Earnings   //   June 12, 2024

Why some sports retailers remain under stress

Inflation is easing up in the United States, but some sporting goods and apparel retailers are still seeing a slowdown.

On Tuesday, Academy Sports + Outdoors CEO Steve Lawrence said that the company expects its shoppers to “remain under pressure” and “moderate their spending” for the rest of the year. Meanwhile, at the end of May, Foot Locker CEO Mary Dillon said she expects “the external environment to remain dynamic,” pointing to “reduced savings balances and higher interest rates.” And at the end of April, Big 5 CEO Steven Miller said transactions were down low double-digits and cited a “soft discretionary spending environment.”

The sporting goods sector has had a challenging past few quarters. Many shoppers are pressing pause on buying nice-to-haves like baseballs or skateboards to allocate more money to essentials like food and gas. According to the U.S. Bureau of Labor Statistics, the price of sporting goods in the U.S. rose 0.9% from March to April.

Still, even as sporting goods stores deal with challenges, the biggest players are starting to diverge on performance. In the last two weeks, Academy Sports + Outdoors and Foot Locker both reported drops in revenue from a year prior. And yet, one retailer has managed to stay above the fray: Dick’s Sporting Goods.

Dick’s raised its full-year guidance at the end of May after reporting a 5.3% year-over-year rise in comparable sales growth. Meanwhile, Academy Sports + Outdoors said that net sales dropped 1.4% year over year. Foot Locker reported that sales decreased 2.8% from a year prior. And Big 5’s same-store sales decreased 13.5% from the first quarter of fiscal 2023 to the first quarter of fiscal 2024.

There are a few factors at play behind this widening gulf in the sporting goods sector, Seth Basham, an analyst at Wedbush Securities, told Modern Retail. First, and perhaps most important, is customer base, Basham said. Academy Sports + Outdoors caters to a more lower- to middle-income consumer, while Dick’s caters to a more middle- to high-income consumer. “We’re seeing bigger cutbacks in discretionary spending from that lower-income customer because of inflation and higher interest rates, so I think that’s by far and away the biggest delta,” Basham said.

Another factor is brand assortment. Academy Sports + Outdoors doesn’t sell “buzzy footwear brands” like On or Hoka, Basham said, while Dick’s Sporting Goods does.

Other analysts see this as well. Compared to others in the sporting goods space, Dick’s has “improved positioning in the marketplace — including a stronger and more diverse assortment of national brands [and] high performing private brands,” Telsey Advisory Group analyst Joe Feldman wrote in a note. Big brands are also propelling Foot Locker, even though its overall sales are down. The retailer managed to more than double its Hoka business last quarter.

Geographic-related pressures have also likely played a role in sporting goods performance, Basham pointed out. On Tuesday, Academy Sports + Outdoors’ CEO said the company’s outdoor cooking division had a challenging quarter after a “crawfish shortage suppressed sales across the entire Gulf region.” Academy Sports + Outdoors has stores in 19 states, many of which are in the South.

Dick’s is also focusing more on omnichannel and experiential retail. The retailer is on track to open eight new House of Sport locations this year — large-scale stores with immersive elements like rock climbing walls, indoor tracks and simulated driving ranges.

Feldman, who recently toured a House of Sport in Boston, said that he was impressed by the store’s sight lines and the “breadth and newness” of its merchandise. Dick’s is also seeing strong sales growth from GameChanger, its live-streaming and scorekeeping mobile app for youth sports. According to Dick’s President Lauren Hobart, more than 5 million unique users engaged with GameChanger last quarter and spent approximately 30 minutes per day on the app.

Competitors of Dick’s appear to be trying to step up their omnichannel offerings as well. This week, Academy Sports + Outdoors announced it would partner with DoorDash to offer on-demand delivery from its 285 U.S. stores. Initially, customers can only get this service through the DoorDash app, but “the next phase will be to integrate this functionality into our site, where customers can choose same-day delivery as another fulfillment option,” Lawrence said on an earnings call Tuesday.

Although many sporting goods stores are struggling, Basham said he is cautiously optimistic about the future. “I think that discretionary spending will improve over time as we see some of these economic headwinds aside,” he said. “Relatedly, some of the categories that are performing the worst for the industry are those that were pulled forward through the pandemic — things like fitness equipment and bicycles. Eventually, we will move through that.”