The deal announced early last week that has Dick's Sporting Goods
inking a definitive stock purchase agreement to acquire Chick's
Sporting Goods was first hinted at by DKS Chairman and CEO Ed Stack at
the Bank of America investor conference in September when he suggested
that the 14-store Southern California chain was the “best-run operator
out there.”
Dicks Sporting Goods has suggested recently that they see an
opportunity for 90 stores in the state of California and the Chicks
deal gives them a solid foothold in the SoCal market from which to
grow. DKS will pay approximately $40 million in cash for the
outstanding equity of Chick's Sporting Goods and take on approximately
$31 million in debt, financed through existing credit facilities.
The transaction is anticipated to be completed on or before December 31, 2007.
Chicks Sporting Goods revenues for the fiscal year ended June 30
exceeded $120 million and were planned to exceed $150 million for
fiscal 2008. Chick's shareholders may also earn up to $5 million
in additional consideration upon satisfaction of “certain specified
performance criteria” through June 2008.
Chick's has been aggressive in adding new real estate to its Southern
California portfolio since the retailer picked up $4.0 million in
funding from Nogales Investors Fund I, LP in 2005. The investment
enabled CEO Jim Chick to accelerate his plans for expansion to up to
four new stores a year.
The first of those new additions was a 46,000 sq. ft. store in El
Segundo, CA; followed by another 46,000 sq. ft. store in
Moorpark, CA; a 60,000 sq. ft. store in the Murrieta/Temecula
area; and a 64,000 sq. ft. store located in Norco-Corona.
A 60,000 sq. ft. store expected to open in the summer of 2008 in Santa
Clarita, CA will open as a Dicks Sporting Goods store, as will one
other lease inked for 2009. The average store size has been
roughly 50,000 square feet.
While there has been some talk and speculation about the current
Chicks stores remaining as such and maintaining their unique
positioning in the market, most analysts that spoke with Sports
Executive Weekly agree that the stores will most likely be re-formatted
to reflect the Dicks format.
Keeping the Chicks team on board through the June 2008 earn-out period
is seen as a smart move so the DKS team can learn as much as possible
about the market, but is not seen as a long-term deal. Few doubt
that the merchant team – seen as one of Chicks Sporting Goods
strengths – will be located out of Pittsburgh. Thoughts of a
“Dicks West” are seen as highly unlikely.
While the deal is clearly a strong real estate move, the conversion may
prove problematic if the Chicks consumer sees the flavor in the stores
change. A key component to the in-store success of Chicks is the
fact that Jim Chick has always paid attractive commissions to his
in-store staff. It is doubtful that practice will continue under
the DKS structure. The other strength is the focus on sportswear,
beach and skate, not exactly a Dicks strong suit.
Many thought the logical move in California was the Sport Chalet chain,
which has successfully expanded outside SoCal, establishing solid
footholds in Northern California, Nevada, and Arizona. A DKS move
to establish a Northwest presence was expected next, possibly a deal to
acquire Joes Sports, but DKS is in the process of opening their first
store in Portland, OR soon.
>>> The
Chicks deal wont give Dicks a West Coast DC as a Sport Chalet deal
would have. Is Joes still a possibility?…
>>> Will
the Chicks sportswear and skate brand partners extend their “specialty
store” designation to Dicks? If they do, look for TSA to
counter. If not, Sport Chalet wins big
>>> Dicks is focusing growth on Florida, Texas and California – three of the weakest retail markets in the U.S
