DKS Revenue (Quarterly) data by YCharts
Despite the fall in profit, the company clearly has shown the ability to generate new sales with its new stores. I think a favorable price for any Sports Authority real estate might help them realize gains in profit later, if the price tag was less than what the company is currently paying for new build outs.
Should Dick's Sporting Goods even bother?
While a deal could possibly work out between Dick's and Sports Authority's creditors, it might be advisable for the larger chain to stay away. Sports Authority, by its own admission, is waving the white flag because it operates a business that's struggling with increased competition because of the advent of the online shopping experience.
Could Dick's end up making a bad investment should it take on the extra real estate? Yes, it could. But Dick's has taken steps to address this matter. Online sales have been a big part of the company's investments each year and a key driver for growth. E-commerce sales grew almost 12% for the company in 2015, and more than $1 out of every $10 of revenue was earned online. Meanwhile, same-store sales decreased 0.2%. Seeing headwinds to store sales growth, the company plans to invest as much as $55 million to enhance customers' shopping experience and support online sales initiatives.
With this push into e-sales, which carries lower overhead than a bricks-and-mortar store and gives customers more flexibility as to when and where they shop, a purchase of all Sports Authority assets suddenly look less attractive. A partial purchase that expanded its footprint into new locations for the purpose of online sales and in-store pickup would be more advisable. Perhaps Dick's would be better off funneling even more money into online sales and advertising in lieu of store expansion.
What an ideal purchase would look like
A deal that balanced physical and online growth goals would end up being the best case for Dick's Sporting Goods. If an agreement with Sports Authority creditors could be worked out where partial real estate was assumed in markets Dick's currently has no presence in, it would make sense for the company to pull the trigger as it already has store expansion plans in place. This approach could possibly help the largest sporting-goods chain continue its physical growth at a discount, while also helping expand its "buy online pickup in store" campaign. Investors can expect more news as the auction date of May 16 nears.
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The article Should Dick's Sporting Goods Bother With Sports Authority's Assets? originally appeared on Fool.com.
Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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