This article was sourced from Market Watch. Article by Tony Garcia.
Dick’s Sporting Goods conducted a business review in light of big 2016 changes, including The Sports Authority liquidation
Dick’s Sporting Goods Inc. said Tuesday that after conducting a review of its business, it would eliminate about a fifth of its vendors this year and take a $46 million write-down in the process.
As part of the review, Dick’s DKS, -8.61% separated it’s vendors into three segments. “Segment A” are “strategic vendors” that Chief Executive Edward Stack said will “invest significantly in our business” and vice versa. These vendors will provide exclusive product, a merchandise area that has become more important as retailers and brands look to differentiate themselves from the competition.
“Segment B” will be vendors with which the company has “a transactional relationship.”
And “Segment C” is vendors that the company plans to eliminate from stores, a process that Dick’s says it has already begun. Company executives talking to analysts on the company’s conference call did not discuss which brands would be cut, but said they would be “across the board,” though the “top 10 vendors” that they do business with would not be included.
“We have identified the merchandise that doesn’t fit within this vendor and assortment strategy and have taken a $46 million charge to write it down,” Stack said, according to a FactSet transcript.
Separately, Dick’s said that its merchandising strategy will focus on footwear and private brands like Calia, a fitness brand from country singer Carrie Underwood. Stack said Calia has become Dick’s third-largest women’s brand two years after launching. Dick’s expects its private brand business to reach about $1 billion in sales this year.
Stack was clear that the reduction in vendors doesn’t mean a reduction in the business or square footage.
“These are vendors that we think don’t really have significant growth going forward,” he said. “But there will be a combination of some of this [that] will go to existing vendors that we’re going to partner with, and part of this will go to our own private brands.”
The company has also closed three of its 676 Dick’s stores after conducting the review, and closed 10 Golf Galaxy stores that were near a Golfsmith location. Dick’s acquired the “strongest assets” of the bankrupt Golfsmith International Holdings Inc. business in November.
The company is taking charges of about $47 million for impairments from improvements to 12 other stores as well as integration from The Sports Authority and Golfsmith. The company plans to open 43 Dick’s stores, eight Field & Stream stores and about nine Golf Galaxy stores in 2017.
The review was prompted by changes in the sporting goods arena in 2016, including the exits of The Sports Authority and Sport Chalet. Stack said that Dick’s has achieved market share gains both in-store and online, though the company thought the Sports Authority liquidation “would have a bigger impact than it did.”
“In 2017, we’ll remain focused on aggressively capturing displaced market share,” Stack said. “[O]ur new store growth will center on new and under-penetrated markets which were historically served by The Sports Authority and Sport Chalet.”
Dick’s also hopes to capture “millions of new customers” from The Sports Authority and Golfsmith lists.
Neil Saunders, managing director at GlobalData Retail, thinks the vendor reorganization will benefit Dick’s.
“In our view this is a sensible step, not least because although Dick’s offering is comprehensive, it can also come across as a little jumbled and undisciplined,” Saunders wrote on Tuesday. “Some pruning should remedy this, and we believe it will reduce costs as well as deepening relationships with strategic partners which will allow it to create differentiated products. The latter will be important as Dick’s starts to compete more with branded specialists like Under ArmourUAA, -1.80% .”
Dick’s reported sales of $2.48 billion, up from $2.24 billion last year and in line with the FactSet consensus. Adjusted earnings per share were $1.32, ahead of the $1.29 FactSet consensus. Same-store sales increased 5%.
The retailer expects first-quarter EPS of 48 cents to 53 cents, below the 60-cent FactSet consensus.
The company’s shares are down 9% in Tuesday trading, but up 8% for the past year. The S&P 500 index SPX, -0.29% is up 18.5% for the last 12 months.
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