Dick’s Sporting Goods (NYSE:) set the stage for Academy Sports Outdoors (NASDAQ:) to post a strong FQ2 when it reported earnings last month. The company reported better than expected top and bottom line results and raised the guidance so it is really no surprise its closest competitor is doing the same. While Dick’s is trading at a premium relative to Academy Sports And Outdoors both names offer a deep value relative to the broader market while providing a much healthier outlook for the business. Dick’s Sporting Goods trades at a low 9.75X its earnings while Academy is trading at a lower 6.9X valuation even after the post-release pop in share prices. The difference between the two, ultimately, is the scale of business and the dividend.
In regard to the business, Academy Sports And Outdoors is a little more than half the size of Dick’s Sporting Goods and it pays a smaller dividend. Academy is paying only 0.16% in yield compared to Dick’s larger 1.75% but both come with a robust outlook for dividend growth. Dick’s has been raising its dividend for the last 7 years at a 23% CAGR and is only paying 14% of its earnings while Academy, with the smaller yield, is paying only 1% of its earnings at this point in its existence. The company was founded in 1938 and went public only a few years ago. Based on the competition and the current metrics, it won’t be surprising to see Academy Sports And Outdoors make some aggressive dividend increases over the next few years.
Deep-Value Academy Sports And Outdoors Surges On Outlook
Academy Sports And Outdoors posted a mixed but the strength was all on the bottom line and the outlook is positive so the topline weakness is easy to overlook. The company reported $1.69 billion in net revenue for a decline of 5.6% versus last year which missed the consensus by 60 basis points but that is all the bad news in the report. The comps were down -6.0% on a decline in tickets partially offset by an increase in ticket average, an increase in store count, and growth in the eCommerce channels. eCommerce is up 12.1% versus last year making this the 4th consecutive quarter of double-digit growth in that channel. On a three-year stack versus the prepandemic 2019 levels, the comp is up 36% and accompanied by robust margin expansion as well.
The margin news is a little mixed as well but all bullish in the end. The gross margin contracted by 60 basis points versus last year but was offset by a larger decline in SG&A expenses that left the GAAP EPS up on a YOY basis. The GAAP EPS is also impacted by a reduced share count but the adjusted EPS is strong as well. The adjusted EPS is down only 1.7% from last year at $2.30 but well above the $2.04 consensus estimate and the guidance for earnings is equally strong. The company reaffirmed its guidance for revenue which has it in a range bracketing the Marketbeat.com consensus figure nicely and then raised the guidance for F22 earnings. The company raised the range by $0.20 at the low end and $0.25 at the high end putting the midpoint at $6.53 compared to the consensus of $6.58 and leaving the door open for outperformance as well.
Short Interest Is High In Sporting Goods Names
The short interest in both Dick’s and Acadamy is high but Dick’s takes the prize for top spot. The short interest in that stock topped 30% at the first of the month and it is highly unlikely that has changed much in the time since. Academy Sports And Outdoors, on the other hand, is running about 15% short which is still high but not so extreme. In either case, the results and outlook support the idea of a short-covering rally, and together the case is even stronger.
Turning to the chart, Academy Sports And Outdoors has been leading Dick’s since its IPO but that can be chalked up to a slow, steady multiple expansion as the market becomes comfortable with the name. This situation could continue over the next few quarters but there is risk in the short data. A steady inflow of short-covering could easily drive Dick’s to narrow the gap between the two but it may not matter. Both are undervalued, have robust capital return programs (ASO also buys back shares), and are citing strong trends in their businesses.
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