Investor Note on Dick's Sporting Goods 2Q2013

• Results were a miss on both EPS and sales with $0.71 and $1.5 billion respectively;
  
• All-important same-store sales clocked in down 0.4% thanks to slower traffic due to challenging economic conditions and of course, the weather;
  
• Golf Galaxy was weak down 6.1% as was outdoor equipment (bikes, camping, etc.) and fitness; ecommerce in total represented 5.6% of total sales for the quarter, ship from store showing results;
• Total footprint now 527 Dick's Sporting Goods stores with total 28.7 million square feet and 81 Golf Galaxy stores with 1.4 million square ft;
  
• Plan to open approximately 40 new DSG stores for the year (additional 31 after the 9 this quarter); 
  
• Remodels will gear towards major promotion of foundation brands in Nike, Under Armour, Adidas and North Face to a degree;
  
• Will open one additional GG and the True Runner concept will continue to offer insight to enthusiast runners. There are two TR stores today, will open an additional one this year;
  
• Opened first Field and Stream store last week; will open a second store in 4Q this year;
  
• Gross margin up 14 bps, balance sheet has $135 million in cash and equivalents and no debt outstanding;
  
• Looking toward reallocation of space within stores, moving underperformers like fitness around to give more meaningful space to stronger lines such as women's and youth categories;
  
• Inventory levels in check, outpaced sales for the quarter partly due to new concept stores as well as pulling some additional in a bit earlier for back to school bounce;
  
• Inventory was up 5% per square foot, however clearance inventory was down 4.1% per square foot;
  
• Important to note that golf represents about 20% of DSG total business; actually saw slightly better performance in golf from DSG stores as opposed to GG;
  
• Under Armour alter ego product (Superman, Batman) killed, flew off the shelves;
  
• Shipping "direct-from-vendor" for ecommerce enables DSG to offer more selection, faster ship time; FootJoy good example of the benefits; less inventory risk, less working capital requirements on larger scale;
  
• Mental note: I love how analysts on these calls start asking management to predict the weather quarters out. We've got friggin' meteorologists who can't get it right a week out;
  
• Field and Stream opening was the best brand opening in the company's history, management is very excited about where this can go in the long-run;
  
• Net capex (net of depreciation) seen at $258 million for full year versus $187 last year;
  
• Full year guidance cut to $2.60-$2.65 versus previous $2.84-$2.86; revamped guidance for the full-year with comps at flat to 1% versus previous 2% to 3%;
• Steps to drive traffic: Increased advertising, add store payroll to enhance customer experience, invest in growth such as hunting, apparel, footwear and high school athlete, enhance product/price point mix.

The bottom line: This wasn't a stellar quarter by any means for Dick's Sporting Goods and retail in general has taken a pretty decent thumping this earnings season. So for the immediate future I don't know that investors should be expecting much from the company other than focusing on traffic and investing in the business. However, Dick's Sporting Goods has a number of qualities that make it an attractive investment opportunity for the long-term investor who's looking for a buy-to-hold type of investment. Founder led management with plenty of skin in the game (close to 19% of the shares outstanding and a majority of the voting power thanks to its dual share class structure), a tremendous market opportunity still in front (remember they see the total opportunity at about 1,100 stores in total including the smaller footprint stores for smaller markets), excellent relationships with top tier vendors such as Nike, Under Armour and Adidas, a winning concept in store-within-a-store, a growing ecommerce business and a fiscally fit balance sheet to name a few.

The 7% selloff in the stock after earnings was warranted...in the short-run. However the long-term fundamentals of the business are still very attractive and with today's share price at less than 20 times earnings and less than 18 times revised full-year estimates the stock today looks like a good buying opportunity for investors with a time horizon of five years or more.

Disclosure: I do not own any shares of the companies mentioned. My daughters own shares of 

JMo