Being in the retail business comes with a lot of risk and uncertainty. Again, in the annual report submitted to the SEC, you can find the obvious risks and uncertainties. I will have the excerpt from the report listed below with my comments in the non-bold form.
DSG states that "Our business is dependent on the general economic conditions in our markets and ongoing economic and financial uncertainties may cause a decline in consumer spending that may adversely affect the Company's business, operations, liquidity, financial results and stock price."
The uncertainty can be found in the economic future of the United States, both near and far. The riskiness can be found in current decisions being made without complete information available to the company without knowing the economic impact it may have, such as new deals with brands for merchandising rights, store expansions into potentially profitable areas, and the movement of online sales and availability of products.
All of our stores are currently located within the United States, making our operating results highly dependent on U.S. consumer confidence and the health of the U.S. economy. While the national economy is experiencing some level of recovery from the recent downturn, we cannot predict how robust the recovery will be or whether or not it will be sustained. If the economic recovery continues to be slow, or if the economy experiences a prolonged period of decelerating or negative growth, our results of operations may be negatively impacted.
The current economy's percentage of disposable income has been very volatile as can be seen in this graph.
It seems as if the US still haven't quite fully recovered from the recession and enormous hit taken in 2009. The projections say that disposable income is supposed to grow, but that is another risk and uncertainly that DSG must weigh on. The next bit of the excerpt continues to strengthen this thought...
As a business that depends on consumer discretionary spending, the Company may be adversely affected if our customers reduce, delay or forego their purchases of our products as a result of continued job losses, foreclosures, bankruptcies, higher consumer debt and interest rates, higher energy and fuel costs, reduced access to credit, falling home prices, lower consumer confidence, uncertainty or changes in tax policies and tax rates and uncertainty due to national or international security concerns. Decreases in same store sales, customer traffic or average value per transaction negatively affect the Company's financial performance, and a prolonged period of depressed consumer spending could have a material adverse effect on our business. Promotional activities and decreased demand for consumer products, particularly higher-end products, could affect profitability and margins. In addition, adverse economic conditions may result in an increase in our operating expenses due to, among other things, higher costs of labor, energy, equipment and facilities. Due to recent fluctuations in the U.S. economy, our sales, operating and financial results for a particular period are difficult to predict, making it difficult to forecast results to be expected in future periods.
Pressure from our competitors could require us to reduce our prices or increase our spending for advertising and promotion. Increased competition in our current markets or the adoption or proliferation by competitors of innovative store formats, aggressive pricing strategies and retail sale methods, such as the Internet, could cause us to lose market share and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As touched on in my past blogs, competition can be harsh in the retail world, but DSG has a proven track record that risk from other complementary companies are not as big of a threat as the Internet and the mega site Amazon. The opening and expansion of the brand DSG must be followed closely with Internet sales as a large portion of Dick's profits is now online. Amazon could continue to eat into those profits and force DSG to consider other avenues of expansion other than brick and mortar stores as supported below.
In addition, as the popularity and use of Internet sites continue to increase, our business faces increased competition from various domestic and international sources, including our suppliers. We may require significant capital in the future to sustain or grow our business, including our store and eCommerce operations, and there is no assurance that cash flow from operations will be sufficient to meet those needs or that additional sources of capital will be available on acceptable terms or at all.
Sources:
http://www.sec.gov/Archives/edgar/data/1089063/000104746913003238/a2213667z10-k.htm
https://www.ibisworld.com/gosample.aspx?cid=1&rtid=4
