Every season soon enough, will not start at Dicks. This stock historically trades somewhere between $40-60 USD per share. Now, after COVID, DKS trades over $100. Why the massive jump you may ask? For one, the supply of sporting goods and outdoor equipment was far outpaced by demand. Examples of products that were impossible to find include kayaks, and Canoes. This segment of their business makes up ~46% of their yearly revenue. The problem with this?
This growth is both unsustainable, and unrealistic with current macroeconomic factors and trends. Demand far outpacing supply allowed a stock that turtles between 40-60, to explode and at the peak of COVID, to over $140 per share. There is absolutely no reason this stock trades at the current levels. This growth is both unsustainable, and unrealistic with current macroeconomic factors and trends. One-time purchases amount to 46% of all revenues, CPI, the shift away from Brick and Mortar shopping focus is detrimental to Dicks’ Business model, and as a market leader, Dicks seems to have reached their maximum market penetration. Competitors however stand to capture and penetrate an ever-growing market of Dicks customers.
First of all, let's address the elephant in the room. The fact that Hardline merchandise accounts for 46% of company-wide revenue is alarming. This percentage is up roughly 4% since the filling of the FY 2019 10-K. Allow me to explain why 4% growth in this sector has alarm bells ring-ring-ringing in my head. From a fundamental perspective when evaluating the long-term sustainability of projected 1.3x Rev. growth from FY 2019 to FY 2022, and 1.5x Rev growth from FY 2019 to FY 2023 this is absolutely unsustainable. When COVID-19 disrupted our everyday lives, the stimulus was pumped into our economy and people wanted more than anything to get outside. This growth makes sense, demand far outpaced supply, everyone had the money and the time to wait for products like Kayaks and Canoes to be delivered through supply chain challenges. Now, nearly 3 years later, both of these factors are waning. Consumer discretionary spending faces a huge point of inflection as inflation is at 40-year highs. Pair this with the end of the COVID pandemic and simply put, demand is not where it should be to support continued growth within a key business segment.
Next, we see the major shift away from Brick and Mortar retail. Covid seems to have reinflated the value of such retail brick and mortar shops. As illustrated in the graph below, before covid, revenue had stagnated, and from 2017-2018, actually decreased. This is NOT good news. The total market penetration and share actually decreased for Dicks before covid is no exception, to what seems like a covid caused value trap. DKS is not a $100+ per share stock, as for the whole history of the stock it traded somewhere between $40-$60. DKS did absolutely nothing during covid to re-cement itself as a market leader with a facelift. Instead, what Dicks did was firmly cement itself as a leader with no true competitive advantage. Their online sales are nothing to write home about, and frankly make me question why they are as behind on the 8 Ball on this as they are. While they have rolled out a mobile app, it does not serve their business model well. Dicks makes the most when customers visit in store, and by default have to see other products that could spur them to purchase. Online, if you search “baseball glove” for example, you’ll be shown just that. For businesses like Amazon, this may work, but for Dicks it simply does not. Dicks thrive because when you go to purchase a baseball glove, you are then also inclined to purchase a bat, or a pair of pants, etc.
This growth is both unsustainable, and unrealistic with current macroeconomic factors and trends. Demand far outpacing supply allowed a stock that turtles between 40-60, to explode and at the peak of COVID, to over $140 per share. There is absolutely no reason this stock trades at the current levels. This growth is both unsustainable, and unrealistic with current macroeconomic factors and trends. One-time purchases amount to 46% of all revenues, CPI, the shift away from Brick and Mortar shopping focus is detrimental to Dicks’ Business model, and as a market leader, Dicks seems to have reached their maximum market penetration. Competitors however stand to capture and penetrate an ever-growing market of Dicks customers.
First of all, let's address the elephant in the room. The fact that Hardline merchandise accounts for 46% of company-wide revenue is alarming. This percentage is up roughly 4% since the filling of the FY 2019 10-K. Allow me to explain why 4% growth in this sector has alarm bells ring-ring-ringing in my head. From a fundamental perspective when evaluating the long-term sustainability of projected 1.3x Rev. growth from FY 2019 to FY 2022, and 1.5x Rev growth from FY 2019 to FY 2023 this is absolutely unsustainable. When COVID-19 disrupted our everyday lives, the stimulus was pumped into our economy and people wanted more than anything to get outside. This growth makes sense, demand far outpaced supply, everyone had the money and the time to wait for products like Kayaks and Canoes to be delivered through supply chain challenges. Now, nearly 3 years later, both of these factors are waning. Consumer discretionary spending faces a huge point of inflection as inflation is at 40-year highs. Pair this with the end of the COVID pandemic and simply put, demand is not where it should be to support continued growth within a key business segment.
Next, we see the major shift away from Brick and Mortar retail. Covid seems to have reinflated the value of such retail brick and mortar shops. As illustrated in the graph below, before covid, revenue had stagnated, and from 2017-2018, actually decreased. This is NOT good news. The total market penetration and share actually decreased for Dicks before covid is no exception, to what seems like a covid caused value trap. DKS is not a $100+ per share stock, as for the whole history of the stock it traded somewhere between $40-$60. DKS did absolutely nothing during covid to re-cement itself as a market leader with a facelift. Instead, what Dicks did was firmly cement itself as a leader with no true competitive advantage. Their online sales are nothing to write home about, and frankly make me question why they are as behind on the 8 Ball on this as they are. While they have rolled out a mobile app, it does not serve their business model well. Dicks makes the most when customers visit in store, and by default have to see other products that could spur them to purchase. Online, if you search “baseball glove” for example, you’ll be shown just that. For businesses like Amazon, this may work, but for Dicks it simply does not. Dicks thrive because when you go to purchase a baseball glove, you are then also inclined to purchase a bat, or a pair of pants, etc.