DICK'S Sporting Goods, Inc.DKS is progressing well with its initiatives, including exclusive merchandising strategy and solid omni-channel endeavors. Also, the company boasts an impressive surprise history, which, coupled with growth strategies, have been driving the stock's performance.

Shares of the company have surged 40.8% in a year, significantly outperforming the industry 's 17.2% rally. Moreover, the company's VGM Score of A and a long-term earnings growth rate of 7% further raise optimism on the stock. Let's take a look at this Zacks Rank #3 (Hold) company's strategies and weaknesses in detail.

Growth Catalysts

DICK'S Sporting's unique strategy of offering exclusive branded merchandise, sourced from leading manufacturers, provides it with a competitive advantage. Further, the company leverages strong vendor relationships to source overstock and closeout merchandise at substantial discounts to achieve the dual objectives of boosting gross margin and offering compelling value to customers.

Apart from improving customer satisfaction and inventory turnover, these investments boost merchandise margin rates. Notably, the merchandise margin improved 141 basis points (bps) in second-quarter fiscal 2018, mainly backed by lower promotions and improved product mix. Solid merchandise margins also drove gross margin, which grew 80 bps in the reported quarter.

Meanwhile, the company has been gaining from the continued focus on developing every possible avenue to generate greater sales. It remains on track to build the best omni-channel experience for athletes by strengthening its store network and expanding e-commerce presence. Notably, e-commerce penetration improved to about 11% of net sales in the fiscal second quarter, up from 9% in the prior-year quarter. Moreover, e-commerce sales grew 12% in the quarter.

As part of its long-term plan, the company is expected to make significant investments in e-commerce, technology, store payroll, Team Sports HQ and private brands. These endeavors are likely to enrich customers' experience and augment the top line.

Further, the company's store-expansion efforts to boost revenues are appeasing. Management introduced five namesake stores in the second quarter and plans to open 19 and relocate four flagship stores in fiscal 2018. DICK'S Sporting's shareholder-friendly moves also remain noteworthy.

Apart from boasting a healthy balance sheet, the company regularly enhances shareholder value via dividends and share buybacks. In the last 12 months' time, the company returned more than $381 million to shareholders through quarterly dividends and share repurchases.

Impressive Q2 & Surprise Trend

Positive earnings surprise trend continued in second-quarter fiscal 2018, marking fourth straight beat. Though sales lagged estimates in the quarter, the company delivered top-line beat in three of the last five quarters. Both top and bottom lines improved year over year.

Bottom-line results gained from the solid execution of its merchandising strategies, higher sales and margin expansions. Robust growth in private brands and athletic apparel, excluding Under Armour, coupled with solid e-commerce operations also fueled the performance.

Management raised its earnings per share guidance for the fiscal year. Earnings per share are now envisioned to be $3.02-$3.20, up from the earlier guidance of $2.92-$3.12 and $3.01 earned in fiscal 2017.

Additionally, the Zacks Consensus Estimate of $3.13 for fiscal 2018 and $3.30 for fiscal 2019 moved north 1.3% and 2.2%, respectively, in the past seven days.

Concerns

Despite solid growth strategies and performance, DICK'S Sporting is witnessing persistent softness in its hunt and electronics categories for a while now. In fact, this is hurting the company's comparable store sales (comps) and top-line growth.

Changes to firearm policies, along with a challenged industry, have been hurting sales in the hunting business. Evidently, these businesses contributed roughly 50% of comps decline in the fiscal second quarter.

However, management plans to exit the electronics business while downplaying the hunt business and focusing on more profitable areas. The company expects the hunting and firearm, as well as electronics businesses, to experience headwinds throughout fiscal 2018, which will continue to hurt comps.

Wrapping Up

Though weakness in hunt and electronics categories are likely to continue for a short span of time, we believe DICK'S Sporting's above-mentioned strategies will continue driving the stock's momentum.

Meanwhile, you might focus on some better-ranked stocks in the broader retail space, as discussed below:

Urban Outfitters, Inc. URBN has outpaced the earnings estimates in each of the trailing four quarters by an average of 17.7%. Also, the company presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Five Below, Inc. FIVE has an impressive long-term earnings growth rate of 28% and a Zacks Rank of 2 (Buy).

Tractor Supply Co. TSCO , also a Zacks Rank #2 stock, has delivered an average positive earnings surprise of 3.4% in the trailing four quarters. It has a long-term earnings growth rate of 12.8%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.