In the world of sports retailing, Dick’s Sporting Goods (DKS) and Hibbett Sports (HIBB) are two of the more recognizable names in a relatively small industry. Dick’s is currently the leader of the group in terms of market capitalization ($4.1 billion) and sales (about $4.8 billion annually), while Hibbett ranks third in market capitalization ($980 million) and third in sales (about $650 million annually). Although the companies share similarities in what type of products they sell, their respective business models differ in many ways.
First and foremost, is the difference in size of a typical Dick’s and Hibbett location. The average Dick’s store is roughly 50,000 square feet compared to 5,000 square feet for the typical Hibbett store. In other words, Dick’s locations are 10 times larger than Hibbett’s, on average.
The second difference is where most of the stores are located. Dick’s tends to operate most of its locations in mid- to large size markets, with one of its top criteria being population density. In addition, Dick’s puts an emphasis on positioning its stores alongside major discount retailers in an attempt to boost exposure. Hibbett, on the other hand, tends to operate in small to mid-size markets, seeking space within strip centers and enclosed malls. Hibbett puts an emphasis on localized apparel to help boost store traffic within the region it is operating in.
Finally there is the number of locations in each company’s store base. At first glance, one may assume that Dick’s has more stores due to its larger presence within the industry and superior sales figures, however, this is not the case. Dick’s operates about 540 locations, while Hibbett operates about 780 stores (nearly 45% more). The reason that Dick’s is such a larger player relative to Hibbett stems from the aforementioned two points. Despite operating fewer stores, the higher volume of customers (due to larger markets), coupled with an increased amount of inventory (due to larger average store size) more than makes up for Dick’s smaller store count. Although Dick’s is currently the market leader, we look for each company to continue successfully executing its respective business models in the years to come. The strength of these business plans has been borne out by the stocks’ 2010 price performance (DKS: up 35%, HIBB: up 50%).
Looking at the year ahead, we believe a stronger retail environment will help drive solid top- and bottom-line growth for both companies in 2011. The economic landscape is much improved relative to last year, and we look for consumers to respond accordingly. That said, Hibbett will likely face tough sales comparisons in the first quarter of 2011. Last year the company benefitted considerably from the success of sports teams in the Southeast, where the majority of Hibbett stores are located. The University of Alabama won college football’s National Championship in January, 2010, and the NFL’s New Orleans Saints followed that up with a Super Bowl win in February, 2010. As a result, sales of each team’s apparel surged in the first three months of the year. Adding to this top-line advance was the fact that neither team had really experienced much success in recent years, so even the most casual of fans could be seen donning new championship t-shirts, hats, jerseys, etc. That said, Auburn’s recent national championship and a divisional title from the Atlanta Falcons may enable Hibbett to match last year’s results. Indeed, Auburn’s victory in the BCS Bowl led them to their first national title in over 50 years, which ought to generate significant demand in the university’s home state of Alabama. Even though the Falcons made an early playoff exit, a stronger economy should lead to increased consumer spending as the year progresses.
As for Dick’s, 2011 is shaping up to be a solid year for the company. Although economic conditions have been less than favorable, management has done a good job over the past few quarters improving margins and focusing on growing comparable-store sales, something we expect to carry over into 2011. In addition, the company has invested a considerable amount of resources strengthening its Golf Galaxy business (acquired in 2009). With golfing trends improving, and the competitive environment weakening, we look for this segment to be a key contributor in the coming years.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.