Dick’s Sporting Goods Inc. (DKS) sank the most since 2008 after forecasting annual profit that was less than analysts estimated on costs to remodel stores and improve its Web operations.
Shares of the largest U.S. sporting-goods chain slumped 11 percent to $45.11 at the close in New York for the steepest drop since Nov. 11, 2008. Dick’s had gained 11 percent this year through March 8, compared with an 8.8 percent gain for the Standard & Poor’s 500 Index.
Dick’s, amid competition from the Web and new retail locations operated by brands like Nike Inc. and Adidas AG (ADS), will increase investment in its stores and e-commerce channel to more closely align the two, which retailers call an omni-channel strategy. Those plans will help reduce annual earnings by 12 cents a share this year, according to a statement.
“It’s competitive if you have a bunch of stores with physical goods, and you’re trying to compete with low prices and free shipping,” Sean McGowan, an analyst for Needham & Co. in New York, said in an interview. “Omni-channel can become a weapon,” said McGowan, who recommends buying the shares.
The plan also includes spending on remodeling some stores to add shops dedicated to brands such as Nike, Adidas and Under Armour Inc. (UA) It will also incorporate new store formats, including an outdoor sports concept based around the Field & Stream brand it bought last year. The first such location will open in Pittsburgh in the third quarter, the company said on the analyst call.
The retailer plans to open about 40 namesake stores this year. The company, which also operates Golf Galaxy locations, has 518 Dick’s stores in the U.S. and sees the potential for doubling that to 1,100 without giving a time frame. The company has many more stores in the eastern U.S. than the west.
“We see a significant opportunity ahead,” Chief Executive Officer Edward Stack said on the call. “Over the next five years, we plan to make meaningful investments to capture it.”
Profit in the current fiscal year may be $2.84 to $2.86 a share, including the costs for the planned expansion, the Coraopolis, Pennsylvania-based company, which ended its previous fiscal year on Feb. 2, said today. Analysts projected $2.92, the average of 29 estimates, according to data compiled by Bloomberg.
The retailer estimated same-store sales will increase as much as 3 percent this year after rising 4.3 percent in its previous fiscal year.
Such sales grew 1.2 percent in the fourth quarter, while declining 2.2 percent at Dick’s Sporting Goods stores. The company decided to cancel some orders for cold-weather apparel after warm temperatures in December for the second straight year. The retailer then missed out on some sales when it got colder in January, the company said on the call.
Sales of exercise equipment also dropped after Lance Armstrong admitted using performance-enhancing drugs during his career, the company said. Equipment branded Livestrong, the charity Armstrong founded, makes up more than 50 percent of its treadmill and elliptical sales. After Armstrong’s admission, demand fell and it’s now clearing inventory with price reductions and has plans replace it with another brand, the company said.
“People had a very negative reaction to the Livestrong brand,” Stack said on the call.
Dick’s posted fourth-quarter profit of $129.7 million, or $1.03 a share, from $111.1 million, or 88 cents, a year earlier. Analysts estimated $1.06.
Foot Locker Inc. (FL), the world’s largest athletic-shoe chain, declined 7.1 percent on March 8 when it said same-store sales in its current quarter had gained in the low-single digits so far after increasing 7.9 percent in the previous quarter. Nike Inc. (NKE), the world’s largest sporting-goods maker, reports its third- quarter results on March 21.
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