Jason Clark is a leading value-oriented money manager and a contributing editor at The Prudent Speculator. Here, he looks at a pair of sports-related retailing stocks that both recently reported better than expected third quarter earnings.

Shares of Dick’s Sporting Goods (DKS) powered ahead as the company’s Q3 earnings came in more than 16% above consensus estimates. The beat outweighed the fact that the retailer’s $2.60 of adjusted earnings per share (vs. $2.22 est.) was lower than the $3.19 figure from last year.

In addition, gross margin of 34.2% was modestly below the 34.9% a year ago, while inventory remains bloated (35% higher vs. the year-ago quarter), even as it was down from the comparison in Q2.

Management said it raised its outlook given continued strong performance, quality of inventory and its confidence in the business. It now expects EPS between $11.50 and $12.10, up from the previous range between $10.00 and $12.00.

We continue to like that the company has materially improved its omnichannel execution, with digital sales rising to 21% of the total in 2021, while Dick’s has a differentiated set of offerings across brands, price points and categories.

We see multiple drivers for long-term growth, including national brands consolidating wholesale partners and appealing new store formats. Shares also trade for a forward P/E multiple just under ten, while the dividend yield is 1.6%. Our target price for DKS has been boosted to $140.

Shares of Foot Locker (FL) jumped after the footwear and apparel retailer posted fiscal Q3 2023 top- and bottom-line results that outpaced consensus analyst expectations. Revenue came in at $2.17 billion, versus the expected $2.09 billion, and adjusted EPS of $1.27 was 14% better than the average forecast.

The solid quarterly results were pressured by promotional activity, employment costs and currency headwinds. During the company’s earnings call, management said the quarter saw strength from a variety of non-Nike brands including Adidas, Puma, UGG, New Balance, Crocs and HOKA.

Like others, we were pleasantly surprised that the reduced emphasis on Nike and no specialty Yeezy Adidas inventory didn’t cause bigger operational hiccups in the quarter. We will see how these two things play out as we move forward, but the results seem to be a testament to the Foot Locker team and that momentum across other shoe labels like Adidas, Puma and New Balance continues to build and benefit FL.

We are still attracted to the single digit forward P/E multiple and the 4.5% dividend yield. There could be some short-term roller coaster riding as investors stay concerned about a lackluster holiday shopping season and the health of the domestic consumer, but we think FL is an attractive consumer discretionary holding for long-term oriented broadly diversified portfolios. Our target price for FL is now $51.

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