, 2021, increased 13.9% year-over-year to $2.75 billion. The company’s gross profit came in at $1.06 billion, up 25.5% from its year-ago period. Its non-GAAP income from operations was $419.87 million, indicating a 70.6% rise from the year-ago period. DKS’ non-GAAP net income came in at $322.23 million, indicating a 76.9% rise from the year-ago period. Its non-GAAP EPS increased 58.7% year-over-year to $3.19. As of October 30, 2021, the company had $1.37 billion in cash and cash equivalents.
For its fiscal second quarter, ended July 31, 2021, SPWH’s net sales decreased 5% year-over-year to $361.78 million. The company’s gross profit came in at $120.05 million, representing a 7% rise from the prior-year period. SPWH’s income before income taxes was $23.92 million, down 46.2% from the prior-year period. While its net income declined 45.4% year-over-year to $17.72 million, its EPS decreased 45.2% to $0.40. The company had $2.62 million in cash as of July 31, 2021.
Past and Expected Financial Performance
DKS’ revenue and net income have grown at CAGRs of 11.9% and 61.1%, respectively, over the past three years. The company’s EBITDA has increased at a 44.7% CAGR over the past three years.
Analysts expect DKS’ EPS to grow 143% year-over-year in the current year and decline 26.2% next year. Its revenue is expected to improve 27.5% in the current year and decline 3.7% next year. And its EPS is expected to grow at a 20.7% rate per annum over the next five years.
In comparison, SPWH’s revenue and net income grew at CAGRs of 21.4% and 75.2%, respectively, over the past three years. The company’s EBITDA has increased at a 31% CAGR over the past three years.
SPWH’s EPS is expected to decrease 24.2% year-over-year in the current year and 1.8% next year. The stock’s revenue is expected to grow 411.1% year-over-year in the current year and decline 8.3% next year. SPWH’s EPS is estimated to grow at a 20.7% rate per annum over the next five years.
In terms of non-GAAP forward P/E, SPWH is currently trading at 7.48x, which is 2.3% higher than DKS’ 7.31x. And in terms of forward EV/EBITDA, DKS’ 4.87x compares with SPWH’s 6.57x.
DKS’ trailing-12-month revenue is almost eight times SPWH’s. Also, DKS is more profitable, with an 18.5% EBITDA margin versus SPWH’s 10%.
Furthermore, DKS’ ROE, ROA, and ROTC of 59.9%, 15.4%, and 22%, respectively, compare with SPWH’s 47%, 11.4%, and 16.4%.
While DKS has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SPWH has an overall C grade, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
DKS has an A grade for Quality, which is consistent with its higher-than-industry profitability ratios. DKS’ 17.4% trailing-12-month return on total assets is 193.2% higher than the 5.9% industry average. In comparison, SPWH’s B grade for Quality reflects its relatively lower profitability ratios. SPWH has an 11.7% trailing-12-month return on total assets, which is 96.2% higher than the 5.9% industry average.
Of the 38 stocks in the B-rated Athletics & Recreation industry, DKS is ranked #6, while SPWH is ranked #21.
Beyond what we have stated above, our POWR Ratings system has also rated DKS and SPWH for Sentiment, Growth, Stability, Value, and Momentum. Get all DKS ratings here. Also, click here to see the additional POWR Ratings for SPWH.
Increasing vaccination rates and the lifting of the travel ban have enabled the sporting goods industry to witness surging demand this year. As a result, both DKS and SPWH should profit well in the coming months. However, we think higher profit margins and lower valuations make DKS a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Athletics & Recreation industry.
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DKS shares were trading at $109.99 per share on Wednesday afternoon, up $1.17 (+1.08%). Year-to-date, DKS has gained 106.43%, versus a 26.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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