Dick’s Sporting Goods’ stock spiked as much as 28 percent – the most ever – after the sports retailer impressed investors with higher profit guidance, outweighing uncertainty over the loss of gun sales.
Revenue beat expectations, despite the company’s move to end sales of assault-style rifles in February after a shooting at a Florida high school. Chief Executive Officer Ed Stack has since met with elected officials, spoken publicly about the need to increase regulations and hired a lobbying firm to push Congress.
While the changes accelerated the declines at the retailers’ already weak hunting business, the CEO said it had the advantage of drawing in new customers as well. Coupled with stronger private-label sales and fewer promotions, management had the confidence to raise the annual profit forecast to $3.12 a share, up from $3.
“There has been a number of people who have started shopping us because of the policy,” Stack said on a call with analysts. “There definitely has been some benefit.”
While the retailer’s first-quarter same-store sales fell 0.9 percent, its third straight decline, the drop wasn’t as steep as Wall Street expected and helped the company surpass projections on profit, too.
“The backlash from the change in firearms policies was clearly limited,” said Chen Grazutis, an analyst for Bloomberg Intelligence. “The hunting category has already been under pressure for a while so expectations were already pointing to a decline.”
The stock rose as high as $38.99 in its biggest one-day advance since going public in 2002. The shares had declined 28 percent in the past year through Tuesday’s close, as sluggish growth and discounting weighed on results.
The gain may have been sharpened by investors who made bets that the stock would decline. Short interest – a measure of this – represented about 11 percent of outstanding shares ahead of the earnings report, according to IHS Markit data.
Dick’s has been making a big push on selling more of its own brands. The move appears to be paying off, as growth there outpaced that of total sales. It expects that business to hit $2 billion in sales in the not-too-distant future. Calia, its women’s athletic apparel line that debuted three years ago, has already surpassed Under Armour in that category and is now only second to Nike.
“Our private-brand business is a source of strength that continues to accelerate,” Stack said. “They will continue to get additional space, as they outperform some of the other vendors that haven’t performed nearly as well.”
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