Len Boselovic’s Heard off the Street: Golf helps push Dick’s numbers to sand bunker

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Executives at Dick’s Sporting Goods love the game of golf. Chairman and CEO Edward Stack has teed it up at the AT&T Pebble Beach National Pro-Am and is a trustee of The First Tee, which uses golf to teach life skills and leadership to young people. The company sponsors the Dick’s Sporting Goods Open, a PGA Senior Tour event.

Shareholders even support Dick’s executives’s love of the game. Last year, the $4 million pay package pay for Joseph H. Schmidt, president and chief operating officer, included two golf items: $105,636 for country club dues, and $90,313 for taxes related to the country club perk that the company paid for Mr. Schmidt.

While few enjoy a good walk spoiled more than they do, Dick’s senior executives have no love for the golf business.

Abysmal first-quarter numbers in golf and hunting sent shares of Dick’s [ticker: DKS] down sharper than a duck hooker’s tee shot Tuesday. During a conference call with analysts, Mr. Stack was not shy about confessing that the swing flaw can’t be fixed by swatting a few buckets of balls at the driving range.

“We don’t know where the bottom is. We think that there’s a real issue here,” Mr. Stack said.

Dick’s golf business missed the company’s sales target by about $34 million, he said. Sales of drivers, an item retailers count on golfers replacing on a regular basis, were down 2 percent, but the average price of a driver that left a Dick’s store fell 16 percent, he said.

Equipment makers tweak driver technology each year, hoping to convince golfers their scores are so horrific because they are deploying outdated technology. That marketing approach only goes so far because golfers — eternally optimistic dogged victims of inexorable fate though they may be — ultimately realize they are physically, intellectually and emotionally unsuited to play the game above a certain proficiency level and that incremental improvements in technology are not going to change that.

For them, price is a big factor. Canaccord Genuity analyst Camilo Lyon, who described himself as a casual golfer, says given the choice between a new $300 Big Bertha driver, Callaway’s signature model, and an older version priced at $200, he’ll go for the cheaper club.

“I think it’s a pretty simple decision,” Mr. Lyon said in an interview. “I tend to believe price is the prevailing factor. It usually always is.”

Dick’s found that out the hard way. Saddled with bloated inventories, it gave golfers the choice between new, high-priced technology and deeply discounted older models. They chose the latter. Drivers that fetched $299 20 months ago were marked down to $99, Mr. Stack told analysts.

Could it be that an executive who gets nearly $200,000 in company-paid, golf-related benefits cannot fathom why Joe Hacker can’t afford to pay for new tools of ignorance more often?

Mr. Stack also blamed customers for not being willing to embrace technology.

“The technology and game improvement possibilities, especially in drivers, are fantastic. But since it’s not yet completely understood or embraced, the core golfer has not replaced his equipment and the more casual player has elected to buy closed-out products at a lower price,” he said.

Some blame this on Dick’s sales associates not being knowledgeable enough to explain the technology. Others say it’s a matter of golfers who are playing less, but just as poorly, coming to their senses. Either way, the fact that golfers did not swallow the technology pitch in Dick’s first quarter, a time when a hacker’s hopes of lowering scores spring eternal, says something about the magnitude of the challenge confronting retailers and equipment manufacturers.

There are other issues.

The number of U.S. golfers has fallen 16 percent since 2005, according to the National Golf Foundation. The number of rounds played each year has fallen in four out of the last five years. The equivalent of 14 courses opened last year compared to 157.5 that closed, the eighth consecutive year course closings exceeded openings, according to the foundation. Much of that can be traced to the recession and golfers having less money to spend. The harsh winter and late start to the golf season further complicated matters.

“It’s been a tough confluence of events that has lasted for a long time,” Mr. Lyon said.

The disappointing numbers prompted the company to lower its 2014 earnings outlook to $2.70 to $2.85 per share versus previous guidance of $3.03 to $3.08 per share. Dick’s earnings miss sent its shares down 18 percent Tuesday. They finished the week at $43.08, down 26 percent for the year.

Mr. Stack thinks the inventory can be worked off in the current quarter, but Mr. Lyon believes the issue could extend into the second half.

“Anytime there’s any inventory problem, it never is only a one-quarter issue,” he said.


Len Boselovic: 412-263-1941 or lboselovic@post-gazette.com

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