October 9 th, 2015
Consumer Goods
Dick’s Sporting Goods
Ticker: DKS
Recommendati on: Outperform
Current Price: $51.23
Price Target: $62.87
Investment Thesis
Key Statistics
52 Week Price Range
50-Day Moving Average
50.11
0.96
Dividend Yield
1.08%
Market Capitalization
6.05B
3-Year Revenue CAGR
9.35%
Trading Statistics
Diluted Shares Outstanding
0.12M
Average Volume (3-Month)
1.47M
Insider Ownership
EV/EBITDA (LTM)
New growth initiatives, such as the addition of the business line Chelsea
Collective, along with focus on their E-Commerce expansion shows DKS is
poised to see strong returns in the near future

Strategic earnings calls throughout this academic year make DKS a prime
candidate for a DADCO holding and will help prevent the Group from
repeating previous mistakes made in this portfolio

The heavily trending “athleisure” idea among all demographics presents
DKS with a great opportunity to experience strong growth among two of
their main business segments

Low levels of debt, great growth prospects, and an increasing likelihood of
company executives willing to give up some levels of ownership make DKS
a strong potential buyout target for a Private Equity firm
41.56 - 60.33
Estimated Beta
Institutional Ownership

Five-Year Stock Chart
91.90%
1.55%
7.40x
Margins and Ratios
Gross Margin (LTM)
34.88%
EBITDA Margin (LTM)
10.66%
Net Margin (LTM)
Debt to Enterprise Value
5.34%
0
Covering
Analyst:
Covering
Analysts:
Name
Nishan Senthirajah – nishans@uoregon.edu
University of Oregon Investment Group
October 9 th, 2015
University of Oregon Investment Group
Business Overview
Dick’s Sporting Goods is the number one sporting goods retailer in the United
Figure 1: Last 4 Years Store Count vs. Sq. Footage Growth States. They own and operate over 690 stores that are composed of industryspecific outlets, along with their typical retail store recognized by their company
name. To complement their popular retail stores, DKS operates a strong E800
9.00%
Commerce platform, contributing to their increased ranking among fortune 500
8.00%
companies for the past 9 years.
700
7.00%
600
6.00%
500
5.00%
400
4.00%
300
3.00%
200
2.00%
100
1.00%
-
0.00%
2010A 2011A 2012A 2013A 2014A
Currently headquartered in Coraopolis, Pennsylvania, Dick’s Sporting Goods was
originally founded in the small city of Binghamton, New York by Richard “Dick”
Stack in 1948. Present day Chairman and CEO, Edward Stack succeeded his
father in ownership of the company in 1984, when the found er chose to retire.
Since that change in ownership, DKS has grown from 2 retail stores with an
expanding product line, to its strong current day standing.
Dick’s looks to give customers a seamless shopping experience, not only by
carrying leading brands, but to offer a full array of products within each brand
they carry. Thus is the reason they have focused, and been successful, in their
operation of three core business segments.
Business Segments
Hardlines – 44%
Source: UOIG Spreads
Figure 2: DKS’s Business Segments Square Footage
1.00%
DKS’s hardlines segment is composed of sports equipment that average consumer
would purchase to use in their home. Things such as basketball hoops, soccer
goals, footballs, baseball bats, etc; products that have always had a distinct
popularity among consumers. Historically, this has been Dick’s strongest and
largest business segment. However, as of late the big sporting goods retailer has
shifted a larger focus towards apparel and footwear, catering to recent consumer
trends.
Apparel – 36%
With the “athleisure” phase compounding in industry popularity as of late –
particularly among females – DKS has been taking strong initiatives to stay with
and try to push ahead of the industry curve. This has become their fastest growing
core business segment over the last 4 years, and Dick’s is showing no signs of
changing this trend anytime soon. Growth initiatives is this area can been seen by
delegating more square footage to their apparel segment, and also the launch of
their new outlet store, Chelsea Collective – to be examined in further depth later
in this report.
19.00%
44.00%
36.00%
Footwear – 19%
Hardlines
Apparel
Footwear
Source: UOIG Spreads
Other
Complementing apparel growth, DKS has also been putting a greater focus
towards their footwear segment of business. Consumer trends – also particularly
among females – indicate that a heavier amount of interest has been placed in
athletic footwear above other styles. With Dick’s wide array of brand carryings
and types of athletic footwear, they are able to attract a great amount of customers
with this diverse product line. Such evidence can be seen in their consistent
growth in this segment over the last 7 years.
UOIG 2
October 9 th, 2015
University of Oregon Investment Group
Industry
Figure 3: Consumer Confidence Index
160
140
120
The sporting goods industry is highly dependent on consumer interest in sports,
as with limited interest in sports there is going to be a minimal amount of people
who would want to purchase any products pertaining to their activities. Because
of this, industry performance can tend to be volatile, and companies with a small
amount of product offerings and a shortage of store locations across certain
regions can heavily struggle during certain cycles.
100
For a sporting goods retailer to maintain relevant during bear phases within the
industry, they need to have a wide array of elements to their business, such as
target outlet stores, a good E-Commerce presence, a wide array of product
offerings within their actual business segments, popular and relevant sponsors,
and/or varied geographic store locations.
80
60
40
20
0
Source: IBISWorld
Figure 4: 2014 Top Retailers in the United States
Rank
1
2
3
55
Company
Wal-Mart
Costco
Kroger
Dick's Sporting Goods
Source: retailindustry.com
Furthermore, one of the biggest factors in the success of sporting goods retailers
is the popularity of their vendors. This provides an element of uncertainty to
retailers, as they have absolutely no control over vendor activities. Their product
offerings will not sell if their vendors do not have a good reputation among
consumers; however their products will sell very well if their vendors are heavily
trending.
Industry Specific Metrics
Sales per Square Foot
Great analysis of a company’s revenue in the retail industry is quite dependent on
their sales per square foot. This metric allows analysts to understand if a company
is using their store space wisely and if they are consistently making improvements
upon their utilization of such store space year after year.
Same Store Sales
This is a valuable metric to determine the growth of a company and how well a
company is improving their performance in their stores year after year. In
determining which metric to deeply analyze, between same store sales and sales
per square foot, it is best to focus on which metric can be broken down into the
smallest form.
Figure 5: Percentage of People Who Play Sports in the U.S
Macro Factors
25
The sporting goods industry is one that is highly dependent on the state of the
economy. The external factors that have the strongest effect on it are touched on
in further depth below.
20
15
Health Awareness and Fitness Interest
10
This factor has the most direct effect on the sporting goods industry as a whole. If
people are health conscious and interested in exercise, sporting goods retailers are
going to thrive as equipment, apparel, and/or footwear are essential in fitness
activities. Fortunate enough for this industry, interest in health and exercise has
been greatly increasing in recent years and this trend is expected to continue.
Particular reasons for this trend include reports of high obesity rates and a great
focus on promotions from popular professional sports teams and athletes.
5
0
Source: IBISWorld
UOIG 3
October 9 th, 2015
University of Oregon Investment Group
Per Capita Disposable Income
Figure 6: Percentage Change in U.S Per Capita Disposable
As the average consumer’s income increases, the more able they are to purchase
Income
7
sporting goods. This simply means that demand for all sporting goods segments
is driven by the relative income consumers can allocate towards such
6
expenditures.
5
Furthermore, with the current strong unemployment levels, the sporting goods
industry is in a good position to keep its demand in relation to this critical
macroeconomic factor.
4
3
2
Popular Age Demographic for Athletics
1
Historically, the most popular age demographic for all things related to athletics
has been between 10 and 19. This number has seen a slight decline since the
beginning of the new millennium, and is anticipated to have quite stagnant growth
for the coming decade.
0
-1
-2
Source: IBISWorld
Figure 7: Percentage Growth in U.S E-Commerce Sales
14
However, as general interest in athletics continues to rise, the significance of this
specified age factor is anticipated to decline in relation to the sporting goods
industry.
Competition
The sporting goods retail industry is quite specific and thus there are only a few
popular companies who dominant the market share.
12
10
Companies in this industry are in high competition for a strong geographic
presence. They all want the highest store count to increase their market share. It
is who has the best resources, customer service, and popularity that will claim the
majority of store locations, as they are all almost always in the hunt for similar or
the same ones to satisfy a presence in the most regions.
8
6
4
2
0
Source: IBISWorld
Figure 8: DKS Store Geographical Distribution
To complement the factor of store count comes that of an E-Commerce presence.
This ties directly into the popularity and reputation of a company, because online
shopping is compounding in popularity in the present day, and thus making a great
E-Commerce outlet of business essential if you want to maintain and/or gain
customer loyalty in this industry. It is companies who do, that are usually first to
claim the previously identified factor of competitive store locations, as they have
a stronger revenue stream and thus the resources to open more stores.
Strategic Positioning
Diverse Geographic Presence
The biggest factor in Dick’s Sporting Good’s expansion since its inauguration
back 1948 has been their ability to focus on opening and increasing stores across
all regions of the United States. They hold at least one location in all but one state,
that being the non-contiguous state of Hawaii. DKS has had positive store count
growth in over 90% of their years in business.
Expansion on the West Coast
Source: Dick’s Sporting Goods 10-K
As noted in the beginning section of this report, Dick’s originally started their
business in east coast state of New York. However, they have experienced their
strongest growth in the past 10 years when they really started focusing their efforts
UOIG 4
October 9 th, 2015
University of Oregon Investment Group
Figure 9: Store Count of DKS’s Other Business Lines
DKS's Specialty Stores
Name
# of Stores
Golf Galaxy
78
on growing business in the west coast. This region of the U.S has and continues
to offer DKS phenomenal opportunities for business, as the sporting popularity –
from popular professional athletes, to college and professional teams, and the
general popularity of sports – is huge. Also, there is the highest volume of square
footage in this region, which has presented them with terrific opportunities to
increase their store count. Even more, the west coast gives Dick’s direct access to
their biggest vendor in Nike, as their global headquarters are located in this area
of the country.
Business Growth Strategies
Increase in Business Lines
Field and Stream
10
True Runner
3
Blue Sombrero
0 (Online Only)
Aside from the common “Dick’s Sporting Goods” stores that are found across the
country, DKS owns and operates a few other businesses. They have made a huge
effort in expanding store count and presence in these lines to add an element of
diversity and specification to their company.
There are 5 other lines of business to Dick’s in total, these include: Golf Galaxy ,
Blue Sombrero, TrueRunner, Field and Stream, and the newest addition, Chelsea
Collective. The first four mentioned in the previous sentence specialize in golf
products, web design and management for youth and recreation needs, prime
selection of premier footwear, clothing and accessories for the avid runner, and a
variety of products for all outdoor activities, respectfully. The fifth and newest
addition of business to DKS, Chelsea Collective specializes in fit and fashionable
female apparel, footwear and accessories made for both athletics and leisure, and
provides superior customer service in an attractive retail environment.
Chelsea Collective
Chelsea Collective
2
DKS recently launched an original brand, CALIA that is sponsored by Carrie
Underwood, and to further show their initiative to putting a focus towards the
female demographic, they decided to partner that idea with a line of business
designated solely to that demographic, Chelsea Collective.
Source: DKS 10-K
Figure 10: Percentage of Women who Agree they Wear
More Athletic Apparel for Leisure Now than 3 Years Ago
60%
50%
40%
30%
20%
10%
0%
Gen. Y
Gen X.
Agree
The one area of business that Dick’s Sporting Goods has been criticized for not
putting a strong enough focus in, is all things female related. This is how the idea
of Chelsea Collective came about.
Boomers
Disagree
Source: Sports Apparel Survey
Chelsea Collective is designed to be a specialty women’s fitness -and-lifestyle
boutique. Dick’s goal with this business is to not only offer women great apparel,
footwear and accessories, but to give them a great shopping experience. This
includes superior customer service from product-knowledgeable employees,
membership complementary Zumba and yoga classes, and an environment
designed to attract female shoppers and convince them to come back. The stores
feature large brands such as Nike and Under Armour, but also smaller niche
brands like Lorna Jane, Spiritual Gangster, and DKS’s own CALIA.
The main play with the launch of this business is for Dick’s to break into the
heavily trending female “athleisure” segment, products that are of use to women
for both athletics and leisure. Until quite recently, there has been very minimal
focus on this area of consumer goods for all athletic retailers, but recent additions
to the product lines of these major retailers are showing that is starting to change
– DKS wanted to be one of these major retailers, and the only true sporting goods
retailer, to enter that market.
UOIG 5
October 9 th, 2015
University of Oregon Investment Group
Figure 11: DKS’s E-Commerce Revenue Growth through
Projection Period
30.00%
25.00%
20.00%
15.00%
The only major player in this niche market has been Lululemon, but Chelsea
Collective is trying to tap into their market share, make a name for themselves,
and increase the awareness of Dick’s Sporting Goods. The first two locations of
this specialized business line of DKS recently opened in Virginia and Pittsburg
about a month ago, and management and industry analysts expect this specialized
retailer to find success going forward. Furthermore, with that potential success in
this area of business, Dick’s will experience strong top line growth, and have the
resources to start expanding this niche sub-company of theirs further along the
east coast and the rest of the United States.
Enhanced E-Commerce Presence
10.00%
While putting a large focus on expanding within their retail stores, Dick’s
Sporting Goods is putting great effort to further develop their online presence so
they can offer customers a seamless omni-channel shopping experience.
5.00%
0.00%
Their E-Commerce segment as a whole has been the fastest growing part of
DKS’s business for the past few years, and management expects it to stay that
way for quite a few years to come. Their aim is to at least double their current ECommerce revenue by fiscal 2017.
Source: UOIG Spreads
Figure 12: E-Commerce vs. In-Store Revenue Growth
through Projection Period
30.00%
25.00%
20.00%
15.00%
To help reach this target, Dick’s is planning to bring all E-Commerce operations
in-house. Currently, some of their online shopping elements are being handled
externally by eBay, such as web store maintenance, customer service, and
payment processing. By bringing these operations fully under their control, DKS
will has easier access to their data, thus being able to build more cross -channel
customer experiences, helping them increase their rapid online growth.
DKS’s immediate plans for their E-Commerce growth are an increase in sitesearch functionality, increasing the volume of products available to customers
online, and improving their E-Commerce mobile platform to better reach
customers. Dick’s has great confidence they will succeed in these initiatives, thus
enhancing their reputation as a great omni-channel retailer.
10.00%
5.00%
0.00%
Management and Employee Relations
E-Commerce
In-Store
Edward Stack – Chief Executive Officer
Source: UOIG Spreads
S
Figure 13: DKS’s Equity vs. Debt Levels
$7,000,000.00
$6,000,000.00
Mr. Stack has been the leader of Dick’s Sporting Goods since 1984, when he took
over from his father, Richard “Dick” Stack, the founder of the company. He has
been the face of DKS through their greatest growth stages, and is quite a
knowledgeable guy in the area of sporting goods and retail.
Just under a year ago, Dick’s was in preliminary talks with a Private Equity firm
regarding a buyout plan. These discussions came to end after a couple weeks, the
driving reason being that Stack did not want to give up so much ownership and
voting rights, as this is essentially a passed down family company. However,
Stack is 60 years old and while he does have some siblings (unknown if older or
younger), he is divorced and has no children to pass this company along to.
$5,000,000.00
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
Equity
Source: DKS 10-K
Debt
Furthermore, Stack’s Dick’s Sporting Goods was cited as one of Evercore’s top
retail buyout targets because of their low debt levels, reasonable valuation, and
growth prospects. Summing up, these factors are something to keep in mind in the
analyzation of DKS.
UOIG 6
October 9 th, 2015
University of Oregon Investment Group
Management Guidance
Figure 14: FY15 Guidance vs. Projections
DKS has consistently beat management guidance on FCF, EPS, store count, and
Guid. (Low) Guid. (High) UOIG Proj. in-store sales. DKS is closing in on the end on Q3 of FY15, the earnings call of
which will be in mid-November.
EPS
In-Store Sales
Store Count
3.10
6400
739
3.20
6700
742
3.38
6950 Dick’s expects to have opened approximately 45 new stores between FY14 and
744 FY15. The main goals going forward are not only to increase the store count of
their standard “Dick’s Sporting Goods” store but to expand some of their other
business lines, particularly Chelsea Collective. Management sees great growth
opportunities in this niche area, which is why they decided to launch this branch
of business. The first commentary of Chelsea Collective will be heard during their
next earnings call in November.
Source: DKS Earnings Call
Figure 15: DKS 2-Year Return vs. Russell 2000
Moreover, DKS management is aiming to see large growth in their E-Commerce
platform. Their goal with the initiatives in this element of their business is to be
recognized by an increasing number of people as a great omni-channel retailer.
Portfolio Strategy
Dick’s Sporting Goods is being pitched solely to the DADCO Portfolio. Within
this academic year, DKS will report earning three times: once in November at the
end of Q3 of FY15 – when investors will have access to the first commentary on
the launch of Chelsea Collective, once in February – at the end of FY15 when
reports will be available on DKS’s holiday season performance, the anticipated
further success of Chelsea Collective, and how well their E-Commerce platform
has compared to the prior FY, and once in May at the end of Q1 of FY16 – when
investors will be shown how DKS is performing on their then new FY goals.
Source: Yahoo! Finance
Figure 16: DADCO’s Current Holdings
10%
Following the Group’s performance in the DADCO portfolio this past fiscal year,
a common consensus was reached that its holdings we just kept in the portfolio
for too long, and should have been removed after taking in their time-specific
returns. The timing of this pitch presents the Group with an opportunity to not
make that same mistake again, as DKS has three earnings calls within just over
seven months, where their performance on new growth initiatives and popular
seasonal shopping will be revealed. Great confidence in the positive results of
these untapped growth initiatives does present a sizable element of risk, however
that is something that the philosophy of the DADCO welcomes.
9%
11%
6%
64%
Cash
Tracker
AMBA
Come that time of year, the Group’s then newly recruited Junior Analysts will be
beginning their presentations on updates of some of the Group’s current holdings.
If the Group were to take in DKS this fall term, the perfect opportunity would be
presented to determine if the company should be re-evaluated going into the
summer after taking in their highly anticipated returns.
Furthermore, the DADCO portfolio currently has over 60% of its value in the
tracker, and only three holdings, one of which is being updated this fall term.
Dick’s Sporting Goods is well poised to reach its market value within this coming
academic year, thus achieving strong outperformance, something that the
DADCO portfolio is in dire need of.
MTZ
SCTY
Source: UOIG Portfolio Holdings
UOIG 7
October 9 th, 2015
University of Oregon Investment Group
Recent News
Figure 17: Athletic Brands Popularity among College
Athletes
Dick’s Sporting Goods Opens First Two Prototype Stores of
Chelsea Collective – A Store for Women
August 18 th, 2015
Dick’s Sporting Goods Launch of the women’s “athleisure” products store has
come to fruition, with their first two prototype stores opening on the east coast at
Ross Park Mall in Pittsburg, Pennsylvania and Tysons Corner Center in Tysons
Corner, Virginia. This boutique is designed solely for women and is expected to
grow in this previously mentioned “athleisure trend.” This is DKS’s first entrance
into this niche market; they are confident they will find success and start being
able to expand into more locations across the country.
4%
7%
16%
Catalysts
Upside
73%


Under Armour
Nike
Adidas
Other
Source: Huffington Post


Figure 18: U.S Unemployment Rate
Downside

12
10

8

6

4
The popularity of the Nike and Under Armour brands, DKS’s two largest
vendors, along with their new original brand CALIA, will allow them
continue growing their volume of customers and market share.
Increase in health and fitness interests will provide DKS with an
increased customer base and present them with resources to increase
their store count across all regions to reach more consumers.
Currently in the early stages of football season and the beginning of the
basketball season on the horizon, demand in DKS’s products will start to
see a strong increase in demand.
With the “athleisure” concept heavily trending, DKS’s apparel and
footwear offerings are seeing an increase in popularity to almost all
demographics.
DKS’s dependence on vendors for their product offerings could really
hurt their top and bottom line if negative images were brought to them.
Their dependence on consumer interests could hurt DKS if a large
change in trends pertaining to all things athletics were to occur.
A lack of availability in store sites could prevent DKS from maintainin g
and increasing their growth in store count.
Dependence on consumer disposable income would negatively affect
DKS in every way if the macro economy took a turn for the worst and
lay-offs for workers were imminent.
Comparable Analysis – 20%
2
0
Source: IBISWorld
Comparable companies to Dick’s Sporting Goods were mainly screened for
similar business models, EBITDA and EPS growth rates, product offerings, store
size, and size. For all companies ultimately decided upon, all are directly involved
the athletic products and/or retail industry.
Moreover, the Comparable Analysis was only weighted at 20% of the final
valuation. The reason being is that DKS is in an extremely niche market, one of
which they own the majority of the market share. Their added business lines
UOIG 8
October 9 th, 2015
University of Oregon Investment Group
further separates them for any direct competitors they may have, and makes them
all the more likely to continue that trend in years to come.
Figure 19: DKS vs. KSS Multiples
16.00x
14.00x
12.00x
10.00x
8.00x
6.00x
4.00x
2.00x
0.00x
Cabela’s (CAB) – 25%
“Cabela's, Inc. retails and markets hunting, fishing, camping and related outdoor
merchandise. It offers products through its retail stores, the internet and regular
and special catalog mailings. The company operates through three reportable
segments: Retail, Direct and Financial Services.” – Yahoo! Finance
Cabela’s was chosen based upon their similar business model and size, along with
growth rates that are in close proximity to DKS’s. While they do not specialize in
sporting goods retail, they have very similar store sizes and store layouts to DKS.
Also, Cabela’s focus is all products outdoors, which is identical to one of DKS’s
other business lines, Field & Stream.
DKS
KSS
Source: Yahoo! Finance
Figure 20: DKS vs. BGFV Multiples
16.00x
14.00x
12.00x
10.00x
8.00x
6.00x
4.00x
2.00x
0.00x
Kohl’s (KSS) – 25%
“Kohl's Corporation operates department stores in the United States. It offers
private label, exclusive, and national brand apparel, footwear, accessories, beauty,
and home products to children, men, and women customers. The company also
sells its products online at Kohls.com and through mobile devices.” – Yahoo!
Finance
Kohl’s was chosen as a comparable company based upon their very similar
business model to Dick’s. They operate as a retailer who focuses on appa rel,
footwear, and accessories that cater to the same consumer base as DKS.
Furthermore, their relatively similar growth rates make them a strong candidate
for a comparable company.
Big Five Sporting Goods (BGFV) – 20%
DKS
BGFV
Source: Yahoo! Finance
Figure 21: DKS vs. NKE Multiples
35.00x
30.00x
25.00x
20.00x
15.00x
10.00x
5.00x
0.00x
“Big 5 Sporting Goods Corporation operates as a sporting goods retailer in the
western United States. The company offers athletic shoes, apparel, and
accessories, as well as a selection of outdoor and athletic equipment for team
sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer
recreation, and roller sports.” – Yahoo! Finance
Big Five Sporting Goods is the closest direct competitor to DKS. Their business
models are practically identical as they sell very similar products to the same
demographics. The biggest reason why BGFV was not given a higher weighting
is that they are substantially smaller in size compared to DKS. Adding on to that,
they do not have any other business lines within their company and their store
count is much less than that of DKS’s.
Nike (NKE) – 15%
“NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells
athletic footwear, apparel, equipment, and accessories for men, women, and kids
worldwide.” – Yahoo! Finance
DKS
NKE
Nike made for a good selection as a comparable company as their products are
those that are most commonly found in a Dick’s Sporting Goods Store. They are
a huge element to DKS’s success, for if their products are thriving then so will
DKS’s and vice versa. Moreover, their growth rates are relatively in line to Dick’s .
Source: Yahoo! Finance
UOIG 9
October 9 th, 2015
University of Oregon Investment Group
Under Armour (UA) – 15%
Figure 22: DKS’s Hardlines Square Footage Projections
15,500,000
15,000,000
14,500,000
14,000,000
13,500,000
13,000,000
12,500,000
12,000,000
“Under Armour, Inc., together with its subsidiaries, develops, markets, and
distributes branded performance apparel, footwear, and accessories for men,
women, and youth primarily in North America, Europe, the Middle East, Africa,
the Asia-Pacific, and Latin America.” – Yahoo! Finance
Similar to Nike, Under Armour is a good candidate for a comparable company
because their products can be found throughout any Dick’s Sporting Goods Store.
They recently overtook Adidas as the number two athletic apparel company in the
world and are thus getting an increased amount of exposure in DKS. While there
growth rates are higher than those of Dick’s, they are relatively close in size and
cater to the same demographics.
Discounted Cash Flow Analysis – 80%
Source: UOIG Spreads
Figure 23: DKS’s Apparel Square Footage Projections
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
-
Revenue Model
The revenue model for DKS was broken down into the square footage of their
three in-store business segments to arrive at their sum and then E-Commerce
percentage of revenue followed. Complementing the total square footage was
average sale per square foot to arrive at the total in-store revenue, and then adding
on E-Commerce revenue derived the total revenue.
Hardlines Square Footage
Historically, hardlines has been the largest segment of business for DKS. Recent
fiscal years’ performances however, have indicated that is starting to change. The
demand for sporting goods equipment is slowly declining, as consumers are
opting to go to more communal places, like gyms and parks, as such equipment is
rather expensive. For this reason of lacking demand of these products, hardlines
square footage received negative growth rates in the model going forward.
Apparel Square Footage
Source: UOIG Spreads
Figure 24: DKS’s Total In-Store vs. E-Commerce Sales
14,000,000.00
12,000,000.00
10,000,000.00
8,000,000.00
6,000,000.00
4,000,000.00
2,000,000.00
-
This core segment of DKS’s business has been receiving the highest growth over
the past few years, and is now closing in on the hardlines segment for the highest
percentage of total square feet. Demand for athletic apparel has been experiencing
solid growth over the past couple years, particularly in DKS’s largest vendors
Nike and Under Armour, and thus Dick’s as well. Apparel ties directly in to the
“athleisure” trend that is consuming most demographics, and thus percentage of
apparel square feet is receiving the highest growth rates in the model.
Footwear Square Footage
Similar to the apparel segment, footwear has been experiencing strong growth in
recent years, due in large part to an increase in demand from the “athleisure” trend.
Almost every single person in the United States owns some sort of pair of athletic
shoes, and there is a good chance that a majority of that population got them at
DKS. Footwear is anticipated to maintain strong growth rates going forward and
thus the percent of square feet reserved for this segment is receiving positive
growth rates in all projected years.
In-Store
E-Commerce
Source: UOIG Spreads
E-Commerce
Tracing back through historicals, E-Commerce sales has been the smallest
percentage of revenue by a substantial margin. However, in recent years this
UOIG 10
October 9 th, 2015
University of Oregon Investment Group
$15,000,000.00
segment has been experiencing very high growth rates, due in large part to the
general popularity of online shopping. Moreover, with the added focus that DKS
in putting to their E-Commerce presence, this element of revenue is receiving
strong growth rates going forward, slowing becoming a larger percentage of total
revenue.
$10,000,000.00
Cost of Goods Sold
Figure 25: DKS’s Revenue & COGS
$20,000,000.00
$5,000,000.00
Cost of goods sold are projected out as a percentage of revenue and are very close
to the historical averages, as they have been extremely consistent. There are not
any cost cutting factors that currently seem prevalent, and thus none are resembled
in this line item’s projections.
$0.00
Revenue
Beta
COGS
Source: UOIG Projections
DKS’s beta was composed of a combination of the 3 Year Daily an d 5 Year Daily
averages regressed against the S&P 500, along with a weighting for the 3 Year
Daily Vasicek against comps. The 3 and 5 Year Daily averages were used as they
are a strong representation of how DKS reacts to the market. Vasicek against
comps was given a small weighting due to some of DKS’s current growth
initiatives to make themselves more versatile within their industry.
Figure 26: Final Beta
Beta
SE
Weighting
1 Year Daily
0.97
0.10
0.00%
3 Year Daily
0.97
0.07
60.00%
5 Year Daily
1.07
0.30
20.00%
3 Year Daily Vasicek - Comps
0.83
0.07
20.00%
Dick's Sporting Goods Beta
0.96
0.14
100.00%
Operating Expenses
Selling, General & Administrative
Historical percentages showed that SG&A expenses stayed fairly consistent as a
percentage of revenue. Going forward into its projections, they stayed in line with
the historical average, and were slowly trended down into the terminal year.
Depreciation & Amortization
Source: UOIG Spreads
DKS’s Depreciation and Amortization was projected off of the period’s
Beginning PP&E. Projections were based off of the historical average and kept
consistent all the way through to the terminal year.
Figure 27: DKS’s SG&A vs. Revenue Growth
$4,000,000.00
14.00%
$3,500,000.00
12.00%
$3,000,000.00
10.00%
$2,500,000.00
8.00%
$2,000,000.00
6.00%
$1,500,000.00
4.00%
$500,000.00
2.00%
$0.00
0.00%
2010A
2012A
2014A
2016E
2018E
2020E
2022E
2024E
$1,000,000.00
Source: UOIG Spreads
Interest Expense
Historical percentages show that interest expense stayed very consistent as a
percentage of revenue, particularly in the past few years. It was therefore kept at
that consistent percentage all the way through to the terminal year.
Capital Expenditures
DKS’s Capital Expenditures essentially come from all things related to store
openings that are not covered in their Capital Lease Obligations. This figure has
been trending up as a percentage of revenue, and it can be assumed to be from
their increase in store openings. For this reason, Capital Expenditures are a
projected to trend up as there is anticipation of a continued increase in store
openings.
Tax Rate
The tax rate was based off of a blend in historical average and management
guidance. DKS will not experience too much volatility within their company
operations, as their business model does not indicate that it would be expected.
Therefore, the tax rate is kept at a consistent 35% starting in the projection period
and going through to the terminal year.
UOIG 11
October 9 th, 2015
University of Oregon Investment Group
Net Working Capital
Figure 28: DKS’s Net Working Capital vs.
Revenue Growth
$1,000,000.00
14.00%
$900,000.00
12.00%
$800,000.00
10.00%
$700,000.00
$600,000.00
8.00%
$500,000.00
6.00%
$400,000.00
$300,000.00
4.00%
$200,000.00
2.00%
$100,000.00
$0.00
0.00%
Net Working Capital
Revenue Growth
Source: UOIG Spreads
Most items in the Working Capital Model were projected off of Days Outstanding.
Larger volume line items are analyzed further below, but all other smaller items
were projected at a consistent rate through till the terminal year. Furthermore,
DKS’s projected Current Ratios stayed relatively in line with their historicals.
Accounts Receivable
Accounts Receivable Days Outstanding stay consistent throughout the projection
period till the terminal year. This implies the assumption DKS will have a
consistent collection period.
Inventory
Days Outstanding in Inventory are slightly decreasing till the terminal year, thus
showing the assumption that DKS’s turnover ratio will slowly be improving. This
is something that Dick’s has had success with in the past, and as their growth
initiatives continue to increase their popularity of themselves and their products,
this is a very viable assumption.
Accounts Payable
Accounts Payable Days Outstanding is slightly decreasing through till the
terminal year. This is under the slight assumption that DKS may launch more
original brands if the success of CALIA continues, thus slowly lowering their
dependency on vendors going forward.
Recommendation
Figure 29: DKS’s Final Valuation
Final Price Target
Weighting
Implied Price
DCF
80.00%
60.20
Forward Comps
20.00%
73.57
Implied Price
62.87
Current Price
51.23
Undervalued
22.73%
With strong growth initiatives, such as the addition of the Chelsea Collectiv e
specialty boutique and the increased focus on their E-Commerce operations, set
to come to fruition this coming fiscal year, DKS is poised to find a great return in
the near future. Furthermore, with three earnings calls in just over seven months,
DKS makes a prime DADCO portfolio holding for the Group’s current fiscal year.
With an 80% weighting of DCF and a 20% weighting of comparable analysis, an
undervaluation of just over 22% is derived. From this indication of
outperformance, a strong BUY is recommended for Dick’s Sporting Goods to
help get the DADCO portfolio back on track after its uncharacteristic performance
this past year.
Source: UOIG Spreads
UOIG 12
October 9 th, 2015
October 9 th, 2015
University of Oregon Investment Group
Appendix 1 – Relative Valuation
Comparables Analysis
DKS
Dick's Sporting
Goods
($ in thousands)
Stock Characteristics
Current Price
Beta
CAB
KSS
Cabela's
Kohl's
BGFV
Big Five
Sporting Goods
NKE
UA
Nike
Under Armour
Max
$123.19
1.15
Min
$10.17
0.63
Median
$46.49
0.96
Weight Avg.
$58.36
0.85
$51.23
0.96
25.00%
$44.98
0.96
25.00%
$46.49
0.63
20.00%
$10.17
0.69
15.00%
$123.19
0.97
15.00%
$99.86
1.15
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
475,934.00
4,651,000.00
5,924,000.00
4,543.00
0.00
860,966.79
106,062,498.86
101,403,041.86
560.00
0.26
6,800.00
0.00
0.00
22,378.81
227,592.54
295,892.54
110,000.00
1,079,000.00
593,200.00
0.00
0.00
199,965.79
9,296,409.53
12,650,409.53
178,148.50
2,107,137.79
1,450,090.00
681.45
0.00
233,963.96
22,319,142.17
23,155,019.91
560.00
5,627.00
123,220.00
0.00
0.00
125,457.69
6,427,197.51
6,310,164.51
475,934.00
3,071,031.00
477,600.00
0.00
0.00
72,010.00
3,239,009.80
6,308,374.80
110,000.00
4,651,000.00
1,407,000.00
0.00
0.00
199,965.79
9,296,409.53
12,650,409.53
1,200.00
73,900.00
6,800.00
0.00
0.00
22,378.81
227,592.54
295,892.54
181,000.00
1,079,000.00
5,924,000.00
4,543.00
0.00
860,966.79
106,062,498.86
101,403,041.86
28,500.00
0.26
593,200.00
0.00
0.00
215,661.53
21,535,959.99
20,971,260.24
Growth Expectations
% Revenue Growth 2015E
% Revenue Growth 2016E
% EBITDA Growth 2015E
% EBITDA Growth 2016E
% EPS Growth 2015E
% EPS Growth 2016E
25.68%
24.02%
22.07%
26.92%
15.95%
31.48%
1.34%
1.58%
0.85%
1.58%
1.30%
8.72%
9.72%
9.49%
9.32%
13.14%
6.60%
14.33%
9.12%
8.49%
9.24%
11.50%
7.06%
15.62%
10.38%
7.05%
0.96%
9.31%
5.20%
10.90%
12.42%
9.95%
8.22%
13.14%
6.60%
14.33%
1.34%
1.58%
0.85%
1.58%
2.83%
8.72%
3.89%
3.25%
10.42%
7.55%
1.30%
15.38%
7.03%
9.03%
10.48%
15.14%
15.95%
13.75%
25.68%
24.02%
22.07%
26.92%
13.68%
31.48%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
45.61%
13.51%
14.97%
11.22%
31.55%
2.80%
5.00%
1.52%
31.94%
8.70%
13.45%
5.21%
36.34%
8.75%
11.68%
5.47%
34.88%
8.19%
10.66%
5.34%
41.84%
8.64%
11.86%
5.21%
31.68%
8.70%
13.45%
4.02%
31.94%
2.80%
5.00%
1.52%
45.61%
13.51%
14.97%
11.22%
31.55%
12.17%
14.08%
7.85%
$33,000.00
0.56
7.82
753.37
$1,680.00
0.00
0.01
29.72
$3,410.00
0.25
1.50
141.09
$8,311.00
0.29
2.76
283.61
$3,320.00
0.00
0.01
241.62
$2,090.00
0.56
7.82
216.94
$3,410.00
0.38
1.85
753.37
$1,680.00
0.25
1.50
29.72
$33,000.00
0.01
0.27
141.09
$11,000.00
0.00
0.03
92.82
$31,111,000.00
$14,191,000.00
$4,202,000.00
$4,656,000.00
$3,490,000.00
$963,000.00
$999,400.00
$319,200.00
$28,020.00
$49,930.00
$15,170.00
$26,650.00
$7,253,000.00
$2,288,000.00
$883,000.00
$1,021,000.00
$569,000.00
$440,891.00
$11,685,730.00
$4,448,690.00
$1,266,479.00
$1,617,136.00
$853,459.00
$463,202.75
$7,521,751.13
$2,623,274.27
$616,090.76
$802,163.33
$401,806.83
$320,876.60
$3,824,000.00
$1,600,000.00
$330,500.00
$453,400.00
$199,300.00
$440,891.00
$19,101,000.00
$6,052,000.00
$1,662,000.00
$2,569,000.00
$767,000.00
$685,000.00
$999,400.00
$319,200.00
$28,020.00
$49,930.00
$15,170.00
$26,650.00
$31,111,000.00
$14,191,000.00
$4,202,000.00
$4,656,000.00
$3,490,000.00
$963,000.00
$7,253,000.00
$2,288,000.00
$883,000.00
$1,021,000.00
$569,000.00
$213,000.00
3.26x
9.17x
24.13x
21.78x
504.31x
37.85x
0.30x
0.93x
7.61x
4.92x
6.71x
12.12x
1.65x
3.94x
19.09x
13.91x
25.95x
16.25x
1.56x
4.14x
15.97x
12.24x
138.31x
20.33x
0.84x
2.41x
10.24x
7.87x
13.11x
16.00x
1.65x
3.94x
19.09x
13.91x
504.31x
16.25x
0.66x
2.09x
7.61x
4.92x
6.71x
12.12x
0.30x
0.93x
10.56x
5.93x
12.71x
15.00x
3.26x
7.15x
24.13x
21.78x
27.46x
30.39x
2.89x
9.17x
23.75x
20.54x
25.95x
37.85x
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
94.45
87.51
79.35
79.21
531.52
65.11
$73.57
51.23
43.61%
Weight
0.00%
0.00%
0.00%
60.00%
0.00%
40.00%
UOIG 13
October 9 th, 2015
October 9 th, 2015
University of Oregon Investment Group
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in thousands)
Total Revenue
% YoY Growth
Cost of Goods Sold
% Revenue
Gross Profit
Gross Margin
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% Beginning PP&E
Pre-Opening Expenses
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Other (Income) Expense
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Working Capital
Capital Expenditures
2010A
2011A
$4,871,492.00
2012A
$5,211,802.00
$5,836,119.00
2013A
2014A
$6,213,173.00
2015E
$6,814,479.00
2016E
$7,521,751.13
2017E
$8,052,095.31
2018E
$8,637,210.32
2019E
$9,363,255.66
2020E
$10,277,094.41
2021E
$11,403,224.47
2022E
$12,622,376.90
2023E
$13,947,052.23
2024E
$15,375,568.69
$16,903,997.94
10.39%
6.99%
11.98%
6.46%
9.68%
10.38%
7.05%
7.27%
8.41%
9.76%
10.96%
10.69%
10.49%
10.24%
9.94%
$3,312,068.00
$3,500,340.00
$3,873,860.00
$4,114,295.00
$4,548,382.00
$4,898,476.86
$5,394,903.85
$5,873,303.02
$6,367,013.85
$6,988,424.20
$7,811,208.76
$8,646,328.18
$9,553,730.78
$10,455,386.71
$11,494,718.60
67.99%
67.16%
66.38%
66.22%
66.75%
65.12%
67.00%
68.00%
68.00%
68.00%
68.50%
68.50%
68.50%
68.00%
68.00%
$1,559,424.00 $1,711,462.00 $1,962,259.00 $2,098,878.00 $2,266,097.00 $2,623,274.27 $2,657,191.45 $2,763,907.30 $2,996,241.81
$3,288,670.21
$3,592,015.71
$3,976,048.72
$4,393,321.45
$4,920,181.98
$5,409,279.34
32.01%
32.84%
33.62%
33.78%
33.25%
34.88%
33.00%
32.00%
32.00%
32.00%
31.50%
31.50%
31.50%
32.00%
32.00%
$1,129,293.00
$1,148,268.00
$1,297,413.00
$1,386,315.00
$1,502,089.00
$1,632,407.52
$1,811,721.44
$1,943,372.32
$2,106,732.52
$2,302,069.15
$2,554,322.28
$2,827,412.43
$3,110,192.65
$3,428,751.82
$3,769,591.54
23.18%
22.03%
22.23%
22.31%
22.04%
21.70%
22.50%
22.50%
22.50%
22.40%
22.40%
22.40%
22.30%
22.30%
22.30%
$110,394.00
$116,581.00
$125,096.00
$154,928.00
$179,431.00
$186,072.57
$213,872.26
$231,893.13
$250,839.16
$272,188.23
$296,106.47
$324,444.96
$356,327.66
$392,973.08
$433,348.81
16.12%
15.89%
15.28%
16.40%
16.68%
14.95%
15.50%
15.50%
15.50%
15.50%
15.50%
15.50%
15.50%
15.50%
15.50%
$10,488.00
$14,593.00
$16,076.00
$20,823.00
$30,518.00
$29,340.02
$31,403.17
$39,731.17
$44,007.30
$49,330.05
$55,875.80
$63,111.88
$71,129.97
$79,952.96
$89,591.19
.22%
.28%
.28%
.34%
.45%
.39%
.39%
.46%
.47%
.48%
.49%
.50%
.51%
.52%
.53%
$330,225.00
$461,206.00
$555,826.00
$578,458.00
$615,095.00
$616,090.76
$663,000.92
$548,910.69
$682,677.43
$763,742.88
$797,462.76
$887,303.23
$997,931.11
$1,178,410.04
$1,295,930.18
6.78%
8.85%
9.52%
9.31%
9.03%
8.19%
8.23%
6.36%
7.29%
7.43%
6.99%
7.03%
7.16%
7.66%
7.67%
14,016.00
13,868.00
6,034.00
2,929.00
3,215.00
3,431.71
3,673.67
3,940.63
4,271.88
4,688.80
5,202.59
5,758.81
6,363.18
7,014.92
7,712.25
.29%
.27%
.10%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
.05%
(2,278.00)
(13,874.00)
(4,555.00)
(12,224.00)
(5,170.00)
(2,388.54)
(2,556.95)
(1,015.32)
(1,100.66)
(1,208.09)
(1,340.46)
(1,483.78)
(1,639.49)
(1,807.42)
(1,987.09)
(.05%)
(.27%)
(.08%)
(.20%)
(.08%)
(.03%)
(.03%)
(.01%)
(.01%)
(.01%)
(.01%)
(.01%)
(.01%)
(.01%)
(.01%)
318,487.00
461,212.00
554,347.00
587,753.00
617,050.00
615,047.59
661,884.20
545,985.38
679,506.21
760,262.16
793,600.64
883,028.19
993,207.43
1,173,202.54
1,290,205.02
6.54%
8.85%
9.50%
9.46%
9.05%
8.18%
8.22%
6.32%
7.26%
7.40%
6.96%
7.00%
7.12%
7.63%
7.63%
115,434.00
168,120.00
199,116.00
208,509.00
211,816.00
213,240.76
231,659.47
191,094.88
237,827.18
266,091.76
277,760.22
309,059.87
347,622.60
410,620.89
451,571.76
36.24%
36.45%
35.92%
35.48%
34.33%
34.67%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
$203,053.00
$293,092.00
$355,231.00
$379,244.00
$405,234.00
$401,806.83
$430,224.73
$354,890.50
$441,679.04
$494,170.41
$515,840.41
$573,968.32
$645,584.83
$762,581.65
$838,633.26
4.17%
5.62%
6.09%
6.10%
5.95%
5.34%
5.34%
4.11%
4.72%
4.81%
4.52%
4.55%
4.63%
4.96%
4.96%
110,394.00
116,581.00
125,096.00
154,928.00
179,431.00
186,072.57
213,872.26
231,893.13
250,839.16
272,188.23
296,106.47
324,444.96
356,327.66
392,973.08
433,348.81
8,935.97
8,812.87
3,866.65
1,889.92
2,111.38
2,241.92
2,387.89
2,561.41
2,776.72
3,047.72
3,381.68
3,743.23
4,136.07
4,559.70
5,012.96
$322,382.97
$418,485.87
$484,193.65
$536,061.92
$586,776.38
$590,121.32
$646,484.88
$589,345.03
$695,294.92
$769,406.36
$815,328.56
$902,156.51
$1,006,048.55
$1,160,114.43
$1,276,995.03
6.62%
8.03%
8.30%
8.63%
8.61%
7.85%
8.03%
6.82%
7.43%
7.49%
7.15%
7.15%
7.21%
7.55%
7.55%
1,564,330.00
1,868,393.00
1,595,889.00
1,620,071.00
1,850,384.00
1,844,617.83
1,928,806.83
2,059,054.30
2,225,248.25
2,428,350.70
2,672,965.67
2,949,313.46
3,239,728.28
3,548,807.63
3,868,152.01
32.11%
35.85%
27.35%
26.07%
27.15%
24.52%
23.95%
23.84%
23.77%
23.63%
23.44%
23.37%
23.23%
23.08%
22.88%
848,543.00
940,146.00
1,000,768.00
1,002,047.00
1,118,833.00
1,354,833.62
1,469,762.60
1,592,847.90
1,726,468.91
1,890,182.91
2,100,299.47
2,324,428.00
2,561,825.12
2,792,097.96
3,054,570.90
17.42%
18.04%
17.15%
16.13%
16.42%
18.01%
18.25%
18.44%
18.44%
18.39%
18.42%
18.42%
18.37%
18.16%
18.07%
$715,787.00
$928,247.00
$595,121.00
$618,024.00
$731,551.00
$489,784.20
$459,044.23
$466,206.41
$498,779.35
$538,167.79
$572,666.19
$624,885.47
$677,903.16
$756,709.67
$813,581.11
14.69%
17.81%
10.20%
9.95%
10.74%
6.51%
5.70%
5.40%
5.33%
5.24%
5.02%
4.95%
4.86%
4.92%
4.81%
$289,101.00
$212,460.00
($333,126.00)
$22,903.00
$113,527.00
($241,766.80)
($30,739.97)
$7,162.17
$32,572.94
$39,388.45
$34,498.40
$52,219.27
$53,017.69
$78,806.51
$56,871.44
159,067.00
201,807.00
219,026.00
285,668.00
349,007.00
320,876.60
330,135.91
354,125.62
388,575.11
426,499.42
478,935.43
530,139.83
592,749.72
653,461.67
726,871.91
% Revenue
3.27%
3.87%
3.75%
4.60%
5.12%
4.27%
4.10%
4.10%
4.15%
4.15%
4.20%
4.20%
4.25%
4.25%
4.30%
Acquisitions
-
-
31,986.00
-
-
-
-
-
-
-
-
-
-
-
-
% Revenue
-
-
.55%
-
-
-
-
-
-
-
-
-
-
-
-
Unlevered Free Cash Flow
Discounted Free Cash Flow
-$125,785.03
$4,218.87
$566,307.65
$227,490.92
$124,242.38
$511,011.51
$347,088.94
$228,057.23
$274,146.87
$303,518.50
$301,894.73
$319,797.41
$360,281.14
$427,846.25
$493,251.68
491,242.36
308,344.47
187,227.43
207,988.43
212,799.85
195,601.39
191,479.20
199,351.01
218,773.59
233,080.53
UOIG 14
October 9 th, 2015
October 9 th, 2015
University of Oregon Investment Group
Appendix 3 – Revenue Model
Total Store Square Footage
($ in thousands)
Hardlines Square Footage
% Growth
% of Total Square Footage
Apparel Square Footage
% Growth
% of Total Square Footage
Footware Square Footage
% Growth
% of Total Square Footage
Other Square Footage
% Growth
% of Total Square Footage
Total Store Square Footage
% Growth
2010A
13,462,681
(1.37%)
52.00%
7,508,034
8.07%
29.00%
4,660,159
17.37%
18.00%
258,898
4.33%
1.00%
25,889,771
4.33%
2011A
13,798,070
2.49%
50.00%
8,002,881
6.59%
29.00%
5,243,267
12.51%
19.00%
275,961
6.59%
1.00%
27,596,140
6.59%
2012A
13,906,235
.78%
47.00%
9,763,952
22.01%
33.00%
5,621,669
7.22%
19.00%
295,877
7.22%
1.00%
29,587,733
7.22%
2013A
13,913,455
.05%
44.00%
11,067,521
13.35%
35.00%
6,324,298
12.50%
20.00%
316,215
6.87%
1.00%
31,621,488
6.87%
2014A
15,068,189
8.30%
44.00%
12,328,519
11.39%
36.00%
6,506,718
2.88%
19.00%
342,459
8.30%
1.00%
34,245,885
8.30%
2015E
15,020,317
(.32%)
40.74%
14,582,802
5.00%
39.55%
6,896,153
5.99%
18.71%
368,319
7.55%
1.00%
36,867,592
7.66%
2016E
15,170,521
1.00%
39.36%
15,749,427
8.00%
40.86%
7,240,961
5.00%
18.79%
384,894
4.50%
1.00%
38,545,802
4.55%
2017E
15,018,815
(1.00%)
37.40%
17,166,875
9.00%
42.75%
7,566,804
4.50%
18.85%
400,289
4.00%
1.00%
40,152,784
4.17%
2018E
14,793,533
(1.50%)
35.19%
18,883,563
10.00%
44.92%
7,945,144
5.00%
18.90%
420,304
5.00%
1.00%
42,042,544
4.71%
2019E
14,534,646
(1.75%)
32.79%
20,960,754
11.00%
47.29%
8,382,127
5.50%
18.91%
443,421
5.50%
1.00%
44,320,948
5.42%
2020E
14,243,953
(2.00%)
30.26%
23,476,045
12.00%
49.87%
8,885,055
6.00%
18.87%
470,026
6.00%
1.00%
47,075,079
6.21%
2021E
13,923,465
(2.25%)
27.93%
26,058,410
11.00%
52.27%
9,373,733
5.50%
18.80%
500,578
6.50%
1.00%
49,856,185
5.91%
2022E
13,644,995
(2.00%)
25.90%
28,664,251
10.00%
54.41%
9,842,419
5.00%
18.68%
528,109
5.50%
1.00%
52,679,775
5.66%
2023E
13,406,208
(1.75%)
24.16%
31,244,034
9.00%
56.30%
10,285,328
4.50%
18.53%
555,835
5.25%
1.00%
55,491,405
5.34%
2024E
13,205,115
(1.50%)
22.68%
33,743,556
8.00%
57.95%
10,696,741
4.00%
18.37%
582,237
4.75%
1.00%
58,227,649
4.93%
Total Stores
($ in thousands)
Total Store Square Footage
% Growth
Average Square Feet per Store
% Growth
Total Stores
% Growth
2010A
25,889,771
4.33%
49,313.85
1.35%
525
2.94%
2011A
27,596,140
6.59%
49,190.98
(.25%)
561
6.86%
2012A
29,587,733
7.22%
49,230.84
.08%
601
7.13%
2013A
31,621,488
6.87%
49,254.65
.05%
642
6.82%
2014A
34,245,885
8.30%
49,345.66
.18%
694
8.10%
2015E
36,867,592
7.66%
49,521.30
.36%
744
7.27%
2016E
38,545,802
4.55%
49,620.34
.20%
777
4.34%
2017E
40,152,784
4.17%
49,595.53
(.05%)
810
4.22%
2018E
42,042,544
4.71%
49,590.57
(.01%)
848
4.72%
2019E
44,320,948
5.42%
49,491.39
(.20%)
896
5.63%
2020E
47,075,079
6.21%
49,342.91
(.30%)
954
6.53%
2021E
49,856,185
5.91%
49,145.54
(.40%)
1,014
6.33%
2022E
52,679,775
5.66%
48,998.11
(.30%)
1,075
5.98%
2023E
55,491,405
5.34%
48,900.11
(.20%)
1,135
5.55%
2024E
58,227,649
4.93%
48,851.21
(.10%)
1,192
5.04%
Total In-Store Revenue
($ in thousands)
Total Store Square Footage
% Growth
Average Sales per Square Foot
% Growth
Total In-Store Revenue
% Growth
% of Total Revenue
2010A
25,890
4.33%
185
4.52%
4,789,608
7.20%
98.32%
2011A
2012A
2013A
2014A
27,596
6.59%
187
1.08%
5,160,478
7.74%
99.02%
29,588
7.22%
193
3.21%
5,710,432
10.66%
97.85%
31,621
6.87%
186
(3.63%)
5,881,597
3.00%
94.66%
34,246
8.30%
185
(.54%)
6,335,489
7.72%
92.97%
2015E
36,868
7.66%
189
2.02%
6,958,353
9.83%
92.51%
2016E
38,546
4.55%
191
1.00%
7,347,847
5.60%
91.25%
2017E
40,153
4.17%
193
1.25%
7,749,857
5.47%
89.73%
2018E
42,043
4.71%
196
1.50%
8,236,318
6.28%
87.96%
2019E
44,321
5.42%
199
1.75%
8,834,614
7.26%
85.96%
2020E
47,075
6.21%
203
2.00%
9,571,274
8.34%
83.93%
2021E
49,856
5.91%
207
1.75%
10,314,119
7.76%
81.71%
2022E
52,680
5.66%
210
1.50%
11,061,730
7.25%
79.31%
2023E
55,491
5.34%
213
1.25%
11,797,769
6.65%
76.73%
2024E
58,228
4.93%
215
1.00%
12,503,305
5.98%
73.97%
Total Revenue
($ in thousands)
Total In-Store Revenue
% Growth
% of Total Revenue
Total eCommerce Revenue
% Growth
% of Total Revenue
Total Revenue
% Growth
2010A
4,789,607.64
14.25%
98.32%
81,884.37
15.00%
1.68%
$4,871,492.00
10.39%
2011A
5,160,478.18
7.74%
99.02%
51,323.82
(37.32%)
.98%
$5,211,802.00
6.99%
2012A
5,710,432.47
10.66%
97.85%
125,686.53
144.89%
2.15%
$5,836,119.00
11.98%
2013A
5,881,596.77
3.00%
94.66%
331,576.23
163.81%
5.34%
$6,213,173.00
6.46%
2014A
6,335,488.73
7.72%
92.97%
478,990.27
44.46%
7.03%
$6,814,479.00
9.68%
2015E
6,958,352.50
9.83%
92.51%
563,398.62
17.62%
7.49%
$7,521,751.13
10.38%
2016E
7,347,847.02
5.60%
91.25%
704,248.28
25.00%
8.75%
$8,052,095.31
7.05%
2017E
7,749,857.49
5.47%
89.73%
887,352.83
26.00%
10.27%
$8,637,210.32
7.27%
2018E
8,236,317.56
6.28%
87.96%
1,126,938.10
27.00%
12.04%
$9,363,255.66
8.41%
2019E
8,834,613.64
7.26%
85.96%
1,442,480.77
28.00%
14.04%
$10,277,094.41
9.76%
2020E
9,571,273.90
8.34%
83.93%
1,831,950.57
27.00%
16.07%
$11,403,224.47
10.96%
2021E
10,314,119.18
7.76%
81.71%
2,308,257.72
26.00%
18.29%
$12,622,376.90
10.69%
2022E
11,061,730.07
7.25%
79.31%
2,885,322.15
25.00%
20.69%
$13,947,052.23
10.49%
2023E
11,797,769.22
6.65%
76.73%
3,577,799.47
24.00%
23.27%
$15,375,568.69
10.24%
2024E
12,503,304.59
5.98%
73.97%
4,400,693.35
23.00%
26.03%
$16,903,997.94
9.94%
UOIG 15
October 9 th, 2015
October 9 th, 2015
University of Oregon Investment Group
Appendix 4 – Working Capital Model
Working Capital Model
($ in thousands)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Income Taxes Receivable
Days Outstanding
% of Revenue
Deferred Income Taxes
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Expenses
Days Charges Outstanding
% of Revenue
Income Taxes Payable
Days Taxes Outstanding
% of Revenue
Deferred Revenue
% of Revenue
Current Portion of Long Term Debt
% of Revenue
Total Current Liabilities
% of Revenue
2010A
2011A
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$4,871,492.00
$5,211,802.00
$5,836,119.00
$6,213,173.00
$6,814,479.00
$7,521,751.13
$8,052,095.31
$8,637,210.32
$9,363,255.66 $10,277,094.41 $11,403,224.47 $12,622,376.90 $13,947,052.23 $15,375,568.69 $16,903,997.94
34,978.00
2.62
.72%
896,895.00
67.20
18.41%
58,394.00
6.44
1.20%
9,050.00
0.68
.19%
18,961.00
.39%
$1,018,278.00
20.90%
38,338.00
2.68
.74%
1,014,997.00
71.08
19.47%
64,213.00
6.70
1.23%
4,113.00
0.29
.08%
12,330.00
.24%
$1,133,991.00
21.76%
34,625.00
2.17
.59%
1,096,186.00
68.56
18.78%
73,838.00
6.96
1.27%
15,737.00
0.98
.27%
30,289.00
.52%
$1,250,675.00
21.43%
60,779.00
3.58
.98%
1,232,065.00
72.58
19.83%
99,386.00
8.84
1.60%
7,275.00
0.43
.12%
38,835.00
.63%
$1,438,340.00
23.15%
80,292.00
4.30
1.18%
1,390,767.00
74.49
20.41%
91,267.00
7.32
1.34%
14,293.00
0.77
.21%
51,586.00
.76%
$1,628,205.00
23.89%
98,671.22
4.79
1.31%
1,569,769.44
76.17
20.87%
108,179.54
8.06
1.44%
11,872.74
0.58
.16%
56,124.89
.75%
$1,844,617.83
24.52%
93,501.11
4.25
1.16%
1,650,019.53
75.00
20.49%
117,921.40
8.00
1.46%
11,000.13
0.50
.14%
56,364.67
.70%
$1,928,806.83
23.95%
100,295.48
4.25
1.16%
1,758,120.68
74.50
20.36%
128,378.21
8.00
1.49%
11,799.47
0.50
.14%
60,460.47
.70%
$2,059,054.30
23.84%
109,024.21
4.25
1.16%
1,898,303.89
74.00
20.27%
139,550.99
8.00
1.49%
12,826.38
0.50
.14%
65,542.79
.70%
$2,225,248.25
23.77%
119,664.80
4.25
1.16%
2,069,497.09
73.50
20.14%
153,170.94
8.00
1.49%
14,078.21
0.50
.14%
71,939.66
.70%
$2,428,350.70
23.63%
132,414.49
4.25
1.16%
2,274,413.62
73.00
19.95%
170,736.80
8.00
1.50%
15,578.18
0.50
.14%
79,822.57
.70%
$2,672,965.67
23.44%
146,972.88
4.25
1.16%
2,507,184.45
72.50
19.86%
189,508.56
8.00
1.50%
17,290.93
0.50
.14%
88,356.64
.70%
$2,949,313.46
23.37%
162,397.18
4.25
1.16%
2,751,199.34
72.00
19.73%
209,396.84
8.00
1.50%
19,105.55
0.50
.14%
97,629.37
.70%
$3,239,728.28
23.23%
179,030.59
4.25
1.16%
3,011,926.47
71.50
19.59%
229,159.16
8.00
1.49%
21,062.42
0.50
.14%
107,628.98
.70%
$3,548,807.63
23.08%
196,289.59
4.25
1.16%
3,279,190.86
71.00
19.40%
251,250.68
8.00
1.49%
23,092.89
0.50
.14%
118,327.99
.70%
$3,868,152.01
22.88%
684,886.00
159,067.00
110,394.00
733,559.00
$1,751,837.00
35.96%
733,559.00
201,807.00
116,581.00
818,785.00
$1,952,776.00
37.47%
818,785.00
219,026.00
31,986.00
125,096.00
944,701.00
$2,195,376.00
37.62%
944,701.00
285,668.00
154,928.00
1,075,441.00
$2,513,781.00
40.46%
1,075,441.00
349,007.00
179,431.00
1,245,017.00
$2,873,222.00
42.16%
1,245,017.00
320,876.60
186,072.57
1,379,821.03
$3,224,438.86
42.87%
1,379,821.03
330,135.91
213,872.26
1,496,084.68
$3,424,891.51
42.53%
1,496,084.68
354,125.62
231,893.13
1,618,317.18
$3,677,371.48
42.58%
1,618,317.18
388,575.11
250,839.16
1,756,053.13
$3,981,301.38
42.52%
1,756,053.13
426,499.42
272,188.23
1,910,364.31
$4,338,715.01
42.22%
1,910,364.31
478,935.43
296,106.47
2,093,193.27
$4,766,158.93
41.80%
2,093,193.27
530,139.83
324,444.96
2,298,888.14
$5,248,201.60
41.58%
2,298,888.14
592,749.72
356,327.66
2,535,310.20
$5,775,038.48
41.41%
2,535,310.20
653,461.67
392,973.08
2,795,798.79
$6,344,606.42
41.26%
2,795,798.79
726,871.91
433,348.81
3,089,321.89
$6,957,473.90
41.16%
446,511.00
49.21
9.17%
279,284.00
30.78
5.73%
0.00
0.00%
121,753.00
2.50%
995.00
.02%
$848,543.00
17.42%
510,398.00
53.22
9.79%
264,073.00
27.54
5.07%
29,484.00
3.07
.57%
128,765.00
2.47%
7,426.00
.14%
$940,146.00
18.04%
507,247.00
47.79
8.69%
269,900.00
25.43
4.62%
68,746.00
6.48
1.18%
146,362.00
2.51%
8,513.00
.15%
$1,000,768.00
17.15%
562,439.00
50.03
9.05%
265,040.00
23.58
4.27%
19,285.00
1.72
.31%
154,384.00
2.48%
899.00
.01%
$1,002,047.00
16.13%
614,511.00
49.31
9.02%
283,828.00
22.78
4.17%
47,698.00
3.83
.70%
172,259.00
2.53%
537.00
.01%
$1,118,833.00
16.42%
751,246.80
55.98
9.99%
383,622.06
28.58
5.10%
40,057.41
2.98
.53%
179,235.25
2.38%
672.09
.01%
$1,354,833.62
18.01%
810,709.60
55.00
10.07%
412,724.89
28.00
5.13%
44,220.52
3.00
.55%
201,302.38
2.50%
805.21
.01%
$1,469,762.60
18.25%
878,588.36
54.75
10.17%
449,323.73
28.00
5.20%
48,141.83
3.00
.56%
215,930.26
2.50%
863.72
.01%
$1,592,847.90
18.44%
950,691.11
54.50
10.15%
488,428.46
28.00
5.22%
52,331.62
3.00
.56%
234,081.39
2.50%
936.33
.01%
$1,726,468.91
18.44%
1,038,690.45
54.25
10.11%
536,098.29
28.00
5.22%
57,439.10
3.00
.56%
256,927.36
2.50%
1,027.71
.01%
$1,890,182.91
18.39%
1,152,473.42
54.00
10.11%
597,578.81
28.00
5.24%
64,026.30
3.00
.56%
285,080.61
2.50%
1,140.32
.01%
$2,100,299.47
18.42%
1,273,260.66
53.75
10.09%
663,279.97
28.00
5.25%
71,065.71
3.00
.56%
315,559.42
2.50%
1,262.24
.01%
$2,324,428.00
18.42%
1,400,341.36
53.50
10.04%
732,888.94
28.00
5.25%
78,523.81
3.00
.56%
348,676.31
2.50%
1,394.71
.01%
$2,561,825.12
18.37%
1,518,179.44
53.00
9.87%
802,057.06
28.00
5.22%
85,934.69
3.00
.56%
384,389.22
2.50%
1,537.56
.01%
$2,792,097.96
18.16%
1,656,684.17
52.75
9.80%
879,377.38
28.00
5.20%
94,219.00
3.00
.56%
422,599.95
2.50%
1,690.40
.01%
$3,054,570.90
18.07%
UOIG 16
October 9 th, 2015
University of Oregon Investment Group
October 9 th, 2015
Appendix 5 – Discounted Cash Flows Valuation Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
35.00% Terminal Growth Rate
Risk Free Rate
3.00%
2.01% Terminal Value
Beta
12,258,731
0.96 PV of Terminal Value
Market Risk Premium
% Equity
Considerations
3,904,219
6.45% Sum of PV Free Cash Flows
99.90% Firm Value
3,654,245
7,558,465
% Debt
0.10% Total Debt
Cost of Debt
3.67% Cash & Cash Equivalents
CAPM
8.22% Market Capitalization
WACC
8.21% Fully Diluted Shares
Terminal Risk Free Rate
2.85% Implied Price
60.20
Terminal CAPM
9.06% Current Price
51.23
Terminal WACC
9.05% Undervalued
17.50%
Considerations
6,187
123,220
7,552,278
125,458
Implied Price
Terminal Growth Rate
Avg. Industry Debt / Equity
31.37%
Final Price Target
Avg. Industry Tax Rate
21.36%
Current Reinvestment Rate
69.24%
Reinvestment Rate in Year 2020E
41.44%
Implied Price
62.87
Implied Return on Capital in Perpetuity
7.24%
Current Price
51.23
Terminal Value as a % of Total
51.7%
Undervalued
22.73%
Implied 2015E EBITDA Multiple
9.4x
Implied Multiple in Year 2024E
2.3x
Free Cash Flow Growth Rate in Year 2024E
13%
Weighting
Implied Price
DCF
80.00%
60.20
Forward Comps
20.00%
73.57
UOIG 17
October 9 th, 2015
October 9 th, 2015
University of Oregon Investment Group
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
60
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.3%
2.3%
3.0%
3.8%
4.5%
0.76
70.20
74.07
78.75
84.52
91.83
1.16
(9.74%)
(9.74%)
(5.55%)
(0.40%)
6.06%
0.86
62.09
64.94
68.33
72.40
77.40
1.06
(0.59%)
(0.59%)
4.81%
11.58%
20.31%
0.96
55.52
57.68
60.20
63.17
66.72
1.06
50.12
51.79
53.70
55.91
58.52
1.16
45.61
46.91
48.39
50.08
52.04
Adjusted Beta
Adjusted Beta
Terminal Growth Rate
0.96
10.41%
10.41%
17.50%
26.61%
38.71%
1.06
(0.59%)
(0.59%)
4.81%
11.58%
20.31%
1.16
(9.74%)
(9.74%)
(5.55%)
(0.40%)
6.06%
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
60
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
0.28
13.98
13.98
14.28
14.68
15.20
0.28
(72.72%)
(72.72%)
(72.12%)
(71.35%)
(70.32%)
0.18
24.37
24.37
25.36
26.64
28.35
0.18
(52.44%)
(52.44%)
(50.49%)
(47.99%)
(44.67%)
0.08
56.07
56.07
59.66
64.26
70.39
0.08
9.44%
9.44%
16.45%
25.44%
37.40%
0.18
24.37
24.37
25.36
26.64
28.35
0.18
(52.44%)
(52.44%)
(50.49%)
(47.99%)
(44.67%)
0.28
13.98
13.98
14.28
14.68
15.20
0.28
(72.72%)
(72.72%)
(72.12%)
(71.35%)
(70.32%)
WACC
WACC
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
60
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
0.55
56.57
56.57
60.21
64.87
71.07
0.55
10.42%
10.42%
17.52%
26.62%
38.73%
0.45
56.57
56.57
60.20
64.87
71.07
0.45
10.42%
10.42%
17.51%
26.62%
38.72%
0.35
56.56
56.56
60.20
64.86
71.06
0.35
10.41%
10.41%
17.50%
26.61%
38.71%
0.45
56.57
56.57
60.20
64.87
71.07
0.45
10.42%
10.42%
17.51%
26.62%
38.72%
0.55
56.57
56.57
60.21
64.87
71.07
0.55
10.42%
10.42%
17.52%
26.62%
38.73%
Tax Rate
Tax Rate
Terminal Growth Rate
UOIG 18
University of Oregon Investment Group
October 9 th, 2015
October 9 th, 2015
Appendix 8 – Sources
About Retailing
Bloomberg
CNNMoney
Dick’s Sporting Goods 10-K
Dick’s Sporting Goods Earnings Call
Dick’s Sporting Goods Investor Relations
Factset
Finviz
Google Finance
Huffington Post
IBISWorld
MarketWatch
Statista
Seeking Alpha
Yahoo! Finance
UOIG 19