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Bank of America Merrill Lynch (BAML) upgraded Dick’s (DKS) Sporting Goods from Neutral to Buy off the back of the company’s first-ever Yeezy launch and strong growth in its digital and private label offerings. BAML is raising its price target to $55 from $43 per share.
The analysts also noted that Dick’s has been receiving a better selection of footwear and apparel from the likes of Nike (NKE) and Adidas (ADDYY). Aside from major retro Jordan releases, Dick’s has never been considered a go-to place for heat by sneakerheads. However, people took notice when the company executed a near-flawless launch of Yeezy 350s in September.
On the shoe’s release day, Dick’s sold out of its Yeezy inventory in a matter of hours — and most of those sales took place online, to the tune of 70%. Dicks’s overall digital growth is up 21% year over year compared with this time last quarter, according to BAML. “We believe DKS continues to receive better footwear allocations and had strong execution of its first Yeezy release,” the analysts wrote.
The sporting good giant’s buy online–pickup in-store strategy has helped drive profitability. Dick’s should also see a reduction of freight costs due to the rollout of two additional dedicated e-commerce fulfillment facilities in 3Q, the analysts noted.
BAML also cites growing strength in Dicks’s private-label business. This is especially true of the company’s CALIA by Carrie Underwood and DGS lines. The value-oriented products are Dick's answer to the expanded apparel lines of retailers such as Target (TGT) and Kohl’s (KSS).
With the 2019 holiday shopping ramping up, BAML says Dick’s is well-positioned for Q4. It expects the sporting goods retailer to see a 19% inventory growth heading into the quarter. However, the analysts warn of potential profitability pressures due to increased promotions. This could be spurred on by a shorter holiday shopping season this year — there are six fewer shopping days between Black Friday and Christmas Eve.
Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.
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