Dick’s Sporting Goods failed to hit Q2 topline expectations (reporting sales of $2.18 billion, expectation was $2.23 billion) and CEO Edward Stack attributed the short-fall to “significant declines” in Under Armour (UAA) sales. Stack said it was the sneaker and apparel company’s decision to “expand distribution” into more low-priced retailers (think: Kohl’s) that created the headwind; a challenge the company expects to get “figured out” in 2019 (they’ll add new product to shelves). Athleisure as a category continues to perform well for DKS, the company reported athletic apparel (excluding UAA) delivered double-digit growth; eCommerce and private brands also posted double-digit growth during the 2nd quarter.
Howie Long-Short: DKS comparable sales were down -1.9% YoY, with the company’s hunting (i.e. guns) and electronics business responsible for nearly half of that decline. It’s important to note that the decline in the company’s gun business is systematic and not a byproduct of policy change following last February’s Las Vegas shooting. Even with comp sales down, the company blew past Q2 earnings estimates ($1.20 vs. $1.06). DKS shares tumbled by as much as -14% in pre-trading on the morning of Wednesday August 29th (earnings released after close in 8.28), but have since recovered, finishing last week +3% ($37.44) from the closing price on 8.28. Shares are up +27% YTD.
Under Amour (UAA) posted financials on July 26th. While the company’s U.S. business failed to gain much momentum (+1.6% YoY) – despite expanded distribution – international sales surged (+28% YoY) during Q2 ‘18 and the company managed to reduce excess inventory. Q2 wasn’t a “victory” for UAA though, as the company reported a quarterly net loss of $95.5 million and announced it would be committing another $80 million (in addition to the $130 million it already committed) to its long-term restructuring efforts. Despite the heavy spending on its turnaround (focus going from men to women/kids, $80-$100 price point) and the continuing headwinds (think: leisure over performance), UAA shares are up +36% YTD (though, down -2% since DKS reported); they’ll open on Tuesday at $20.45.
Fan Marino: Though shoppers have been bypassing DKS for low-priced retailers in search of UAA goods at a bargain, Stack did note that he was pleased to see the company has been receiving more “premium” merchandise from the Baltimore-based athleisure manufacturer. Products “like the HOVR sneaker, and sneakers and clothing from Under Armour’s new line with Dwayne Johnson” can help differentiate DKS from their low-priced competitors, but how do they compete with Under Armour who is selling the products DTC on their website?
Speaking of The Rock, according to a study by Spotted, his endorsement deal with Under Armour is the “best-matched celebrity-brand partnership in the fashion and retail sectors”; earning a perfect score of 100. The report added that “partnership was not only a spectacular alignment of brand celebrity personality match, audience match, overall brand values and consumer approval, but it also scored low in terms of risk.” Under Armour’s relationship with Steph Curry also rated highly (#14 overall).
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