Hardware, Sporting Goods Retailers Growing As Dollar Chains Take A Step Back

The coronavirus pandemic has hit some retail sectors hard, but less so sporting goods and hardware. Dick's Sporting Goods and Ace Hardware, giants of their respective sectors, are on track for further growth, even as pre-pandemic retail stars such as dollar stores are being hit by supply chain problems.

During Q2 2021, Dick's reported record sales, with total sales of $3.3B, up 20.7% compared with a year earlier during the early months of the pandemic, but also up 45% compared with the same quarter in 2019 as the consumer pivot to outdoor activities presumably turned more permanent. Comparable store sales year-over-year for Dick's were up 19.2%.

"A portion of this strength was driven by stimulus payments, but more importantly, we've seen a fundamental shift in consumer behavior. The importance of health and fitness has accelerated, participation in outdoor activities has increased," Dick's Chief Financial Officer Lee Belitsky said during the company's second-quarter earnings call on Wednesday. 

"We said 2021 was going to be the most transformational year in our company's history, and so far, it certainly has been," Dick's CEO Ed Stack said on the call. "We'll continue to invest in our future and reimagine the athlete experience in our core business and with new concepts."

In a sector that has benefited from people staying home and making repairs or undertaking hands-on projects, Ace Hardware reported record Q2 revenues of $2.5B, an 8.2% year-over-year gain, though its net income was down 16.5%. 

The drop in net income was due to write-downs of excess personal protective equipment and higher warehouse labor costs, among other factors, the company said. Same-store sales were up 1.2% for the quarter, with outdoor power equipment, grilling, basic electrical and hand tools showing the largest gains.

The company's total U.S. store count was 4,729 at the end of Q2, a net increase of 165 stores from the second quarter of 2020. Worldwide, Ace has 5,550 stores, opening more than 900 stores in the past five years while paying dividends of $293M last year, which represents a 46% return for Ace shareholders.

By contrast, pandemic-related supply chain snarls are impacting dollar store operations and earnings.

"As you have certainly seen in the media and elsewhere, freight costs have reached unprecedented levels as a result of increased demand, limited capacity and shipping delays," Dollar Tree President and CEO Michael Witynski said during his company's earnings call on Thursday.

"The Dollar Tree banner is more sensitive to freight costs than others in the industry," Witynski said. "Our products have lower price points than other retail importers. ... We are not counting on material improvements in 2022, especially in the first portion of the year."

The company is predicting rising freight costs will pull down its earnings by $1.50 to $1.60 per share this year, more than double the 60-to-65-cent drag that Dollar Tree forecast in May.