The third-quarter earnings beats and raised guidance for both Dick’s Sporting Goods and Hibbett Sports increased investor confidence that the athletic retail space is positioned to at least outperform the broader retail sector in a challenging marketplace, although some analysts were concerned about margin pressures at Dick’s.

In the quarter, Dick’s sales grew 2.8 percent year-over-year to $3.04 billion, exceeding Wall Street’s consensus target of $2.94 billion. Comp gained 1.7 percent while analysts were expecting a decline of 1.3 percent. Dick’s adjusted EPS of $2.85 topped Wall Street’s consensus target of $2.45 as the sales gains and expense improvement offset lower-than-expected gross margins. On an analyst call, Lauren Hobart, Dick’s CEO, said “The environment was slightly more promotional than we had originally expected.”

For the year, Dick’s now expects non-GAAP EPS in the range of $12 to $12.60 compared to prior expectations of $11.50 to $12.30. Comparable store sales are now projected in the range of positive 0.5 percent to positive 2 percent, compared to prior expectations of flat to positive 2 percent.

At Hibbett, the big story was the benefit of improved allocations from Nike, supported by the launch of the Nike Connected Partnership which connects Hibbett and Nike’s loyalty programs.

Hibbett’s sales in the third quarter dipped 0.3 percent to $431.9 million, exceeding analysts’ consensus target of $416 million. Same-store sales were down 3 percent against Wall Street’s expectations calling for a 7 percent decline. EPS of $2.05 was far ahead of analysts’ consensus target of $1.18.

Looking ahead, Hibbett now expects EPS between $8.00 to $8.30 for the year, up from $7.00 to $7.75 previously. Comps are still expected to be down low-single digits.

On Tuesday, shares of Dick’s gained $2.58, or 2.2 percent, to $121.59 while shares of Hibbett climbed $5.23, or 9.75 percent, to $58.85.

Evercore ISI reiterated its “Outperform” rating on DKS at a $200 price target following the earnings report.

Evercore analyst Warren Cheng said in a note that while promotions appear elevated with gross margins missing Wall Street’s targets, the better-than-expected sales at both Dick’s and Hibbett show that the premium athletic channel is taking share amid the challenges in the marketplace.

He noted that quarterly reports from both Under Armour and Adidas “sounded some alarm bells on softer-than-expected NA wholesale orders,” creating concerns over whether the sporting goods channel is driving the order cancellations. However, he said Dick’s and Hibbett’s healthy sales represent a “stronger signal emerging that the wholesale order cuts were not coming from premium athletic retail.”

Cheng noted that Dick’s shares closed the day up about 2 percent after opening ahead 10 percent due to margin concerns fleshed out on Dick’s analyst call. Cheng nonetheless added, ‘We still came away from the call significantly net bullish as the resilience in demand was better than we thought (DKS certainly taking share in 3Q), but we think the reaction was tempered by some detail from the call that the margin performance in 3Q and 4Q will be more GM-light and SG&A-benefit heavy than 3 months ago.”

Cheng said he’s more confident that Dick’s gross margins to reset 600 basis points higher than pre-pandemic 2019 levels although near-term pressures include “headwinds from shrink and a still-more-promotional-than-normal environment this year.”

Stifel kept its “Hold” rating on Dick’s and slightly lifted its price target to $126 from $123.

Stifel analyst Jim Duffy noted that due to a boost from back-to-school categories, Dick’s third-quarter results and outlook were “better than feared.” He wrote in a note, “Inventory appears well positioned into Holiday season and more cooperative weather stands to improve what were sluggish October trends.”

Nonetheless, he predicts “modest revenue growth” in the quarters ahead will make the retailer more reliant on gross margin progress and SG&A discipline to drive earnings growth. Stifel expects low-single-digit unit growth and flat-to-low-single-digit comp growth in 2024. Duffy wrote in a note, “All-in, we are impressed with the execution and the structural lift to margin since pre-COVID but see modest growth and limited margin expansion potential from here forth.” 

Williams Trading maintained its “Buy” rating on Hibbett while raising its price target to $73 from $58.

Sam Poser wrote, “The 3Q24 results and the increased guidance highlight the benefits from an improving relationship with Nike, highlighted by the recently announced “Connected Hibbett Rewards X Nike Membership”, and manifested by improved allocations of marquee launch product, and market share gain.”

Poser believes the increased allocations from Nike are likely coming out of some of Foot Locker’s decreased allocations, but he also said HIBB is benefiting from improving relationships with other brands. The analyst said Hibbett’s results were particularly impressive as inventory at the end of 3Q24 decreased 1.7 percent year-over-year versus a 0.3 percent total revenue increase.

Poser added, “HIBB continues to harness the power of its CRM & its best-in-class digital engagement. The improving use of the CRM, combined with improving inventory levels, which are likely to be optimized by the end of 1Q25, and increasingly efficient expense management positions HIBB exceptionally well going next year.”

Baird Equity Research kept its “Neutral” rating on Dick’s and raised its price target to $135 from $125.

Baird’s Justin Kleber said that while gross margin lagged expectations, better-than-expected comps and expense controls drove the quarter’s beat. Kleber wrote in a note, “We were encouraged to see early benefits from business optimization initiatives—which will be key to stabilizing EBIT margins in FY24 as store growth accelerates. Big picture, DKS continues to execute well/gain share, and upwardly revised guidance prudently embeds some conservatism given the uncertain consumer environment. Shares offer good long-term value at 10x EPS; however, we remain Neutral-rated as broader macro crosswinds continue to swirl.”

Baird kept its “Outperform” rating on Hibbett while hiking its price target to $72 from $56.

Kleber said that Hibbett’s sales momentum, better-than-expected gross margins, and leaner SG&A “contributed to a sizeable ‘toe-to-head’ beat.” He said the launch of Hibbett Rewards X NIKE Membership has been well-received by customers. He wrote, “With improved allocations of ‘coveted’ product, member-only events, and early access to Nike/Jordan products, we expect this partnership to represent a valuable customer acquisition/retention vehicle for HIBB. As it relates to the stock, we believe the program should put to rest any lingering concerns around HIBB’s strategic role in Nike’s wholesale ecosystem.”

Kleber further noted that new customer acquisition has benefited Hibbett since the pandemic, and management “has marketing programs in place to capture customers from a variety of industry players losing access to premium product. Encouragingly, recently acquired customers are returning to HIBB and shopping.”

Barclays kept its “Overweight” rating on Dick’s and increased its price target to $149 from $139.

Adrienne Yih said that based on Barclays’ proprietary inventory analysis, Dick’s has shown two consecutive quarters of positive sales-to-inventory growth.

“Inventory remains relatively clean, and with even modest sales growth into next year, we believe that the company can continue to drive earnings growth while continuing to invest in the business (such as with new format stores),” wrote Yih in a note. “Further, the company has significant capability to support EPS growth into next year and return capital to shareholders (cash 15 percent of assets vs. pre-pandemic average of 6 percent) through accelerating repurchases. We remain Overweight rated, as we believe the risk/reward remains attractive at current levels, and as DKS continues to take share in a challenging market while investing for continued long-term growth in efficient new format stores.”

Telsey Advisory Group reiterated its “Outperform” rating on Hibbett and raised its price target to $73 from $60.

Christina Fernandez that Hibbett’s better-than-expected results in the challenging environment “points to a company that seems to be gaining share given good product allocations from vendors and one where operational execution has improved, as reflected in the SG&A leverage during 3Q23 despite a slight sales decline.”

She added that while Hibbett has warned that the demand in the fourth quarter is expected to be “volatile” amid an expected promotional marketplace, inventories are targeted to be down mid-teens at year-end, potentially leading to reduced promotional pressures in 2024.

Fernandez wrote, “Overall, we continue to see Hibbett as well positioned with a differentiated retail footprint in small and underserved markets and its valuation remains attractive at 7.0x FY2 FS consensus estimates. In addition, the new connected membership with Nike should help drive customer engagement, better inventory planning, and solidify its relationship with the brand.”

Monness Crespi Hardt maintained its “Buy” rating on Hibbett and raised its price target to $72 from $60.

Analyst Jim Chartier wrote, “With increased allocations of the best product and an improving inventory mix, we expect continued sequential improvement in 4Q. Given the improving comp trend and a tailwind from the new Connected Partnership with Nike, we think sales will grow next year. And, while we are not modeling it, we see the potential for meaningful margin improvement as Hibbett laps this year’s elevated promotions and lower merchandise margins with a much better inventory position. Hobbit is a structurally better company today, with a stronger product mix, less competition and improved technology, distribution and store operations as well as 4 percent square footage growth.”

UBS kept its “Neutral” rating on Dick’s with a price target of $130.

UBS analyst Michael Lasser wrote in a note that while the composition of Dick’s third-quarter results “was very different to what the market expected, we think the pieces showcased the ecosystem that the company is building.” In particular, he noted that Dick’s ended the quarter with 12 House of Sport locations, 597 full-line Dick’s stores, 104 Golf Galaxy stores and seven Public Lands stores targeting full-price selling that are complemented by two clearance formats with 17 Going, Going Gone! locations and 41 Dick’s Warehouse Sale locations.

Lasser stated, “With this base, DKS is striving to move all of its clearance inventory to its discount store concepts and emphasize newness in its flagship stores. It realizes that having new and innovative products that are high demand is key to driving a positive comp. This was on display in the quarter with a sales result that was better than the market had anticipated. Yet, it also seems this approach is going to come with a higher cost structure as the retailer’s gross margin was a bit below expectations and its SG&A dollars continued to grow YoY. Looking forward, the key to the stock will be if DKS can maintain what has been driving its top-line while it moderates its operating expense growth. If it can achieve this combo, we think the potential upside can be significant.”