Analyst Backtracks, States He 'Overestimated' Dick's Sporting Goods

One analyst is backtracking on his call on Dicks Sporting Goods Inc (NYSE: DKS), claiming he overestimated the company's ability to achieve guidance and maintain profitability in spite of structural and cyclical headwinds.

Cowen analyst John Kernan believes the price war Dicks is currently facing with online competitors will push margins and cash flow lower.

“Consumers will continue to search for unique, authentic experiences in the digital space,” said Kernan.

With Nike Inc (NYSE: NKE), Under Armour Inc (NYSE: UAA) and adidas AG (ADR) (OTC: ADDYY) all focusing on direct to consumer, the aim is to effectively cut out the third party retailer (Dick’s) out of the equation to boost margins and control the user experience.

Nike represents 20 percent of Dick’s sales, while Under Armour accounts for 12 percent of company revenues. Kernan estimates that Nike, Under Armour and Adidas will expand their direct to consumer sales in the U.S. by $3 billion, $375 million and 500 million euros, respectively, by 2021.

The current environment may go down a historically bad time for the retail sporting good industry, plagued with bankruptcies, consolidation and a structural shift in the way consumers make purchases.

While Dick’s remains the go to preferred channel to shop for sporting goods according to Cowen’s Consumer Tracker Survey, Amazon.com, Inc. (NASDAQ: AMZN) is closing the gap, with Dick’s three largest vendors likely to be all selling directly on the e-commerce giants platform in the near future.

Cowen downgraded Dick’s Sporting Goods from Outperform to Market Perform and lowered its price target from $31 to $28.

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