Dick's Sporting Goods (NYSE:DKS) has been upgraded to 'buy' by UBS as the retail has created a "virtuous cycle" that is creating more sustainable earnings growth.
Accelerating the roll-out of its Dick's House of Sport concept store formats, which allow top brands to show off their products above others, is making Dick's increasingly favored by key product partners, meaning it is gaining better access to differentiated high-demand products during all seasons, analysts at the bank said.
"By gaining this differentiated assortment that other peers do not have, it drives traffic to its stores consistently. The cycle repeats."
What's more, the Going Going Gone! warehouse channel allows Dick's to get rid of inventory in a cost-effective way at the end of each season.
Altogether, Dick's has "built an ecosystem that should enable it to sustain its share gains", with the evolution of the store footprint fostering the virtuous cycle.
This week's quarterly results revealed that at the start of November, the chain has 17 House of Sport stores, with five new openings during the fiscal year, three of which were relocated and one of which was remodeled from prior store locations
The company plans to open over 50 of the flagship concept stores by 2027, including eight new locations in 2024 and 15 in 2025.
UBS noted these stores provide a significant sales lift, averaging $35.0 million in their first year, compared to $15.0 million for a typical store.
The analysts expect Dick’s to generate annual EPS growth of over 8% in the next five years, compared to a 5% growth rate before the pandemic, reflecting the company's strategic efforts to enhance margins, improve free cash flow generation, and deliver higher returns to shareholders.
UBS raised its price target to $260 from $225.