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Dick’s Sporting Goods Falters as Retail Remains in Troubled Waters

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Stock slump

Dick’s Sporting Goods’ (DKS) stock price slumped 45.9% in 2017 as the retail sector remained troubled. Retailers are facing a tough time due to the rise of e-commerce and a shift in consumers’ preferences to online shopping. Increased competition and the resultant price wars have left most of the traditional retailers high and dry.

The stock price performance of Dick’s Sporting Goods’ peers is also dismal. In 2017, Hibbett Sports (HIBB) was down 45.3% while the stock prices of Foot Locker (FL) and Big 5 Sporting Goods (BGFV) declined 33.9% and 56.2%, respectively. In contrast, the S&P 500 Index gained 19.4% in 2017.

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Challenging retail environment 

Online shopping has quickly gained traction because of the convenience of 24/7 shopping access, a wide array of merchandise, competitive pricing, and quicker deliveries. The advent of Amazon was the largest disruptive event for the retail sector, catching many brick-and-mortar stores off guard.

In order to retain market share, traditional retailers have been forced to cut prices and make huge investments to boost omnichannel distribution capabilities, especially in digital. Both factors have negatively impacted margins.

Big sports brands like Nike (NKE) and Adidas are not only offering goods on Amazon but are also exploring ways to enhance direct selling to customers. This trend has added to sports retailers’ troubles.

Some optimism

On January 3, 2018, Dick’s Sporting Goods’ stock price rose 2.7% as Wells Fargo upped its rating on the company to “outperform” from “market perform.” Wells Fargo raised its target price to $35 from the $26 projected earlier. Wells Fargo is of the opinion that improving trends and consolidation witnessed in the sporting goods sector bodes well for Dick’s Sporting Goods.

Series overview

In this series, we will discuss strategies undertaken by Dick’s Sporting Goods to put itself back on a growth trajectory. We will take a quick look at its recent performance, the company’s dividend and share repurchase plans, valuations, and what analysts recommend for the stock.

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