Dicks Sporting Goods is laying the groundwork for another solid year ahead as it focuses its strategy on increasing business in its fitness and outdoor businesses while it leverages growth in private label to grow margins and sales. The retailer will also take a big step this year, going head-to-head with a weakened competitor in their own backyard as they roll out more larger-format stores in the market.
DKS will take a play out of their own playbook this year in an effort to further support and grow its fitness business. The company, which already lays claim to the title as employing the most PGA professionals in the U.S. at its in-store golf shops, will now turn its attention to Certified Fitness Trainers to support the fitness shop in-store, adding CFTs in all stores by April from the current 22 people in place.
They will back up the expected improvement in service with an expanded private label program in the category that should net the retailer more margin to go along with the expected increase in sales. The increased focus here probably comes at a good time as most retailers we follow are citing Fitness Equipment as a real bright spot in their businesses.
In the 2003 fourth quarter, Dicks also saw “favorable ” results in the womens apparel category, team sports, paintball, licensed apparel and table games, which more than offset declines in in-line skates, hunting and camping. Ed Stack, chairman and CEO, said they expect to see continued declines in the in-line skate business and have not “seen the bottom there yet”. He said the trend is due in large part to declines in participation in roller hockey as well as the fitness and recreation aspects of the business.
Stack also sees big upside in womens apparel and the athletic footwear business as it looks to be moving away from fashion product to more “technically-based” product. He said DKS is “terrifically positioned to take advantage of that shift”.
The CEO does see some challenges coming from the “ramp up” of the outdoor recreation retailers such as Gander Mountain and Cabelas. He said they generally see a decline in sales in their Lodge area in the year following the opening of one of those stores in an existing DKS market, but they “see the sales bounce back from a comp standpoint the following year”. Stack also pointed to the impact of West Nile Virus as a potential cause for softening participation numbers.
The company is touting a new strategy in the Outdoor category driven by a new team led by Denny Feldman, the former Galyans outdoor business guru. Stack promises the new strategy will be “much more aggressive” in the hunting, camping and tackle businesses than they had been in the past.
On the private label front, the company is still guiding to the 15% mark as a goal.
Private label was 13.5% of the total business in Q4, growing to $64 million, and was 10.5% of the total business for the year versus just 6.2% in fiscal 2002.
They were quite “enthusiastic” about the Walter Hagan products that were launched in February and said early indications had been “very positive”. The higher average price point of the golf equipment could drive up the percentage of private label to total sales. Stack also indicated that the private label iron business in fitness will have a “much higher penetration of the business”.
Although Dicks will continue to focus primarily on its 50,000 square foot model, it now looks as though they will step up the roll out of more of the two-story 75,000 square foot formats as well. They opened their first two-story format near their Pittsburgh HQ in 2002 and added a second in the Richmond, VA market last fall.
But Dicks is getting aggressive as it moves into the Indianapolis market and mixes it up with Galyans, locating two of the larger format stores there in April.
They will also have a 50,000 square foot store open the same month and will add two more by fall. Stack said the move to Indy made sense since it is only serviced by one big box operator in a market with more than 1.5 million people. He also said the appropriate real estate plays were available. He responded “No, not really”, when questioned by an analyst if the move also “puts a finger in the eye” when looking at Galyans. Whatever the underlying motive, the new Indianapolis stores will represent 20% of the 25 new stores that are planned to open this year.
Looking at another competitor, Dicks continues their push into the Southeast and Northeast as The Sports Authority rushes to re-model stores. Another analyst questioned if Dicks would get into the ski hardlines business to compete with TSAs new energy there due to the Gart team now in place. Stack said that DKS is “not moving into the alpine ski business in any significant way” at the “present time”.
The growth this year and for the near term will be supported by an expansion of their current DC in Western PA. Dicks will add roughly 200,000 square feet to the 388,000 square foot facility in Westmoreland County, enabling it to service 270 stores versus the current capacity for 200 stores. Dicks currently has 163 stores and will add 25 more in 2004.
Total retail square footage is now 7.9 million sf.
DKS increased fourth quarter net income 36.3% to $26.0 million, or $1.00 per diluted share, compared to net income of $19.1 million, or 82 cents per diluted share for the year-ago quarter. Total sales for the quarter increased 20% to $474.4 million and comparable store sales increased 4.6% for the quarter.
Average inventory per store and per square foot was down 6.0% versus the year-end last year.
First quarter EPS is seen in the range of 35 cents to 37 cents per diluted share, a 25% to 32% gain over the year-ago quarter. Net income is expected to grow 37% to 46% to a range of $9.2 million to $9.8 million versus $6.7 million in Q1 last year. Comps are forecast to grow in the 4% to 5% range on top of the 3% gain in the year-ago quarter.
For full year, DKS sees net income of $65.7 million to $66.5 million, or $2.47 to $2.50 per diluted share. The net income gain would be a 24% to 26% increase over 2003. Comps are forecast to increase by 3% for 2004.
>>> Maybe no finger in the eye, but we havent spoken to one industry watcher that doesnt see the Indy move as a stake through the heart
>>> Look for nice gains here in Q1 as DKS looks to anniversary a tough February from a year ago when the P-Day storm shut down the Northeast…
