Further evidence US sporting goods category dynamics remain robust After a robust Q3 performance, both Dicks’ Sporting (DIX: NYSE, N/R) and Hibbett (HIBB: Nasdaq, N/R) raised FY guidance yesterday, which supports our positive view of JD Sports’ 2H24 prospects and its ability to drive a better 2H margin helped by lower discounting YoY. We believe short-term US concern, which has weighed on the share price performance, is overdone and JD Sports’ undemanding valuation (CY24E PE 9.3x) does not reflect how well JD is placed to deliver double-digit growth per annum over its five-year ‘JD First’ plan. Next news: JD Sports’ January trading update / Nike Q2 Dec 21 / Foot Locker Q3 Nov 29. Key takeaways for us from DIX & HIBB’s updates are (1) the sporting goods category is proving robust and both are excited about new product launches in Q4 and into 2024. DIX stated on its conference call: “We are pleased with how our consumer is holding up within the sporting goods industry’. Hibbett said that “they do plan on spending more during the holidays, in particular, on footwear” and “Gen Z, as well as millennials, are definitely bullish and tend to spend more versus the older population”. (2) Both talked about a positive back-to-school period (Aug/Sept), with October sales weaker due to warmer weather. Footwear sales have been steady, with apparel more volatile. (3) Interestingly, there was very little questioning from analysts on shrink and stock levels, which suggests industry stock is back to more normalised levels, as expected by most industry players. Both Dicks’ Sporting and Hibbett raised FY guidance Dicks’ Sporting continues to take share in a fragmented market and beat on Q3 expectations. It raised its FY23 non-GAAP EPS outlook to $12.00-$12.60 (prev. $11.50-$12.30), incl. 20c for 53rd weeks. This is based on FY23 comp store sales +0.5% to +2.0% (prev. flat to +2.0%). According to management, this conservatively assumes a slowdown in Q4 comps QoQ as the consumer environment remains uncertain and Q4’s gross margin improvement YoY is expected to accelerate due to lower industry clearance and freight. Q3 sales +2.8% (Q2 +3.6%) with comps up 1.7% (Q3 1.8%), driven by a 1.1% increase in transactions and 0.6% in ATV. Q3 gross margin was up 88bps YoY (+78bps lower supply chain costs, merchandising margin +23bps offset by shrink +50bps). DIX still sees no trading down from its consumers and growth in all income demographics. (See overleaf)