Key points
-
Dick's Sporting Goods crushed earnings estimates in Q2 and raised its guidance for the full year.
-
However, the stock price dropped more than 6% on Wednesday after earnings came out.
-
Should you buy Dick's Sporting Goods stock on the dip?
A popular retail stock saw its share price plummet more than 6% after it posted strong Q2 earnings. What caused the dip, and should investors view it as a buying opportunity?
The stock market can be a fickle thing, as Dick’s Sporting Goods (NYSE: DKS) found out Wednesday. The leading sporting goods retailer had blowout second quarter earnings that topped estimates and raised its guidance for the rest of the fiscal year — and still, the stock was down more than 6% on the day.
It is not typical for that combination of results – earnings beat and raised guidance – to cause the stock price to plummet. But that’s exactly what happened. Here’s why.
Blowout Q2 earnings
Dicks Sporting Goods has been on a great run over the past several years. The stock price is up about 50% year to date and over the past 12 months, as of Sept. 3, it has returned 95%. Further, over the past five years it has generated an average annualized return of 45%. It has undoubtedly been one of the best retail stocks over that stretch.
The momentum seemed to be continuing after the retailer released its fiscal second quarter earnings report on Wednesday.
In the second quarter, Dick’s generated $3.47 billion in net sales, a 7.8% year over year increase, with same store sales rising 4.5%. This was better than the $3.4 billion in revenue that analysts had predicted.
The company’s net income jumped 48% year over year to $362 million, while earnings per share rose 55% to $4.37 per share. That crushed estimates of $3.83 per share.
Dick’s Sporting Goods grew its number of transactions as well as the average ticket, or price paid by the average customer for goods. In addition, it lowered its cost of goods sold as a percentage of revenue to 63.3% from 65.6% and reduced selling, general, and administrative expenses as a percentage of revenue to 22.9%, from 23.7%. It also boosted gross profits and operating income in relation to percentage of sales
“Because of our strong Q2 performance and the confidence we have in our business, we are again raising our full year outlook,” President and CEO Lauren Hobart said.
Dick’s raises its guidance, but not by enough?
The company raised its guidance for both comparable store sales and earnings per share, while maintaining its outlook for net sales.
Specifically, it boosted its comparable store sales growth to 2.5% to 3.5%, from the previous range of 2% to 3%. Overall, the net sales target for the full year remained the same at $13.1 billion to $13.2 billion.
However, Dick’s raised the earnings outlook, calling for EPS of $13.55 to $13.90, up from $13.35 to $13.75 the previous quarter. This was apparently not a high enough raise, even though the median estimate called for EPS of $13.79, which would be in the range, but higher than the midpoint.
Investors might have been expecting a higher EPS raise, given the strong Q2 and the 55% year over year earnings boost. It may suggest to some investors that second-half sales growth could be a bit slower.
Then again, Dick’s could just be playing things close to the vest and staying cautious with its guidance, as it has raised its earnings outlook twice already this year.
Is Dick’s Sporting Goods stock a buy?
Wednesday’s selloff looks like a good opportunity for investors to pick up some shares of Dick’s Sporting Goods stock.
I tend to think Dick’s leadership is playing it cautious with its guidance, as it has all year. Its growth numbers remain impressive and it has lowered its expenses as a percentage of sales.
The stock is already up 50% YTD, yet it remains a decent value, trading at 17 times forward earnings.
Wall Street analysts have a median price target of $246 per share for Dick’s Sporting Goods stock, which would be another 14% increase over the next 12 months. I think with interest rates poised to drop, it could lead to an unexpected surge in consumer spending, particularly over the holidays.
Dick’s Sporting Goods stock is definitely a hold if you own it, and looks like a solid buy, particularly after Wednesday’s selloff.
VALUEWALK LLC is not a registered or licensed investment advisor in any jurisdiction. Nothing on this website or related properties should be considered personalized investments advice. Any investments recommended here in should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. VALUEWALK LLC, its managers, its employees, affiliates and assigns (collectively “The Company”) do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company disclaims any liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.
Recommended content
Editors’ Picks
![EUR/USD retakes 1.1100 ahead of key US data](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/dollar-and-euro-bills-58059534_XtraSmall.jpg)
EUR/USD retakes 1.1100 ahead of key US data
EUR/USD has regained upside traction to trade near 1.1100 in the European session on Thursday. The pair capitalizes on the extended US Dollar even as risk sentiment remains sour heading into the key US labor market data.
![GBP/USD advances toward 1.3200, US data eyed](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/new-style-twenty-pound-notes-3079195_XtraSmall.jpg)
GBP/USD advances toward 1.3200, US data eyed
GBP/USD extends gains toward 1.3200 in European trading on Thursday, as the US Dollar sees fresh selling. The further upside, however, could be capped as traders stay cautious ahead of the top-tier US jobs data.
![Gold recovers back above $2,500 after US job’s data](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/stack-of-golden-bars-in-the-bank-vault-60756080_XtraSmall.jpg)
Gold recovers back above $2,500 after US job’s data
Gold trades back above $2,500 on Thursday after rebounding from the $2,471 previous day’s lows, following the release of lower-than-expected job openings data in July from the US, which stoked fresh hard-landing fears.
![ADP Employment Change Preview: US private sector expected to add 145K new jobs in August](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/employment-51256484_XtraSmall.jpg)
ADP Employment Change Preview: US private sector expected to add 145K new jobs in August
ADP Employment Change is forecast to arrive at 145,000 in August. Labor market conditions could influence the Fed’s policy outlook. The US Dollar stays resilient against its rivals after posting large losses in August.
![Jupiter price is poised for a rally after retesting major support area](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/Jupiter/Jupiter-min_XtraSmall.png)
Jupiter price is poised for a rally after retesting major support area
Jupiter rebounded 4.4% after testing a key support area on Wednesday. Despite a slight 1.4% dip on Thursday, a sustained reversal appears likely if the support zone continues to hold.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.