The Ratings Game: Dick’s Sporting Goods following Best Buy’s ‘playbook’ after athletic-store bankruptcies

One by one, athletic retailers have fallen to bankruptcy, but Dick’s Sporting Goods Inc. is surviving and thriving.

Wells Fargo analysts chalk it up to the “Best Buy Playbook,” the steps that the consumer electronics giant took to get its mojo back through the “Renew Blue” strategy, unveiled in late 2012. Some of those steps include an enhanced digital business, improving the in-store experience and increasing the focus on private labels.

Best Buy Inc. BBY, -1.94%  became the long-term survivor following the deterioration of the consumer electronics space, including the Circuit City bankruptcy.

See: Best Buy’s online sales have slowed but should that cause concern?

Likewise, Dick’s Sporting Goods DKS, -4.56%   has seen a number of its competitors vanquished by bankruptcy, including Sports Authority and Sports Chalet.

“A key consideration is that these strategies, which could pay off in the long run, should have adverse effects on near-term performance,” wrote analysts led by Tom Nikic.

Dick’s Sporting Goods reported an earnings and sales beat for the first quarter, but same-store sales fell 2.5%, steeper than the FactSet consensus for a 1.5% decline.

Wells Fargo expects pressure on both the top and bottom lines for the next year to 18 months. But said ultimately, Dick’s Sporting Goods will be a long-term “survivor.”

“Ultimately, the long-term opportunity for the sporting goods industry is to have a similar dynamic as the electronics industry: a very high percentage of sales done via e-commerce (30%+, one of the highest penetration rates among major categories today), with one dominant brick-and-mortar player to serve most of the in-person demand for the category,” analysts said.

Wells Fargo rates Dick’s shares outperform with a $42 price target.

Other retailers in the sporting space might have something to say about that. Susquehanna Financial Group analysts, led by Sam Poser, rate Hibbett Sports Inc. HIBB, -2.58%   shares positive with a $33 price target. Hibbett reported an earnings miss on Friday, but Susquehanna analysts think the fundamentals are there thanks to clean inventory levels, a strong product pipeline and enhanced digital capabilities.

Hibbett Sports shares are up 29.7% for the year so far.

On the other hand, MKM Partners analysts think the threat to Hibbett is coming from another familiar name: Amazon.com Inc. AMZN, +0.29%  .

“Specifically, we believe Hibbett and other traditional sporting goods chains continue to lose share to online pure plays, including not only Amazon, but also a host of smaller, often specialty/niche sites,” analysts wrote.

MKM rates Hibbett Sports shares neutral with a fair value estimate of $25.

“Our survey work indicates that Foot Locker is the destination of choice for sneakers in the U.S. across demographics, particularly in the key millennial cohort, where Foot Locker dominates all other concepts,” wrote Cowen analysts in a Foot Locker Inc. FL, -1.08%   note.

However, analysts led by John Kernan think Foot Locker’s reliance on premium Nike Inc. NKE, -0.60%   sneakers, especially basketball sneakers, could be a problem since their channel checks indicate a slowdown in basketball-shoe sales.

In addition Nike, Adidas AG ADS, -1.65%   and Under Armour Inc. UAA, -2.34% UA, -1.46%  are turning increasingly to their own direct-to-consumer channels.

Cowen rates Foot Locker shares market perform with a $44 price target.

Wells Fargo also rates Foot Locker shares market perform, with analysts, once again led by Tom Nikic, highlighting improving fundamentals.

“While tighter allocation of [Nike’s] Jordan product remains a headwind, management expects this drag to alleviate,” analysts wrote, referencing management’s talk of “positive Jordan trends.”

Wells Fargo has a $57 price target on Foot Locker shares.

Dick’s Sporting Goods shares are up 27.4% for 2018 so far, Hibbett Sports shares are up 29.7% for the period, and Foot Locker shares have rallied more than 15% for the year to date. The S&P 500 index SPX, -0.69%   is up 1.2% for 2018 to date.

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