Apparently due to the company’s rapidly-expanding private label business, Dick’s Sporting Goods sold less of both Nike and Under Armour product in 2017 versus the prior year, according to the retailer’s just-released annual 10K report.
Under Armour accounted for less than 10 percent of the retailer’s sales in 2017, down from 12 percent in 2016. Nike was reduced from 20 percent of Dick’s sales in 2016 to 18 percent in 2017.
The reductions come as Dick’s has been aggressively expanding the store’s private-label assortments. In the filing, Dick’s said its private brand business exceeded $1 billion in sales during 2017. Private brand sales represented approximately 12 percent of sales in 2017, up from 10 percent in both 2016 and 2015.
In a note, Simeon Gutman at Morgan Stanly estimated that Under Armour sales at Dick’s declined between 11 to 15 percent in 2017 to represent about 9 percent of the chain’s sales.
That rate of decline would have represented a 75 to 125 basis-point same-store sales headwind for Dick’s Sporting Goods in 2017, he estimated. Assuming Under Armour’s sales in Dick’s declines another 10 percent in 2018, it could represent a 90 bps same-store sales headwind this year.
Gutman said that although Under Armour remains one of Dick’s largest brands, it could be a positive that the retailer has reduced the store’s net exposure to the struggling brand. He wrote in the note to clients, “Bulls could look at this favorably as DKS replaces UAA sales with higher-margin private label revenue.”
Gutman expects Nike’s share at Dick’s to remain at 18 percent, with an estimated 40-basis-point, same-store sales contribution for Dick’s in 2018. He noted that during Dick’s fourth-quarter conference call, “Management expressed excitement around NKE’s product line and is working closely with them on in-store presentation and digital marketing.”
In a separate note, Seth Sigman at Credit Suisse said that on the positive side, the increased private brand focus may help reduce Dick’s reliance on certain brands, which he called “one of the key issues” for the retailer. He also noted that both Nike and Under Armour are expanding to new channels. Wrote Sigman, “This is a way to regain some control, differentiate from competing channels, add higher margin products and battle brands’ DTC.”
Still, he said that given Dick’s sales shortfall in 2017, he wasn’t sure whether the store’s private brands could “drive incremental growth, vs. just taking share of shelf.”
Sigma added, “Further, we would argue that in an increasingly online category, selling own brands online will be more difficult than in the store. We also debate whether the company is playing a dangerous game that will ultimately alienate vendors, at a time when they are already looking to expand distribution. These questions are among the reasons we remain on the sidelines on DKS, despite low valuation and expectations.”
According to Dick’s filing, the chain’s private labels include Calia, Cobra (youth golf sets), ETHOS, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Quest, Second Skin, Top-Flite and Walter Hagen, as well as brands that the chain exclusively licenses from third parties including Adidas baseball and football, Reebok (performance apparel), Slazenger (golf) and Prince (tennis).
On the chain’s fourth-quarter conference call in mid-March, Ed Stack, CEO of Dick’s, said store brands are growing faster than national brands while offering higher margins. He expects the store’s private labels to surpass $2 billion in sales in a “short period of time,” but did not give an exact time for that to happen.
The reduction in Nike and Under Armour’ share of Dick’s business also comes as Dick’s last April said it was implementing a new merchandise and vendor matrix that would reduce up to 20 percent of its brands. Under a three-tier change, one group of brands was designated strategic partners that would invest in Dick’s online and in-store business, be included in marketing campaigns and are expected to provide Dick’s with more exclusive and differentiated product.
A second tier represents brands the retailer “simply has transactional relationships with” and won’t be moving to the partnership level. The third tier of brands, about 20 percent of its former mix, would be eliminated from the store.
Photo courtesy Dick’s Sporting Goods