DICKS’s Sporting Goods Stock Dropped After Earnings—Is It a Buy?
It’s become a predictable pattern. DICK’s Sporting Goods, Inc. (NYSE: DKS) delivered a solid earnings report, but the stock is down following the report. In this case, DKS stock was down 3.79% in midday trading on Thursday.
That’s off its session lows but still reflects the weak sentiment that is plaguing many retail stocks this earnings season.
This kind of “sell the news” reaction highlights investors' continued concerns about the sustainability of consumer spending and potential risks in the company’s business model.
However, the stock may benefit from seasonal strength and its continued emergence as an omnichannel retailer.
Why Good Wasn’t Good Enough
DICK's Sporting Goods beat on the top and bottom lines, but the gains weren’t enough to excite investors. Revenue of $3.65 billion was just a shade above estimates of $3.61 billion.
A similar story emerged, with earnings per share (EPS) of $4.38 beating estimates of $4.30. On a year-over-year (YOY) basis, revenue was about 5% higher and EPS was flat. That may explain, in part, why investor sentiment is bearish.
Management highlighted strong performance in back-to-school sales, team sports, and outdoor categories, noting healthy same-store sales growth and improved inventory management. However, the revenue number suggests that analysts had largely priced those sales in.
Margins also expanded thanks to operational efficiencies and digital fulfillment improvements, signaling that the fundamentals remain solid.
Beyond the headline numbers, the company announced that it expects to close on its acquisition of Foot Locker on Sept. 8. That will deliver $100 to $125 million to the topline. The company also expects to open approximately 16 House of Sport and 15 Fieldhouse locations in calendar year 2025.
3 Reasons Why Investors May Be Cautious
Despite the ongoing pressure from consumer spending trends, DICK’s Sporting Goods raised its full-year guidance. The company projects full-year comparable sales growth between 2% and 3.5%, an improvement from a prior forecast between 1% and 3%. The retailer also raised EPS estimates to a range between $13.90 and $14.50, compared with its prior guidance of $13.80 to $14.40.
But investors don’t seem inclined to reward a beat-and-raise quarter. Instead, they appear to be focused on three areas of concern.
- Valuation Premium – At roughly 16x forward earnings, DKS is trading above its historical average. That's not extreme relative to the retail sector, but the multiple suggests there’s little room for disappointment.
- Short Interest – Short interest was elevated before the report, indicating that a portion of the market was positioned to capitalize on any post-earnings volatility. The current price action suggests that these traders may be influencing near-term sentiment.
- Profit-Taking and Technical Pressure – Some investors are locking in gains. Technical factors such as resistance levels and momentum indicators likely amplified selling, consistent with a classic “sell the news” reaction.
Is It Time to Buy the Dip in DKS?
The DICK’s Sporting Goods analyst forecasts on MarketBeat show that Telsey Advisory Group reiterated its Outperform rating on the stock after the earnings report.
It also reiterated its $255 price target, which is 13% above the consensus price target.
However, with DKS stock up 23% since its last earnings report, investors should exercise caution to see if this pullback is a knee-jerk reaction or the start of a broader correction.
Supporting the bull case, the stock chart shows a golden cross pattern, which often signifies bullish momentum.
If the bulls can regain momentum, that could signal the stock is heading back to $220, which is short-term resistance or $230, which was where it was before the recent selling.
However, volatility and profit taking could continue to pressure DKS shares.
In that case, investors should watch a level of $208, which is just below the 200-day SMA. If it breaks that level, it could find support at prior lows around $185 to $190.
