Dick’s Sporting Goods Has Raced to the Lead, but Rivals and Economic Conditions Remain Threats

We believe no-moat Dick’s Sporting Goods lacks an edge as sporting goods are sold through many channels. Although its sales and profitability growth over the past three years has been very impressive, we believe a slowdown is likely, as sporting goods retail is vulnerable to external competition. According to IBISWorld, sporting goods retail sales experienced average annual growth of just 1.3% in the five years before the pandemic. While Dick’s recent sales growth has generally outpaced this level, many of its rivals have posted strong results of their own, suggesting unusual industry momentum. The firm’s competitors include e-commerce operators (such as wide-moat Amazon), mass retailers, specialty stores (narrow-moat Lululemon, Foot Locker, Bass Pro Shops/Cabela’s), and branded stores and owned e-commerce from major vendors. As an example of the latter, wide-moat Nike’s direct-to-consumer sales constituted 42% of its fiscal 2022 Nike brand revenue sales, up from less than 20% before 2015. Further, we think the COVID-19 crisis has accelerated manufacturers’ direct-to-consumer efforts, as evidenced by Foot Locker’s acknowledgement that Nike has reduced shipments to the firm. We do not believe Dick’s market position is strong enough to prevent vendors from offering their merchandise in alternate channels. We forecast its compound average yearly sales growth of 3% over the next decade.