Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Michael Baron will appear on NBR Tuesday (check local listings) to discuss top-rated sporting goods retailer stocks.
NEW YORK (TheStreet) -- The official kickoff of the holiday shopping season looms at the end of the week and following the 1.2% increase in retail sales in October, Wall Street is expecting Americans to come out in force.
Retail investors looking to capitalize on the expected heavy spending may be hard-pressed to find value given how well the group has done in 2010. The
S&P Retail Index
is up roughly 30% year to date vs. a 7.2% gain for the
S&P 500 Index
. One sub-sector worth taking a look at is the sporting goods retailers -- namely
Dick's Sporting Goods
Hibbett Sporting Goods
These stocks have each outperformed the overall retail group yet the majority of analysts see more upside ahead because the public companies in this industry niche have greatly improved operating efficiency in the past few years and there is still room for them to grab business from the many small players in the private sector.
"The sporting goods industry is large and highly fragmented, with the top 5 full-line sporting goods retailers accounting for approximately 20% of the market," said Olympia Capital Markets in a Nov. 11 research note. "We believe this presents a significant market share opportunity for the leading companies."
Olympia, which initiated coverage of Dick's, Finish Line and Hibbett all with buy ratings, also thinks the demand trend is improving for sporting goods. The firm notes industry sales totaled $50.6 billion in 2009, according to the
National Sporting Goods Association
, with a compound annual growth rate of just 1.6% over the last 10 years, but says market growth was well above average for the five-year stretch from 2003-2007 and then the recession hit, skewing the numbers.
Better merchandise is also a factor in Olympia's bullishness, in particular the success of product offerings from
Most retailers are reporting that the consistency of their merchandise is the strongest it's been in a long time with significantly reduced aged merchandise and solid in-stock positions within the hottest selling categories," the firm said. "Looking forward, we expect these trends to continue with many industry participants poised to re-approach peak operating margin levels over the next 12-24 months."
Here's a look at how
views these stocks:
Dick's Sporting Goods
is a huge player with sales of $4.4 billion for the fiscal year ended in January 2010, and Olympia Capital credits the company's aggressive acquisition strategy and emphasis on operating efficiency for much of the turnaround in the overall industry as competitors have been forced to raise their games.
Based on Monday's close at $34.48, the stock is up 37% year to date, and there's
some skepticism about how much higher it can run
but it's difficult to argue with the performance so far.
Dick's reported its fiscal third-quarter results on Nov. 16, beating Wall Street's per share expectations by more than 30% by posting an adjusted profit of $26.7 million, or 22 cents a share, with sales for the three months ended Oct. 30 coming in at $1.1 billion, a 9% increase year over year.
The company attributed the strong performance to same-store sales rising 5.1% for the quarter, well ahead of its own guidance for a 1% to 2% advance. Citing the strong momentum and its ambitious growth plans, Dick's lifted its adjusted profit outlook for the full year to between $1.56 and $1.58 a share from a prior projection of $1.46 to $1.49 a share.
has a solid B, or Buy,
, giving it 4.5 stars out of a possible 5 for growth and price volatility. The only negative mark on Dick's is that it doesn't pay a dividend. Of the 26 analysts that cover the stock, 14 rate it at either strong buy (8) or buy (6) with the remaining 12 analysts at hold. Valuation may be the hang-up as the median 12-month price target sits at $37, implying upside of a little more than 7% at current levels.
Hibbett Sporting Goods
is much smaller than Dick's with annual sales topping out at $593.5 million for the fiscal year ended in January. Based on Monday's close at $33.55, the stock has risen 49% year to date, and its session-peak of $33.99 is a new 52-week high.
This latest surge in the share price was prompted by Hibbett's stronger-than-expected third-quarter report on Friday. The company said it earned $12.6 million, or 44 cents a share, for the three months ended Oct. 30 with sales of $167.4 million representing a year-over-year increase of nearly 15%. The average estimate of analysts polled by
was for a profit of 38 cents a share in the September period on sales of $161.6 million. Same-store sales jumped 12.5% in the quarter, and Hibbett was also confident enough to lift its outlook for the full year.
An interesting wrinkle in Hibbett's strategy is that it
in strip malls that are "usually influenced" by a
store, as the company phrases it. As of the end of the third quarter, the company had 789 locations in 26 states, mostly in the Southeast, Southwest, Mid-Atlantic and lower Midwest regions of the United States, and it boosted its store openings outlook to 40-42 stores for fiscal 2011 on Friday from a prior estimate of 30.
. The stock scored 4.5 stars on both growth and total return and a full 5 stars for efficiency but, similar to Dick's, was marked down for the lack of a dividend. Of the 19 analysts covering the shares, 12 have it at either strong buy (8) or buy (4) with the other seven stuck on hold. Sterne Agee's comments following the earnings report were emblematic of the general optimism around the company as the firm said Hibbet has a "tiger in the tank" and raised both its price target and earnings estimates.
"The new system implementations are already resulting in increased new store productivity and we expect that to continue in the future," the firm said. "We believe over time Hibbett could add an additional 400 stores in their 26-state footprint to bring the total to 1,200 locations."
Annual sales at
reached $1.2 billion for the fiscal year ended in February 2010. The company's stores are primarily located in malls across the United States and its merchandise selection consists primarily of athletic shoes and apparel, rather than sports equipment.
Based on Monday's close at $18.04, the shares had appreciated 43.4% so far in 2010 and the stock's current price-to-earnings ratio of 14.7 times still compares favorably to 37.4 times for Foot Locker, 23.5 times for Hibbett, and 25.2 times for Dick's.
Finish Line, which operates 667 stores, posted its fiscal second-quarter results on Sept. 23, reporting earnings from continuing operations of $16.8 million, or 31 cents a share, on sales of $301.1 million for the 13 weeks ended in August. While that EPS number was up almost 50% year over year, the performance came in below Wall Street's consensus view for a profit of 35 cents on sales of $316 million, and same-store sales were relatively subdued, rising just 2%.
CEO Glenn Lyon acknowledged the stalled top-line growth in his comments at the time, saying Finish Line was "assessing growth opportunities outside our core business" in addition to making investments in its existing business.
on the stock, giving it 5 stars for total return, meaning the historical appreciation of the shares is above 90% of the companies covered, and 4 stars for income as Finish Line does pay a quarterly dividend of 4 cents a share. Wall Street remains plenty bullish despite the eye-popping year-to-date gain with nine of the 13 analysts covering the stock at strong buy. The median 12-month price target sits at $20, implying upside of 10% from here.
is a major player in its own right, posting annual sales of $4.8 billion for the fiscal year ended in January. Based on Monday's close at $18.37, the stock has risen 65% so far in 2010, making it the biggest year-to-date gainer in this group. A stellar earnings report last week sent the stock to fresh heights, inspiring a plus 12% gain this past Friday and a new 52-week high of $18.48.
The jump came after Foot Locker reported earnings of $52 million, or 33 cents a share, for its fiscal third quarter ended on Oct. 30. The performance nearly doubled Wall Street's EPS estimate of 17 cents and was a vast improvement from the company's year-ago loss of $6 million, or 4 cents a share, which reflected $22 million in asset impairment charges.
CEO Ken Hicks cited same-store sales growth of 8.1% and expanding gross margins for the higher-than-expected earnings, noting the company saw "meaningful improvements in each of our operating divisions in the U.S., as well as in our international markets."
Foot Locker's bread and butter is athletic shoe sales, and its footprint is the biggest of these four companies as it operates nearly 3,500 stores in 21 countries. Wedbush Morgan reiterated an outperform rating on the stock following the report and lifted its earnings estimates and price target, saying the better numbers aren't solely the result of a strong product cycle.
"Gross margin improvement of 320bp
basis points was driven by both occupancy leverage and and merchandise margin improvement as less discounting and and better markdown management was the key driver," the firm said.
on the stock, giving it high marks (4.5 stars) for total return, price volatility, solvency and income, while allowing just 1 star for growth. Wall Street itself is pretty split on where the shares go from here with eight analysts at strong buy, one at buy, six at hold and two at underperform; although the median 12-month price target of $21 implies there's room to run from here.
Written by Michael Baron in New York.
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