Summary
I don't usually like negative comps, but the rationale behind DKS's sales slide makes sense and will not be permanent.
DKS's e-commerce business is growing nicely, and management has done a great job of managing costs.
Reduced store openings have created a cash flow machine.
Shares look undervalued at roughly 8x free cash flow.
Dick's Sporting Goods (DKS) reported Q3 results that were below consensus expectations on revenue, but well above expectations on earnings per share. The company's decision to stop selling certain firearms and electronics is clearly weighing on sales; however, it is doing a fantastic job of managing costs and capital spending. Overall, I believe Q3 was a net positive for the company, and I continue to believe shares are worth $40-50. Let's take a look at what drove negative comps, as well as the other improvements DKS has made to improve cash flow.
