We have been bulls on Dick's Sporting Goods (DKS) for some time, and the ride down has been tough. That ride down is hitting a new low point today, as DKS stock is off about 16% in early Monday (8/15) trade after the company reported dismal second quarter results and delivered a stomach-turning cut to the guidance. Our thesis of retail consolidation providing long-term tailwinds for the DKS business looks seriously threatened by current retail dynamics. We have less conviction in that thesis than ever before, and consequently, less conviction in DKS stock than ever before. Although we still see a silver lining with DKS, it is clouded by digital competition concerns, and we are consequently reducing our exposure by a significant amount.
(Source: Wikipedia)
The quarter itself was pretty bad. Although we expected DKS to be able to buck the trend of its peers as it has over the past several quarters, that was not the case. Comparable sales rose a mere 0.1% versus expectations for a 1.8% rise. That also represents a huge slowdown from the 5% comp growth pace the company was recording just 2-3 quarters ago. Meanwhile, gross margins are falling.
