The bids for Sports Authority's bankrupt assets are in, but no one will be coming to its rescue. Instead, a group of liquidators have staked a claim on the inventory and will soon begin going-out-of-business sales.
It's been rumored thatDick's Sporting Goods would swoop in and take over some Sports Authority locations. That could still happen as landlords for Sports Authority's leased locations will auction those terms at a later date. Either way, the sporting goods industry is set to consolidate, which may or may not be good news for the remaining players.
Continue Reading Below
Image source: Sports Authority.
A rough quarter ahead
Sports Authority hasn't been alone in its demise. Sports Chaletclosed up shop earlier this spring, whileBig 5 Sporting Goods has been coping with declining sales and foot traffic.
Foot Locker and Dick's Sporting Goods seem to be bucking this trend. Both have managed to grow sales in-store and online. Driven by a large number of store openings, Dick's has seen total sales grow by 25% over the last five years, posting another nearly 6% year-over-year jump in the latest quarter. Foot Lockersales havegone up over 50% during thelast five years, and the company reported another 4% year-over-year increase in the most recent quarter.
It will be a difficult summer, though, given the impact of liquidation sales at the more than 400 Sports Authority locations. Dick's CEO Edward Stack spoke to this point earlier in May: "The consolidation that is occurring among sporting goods retailers is creating a unique time in the industry ... and we have adjusted our guidance to contemplate this dynamic."
Dick's expects to see same-store sales decrease anywhere from 1% to 4% in the second quarter compared to last year, and profits to drop at least 6%. Big 5 reported similar numbers, indicating flat at best same-store sales going forward, as bargain hunting cuts into revenue.
A long-term boost to some survivors
While the second quarter of this year will be challenging, there could be long-term benefits for select players in the industry. After the closing sales conclude this summer, that market share will migrate somewhere, either online or to a rival sporting goods location. Who's in the best position to capture it?
Looking for companies that have been able to grow during the period of transition in the retail industry is the most promising. Specifically, companies that have been able to balance in-store sales while expanding into online sales have had the best success to date.Ignoringan online presence was a primary reason Sports Authority management gave for its ultimate failure.
The closingscouldbenefit general merchandise stores and big-box storesthat have expanded their online presence. An industry study showed that general merchandise big-box stores already claim over 20% of the sporting goods market, so the demise of a competitor could help increase foot traffic.
I like Dick's Sporting Goods chances, though,at benefiting the mostfrom the market consolidation. Dick's and Sports Authority were the largest playersin the sporting goods-specific retail model, and there is a significant amount of overlap in store locations.Despite this, Dick's has been growing its locations aggressively over the last couple years, opening about a hundred stores since 2014while simultaneously increasing foot traffic and Internet traffic. Part of this success is due to its specialty store concepts, including Field and Stream and Golf Galaxy, and its strong support of its digital store.
I also like Foot Locker's odds at taking advantage of the closures. The company is riding momentum and has made itself into a specialty store destination. New locations and remodels have kept its stores fresh, and its exclusive product lines from suppliers have helped to drive consumers to its stores and websites. While shoe sales remain its primary focus, a big push into apparel has begun, and having a little less competition is always helpful when launching a new initiative.The company's success to datehas led to six straight years of double-digit profit growth.
As the second quarter of 2016 winds down and earnings reports approach, investors should look for dialogue about weak sales from survivors in the athletic gear industry. While the Sports Authority close-out sales could cause some short-term pain, the surviving competition will ultimately benefit in the long term.
The article Sports Authority Is History; What Does It Mean for the Industry Survivors? originally appeared on Fool.com.
Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Nike, and Under Armour (A Shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.