Selling gym shorts and camping equipment this summer will be a little tougher for Dick's Sporting Goods (DKS) - Get Dick's Sporting Goods, Inc. Report thanks to several recent sporting goods bankruptcies.
"The long-awaited consolidation in the sporting goods market is happening -- but right now it's a mess," said Dick's Sporting Goods CEO Ed Stack on a call with analysts Thursday. Looming liquidation sales at Sports Authority and Sports Chalet will be a short-term headwind for Dick's Sporting Goods as consumers try and score amazing deals on sporting goods.
Bankrupt Sports Authority said in new court documents Wednesday that it will liquidate its 450 stores in 27 states. Going out business sales will start around May 25 and extend until August. The company, saddled with more than $1.1 billion in debt, initially filed for Chapter 11 bankruptcy in early March and planned to close about 143 stores. Dick's Sporting Goods estimates that there are 200 or so Sports Authority stores within five miles of a Dick's -- 350 stores are within 10 miles of a Dick's.
Meanwhile, Sports Chalet -- a regional player with 50 stores in California -- recently began liquidation sales after years of struggles.
Dick's sees second-quarter same-store sales falling as much as 4% due to the short-term liquidation sales taking place in the market. Earnings are expected in a range of 62 cents a share to 72 cents compared to 77 cents a year ago.
But the disappearance of Sports Authority and Sports Chalet before the holiday season will leave Dick's Sporting Goods in the enviable position of being the dominant sporting goods retailer in the country. Stack sees this a "great opportunity," and did not rule out the company picking up a few sites formerly occupied by Sports Authority.
As a result, Dick's could be poised to ring up some serious sales and profit at its more than 640 stores starting later this year.
"We view the [Sports Authority] bankruptcy news as incremental good news for Dick's, as the likely biggest recipient of the approximately $2.6 billion of sales that will now be up for grab," said Deutsche Bank analyst Mike Baker in a May 2 note to clients. According to Baker's math, if Dick's picks up 20% of Sports Authority's sales it would equate to $520 million in new business, which would be the equivalent to a 7% boost to same-store sales over the next year. The analyst estimated the sales jolt would add roughly $136 million in operating profits in a year's time, or 75 cents a share.
The earnings lift would likely light a badly needed flame under Dick's Sporting Goods stock, which has fallen about 22% in the past year vs. a 4.7% decline for the S&P 500.