The worst for American retail is far from over, as lackluster earnings report from Dicks Sporting Goods Inc (NYSE:DKS) shrouds the government’s optimistic retail sales report.
The U.S Census Bureau published an upbeat retail trade report for the month of July. According to the report, retail sales saw their best month since December of 2016. However, the better-than-expected sales data got waned by the disappointing earnings that followed later the same morning.
America’s largest sporting goods retailer, Dicks Sporting Goods, reported its second-quarter results, which fell way below the market’s expectations. Not only did Dicks report dismal earnings, it also lowered its future guidance. The company stock nosedived following the earnings release.
If we dig deeper into the Census Bureau’s report, the real problem becomes obvious: the American sports goods retail industry is sinking. The adjusted retail sales numbers for the sporting goods category suggest that sales are on a decline.
The earnings release from Dick’s Sporting Goods reiterated the same. The retailer posted a meager 0.1% increase in comparable-store sales when the market expected somewhere close to 1.8%.
The Pennsylvania-based company managed to post the slight sales increase by offering deep discounts to customers. The steep price trimming undercut its margins and hurt its bottom line numbers.
The company particularly reported a decline in sales for its hunting goods and athletic apparel categories. But unsurprisingly, strong results were seen in its e-commerce segment, pointing to improvement in online traffic while in-store traffic fell.
Digital retail is undoubtedly flourishing in America as more and more Americans choose to shop online. A significant push to retail sales in the month of July is expected to have come from Amazon.com, Inc’s (NASDAQ:AMZN) “Prime Day,” which fell in the same month. As expected, the online retailer once again took the lead, leaving behind many brick-and-mortar retailers that once dominated American retail.
However, Amazon is not the only threat to specialty retailers like Dick’s. Big box retailers like Wal-Mart Stores Inc (NYSE:WMT), Target Corporation (NYSE:TGT), and Best Buy Co Inc (NYSE:BBY) are starting to stock up sporting goods at their outlets, driving foot traffic away from specialty sports retailers.
The downfall in America’s sports retail industry is no longer a secret. Numerous sports specialty retailers like MC Sports, Sports Authority Inc, Golfsmith International Holdings Inc, and Sports Chalet, Inc. (NASDAQ:SPCHA) have all gone out of business in the past year and a half. Earlier this year, America’s largest outdoor sports and recreational goods retailer, Gander Mountain Co, ended up in liquidation following its bankruptcy.
It’s easy to see why this is happening. In order to stay competitive with big box retailers and e-tailers, retailers in the sporting goods industry are forced to cut their prices. Narrowing margins are ultimately hurting profitability, pushing bottom lines into the red zone and forcing these companies to go out of business–a phenomenon that’s causing thousands of retail workers to face layoffs as the retail industry shrinks.
“DICK’S Sporting Goods Reports Second Quarter Results,” Dick’s Sporting Goods, August 15, 2017.
“Monthly & Annual Retail Trade,” U.S. Census Bureau, August 15, 2017.