Dick's Sporting Goods Acquisition Puts It On West Coast

by , Nov 30, 2007, 5:00 AM
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Pittsburgh-based Dick's Sporting Goods has set plans in motion to acquire Chick's Sporting Goods under a stock purchase agreement for approximately $40 million in cash. The company will assume about $31 million of debt.

Dick's Sporting Goods will fund the deal through an existing credit facility. Chick's Sporting Goods shareholders could earn up to $5 million in additional payment if performance criteria are met through June 2008, the company says. The deal should close on Dec. 31.

The small, yet strategic move into the California market gives Dick's Sporting Goods a solid foothold on the West Coast, according to Reed Anderson, senior research analyst at D. A. Davidson & Co. "Dick's has about $4 billion in annual sales, with nearly zero debt, so it's a rounding error for them to take on about $30 million in debt," he says. "Plus, they're not coming into the market with a bunch of new stores, so they don't add to the competition in the market."

Chick's Sporting Goods will add 15 specialty sporting goods stores in Southern California, averaging 50,000 square feet, to Dick's Sporting Goods 340 stores in 36 states throughout the eastern half of the U.S. The stores generated more than $120 million in sales during the last fiscal year, end June 30, 2007.

Paying attention to marketing trends, Anderson says Dick's Sporting Goods has been migrating away from print and more toward television and online ads. "Though not eliminating it, Dick's has been steadily reducing their print circular distribution numbers for the last couple of years," he says.

Jeffery Hennion, Dick's Sporting Goods SVP/CMO, says Dick's could eventually integrate marketing promotions with Chick's Sporting Goods, but not until after the acquired store's fiscal year ends in June. As for Dick's Sporting Goods, on Saturday the sporting goods store chain will debut television and print ads featuring Lance Armstrong as one of the store managers promoting both Nike Training and Nike Livestrong product lines.

Although no online ads are planned, Wall Street insiders have noticed an increase in attention given to Dick's Sporting Goods' Web site, a flashier look with editorial and marketing content.

But the real attention to marketing comes with having a national footprint with a local feel, says Stifel Nicolaus equity analyst David Schick. "In this part of town, the local football team wears blue and white, so make sure the clothing displayed in the store has blue and white when you first walk in," he says. "These are little details that you have to get right in sporting good stores."

They're doing something right, Schick says, estimating that Dick's Sporting Goods generates about $200 per square foot in sales annually.

Dick's Sporting Goods last week reported for the third quarter, end Nov. 3, that net income rose 57%, to $12.2 million, and earnings per diluted share increased 43%, to 10 cents per share, compared $7.8 million, or 7 cents per diluted share, in the year-ago quarter.

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