Dick's Makes Its Move for 17 Sports Authority Locations

 

Shares of Dick's Sporting Goods (DKS) were caught up in the "Brexit"-induced selloff Monday, shedding 3% to close at $40 on weak volume despite the news that the company submitted bids on 17 Sports Authority stores nationwide. Other retailers bid on only one store, according to Reuters' sources.

Sports Authority filed for Chapter 11 bankruptcy protection in March. After efforts to find a buyer who could continue to operate the company as a going concern failed, the Englewood, Colo.-based retailer decided to start liquidating its inventory.

There were rumblings that privately held sports retailer Modell's and U.K. retailer Sports Direct International were interested in jointly purchasing between 100 and 200 Sports Authority stores. Under the plan, the stores would continue to operate under the Sports Authority banner. However, those plans fell through, and the two entities ended up bidding on none of the available Sports Authority stores.

If Dick's bid is approved, the company will add to its lead as the largest sporting goods retailer in the U.S with over 600 stores. Bids for the sale of 320 of Sports Authority's 450 locations were due last Thursday with an auction based on those bids to follow on Wednesday.

Despite the loss of one of its main competitors, Dick's sees the immediate impact of Sports Authority's demise as being minimal thanks to industry headwinds. Earlier this year, Dick's lowered its current-quarter earnings to between 62 cents and 72 cents per share against Wall Street's 78 cents per share expectations.

"We're looking at this as some short-term pain that we're willing to endure for the long-term benefit of our shareholders," said Dick's CEO Edward W. Stack following the company's earnings release in May. "Given the expected near-term liquidation activity in the market, we have adjusted our guidance to contemplate this dynamic. Over the longer term, we remain confident in our ability to aggressively capture displaced market share and to strengthen our leadership position."

One of the major headwinds facing the sports retail industry is the oversaturation of bricks-and-mortar stores, according to a Credit Suisse note from April. "Excess store growth has been one of our key concerns, with growth accelerating over the last couple of years," the note read.

Additionally, the retail sector as a whole has been struggling to cope with the disruption caused by online retailers like Growth Seeker holding Amazon (AMZN) and the increase of direct-to-consumer sales at vendors like Nike (NKE) and Under Armour  (UA) , another Growth Seeker holding.

"You are seeing retailers make a push online, expanding their online presence in an attempt to reach consumers in the way that they want to shop," said Chris Versace, Fabian Wealth Strategies and Growth Seeker co-portfolio manager. However, that impact does not mean sports retail is dead in the water. For the shoppers who do still like to visit stores, Dick's is well positioned to scoop up the customers Sports Authority is leaving behind.

"As we saw when Borders and Circuit City fell, consumers will move to other locations, not forgo spending," Versace said.

Editor's Note: This article was originally published at 2:50 p.m. EDT on Real Money on June 27.

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