A Good Sport...

09/03/2004 12:00 am EST

Focus:

Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

The recent Olympic Games has highlighted the ongoing popularity of athletics. One company that is poised to benefit from the sale of sports equipment is Dick's Sporting Goods, a recent feature from small-cap expert, Jim Collins, editor of OTC Insight. Here's his review.

"Dick’s Sporting Goods (DKS NYSE) is a full-line sporting goods retailer with 221 stores in 32 states throughout the eastern half of the US. Dick’s strategy is driven by three elements: authenticity, competitive pricing, and brand-name products. The company focuses on offering the most appealing mix of products and brands to true sporting enthusiasts, with its store-within-a-store departments. Pricing is competitive with other specialty retailers, and the stores match competitor prices and offers a 30-day price guarantee. The stores stock leading international brands including Nike, Columbia, and Adidas. In addition, the stores carry an increasingly high mix of private-label products with lower prices but higher profitability for the company.

"The company’s typical store has several in-store specialty shops. The Pro Shop is a golf shop with a putting green and hitting area and video monitors featuring golf tournaments and instruction on the Golf Channel. The Footwear Center features hardwood floors and a track for testing athletic shoes or in-line skates and a bank of video monitors playing sporting events. The Cycle Shop is designed to sell and service bikes, complete with a mechanics’ work area. The Sportsman’s Lodge is for the hunting and fishing customer and is designed to have the look of an authentic bait and tackle shop. The Total Sports shop displays sports equipment and athletic apparel associated with specific seasonal sports, such as hockey and baseball.

"On July 29, the company announced the completion of their acquisition of competitor Galyan’s Trading Company. The transaction closed earlier than anticipated and is valued at $362 million. Gaylan’s operated 48 stores in 21 states at the time of the acquisition. For the first quarter, Dick’s reported earnings of $0.21 a share, a $0.07 increase from the year-ago quarter. (For the second quarter ended July 1, the firm reported $0.34 a share.) We caution that sporting goods retailing remains a highly competitive industry, with multiple, aggressively-growing competitors. After testing its 2004 low on May 21 at $25.70, the stock has moved sharply higher and have performed exceptionally well since the company’s initial public offering in 2002. Of the 22.4 million shares in the float, some 731,000 change hands daily. The stock shows a relative strength rating of 91."

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