Why Dick's Sporting Goods Stock Jumped 50% in 2016

Image source: Dick's Twitter page.

What happened

Shares ofDick's Sporting Goods (NYSE: DKS) jumped out of the gym last year, gaining 50% according to data from S&P Global Market Intelligence. The bankruptcies of a number of rival sporting goods chains allowed Dick's to benefit, and it grabbed market share and profits. As the chart below shows, the bulk of the gains came in the middle of the year, shortly after Sports Authority announced its liquidation.

DKS data by YCharts

So what

Among the sporting goods chains to declare bankruptcy last year were Sports Authority, City Sports, Golfsmith and Vestis Retail Group, which owned Eastern Mountain Sports, Bob's and Sport Chalet.

Their collapses were driven both by the fact that their market niche had become saturated in recent years due to overexpansion, and by competition from e-commerce. Dick's was able to scoop 31 Sports Authority store leases in addition to the brand name, spending about $23 million, and it acquired Golfsmith for $70 million, taking over 30 stores, which it plans to convert to its Golf Galaxy brand.

As a result of the bankruptcies, same-store sales jumped 5.2% in the third quarter -- its most recently reported period -- and Dick's expects a full-year increase of 3% to 4%.

Now what

Earlier in the year, Dick's profits actually took a hit as liquidation sales at its rivals took a toll on its sales, but as its third-quarter performance showed, the company has gotten past that, and should produce strong growth over the next few quarters. Management raised full-year guidance in its most recent report, calling for adjusted EPS in the $2.99 to $3.11 range. Analysts expect that to grow by more than 20% in 2017.

While the bankruptcies of its rivals could signal trouble for Dick's down the road, the company seems set up for strong profit growth at least through this year.

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