What to Watch For Ahead of Dick's Earnings

Shares of Dick's Sporting Goods (DKS) were up over 3% on heavy trading volume in early afternoon trading Monday ahead of the release of the sports retailer's third quarter results before Tuesday's opening bell.

While the company's recent acquisitions will help boost its bottom line, there are issues with the company's balance sheet, analysts say.

The Corapolis, PA-based company is expected to report earnings of $0.42 per share on revenue of $1.8 billion. Those totals are compared to the $0.45 per share and $1.64 billion in revenue the company reported a year ago. At the time analysts were expecting Dick's to report earnings of $0.46 per share on revenue of $1.66 billion. 

Dick's has been on an upward trajectory for most of the year, rising more that 75% year to date, despite some hiccups along the way. The stock was hurt earlier this year after rival The Sports Authority declared bankruptcy and began liquidating its inventory.

Investor confidence in Dick's returned, however, after it became clear that Dick's would be the main beneficiary from TSA's demise after it purchased the company's name and related intellectual property for $15 million, while paying an additional $8 million to purchase 31 of the company's more than 460 stores.

Dick's wasn't done taking over competitors though, acquiring the now defunct golf equipment retailer Golfsmith in October for a reported $70 million. Dick's plans to keep at least 30 of the company's stores open while winding down the remaining 109 through liquidation.

Analysts at Canaccord Genuity believe that the company's acquisitions bode well for its third quarter results, reiterating a Buy rating and $70 price target, representing a potential 15% upside from the stock's previous closing price of $59.44.

"We have been positive on DKS all year, largely due to the significant share gain opportunity it has from the TSA bankruptcy (and others). Heading into the Q3 report...we continue to be bullish on DKS as this will mark the first quarter in which it will have realized the start of the share gain benefits," analysts Camilo Lyon and Pallav Saini wrote in a recent note.

The news isn't all good for Dick's ahead of earnings, according to Jefferson Research. While the company has strong earnings, cash flow and operating efficiency quality, its balance sheet quality is lacking.

The firm says that Dick's balance sheet is sufficient to pay its bills and fund future growth, and the company's cash position is still rising. But the company's collection period deteriorated over the previous quarter, indicating that Dick's has lengthened the time it takes on average to receive payment from its customers, in turn decreasing its liquidity. 

"We believe we are poised to pick up long-term market share but remain a bit conservative until we get more distance from the liquidation events," CEO Edward W. Stack said during the company's previous earnings call. TSA's liquidation removed about $400 million in inventory from the market, the company estimated. The sharp discounts TSA was offering were expected to eat into Dick's bottom line. 

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