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What’s behind the Uptrend in Dick’s Sporting Goods Stock?

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Nov. 27 2018, Updated 9:00 a.m. ET

Stock gains an impressive 22.1%

As of November 21, Dick’s Sporting Goods’ (DKS) stock price is up 22.1% on a YTD basis to $35.10 as strategic initiatives are gaining traction. Weakness persists in the hunting and electronics category. Management is making efforts to exit the electronic category. However, management has upped its fiscal 2018 EPS guidance owing to expectations of merchandise margin improvement.

Meanwhile, Hibbett Sports (HIBB) and Big 5 Sporting Goods (BGFV) fell 15.6% and 48.0%, respectively. Foot Locker (FL) rose 13.0% on a YTD basis.

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Can the stock sustain the momentum after Q3?

Dick’s Sporting Goods plans to report third-quarter results on November 28. For the third quarter, Wall Street analysts have estimated net sales to decline 3.4% to $1.88 billion. The adjusted EPS are forecast to plummet 13.3% to $0.26. The calendar shift along with weakness in the hunting and electronics categories are likely to dent the results.

However, over the long term, Dick’s is likely to benefit from its fast-growing private brands business. Amid stiff competition, Dick’s believes that product differentiation could boost its private brand business. Private brand sales were over $1 billion in 2017. It estimates another $1 billion more in sales to come in a shorter timeframe.

Dick’s Sporting Goods is also improving its operational efficiency by reducing costs across the board. It is also slowing down store expansion and is looking to open new stores only on favorable terms at favorable locations. It is targeting new/underpenetrated markets for its new store openings in locations where many retailers including Sports Authority, Golfsmith, and Sports Chalet have shut down their stores.

Dick’s expects a robust, innovative product pipeline from Nike, Brooks, Adidas, New Balance, Calloway, and other sports goods manufacturers to add to its top line this year.

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