Dick’s Sporting Goods: Gross Margin Expansion Likely

Forbes.com, Winter, 2012. This article was placed on behalf of the U.S. based equity research effort of institutional broker and investment bank Canaccord Genuity. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and approximately 100 million page views a month.

Canaccord Genuity consumer analyst Camilo Lyon reiterated his BUY rating and $50 price target on Dick’s Sporting Goods (DKS) says the company is poised for a solid 2012 as gross margin expansion opportunities abound.

Mr. Lyon estimated the net earnings per share benefit of gross margin expansion in 2012 could be $0.13

Mr. Lyon added that margin expansion was possible because:

(1) Changes in the buying patterns of competitors.

(2) Uncertainty among suppliers regarding the outlook for 2012 is creating buying opportunities by stronger retailers like DKS

(3) Supplier discounts.

He added, “Ultimately, we believe DKS is well positioned to drive solid gross margin expansion in 2012 above the modest 10bps (basis points) that we believe will come from increased private label penetration. In estimating the magnitude of potential gross margin improvement opportunity, we layout a set of outcomes based on the vendor discounts and the percent of purchases subjectto those discounts.”