Retail shops often get into trouble when they over expand using leverage. Dicks Sporting Goods Inc (NYSE:DKS), Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) and Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) don’t have any debt on their balance sheets, and have been steadily growing revenues for over a decade.
No debt, no problem
One of the big fears right now is that interest rates are going to head higher. That’s bad for companies that make use of debt because it can potentially increase their funding costs. If a company is leveraged enough, an increase in rates can create solvency issues. Then there are companies doing so well that they don’t need debt at all.
In the retail world, that materially increases flexibility. For example, if debt costs cause competitors to pull back, debt free retailers suddenly get better pricing as they continue to push growth. The perfect example of this was the 2007 to 2009 recession. While some retailers saw their top lines fall as consumers reduced spending, Jos. A. Bank Clothiers Inc (NASDAQ:JOSB), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), and Dicks Sporting Goods Inc (NYSE:DKS)’s all saw revenues increase as they continued to expand.
That’s the type of retail stock you want to own when the going gets tough.
Over the past decade, Dicks Sporting Goods Inc (NYSE:DKS)’s revenue has grown from $1.5 billion $5.8 billion. Earnings per share have advanced from $0.53 to $2.30. Although the recession led to a share net loss, the top line kept chugging right along. That’s an impressive showing for a company that sells discretionary items that could easily be described as toys.
Although a good portion of Dicks Sporting Goods Inc (NYSE:DKS)’s sales come from clothing, everything it sells is sports related. The company owns 520 Dick’s Sporting Goods stores in 44 states and 81 Golf Galaxy stores in 30 states. It has internet sites and catalogs for each concept.
While the sporting goods industry has been growing at about 2%, Dicks Sporting Goods Inc (NYSE:DKS)’s has been growing at 16%. Management believes that it can open over 1,100 Dick’s stores in the United States, more than double the store base today.
With no debt and a good outlook, Dicks Sporting Goods Inc (NYSE:DKS)’s shares should interest growth investors. Moreover, a price to earnings ratio of about 21 suggests that shares are fairly priced based on the strong historical growth the company has achieved.