There was the belief that when Dick's Sporting Goods (NYSE: DKS) abandoned the firearms market and then took positions that angered the gun community – such as raising the minimum age to buy a firearm in its stores and pushing for more gun control laws – it had permanently hurt itself.
While it may have done so with hunters and other gun owners and enthusiasts, the retailer has used the opportunity to expand into sports where it was underrepresented and now generating higher sales with better profit margins.
Because Dick's sales are also heavily seasonal, with the fourth quarter generating a third of the total on average, it also has the chance now to spread its business out over the year to become more of an all-seasons retailer. And there's some data to indicate it may actually be working.
Image source: Getty Images.
A sporting chance for more growth
When Dick's reported second-quarter earnings in August, it said the 3.7% increase in net sales benefited from a 3.2% jump in same-store sales, fueled by increases in both the number of transactions made and the value of each sale. It was the strongest comps performance it had seen since 2016 and helped the retailer raise full-year earnings guidance.
The results are post out by foot-traffic patterns analyzed by Placer.ai, a location data analytics firm. It found that after examining weekly visits at Dick's between August 2017 and August 2019, traffic surged at the retailer during the summer months, with early June seeing the biggest gains as traffic jumped over 52% above the baseline visits it established.
Placer.ai noted that even the worst week was more than 5.4% above the floor.
That's good news for the retailer because it validates the actions it took in leaving the gun business behind.
Looking for new customers
The reaction from gun owners and enthusiasts had been immediate and swift, and it explains the traffic patterns the analytics firm witnessed. For a good year, the store suffered from lower sales, while while gun owners were heavily represented in Dick's hunting category, they also shopped extensively throughout the store. Not only did hunting revenue drop, but other departments like electronics also suffered steep declines.
Dick's decided to double down and began removing the hunting category from its stores. First in just 10 stores, and then expanding it to 125 stores, it also said it would sell its Field & Stream stores, which cater almost exclusively to hunters.
When it eliminated the hunting department, it didn't just leave empty space, bringing in merchandise with broader appeal such as baseball gear and outdoor recreational apparel.
Dick's used the opportunity to showcase its private label brands, particularly as it sought to diversify by attracting more women through its CALIA line of apparel. But the retailer also recently launched a new Alpine Design brand and a discount label, DSG.
A more profitable opportunity
The new, expanded merchandise selection also has the benefit of carrying higher margins. Dick's reported earnings of $ 1.26 per share in the quarter, compared to $ 1.20 a year ago, even as net income slid 6%.
While reducing the number of outstanding shares had helped boost the per-share results, its reported margins were hurt as it put hunting gear on clearance to clean out inventory. Merchandise margins should improve in the back half of the year, but they won't clear up until the company finally decides what it's going to do with the category in the rest of its stores.
The question that remains is Dick's Sporting Goods will be able to get outdoor sports gear and apparel to replace hunting in the fall. Traffic patterns so far suggest there's a good chance of that, but this looks like a story that still has a few more innings to play before it's over.
10 stocks we like better than Dick's Sporting Goods
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market. *
David and Tom just revealed what they believe are the best ten stocks for investors to buy right now … and Dick's Sporting Goods wasn't one of them! That's right – they think these 10 stocks are even better buys.
See the 10 stocks
* Stock Advisor returns as of June 1, 2019
Rich Duprey has no position in any of the mentioned stocks. The Motley Fool has no position in any of the mentioned stocks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and not necessarily reflect those of Nasdaq, Inc.