Shares of DICK'S Sporting Goods Inc. DKS plunged 12.5% yesterday, leading the market decline, as President Donald Trump's new tariffs raised concerns over increased costs across various industries. The new tariffs, targeting key manufacturers in Southeast Asia such as Vietnam and Indonesia, are expected to raise the prices of sportswear and apparel. This could lead to higher costs for popular products sold by the company.

With tariff rates soaring 46% in Vietnam, 32% in Indonesia and 54% in China, the increased production costs could pressure DICK'S Sporting’s margins and potentially lead to higher prices for consumers, impacting demand. The company's stock reacted sharply to these fears, reflecting investor concerns about the broader impact of these tariff increases.

Shares of the sporting goods retailer have plunged 16% in the past three months compared with the Zacks Retail - Miscellaneous industry’s 15.8% decline. Furthermore, the company has underperformed the broader Retail - Wholesale sector and the S&P 500 index’s decline of 8.3% and 10.3%, respectively, in the same period.

DKS Stock's Price Performance In The Past Three Months

Image Source: Zacks Investment Research

Near-Term Challenges Weigh on DKS Stock

The sharp decline in DKS stock highlights growing concerns within the athletic apparel retail sector, which is heavily influenced by consumer spending and overall economic conditions. The new tariffs imposed by President Trump are likely to force the company into difficult decisions, either raising prices or absorbing lower profit margins, both of which could hurt its business. While tariffs are paid by the importing company, they add a significant financial burden that is often passed on to consumers in the form of higher prices.

DICK’S Sporting has been witnessing an uncertain macroeconomic environment. Higher wage rates increased investments in talent and technology to create a better athlete experience, and investments in marketing have been leading to elevated costs for a while. In fourth-quarter fiscal 2024, adjusted selling, general and administrative (SG&A) expenses rose 7.8% year over year and deleveraged 101 bps as a percentage of sales. Management anticipates greater deleverage in adjusted SG&A expenses in the first half of fiscal 2025 with moderation in the second half, thanks to strategic investments to aid growth in the long haul.

Despite a strong fourth-quarter fiscal 2024, DKS issued a soft comparable sales (comps) view for fiscal 2025. The company expects comps growth of 1-3%, down from 5.2% delivered in fiscal 2024. The midpoint of the comps view represents almost a 10% three-year comp stack. DKS envisions earnings to be $13.80-$14.40 per share compared with adjusted earnings of $14.05 per share in fiscal 2024. It envisions EPS to drop year over year in the first half while increasing in the second half.

Will DKS’ Strong Fundamentals Aid the Stock’s Recovery?

DICK’S Sporting has been benefiting from strong brand strength and continued market share growth, driving positive top-line performance in the fourth quarter of fiscal 2024. The positive performance was largely fueled by its four strategic pillars: delivering an omnichannel athlete experience, offering a differentiated product assortment, building deep engagement with the DICK'S brand and empowering knowledgeable, passionate teammates who provide exceptional service.

The company remains on track with its business optimization efforts, aimed at streamlining its cost structure. Additionally, the strong omnichannel athlete experience and unique product assortment continue to be key drivers of growth for the business.

Dick’s Sporting continues to strengthen its position as a top omnichannel sports retailer through strategic investments in innovation, customer engagement and market expansion. The company is enhancing brand loyalty with experiential store concepts like House of Sport and Field House, creating immersive shopping experiences. Its digital transformation, including e-commerce growth and robust fulfillment capabilities, ensures competitiveness in an evolving retail landscape. With increasing consumer demand for sports and active lifestyles, DICK’S Sporting is well-positioned for sustained long-term growth.

Undervalued Stock: Is it the Right Time to Buy?

From a valuation perspective, DKS shares present an attractive opportunity, trading at a discount to historical and industry benchmarks. The recent pullback has brought DICK’S Sporting stock valuation to a level that appears more affordable and appealing.

The stock trades at a forward 12-month price-to-sales (P/S) ratio of 1.08, reflecting a discount to the broader industry’s 1.48 multiple and the S&P 500’s ratio of 4.65. Moreover, the company’s current valuation is below its five-year high of 1.47x, suggesting that shares are cheap on a relative basis. The stock’s current Value Score of A validates its appeal.

How to Play DKS Stock?

Dick’s Sporting’s recent plunge, triggered by sweeping new tariffs imposed by President Trump, underscores growing investor anxiety around rising input costs. In addition, the broader macroeconomic environment remains uncertain. Rising wage rates, ongoing investments in talent, technology and marketing, along with disappointing sales and EPS guidance, weigh on sentiment. These near-term challenges, coupled with rising freight costs, create headwinds that warrant caution.

However, the stock’s undervaluation relative to the industry, combined with DKS' long-term growth potential, transformation strategies and financial resilience, offers reasons for optimism. The company’s focus on brand strength, digital enhancements and store optimization positions it well for future success.

For investors seeking exposure to the retail space, DKS' recent stock decline presents a buying opportunity. However, given the near-term pressures, a careful assessment of risks and rewards is essential. The stock currently has a Zacks Rank #3 (Hold).

Key Picks

We have highlighted three better-ranked stocks in the broader sector, namely Nordstrom, Inc. JWN, Urban Outfitters Inc. URBN and Boot Barn BOOT.

Nordstrom, a fashion retailer that provides apparel, shoes, beauty, accessories and home goods for women, men, young adults and children, currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 2.02% from the year-ago period’s reported figures. JWN delivered an earnings surprise of 30.3% in the last reported quarter.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It sports a Zacks Rank #1 at present.

The Zacks Consensus Estimate for Urban Outfitters’ fiscal 2025 earnings and sales indicates growth of 20.6% and 7.5%, respectively, from the fiscal 2024 reported levels. URBN delivered a trailing four-quarter average earnings surprise of 22.8%.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently has a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 14.9% from the year-ago figure. The company delivered a trailing four-quarter earnings surprise of 7.2%, on average.

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DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report

Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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