Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Does Dick’s Sporting Goods show Brick and Mortar Retail Lives?

Dick’s Sporting Goods Inc. (NYSE: DKS) shows brick and mortar retail could survive.

Dick’s (DKS) operated 726 stores in the United States in 2019, Statista estimates. However, Stockrow estimates that Dick’s Sporting Goods’ (DKS) revenues grew by 19.81% in the quarter ending on 31 January 2021.

In fact, Dick’s experienced three straight quarters of revenue growth in 2020. Revenues grew by 20.1% in the quarter ending on 31 July 2020, and 22.93% in the quarter ending on 31 October 2020.

Consequently, Dick’s quarterly revenues grew from $2.609 billion on 31 January 2020 to $3.125 billion on 31 January 2021. Hence, Dick’s revenues grew during a pandemic which contradicts the narrative that coronavirus kills brick and mortar retail.

Why are Dick’s Revenues Growing?

I suspect Dick’s Sporting Goods’ (DKS) revenues grew because the company sells products people use alone.

For example, weights and exercise equipment. I suspect many people bought exercise equipment because they were afraid to go to the gym. The COVID-19 pandemic closed gyms in many areas.

Moreover, many people had more free time to exercise because COVID-19 trapped them at home. On the other hand, the pandemic hurt sales by closing stores and schools so parents were not buying kids’ sports equipment. Notably, Statista estimates Dicks’ revenue growth shrank by 30.59% in the quarter ending on 30 April 2020, the height of the pandemic.

How Much Money Does Dick’s Sporting Goods Make?

Dick’s (NYSE: DKS) made money in 2020. For instance, Dick’s quarterly operating income rose from $98.81 million on 31 January 2020 to $290.30 million on 31 January 2021.

Similarly, Dick’s quarterly gross profit rose from $733.04 million on 31 January 2020 to $1.052 billion a year later. Plus, Dick’s quarterly operating cash flow rose from $617.39 million on in January 2020 to $635.25 million in January 2021.

In comparison, the quarterly ending cash flow rose from -$18.29 million on 31 January 2020 to $598.07 million on 31 January 2021. However, it is unclear how much money Dick’s can generate from its stores.

To explain, Dick’s borrowed to survive coronavirus. The company reported a quarterly financing cash flow of $1.689 billion on 30 April 2020. However, Dick’s paid some of that debt as a -$1.48 billion financing cash flow on 31 July 2020.

Impressively, Dick’s total debt fell from $647.07 million on 31 January 2020 to $418.49 million on 31 January 2021. Thus, Dick’s Sporting Goods paid off debt during a pandemic.

What Value Does Dick’s Sporting Goods Have?

Dick’s Sporting Goods (DKS) offered some value in the form of $1.658 billion in cash and short-term investments and $7.753 billion in total assets on 31 January 2021.

Impressively, Dick’s gained value during a pandemic. Dick’s had $6.629 in total assets and $69.33 million in cash and short-term investments on 31 January 2020.

Perhaps the pandemic was good for Dick’s Sporting Goods. The company seemed to grow in the pandemic.

Does Mr. Market Overprice Dick’s Sporting Goods?

Despite the growth, think Mr. Market overpriced Dick’s at $79.09 on 22 March 2021. However, Mr. Market rewarded Dick’s investors, the share price rose $18.61 on 19 March 2020.

To elaborate, I cannot see anything in the financial numbers that justifies the $79.09 share price. However, I think Dick’s was a bargain at $18.61 in March 2020. I think a fair price for Dick’s is around $40 a share.

Despite the price, I consider Dick’s an appealing value investment. Notably, Dick’s (DKS) will pay a 36.25¢ quarterly dividend on 26 March 2021. That dividend grew from 31.25¢ on 29 December 2020.

Thus Dick’s dividend grew by 5¢ during a pandemic. Overall, Dick’s offered a $1.45 forward annualized dividend and a 1.84% dividend yield on 18 March 2021.

I consider Dick’s Sporting Goods a value investment in retail because it appears to be pandemic proof. However, Mr. Market overprices Dick’s so investors need to avoid it until Mr. Market offers a realistic price.