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An aggressive approach to inventory helped Dick’s Sporting Goods Inc. deliver better-than-expected fourth-quarter results and a robust outlook Tuesday, sending the retailer’s stock surging.
Dick’s Sporting Goods’
DKS,
stock climbed 9.8% Tuesday, compared with the S&P 500’s
SPX,
decline of 1.5%. The company’s stock is up 20.7% this year, outpacing the S&P 500’s gain of 3.9%.
“[Dick’s] delivered a far better than expected [fourth-quarter 2022] comp, aggressively clearing inventory to end the quarter up 23% versus +35% last quarter and 49% at mid-year,” wrote D.A. Davidson analyst Michael Baker in a note released Thursday. D.A. Davidson has a buy rating for Dick’s Sporting Goods.
Related: Dick’s Sporting Goods’ stock jumps, lifted by strong fourth-quarter results, robust outlook
While the retailer’s inventory push resulted in lower-than-expected gross margins and operating margins, those were more than offset by sales growth, according to Baker. Set against this backdrop, Dick’s Sporting Goods more than doubled its quarterly dividend to $1 a share.
“[Dick’s Sporting Goods] Chairman Ed Stack suggests that the dividend increase is a sign of structurally higher sales and earnings, which is a key component of our Buy thesis on [Dick’s],” Baker wrote.
The analyst also notes that the company’s stock has risen dramatically since retail stocks bottomed in mid-2022. The stock is up 106% since May 24. “Yet, the stock trades at just 11.2x consensus forward estimates, which are likely going up,” Baker wrote. “We think this print should continue to support outperformance.”
Related: Dick’s Sporting Goods will sidestep retail spending weakness, analysts say
Prior to the results, analysts had predicted that Dick’s Sporting Goods would sidestep the pullback in discretionary spending that has affected many retailers this earnings season.
Of 27 analysts surveyed by FactSet, 13 have an overweight or buy rating, 13 have a hold rating and one has an underweight rating for Dick’s Sporting Goods.
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