Sporting Goods Stock Smackdown — Dick’s Vs. Hibbett

�Setting a goal is not the main thing,� NFL Hall of Fame Coach Tom Landry once said. �It is deciding how you will go about achieving it and staying with that plan.� That�s just as true for sporting goods retailers like Dick�s Sporting Goods (NYSE:DKS) and Hibbett Sports (NASDAQ:HIBB) as it is for championship sports teams.

Sporting goods retailers are cyclical stocks — in a weak economy, consumers are less likely to spend money on treadmills and high-end golf clubs. Although sales at sporting goods stores rose 7.2% in September, persistently high unemployment and other woes make that trend unlikely to last.

For major retailers like DKS and HIBB, the keys to riding out the storm will depend on the strength of their business strategies and how efficiently they can execute those plans. Here�s how Dick�s and Hibbett stack up:

Business Model

Dick�s: The DKS business model is like that of a big-box retailer. Most of the company�s 455 stores in the U.S. are in mid-sized and large markets, and stores average 50,000 square feet. Dick�s 81 Golf Galaxy stores average 15,000 feet. The company hopes to expand its store network and e-commerce channel, while driving margin growth through inventory management, private-brand sales, leveraging vendor relationships and �regionalization� — getting the right products to the right stores to boost sales and reduce the need for clearance. DKS� success is based on the �disciplined execution� of its strategy. When the company saw the economy turn south back in 2008, it shifted its focus from earnings to liquidity. The company cut inventory and expenses (including reducing store hours) and accessed $90 million of its $100 million credit line to rise out the storm.

Hibbett Sports: The HIBB business model is more of a boutique approach: Its 802 stores average 5,000 feet and generally are located in malls that often are anchored by a Wal-Mart (NYSE:WMT) store. Hibbett focuses on small and mid-sized markets in the Sun Belt, Mid-Atlantic and lower Midwest. The company hopes to leverage its small-market strategy to open between 350 and 375 additional stores in the future. HIBB�s keys to success are in deployment of sophisticated information systems to aggressively control inventory and costs, as well as a rigorous sales training program to boost product knowledge and sales skills.

Recent Earnings

Dick�s: DKS last reported earnings Aug. 16; the company�s second-quarter net income rose 43.3% to $78.8 million (59 cents per share), up from $51.5 million (43 cents per share) in the second quarter of 2010. Revenue grew by 6.6% to $1.31 billion, slightly lower than Wall Street expected. Despite the slowdown in sales, Dick�s same-store sales rose by 3% in June and July. The company continues to grow its margins, which rose 1.3% in the quarter to 30.7%. DKS will next report earnings Nov. 14.

Hibbett: HIBB last reported earnings Aug. 19: the company�s second-quarter earnings rose 48% to $5.9 million (21 cents per share), compared to $4 million (14 cents per share) for the same quarter last year. Revenue jumped more than 9% to $151.9 million, beating analysts� estimates of $151.9 million; same-store sales increased by 5.9%. HIBB grew its gross margins by a little more than 1% in the quarter to 33.07%. HIBB will next report earnings Nov. 21.

Fundamentals

Dick�s: DKS stock has a market cap of $4.48 billion and, at $37.23, is trading 13.36% below its 52-week high of $42.97 in May. The stock has a price/earnings-to-growth ratio of 1.19, indicating that it is slightly overvalued. Its balance sheet looks solid, with total cash of $626.41 million compared to total debt of $140.35 million; it has levered free cash flow of $171.58 million. DKS also has a trailing P/E of 18.6 and a forward P/E of 14.3. A stock that has a higher trailing P/E (or �multiple�) usually is viewed as more expensive than a stock within the same industry that has a lower multiple. A lower forward P/E usually indicates an expectation that earnings will grow more than a competitor in the same sector with a higher multiple.

Hibbett: HIBB has a market cap of $1.01 billion and, at $37.78, is trading 12.14% below its 52-week high of $43 in July. With a PEG ratio of 1.13, the stock is slightly overvalued. Hibbett�s balance sheet also looks solid, with total cash of $65.19 million compared to total debt of only $2.45 million; it has levered free cash flow of $48.54 million. Its balance sheet looks good, with total cash of $65.19 million compared to total debt of $2.45 million. HIBB has a trailing P/E of 20.42 and a forward P/E of 16.72.

The Winner

Hibbett by a nose, based on its commitment to a stronger business plan. While Dick�s is much larger than Hibbett and has viewed cost control as a key to boosting margins, its same-store sales growth is about half that of HIBB. Hibbett�s niche strategy — smaller stores, smaller markets, intensive staff training in product, sales and customer service — differentiates the chain so that it doesn�t have to compete solely on price. With a focus on using information technology to cut operating costs and boost efficiency, the company is positioned to retain buyer loyalty — which could pay off big when the economy bounces back.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.