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Like Sneakers? Then Check Out These 3 Top Retail Stocks

With more than half of the U.S. population now fully vaccinated, as consumers return to outdoor fitness and sports activities and in-store shopping, footwear retailers are expected to see a significant growth in sales. Furthermore, robust consumer spending and continued online shopping trends should help the industry outperform the broader market. Therefore, we think fundamentally sound retail footwear stocks Dick’s Sporting Goods (DKS), Foot Locker (FL), and Hibbett (HIBB) could soar in price in the near term. Let’s discuss.

According to the U.S. Census Bureau, retail sales for May 2021 - July 2021 were up 20.6% year-over-year. While a resurgence in COVID-19 cases could lead to a substantial increase in online shopping, the rapid rollout of vaccines and pent-up demand for in-store shopping should continue to drive brick-and-mortar store sales.

Also, substantial fiscal stimulus has bolstered consumer spending significantly. And because  retailers are launching new products and diversifying their portfolios to capitalize on the pent-up demand and consumers’ changing taste and shopping preferences, the retail industry is expected to get a much-needed boost.

As people increasingly leave their homes and participate more in outdoor fitness and sports activities, footwear retailers (among others) are witnessing a rise in demand. Indeed, the global athletic footwear market is projected to grow at a 4.6% CAGR  between 2021 - 2026.

Therefore, we think financially sound footwear retailers Dick’s Sporting Goods, Inc. (DKS), Foot Locker, Inc. (FL), and Hibbett Inc. (HIBB) are well-positioned to optimize their revenues.

Click here to checkout our Retail Industry Report for 2021

Dick’s Sporting Goods, Inc. (DKS)

Sporting goods retailer DKS, which is headquartered in Coraopolis, Pa., offers hardlines, sports goods equipment, fitness equipment, hunting and fishing gear products, apparel, footwear, and related accessories. In addition, the company operates through Golf Galaxy; Field & Stream, a youth sports mobile application for scheduling, communications, live scorekeeping, and video streaming; and GameChanger. It also sells its products through e-commerce websites.

In June, DKS launched seven new stores, including the second “DICK’S House of Sports” in Knoxville, Tenn. The company has also enhanced its technology, expanded its exclusive offerings, and elevated customer services. With new features in the stores, DKS is expected to witness higher demand.

In May, the company expanded its nationwide footprint by opening four stores in four states. The new store locations will provide top store services, including exclusive offerings in apparel, footwear equipment from the company’s vertical brands like DSG, VRST, Tommy Armour, CALIA by Carrie Underwood, Quest, and Fitness Gear, and other popular national vendors. These new additions should help DKS offer an immersive experience to its customers and enhance its brand image.

During its  fiscal first quarter, ended May 1, 2021, DKS’ net sales increased 119% year-over-year to $2.92 billion. The company’s gross profit rose 396.3% from the prior-year quarter to $1.09 billion. Its operating income came in at $475.81 million, versus a $186.17 million operating loss in  the first quarter of 2020. Its net income amounted to $361.76 million for the quarter, compared to a $143.42 million  loss in the prior-year period. DKS’ EPS came in at $3.41 for the quarter.

Analysts expect DKS’ revenue for its fiscal year 2022 to be $10.9 billion, representing 13.7% year-over-year growth. DKS has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is likely to increase 47.2% for the current year. Also, the stock has surged 142.8% over the past year and 95.4% year-to-date. 

DKS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

DKS has an A grade for Momentum and Quality. Within the A-rated Athletics & Recreation industry, it is ranked #14 of 35 stocks.

In addition, we also have graded DKS for Value, Stability, Sentiment, and Growth. Click here to access all DKS’ ratings.

Foot Locker, Inc. (FL)

FL is a prominent athletic shoe and apparel retailer that is based in New York City. It sells accessories, equipment, athletic footwear under various brand names, including, Foot Locker, Kids Foot Locker, Champs Sports, and Sidestep. FL operated 2,998 retail stores and 127 franchised Foot Locker stores across 27 countries as of January 30, 2021. The company is known for celebrating sneaker and youth culture worldwide.

This month, FL agreed to acquire Text Trading Company, K.K.(“atmos”), a Japan-based digitally led retailer, for $360 million. Since atmos’ unique products have made it a leading influencer of youth and sneaker culture, the acquisition could  boost FL’s portfolio of brands and accelerate its global footprint.

Also, this month, the company announced that it has agreed to acquire Eurostar, Inc. (“WSS”), an athletic footwear and apparel retailer, for $750 million. WSS’ differentiated market position should enhance FL’s product mix and increase its customer base significantly.

FL’s total sales increased 9.5% year-over-year to $2.28 billion in its  second fiscal quarter ended July 30, 2021, while its comparable-store sales increased by 6.9% year-over-year. It reported  $233 million in non-GAAP net income, representing a 210.7% increase  year-over-year. The company’s non-GAAP EPS came in at $2.21 for the quarter, up 211.3% from its  year-ago value. FL’s income from operations amounted to $264 million, representing a 282.6% increase from the prior-year quarter.

A  $5.71 consensus EPS estimate for its  fiscal year 2022 represents a 103.2% improvement year-over-year. Meanwhile, the $8.62 billion consensus revenue estimate for the current year represents  a 14.2% increase year-over-year. The stock has gained 44.3% year-to-date to close its last trading session at $58.34. Over the past year, the stock has gained 114.6%.

FL’s POWR Ratings reflect this promising outlook. The stock has an overall A rating which equates to Strong Buy in our POWR Ratings system.

The stock has an A grade for Momentum, Growth, and Value. Of the 35 stocks in the Athletics & Recreation industry, FL is ranked #1.

Beyond the POWR Ratings grades I’ve just highlighted, one can see FL’s ratings for Stability, Quality, and Sentiment here.

Hibbett, Inc. (HIBB)

HIBB operates as a premium athleisure and footwear retailer. The Birmingham, Ala. company sells a range of athletic footwear, athletic and fashion apparel, team sports equipment, and related accessories under the Hibbett Sports and City Gear brands. It operates through 1,078 stores, including 1,059 Hibbett Sports stores and 19 smaller Sports Additions athletic shoe stores across 35 states.

This month, the company announced the opening of the first Hibbett Sports store in Kansas City. This new boutique-style store with exclusive sneaker collections and exceptional customer service should enable HIBB to inspire its customers while they shop.

In July, HIBB opened a new store in Cedar Hill, Texas. The new 9,000+ sq foot store with exclusive and hard-to-find footwear and apparel and convenient shopping options should allow the company to serve its customers better.

HIBB’s net sales increased 87.8% year-over-year to $506.9 million for its first fiscal quarter, ended May 1, 2021. Its gross margin has increased 183.2% year-over-year to $209.96 million. The company’s net income for the quarter came in at $84.77 million, compared to a 15.29 million net loss in the prior-year period. HIBB’s EPS amounted to $5, versus  a $0.92 loss per share in the first quarter of 2020.

The company’s revenue is estimated to grow 8.9% in its fiscal year 2022. Its EPS is expected to rise 50.2% year-over-year to $9.19 in the current year. HIBB has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. HIBB’s stock has gained 31.5% in price over the past six months and 84.4% year-to-date.

It’s no surprise that HIBB has an overall B rating, which equates to Buy in our POWR Ratings system. HIBB has an A grade for Momentum and Quality, and a B for Value. In the Athletics & Recreation industry, it is ranked #15 of 35 stocks.

Click here to see the additional POWR Ratings for HIBB (Sentiment, Growth, and Stability).

DKS shares were trading at $111.08 per share on Monday morning, up $1.26 (+1.15%). Year-to-date, DKS has gained 99.26%, versus a 20.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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