Description

On the theory that when both caddys and chevys are on sale it's ok to buy the caddy (ok, and the chevy too, this is a VALUE investors club), i am posting Dick's Sporting Goods - DKS. The company, operates about 135 48K sq ft sporting goods superstores, mostly in the NE U.S. To truly appreciate DKS, an investor should meet Ed Stack, the Chmn and CEO. Ed is direct and disciplined and so is his company. The results speak for them selves, as DKS has achieved industry leading inventory turns (3.5X), solid but sustainable gross margins (+25%) and thus return on capital (d.d on net basis/ 40% cash/cash at 4-wall level) despite the big box format. New model stores do even better (but i assume you've all heard that a few times!). The company came public at a bargain basement $12 in October 2002 when the group/retail/everything was out of favor and ran to $23 as a few folks discovered the story. More recently, DKS has pulled back with the group/retail/everything and once again offers an interesting entry point. Last night, the company confirmed a strong Q4 and now expects to report '02 eps of $1.76-$1.77 (on revs of $1.27B and ebitda of about $85M). For '03 a reasonable expectation would be $2.00 ($45M) of earnings and $90-95M of EBITDA on revs of $1.5B. Capex of $20-25M supports 10-11% store growth and marketing spend should support the continuation of modest positive comps. Net debt is a modest $90M and should decline modestly as the company is FCF positive after net working capital required to support rev growth. On 22.5 fd shares the mkt cap is just shy of $400M and the enterprise value is about $485M for ebitda of $93M (5.2X) and ebitda-capex of $70M (7X or 14.4% yield). At 10X '02 and less than 9X '03, DKS is valued more like a chevy than the caddy it is.

There is a recent prospectus as well as the usual post IPO recommendation books from the analyst, which are generally quite informative re: the industry dynamics and company specifics so I have chosen not to duplicate them here. I am happy to go into more detail should any members be so inclined.

Catalyst

Execution, execution, execution and a recovery in valuations for the company/group/retail.