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Dick's Sporting Goods Looks Solid Heading Into Q2 Earnings

Dick's Sporting Goods (NYSE: DKS) got a big reprieve when President Trump announced he was backing down from imposing the latest round of tariffs on China. Because the so-called List 4 goods covered clothing, footwear, and sporting goods, which pretty much sums up Dick's entire business, along with toys and agricultural products, the potential for a disastrous holiday season was great.

While that wouldn't have impacted Dick's current-quarter results, which it is scheduled to report on Thursday, Aug. 22, the sporting goods retailer is still feeling the effects of the List 3 tariffs that were imposed earlier this year, though it was able to mitigate many of them. It also is weighed down by the anchor of Under Armour, once one of its prime apparel brands, which continues to struggle.

However, with other, stronger brand partners doing better, let's see what investors might expect from Dick's second-quarter earnings.

Variety of sports gear and equipment
Variety of sports gear and equipment

Image source: Getty Images.

Mixed messages from partner brands

The sporting goods retailer was mindful of the impact a new round of tariffs could have on consumers, so it said it was being conservative when it offered full-year guidance (Dick's doesn't provide quarterly guidance).

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It sees same-store sales rising 2% versus a 3.1% decline last year, a result of angering a large swath of its customers by banning the sale of certain firearms. Earnings are expected to grow to between $3.20 to $3.40 per share, up from the $3.15 to $3.35 per share it previously guided to, and it continues to expect to open seven new Dick's Sporting Goods stores this year.

Still, being conservative may not be enough to offset the slowdown some of its most important partners experienced.

While Under Armour is an ongoing turnaround story, Adidas has been one of its best-performing brands, even though Dick's kicked its Reebok brand to the curb. But Adidas just reported weaker-than-expected revenue as North American sales slowed from 16% to 10% growth for combined Adidas brand and Reebok sales.

Yet some still going strong

The good news for Dick's is that Adidas' results suggest Nike is gaining market share, and because the sporting goods store has some Nike exclusives that have been selling well, it may make up for the decline elsewhere.

Similarly, high-end cooler maker Yeti also posted surprisingly strong sales and earnings this quarter. It sells more drink mugs and lifestyle accessories than it does coolers, but Dick's has been pleasantly surprised by how well consumers have responded to Yeti's in-store displays.

However, wholesale sales to outlets like Dick's were flat for Yeti this quarter because they bought merchandise sooner than expected at the end of the quarter, which could mean Dick's was expecting to see strong demand once again and wanted to ensure it had plenty of inventory on hand to meet it. It might not have been good for Yeti in terms of sales, but it could signal positive news for Dick's investors.

Hit 'em where they ain't

The sporting goods retailer also saw same-store sales turn positive in March and continue to be in April, so as the important summer sports season continues, there's a good chance those metrics will have remained positive for the remainder of the quarter, and might even surprise Wall Street again when Dick's reports the numbers.

Dick's Sporting Goods has reported better same-store sales at the stores where it replaced hunting goods with other sports merchandise. Since hunting is slow during this quarter anyway (it is a big fall category), the retailer could see an even larger boost.

Ultimately, investors should expect some solid hits from Dick's, even if the second quarter doesn't turn out to be a home run.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

This article was originally published on Fool.com