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Dick’s Sporting Goods Inc. (NYSE:DKSB) wants to survive in a competitive and difficult space. As part of the company’s strategy, it plans to drop 20% of the name brands in its store and replace them, in part, with more private-label apparel and sports gear.

The company promised not to cut its 10 best-selling vendors adding that Adidas AG, Reebok and Nike Inc. (NYSE:NKEC) would be retained. The company didn’t say which brands would be dropped.


Behind The Decision

According to company officials, conversations with existing vendors have been ongoing. Dick’s reported a $46 million charge to write down inventory that it doesn’t believe will work for the merchandising strategy moving forward.

Eliminating vendors will allow the company to expand in-house brands including its Calia by Carrie Underwood line of women’s athletic wear. Dick’s also said it planned to introduce two new in-house lines in 2017.

Avoiding Mistakes Of Others

Dick’s CEO Ed Stack said that although the company doesn't suffer the same symptoms that killed off competitors, it can’t rest on its laurels. Stack said moving forward the company planned to open stores in markets where there are opportunities created by bankrupt competitors.

Another strategy calls for gaining new customers in existing markets and also the previously mentioned plan to cut 20% of low volume vendors and replacing them with private label brands.

 More Locations

Running counter to chains like Macy’s Inc. (NYSE:MB) and J.C. Penney Co. Inc. (NYSE:JCPC) that are closing hundreds of stores, Dick’s hopes to gain market share in sporting goods by opening 43 new Dick’s locations, 19 of which are former Sports Authority stores.

According to Stack, the company will be patient in site selection and expects even more market share to become available in the sporting goods space than that provided by the closing of The Sports Authority, Sport Chalet and Golfsmith stores.

By The Numbers

The impetus for all this maneuvering comes from Dick’s Q4 sales and profit, which exceeded analysts’ expectations, combined with Q1 guidance which did not.

The company said it expected Q1 adjusted earnings per share of between $0.50 and $0.55 per share. Analysts were expecting to hear $0.62 per share.

To investors that disappointment trumped Q4 sales that were up 11% to $2.48 billion against expectations of $2.47 billion in sales for the period. Total comps gained 5% in Q4. Dick’s Sporting Goods stores rose 5.3% and Golf Galaxy stores were up 13.2%.


To Buy Or Not To Buy

Despite company plans for survival and improvement, the stock is down more than 18% over the past 6 months. Should believers become buyers? Analysts at Guggenheim urge caution.

Earnings estimates for full-year 2017 issued March 7 were disappointing. The company said it expects to produce diluted EPS of $3.63 to 3.73 and adjusted diluted EPS of $3.65 to $3.75. Consolidated same store sales should increase just 2% to 3% versus 3.5% last year.

As a result, Steven Forbes at Guggenheim maintained his neutral rating on the stock. He urged investors to wait for a better opportunity.

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