Analysts Respond To Dicks' Q4 Results, Guidance

Analysts, in general, are optimistic on Dicks Sporting Goods Inc (NYSE: DKS), despite the warm weather that led the company's quarterly results to miss the Street's view. However, the shares closed 2.46 percent higher, implying investors were expecting such a result and are looking into the future.

"4Q EPS missed consensus – and FY16 EPS guidance fell well below expectations – but prospective benefits from TSA's restructuring and ecommerce-related P&L savings in FY17 appear to have provided enough of an offset," Baird analyst Peter Benedict wrote in a note to clients.

Benedict maintained his Neutral rating on Dicks, but raised the price target by $3 to $45.

Although Dicks surprised the market with some incremental investments planned for 2016, which will result in flattish EPS, investors were more focused on the impact from The Sports Authority and the expected EPS reacceleration in 2017.

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Sports Authority's Influence

The Sports Authority (TSA) represents potential upside, as Dicks aggressively goes after up for grabs share. This year, there is no net benefit expected, as early-year liquidation sales should offset share gains later in the year. In fact, the closings could drag as Dicks ramps up advertising to take TSA share.

"But, benefits should start to accrue over time particularly as we think TSA could end up closing more than the already announced 140 stores. At roughly 140 stores, we estimate a $173 million sales and 2.4 percent comp impact over the following 12 months after liquidation sales assuming a 20 percent recapture rate," Deutsche Bank analyst Mike Baker said in a client note.

Baker added If Dicks were to take on any TSA leases, those would be more incremental as these locations would be above and beyond currently planned new Dicks stores.

Baker, who has a Buy rating and $52 price target on Dicks, said apart from TSA, the EPS growth should reaccelerate in 2017 from cycling the increased brand building marketing around the Olympics in 2016 and a reduction in the investments in improving the footwear presentation in 2017 versus 2016. In addition, a reduction in the impact from e-commerce investments in 2017 versus 2016 and an extra week should help EPS growth.

Headwinds Can Become Tailwinds

Susquehanna analyst Christopher Svezia has a Positive rating on Dicks and raised the target price to $56 from $53, saying the company can leverage key investments and take market share. He said the near-term headwinds can turn into tailwinds in FY17.

Dicks reported quarterly earnings of $1.13 per share, 2 cents below the Street's consensus. Revenue of $2.24 billion also came in below expectations of $2.277 billion. Consolidated same-store sales decreased 2.5 percent on unseasonably warm weather conditions. The FY16 EPS outlook of $2.85–$3.00 also missed consensus estimate of $3.23.

Dicks closed Wednesday's trading at $45.50. They have gained about 29 percent this year.

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