Academy Sports and Outdoors (NASDAQ: ASO) fell 3.3% through 10:20 a.m. ET on Tuesday, dragged down by disappointing results from rival Dick’s Sporting Goods (NYSE: DKS).
Dick’s reported its Q2 earnings results Tuesday morning, missing analyst expectations on both earnings and sales figures for the quarter.
Management at Dick’s then compounded the disappointment by guiding investors to expect continued weakness throughout the remainder of the year.
That kind of guidance from a major industry player is enough to rattle investors in competing sporting goods retailers, even those with no news of their own.
Dick’s posted a $3.50 per share GAAP profit on sales of less than $5.6 billion for the second quarter.
Sales surged 53% year over year, boosted partly by Dick’s absorbing rival Foot Locker’s business, yet profits still plunged 26% during the same period.
The company guided for full-year sales of at most $22.2 billion, falling short of analyst consensus expectations of $22.4 billion.
Earnings guidance was even more alarming, with Dick’s projecting results potentially as low as $11 per share, well below the consensus estimate of $14.20 per share.
Despite the selloff, Dick’s shares still trade at nearly 18 times earnings, a significantly richer valuation than its smaller competitor.
Academy Sports stock, by contrast, trades at just 8.2 times earnings, representing a discount of more than 50% compared to Dick’s current valuation.
Analysts forecast Academy Sports can grow its earnings at more than 11% annually over the next five years, compared to just an 8% growth projection for Dick’s.
That combination of a lower valuation and stronger expected earnings growth positions Academy Sports as a more attractive option for investors considering the sporting goods retail sector.
The broader concern, of course, is whether weakening consumer demand for sporting goods will weigh on the entire industry, including Academy Sports.
If sporting goods sales soften across the board, Academy Sports will not be immune simply because its stock is cheaper than Dick’s heading into the downturn.
Still, starting from a significantly lower valuation means Academy Sports stock carries less downside risk for investors who already accept that the sector faces headwinds.
