Consumer Discretionary
A story riddled with risk - Brian McGough argues DKS is priced for perfection despite mounting structural and cyclical headwinds. Core growth is tapped out and the House of Sport concept – its only unit growth driver - is not working; comping down 20% in year 2 and down again in year 3. Inventory issues, including a Critical Audit Matter on carrying value, and gross margin risks from tariffs on private-label apparel add further pressure. Apparel (40% of sales) has turned deflationary and the Foot Locker merger is seen as immediately margin-destructive, with no strategic merits and likely to strengthen competitors such as Academy and JD Sports. Brian is incrementally of the view that the 5-year CAGR for athletic footwear in the US is -300bp below pandemic-era trends and warns that at 10x EBITDA, a historical peak, DKS is over-owned, over-earning and due for a correction.
Edition: 223
- 31 October, 2025
Which unit growth stories can be bought at a discount?
Consumer Discretionary / Staples
John Zolidis reviewed 18 unit growth stories in the consumer space, breaking out the value of the existing business from the implied value of the growth option. He then calculated the value of future unit growth using a store level DCF. He compared the implied value of the growth option in the first exercise to expected value creation from store growth in the second. From this John solved for where the market was paying the largest premium to the value of future growth and where growth could be purchased at a discount. The most interesting names on the long side were Academy Sports & Outdoors, Luckin Coffee and Yum China. Sprouts Farmers Market still looks very cheap even after +50% move YTD. Investors are paying the biggest premium for Dollarama, Chipotle and Dollar Tree.
Edition: 176
- 22 December, 2023
Consumer Discretionary
The market is ascribing zero value to the company’s store opening plans - ASO is currently at a growth inflection making it especially susceptible to being misvalued in the current market. John Zolidis considers a range of outcomes for earnings and cash flow from the existing business in addition to the impact of adding 80-100 new stores from FY22-FY26. Shares are <$38, just 5x FY22E EPS, if ASO can trade at 10x, it suggests a $110 price by early 2026 (190% upside). Alternatively, a 10%-12% FCF on the current business plus $25 for the discounted value of future stores suggests a $75 value today (~100% upside).
Edition: 138
- 24 June, 2022