Business Strategy and Outlook| David Swartz |
We believe no-moat Dick’s Sporting Goods lacks an edge as sporting goods are sold through an increasing number of channels. Although its sales have soared during the pandemic, we believe the impact is temporary, as growth in sporting goods retail has generally been minimal due 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. Dick’s competitors include e-commerce operators (such as wide-moat Amazon), mass retailers (such as wide-moat Walmart), 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, narrow-moat Adidas’ direct-to-consumer business constituted 39% of its 2021 sales, up from 25% in 2015. Further, we think the COVID-19 crisis has accelerated manufacturers’ direct-to-consumer efforts, as evidenced by Foot Locker’s acknowledgement that wide-moat Nike will reduce 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, at the lower end of projected U.S. activewear growth of 3%-5%.