Dick’s keeps up pace of growth even in faltering economic market

PITTSBURGH —“Game On” may be the title of a magazine Dick’s Sporting Goods publishes for its loyalty card members, but it also happens to aptly summarize a company with an aggressive attitude toward growth.

Despite a faltering economy in which consumers are struggling to pay higher prices for food and gas, Dick’s remains committed to a robust expansion program that will see the company open a total of 54 new stores this year under the Dick’s Sporting Goods and Golf Galaxy banners. Already the nation’s largest sporting goods chain with 446 stores and sales last year of $3.9 billion, Dick’s contends it has the potential to operate a national network of 800 stores and sees the biggest impediment to that goal being the recent pullback in shopping center construction on the part of developers concerned about potential tenants.

“We see excellent investment potential in the most powerful unit growth story in our sector,” said Goldman Sachs hardlines retail analyst Matt Fassler. “The firm has minimal store penetration west of the Mississippi and stands out as one of the two stocks (CarMax is the other) in our coverage with significant open-air growth opportunity.”

To keep pace with its expanding network of stores, Dick’s also plans to expand its headquarters. The company plans to vacate its existing 190,000-square-foot office near the Pittsburgh International Airport and relocate to a newly constructed 670,000-square-foot facility nearby that will also have a 60,000-square-foot aviation center accessible via the airport.

The full tilt pace of the company’s expansion is a fairly recent phenomenon. Dick’s completed an initial public stock offering in October 2002 when it operated 123 stores, and by July 2004 had made a sizeable acquisition with the purchase of 47 Galyan’s stores. In February 2007, Dick’s bought the Golf Galaxy chain of 65 stores and in November 2007 it bought the 15-store Chick’s Sporting Goods chain, which paved the way for the company’s entry into California. The first of the Chick’s stores will be converted to the Dick’s format later this year with the remainder slated for conversion next year. Eventually, Dick’s long-range plans call for California to have its highest concentration of stores with 90 total units.

The time frame in which the company expects to hit its ambitious growth objective of 800 nationwide units hasn’t been defined and there are some near-term financial considerations at the present time, as Dick’s isn’t exactly hitting the cover off the ball.

The fact that the highly discretionary nature of its product mix means consumers can easily postpone purchases is reflected in its results. The company was forced to downwardly revise guidance for the first quarter and then saw profits decline from year-earlier levels as same-store sales at Dick’s stores dipped 3.8% and Golf Galaxy comps declined 7.4%. Second-quarter results are due out later this month and Dick’s again has forecast a profit decline from year-earlier levels and expects same-store sales to decline between 4% and 7%.

Despite the bleak outlook, Dick’s has yet to ease off on store expansion, even though doing so would likely placate shareholders with a short-term orientation to see the company reduce expenses amid a challenging economic climate. However, Dick’s is in a unique situation, since chairman, ceo and president Ed Stack and his relatives control 76% of the company’s outstanding shares, according to the company’s annual report, which means the company can remain focused on achieving a long-term objective.