Dicks Sporting Goods Inc (DKS), Hibbett Sports, Inc. (HIBB): Sporting Goods Weak…Weather to Blame?

Online competition remains a large threat, but we truly believe sales weakness from Dicks during the first quarter was largely weather related. In aggregate, weather should have no impact on long-term results, but it can cause a great deal of short-term volatility—especially for sporting goods companies. Of course, this could also negatively impact Under Armour Inc (NYSE:UA), which relies on Dicks Sporting Goods Inc (NYSE:DKS) for as much as 1/3 of sales and does over 85% of its business in North America. NIKE, Inc. (NYSE:NKE) and Adidas, on the other hand, are global titans that can deal with some weakness in any given market.

In spite of weak sales, we think the company did an excellent job of mitigating higher SG&A, which increased just 30 basis points year-over-year to 23.4%. Gross margins were marginally higher than a year ago at 30.9%, but the firm is focusing on lowering clearance as a percentage of sales. Success on this initiative would have a positive impact on gross margins, but executing on this strategy could prove difficult.

With an aggressive policy to return cash to shareholders via buybacks and dividends, as well as a long runway for store growth, we see no reason why one poor quarter should alter our valuation for the company. However, we do not think shares offer a sufficient margin of safety to establish a position in the portfolio of our Best Ideas Newsletter.

RJ Towner has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. RJ is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Sporting Goods Weak…Weather to Blame? originally appeared on Fool.com and is written by RJ Towner.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.