Shares of Dick’s Sporting Goods Inc. stock are popping after analysts decided the retailer stood to benefit from the troubles at Sports Authority Inc.
Dick’s stock jumped more than 3 percent to $37.22 following word on Wednesday that Sports Authority had missed an interest payment. That sparked the idea that if Sports Authority is having trouble it could close stores.
Sam Poser, analyst with Sterne Agee, said his checks indicate that Sports Authority is planning on closing up to 200 of its 450 stores. Once those stores are closed, any Dicks in the immediate area could see rapid acceleration in same-store sales. “The potential close of [Sports Authority] stores not nearby existing Dick’s stores will allow for uncontested entry into those locations, which are desirable,” wrote Poser.
“Dick’s is continuing to gain market share and Sports Authority may help tremendously in that effort in 2016,” Poser continued. As Dick’s gets larger, the company will have more power to negotiate assortments, margins, returns and markdown allowances.
For the current quarter, Poser said Dick’s will benefit from the surge in gun buying and post-Christmas sales. He has a $55 target price on the stock.
“Should [Sports Authority] close stores in a trade area in which [Dick’s] operates, we would expect a majority of those sales to transfer to [Dick’s] over time,” wrote Camilo Lyon, analyst at Canaccord Genuity. Lyon estimates that one-third of Dick’s stores overlap with Sports Authority stores and suggests that Dicks could capture approximately $119 million in sales assuming a 75 percent sales recapture rate.
Lyon cautions that closing stores is a lengthy process depending on lease expirations and creditor negotiations. Then there is also a competitor in Academy, which is a chain of sporting goods stores that mostly located in the south and owned by private equity firm KKR. The problem with going after Sports Authority stores for Academy is that it takes them out of their current territory and could cause supply chain issues. Plus, Academy stores tend to be very large, while Sports Authority stores are on the small side comparatively.
Lyon didn’t think Dick’s escaped the problems of the warm winter, but does think the recent cold blast will help it clear winter inventory. Lyon has a $48 price target set for the company.