Sports Finance Report: Dick’s Sporting Good Shares Have Best Day Ever as Gun Sale Restriction Fears Appear Overblown

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Dick’s Sporting Good Shares Have Best Day Ever as Gun Sale Restriction Fears Appear Overblown

Dick’s Sporting Goods experienced its single best day since going public in October 2002 as shares rose +25.8% after the company reported fiscal Q1 ’18 sales and earnings growth (+3.2% YoY to $60.1 million). Dick’s also raised its full-year outlook despite having implemented restrictions on gun sales following the Stoneman Douglas school shooting. CEO Edward Stack in March predicted that the restrictions would hurt traffic and sales – and same store sales did decline -2.5% YoY – but the company managed to grow total sales +4.6% (to $1.91 billion) with the addition of new stores (including converted Sports Authority outlets) and an increase in full-price sales (i.e. fewer promotional deals). Dick’s hunting business suffered during the quarter, “an accelerated decline in an already challenged category”. The company is expecting those struggles to continue for the balance of 2018.

Howie Long-Short: Any concerns investors may have had that alienating the pro-gun crowd would be detrimental to DKS’ long-term bottom line have been alleviated. While Dick’s hunting business saw a decline in sales, a portion of those losses must be attributed to a cold spring that delayed the start of the outdoor season. Sure, some gun nuts are boycotting the company, but at the same time “there’s been a number of people who have started shopping us, or said they’re going to shop us more, because of the policy.” Sporting goods stores are in a tenuous spot right now as DTC sales momentum continues to increase, so DKS is wise to differentiate itself as a company that intends to remain on the right side of history. At the end of the day, it’s unlikely to save them from Amazon – but, it could help to outlast competitors like Bass Pro Shops and Cabela’s.

Looking for news that could prevent the company from becoming another Amazon victim? DKS increased e-commerce sales by 24% during the most recent quarter and online sales now make up 11% of the total business.

Fan Marino: Next time you’re in a Dick’s store, check out Wilson Sporting Goods’ (subsidiary of Amer Sports, AGPDY) Connected Football system. Designed to help quarterbacks throw more efficiently (though it could also be used for punters and kickers), the ball tracks release time, spin rate, spiral efficiency and speed; delivering the data to a smartphone app. Jets rookie QB Sam Darnold is a believer. Darnold, who has struggled with an elongated throwing motion (and has experienced fumbling issues as a result) says the insight received has helped him to “hone in on keeping my release compact.” Jets fans (like myself) sure hope so – he fumbled nine times last season on his way to 22 turnovers. Note: Version 2.0 is coming out later this year, which explains why the product is discounted on the DKS website.

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MGM Enters New York Market, Acquires Empire City Casino and Yonkers Raceway

MGM Resorts International agreed to purchase Empire City Casino and Yonkers Raceway for $850 million, including roughly $245 million in debt that it intends to refinance. Should the state award Empire City a license for live table games by 2023, MGM will pay an additional $50 million for the racino and racetrack. Located just 15 miles from Times Square, Empire City controls roughly 40% of gross gaming revenue in the NYC market and is considered one of just two profitable casinos in the area (Resorts World being the other). The transaction is expected to close in Q1 2019 pending regulatory approval.

Howie Long-Short: CEO Jim Murran can talk all he wants about how this deal enhances the company’s “free cash flow profile”, but MGM did this deal as a means of entering the New York market; they were shut out when the state issued four new gaming licenses about five years ago. MGM will want to cash in on the legalized sports betting craze set to occur, but they’ll need the state legislature to draft new legislation before they can take a sports bet; state law currently authorizes just four upstate casinos to take bets on sporting events. It’s reasonable to suspect that will occur – perhaps as early as this fall.

Adding a sports betting license would be a boon to Empire City Casino, but Alan Woinski (President of Gaming USA Corp.) was more concerned about the amount MGM paid for the property than the status of its sports betting license. Woinski believes it was “a very, very high multiple to pay for a casino that doesn’t have table games.” That’s important piece to consider if you realize that sports betting represents just +/- 2% of all gaming profits generated in Las Vegas. It should be noted that NY law would allow for full-scale casino licensing as early as ’21. MGM shares are up +2% (to $31.89) since the report broke.

Looking for a company that maintains a big presence in the state of New York, but lacks widespread name recognition within the U.S?  Check out Genting Group (OTC: GEBHY). The Malaysian company has been developing, marketing and operating casinos around the world for the last 50+ years. They own Resorts World New York City at Aqueduct Racetrack in Queens, the largest racino in the U.S. Unlike Empire City Casino, Resorts World currently offers table games.

Fun Fact: Yonkers Raceway will be the first horse racing track that MGM has ever owned.

Fan Marino: For the last 46 years, Yonkers Raceway has been owned by the Rooney family. If that last names sounds familiar, it’s because they also happen to own the Pittsburgh Steelers. Art Rooney founded the team in 1933 (as the Pittsburgh Pirates) and won four Super Bowls. His son Dan ran the team from 1988-2017 and won two more. Art Rooney II now maintains control of the franchise.

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