Dick’s Sporting Goods (DKS) quietly popped up as a leading sports goods specialty shop in strip malls throughout America in the last decade, and soon became a multi-billion dollar operation. Beginning on the east coast, the company spread west to compete with The Sports Authority, a specialty retailer that earned millions for one notorious investor: Mitt Romney.
Dick’s has been a volatile stock, which two big drops in the past year: first in December, when a tax-motivated $2 special dividend failed to entice investors to the name for long, and again in March, when bad earnings made the stock fall to $45 from just above $50, only to recover again by the beginning of May.
This is an interesting company because its May earnings, which showed a solid operating margin above 7%, also showed diluted EPS of 45 cents and sales revenue of $1.3 billion. That was slightly over 4% of an increase in revenue from the same quarter in 2012.
Now the important question: is that good or bad? Well, the market wasn’t too impressed, with the stock staying relatively flat around the $52 range shortly after the earnings call, where it remains today. It was definitely much better than in March, when the company issued guidance for 2013 lower than analyst expectations, despite double digit revenue growth for the four quarter. That’s what caused that steep drop in March, even as revenue rose to $1.8 billion and diluted EPS of $1.03.
With the lowered expectations, May could demonstrate a decent enough quarter to keep investors engaged, but now investors are wondering if August’s earnings call will have the same result.
The question really boils down to this: are more people buying stuff in Dick’s shops throughout America, and is the company able to cut its costs to increase earnings? If you want to play this quarter with this name, these are the two questions you want an answer to. And the right answer could make you a lot of money.