It's time to bench the analysts for Dick's Sporting Goods Inc.
Shares of the Pittsburgh-based athletics retailer had already tumbled 34 percent this year through Monday, three times the average loss for the S&P retail index. If that weren't enough, Dick's then reported second-quarter earnings on Tuesday that missed estimates and provided a profit forecast for the year that fell well short of the lowest figure in the analyst community. The stock sank further in early trading, dropping about 15 percent.
Astonishingly, the majority of analysts have continued to recommend purchasing Dick's shares, and none switched to a sell rating as of yet. Their average price target as of Tuesday morning is now a whopping 67 percent higher than where the shares were trading. Even if they bounce back some during the day, it's still clear that analysts are wrong about Dick's: Consolidation in the sporting-goods industry is not enough to help it fight the forces of the internet.
CEO Edward Stack, whose father, Dick Stack, founded the business, said in the earnings statement on Tuesday that even though the chain gained market share and its online efforts had been effective, sales were weak in hunting, licensed and athletic apparel. That last part spells online competition, which will only get worse. And while earnings were up from the year-ago quarter, Dick's may sacrifice profit gains going forward as Stack signaled a surge in promotions and marketing spending for the rest of the year:
"We will aggressively protect our market share."
The downfall of much of the brick-and-mortar retailing industry is not only painful for shareholders but also employees and locales that depend on these businesses. It seems the only ones sure to make money are the short-sellers. Short interest in Dick's is about 13 percent of its float, compared with less than 6 percent a year ago. Shorts were up $65 million when the market opened, bringing year-to-date profits to $232 million, according to financial analytics firm S3 Partners.
As Dick's fights a tug-of-war between trying to maintain profitability and trying to protect its market share, investors should be wary of bullish analyst forecasts. The bottom is not yet in sight.
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