Dick's Sporting Goods Earnings: Shot Blown
(Bloomberg Gadfly) -- Dick's Sporting Goods Inc. seems a little too eager to get the Black Friday party started.
As far back as November 5, the chain was sending email blasts declaring "Black Friday NOW!" and promising up to 50 percent off certain purchases. In a press release earlier this month, Dick's trumpeted it would bring "the excitement and savings of Black Friday to customers earlier than ever this year."
In the current shopping environment, such a promotional strategy should only be seen as one thing: an act of desperation.
The earnings report Dick's released on Tuesday made clear why it's running scared. The retailer said same-store sales fell 0.9 percent compared to a year earlier, only the third such decline in eight years.
And things will only get uglier from here. Yes, the company bumped up its full-year guidance on Thursday. But remember, Dick's had dramatically slashed its earnings and same-store sales outlook back in August. The current forecast of $2.95 to $3.07 per share is still well below the expectations the retailer had once set for the year.
And perhaps more importantly, there's little reason to believe the pressure will ease once this fiscal year is over.
Dick's pledged a few months ago to ramp up promotions in order to protect its market share. Its Black Friday deals blitz shows it sure wasn't kidding about that. But the decision to get more promotional comes after its gross margins had already slipped meaningfully.
The company also recently launched price-matching, which could further weigh on its profitability.
I find it odd that CEO Edward Stack likes to frame the decision to go ultra-promotional as a way to address the unprecedented price transparency of today's marketplace, in which shoppers can pull out their smartphones inside a store and see if there's a better deal elsewhere.
But promotions are clearly only a temporary bandage for that. It's good that executives are talking about leaning more heavily on private brands such as Calia, which offer fatter margins and no possibility of direct price comparison. But shouldn't it focus more on keeping costs down, so as to offer lower prices on big-name brands more sustainably?
And it won't help Dick's that two of its key merchandise vendors are at strategic inflection points in their own bids to adapt to a changing retail landscape. Nike Inc. is testing selling a limited array of products on Amazon.com Inc. And Kohl's Corp. is now carrying Under Armour Inc. and seeing strong sales of that brand.
More importantly, both Nike -- which accounted for 20 percent of Dick's merchandise purchases in 2016 -- and Under Armour, which accounted for 12 percent, are putting more emphasis on selling their gear through their own websites and brick-and-mortar stores.
Under Armour is expanding its portfolio of stores, which included 280 locations across the globe at the end of the latest quarter. Nike plans to lure more customers to shop directly with the brand by dangling exclusive products to those who join its membership program and by providing high-touch service through its new Experts on Demand offering.
This increased competition is especially concerning for Dick's when you consider how it has largely squandered its opportunity to fill the void created when Sports Authority went out of business in 2016. While Dick's has added to its revenue haul by taking over some of those stores, its comparable sales performance suggest it's not doing a great job of luring one-time Sports Authority customers to try the Dick's that perhaps was already located down the street.
If Dick's sales faltered when its space got less crowded, then there's little reason to be optimistic it can muster new strength as the crowd grows.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.
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