How to Value: Sporting Goods Stores

Industry Description

The Sporting Goods Stores industry (NAICS 451110) retails new sporting goods like bicycles, camping equipment, exercise and fitness equipment, apparel, footwear, and other goods and accessories of the like to the general public. Department stores, mass merchandisers and retailers exclusively selling apparel are not included in this industry.

The following are some basic characteristics of the Sporting Goods Stores industry:

  • Sporting Goods Stores industry has a combined revenue of $65.1 billion, with a growth rate of 4.4% in 2016-2021
  • There are approximately 41,000 businesses as of 2021
  • The Sporting Goods Stores industry employs approximately 276,000 people

Industry Trends

The Sporting Goods Stores industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising approximately 36% of revenue in 2021. The largest operators typically have stores in multiple states, while small players are independently owned and operated in one or two states. Some key external forces influencing the Sporting Goods Stores industry are (i) rising sports popularity, (ii) the rise of e-commerce, and (iii) the increased use of technology. Each of these is described in further detail below.

The popularity of sports and physical activity is increasing industrial demand. According to the Bureau of Labor Statistics, 21.5% of the U.S. population was engaged in sports and exercise each day in 2021. This increase has been ascribed to a better understanding of the value of an active lifestyle and the health benefits of regular physical activity. With more people participating in physical activity and sports, consumer spending on sporting items like athletic clothing, footwear, and fitness equipment has increased, increasing industry demand. The industry will continue to benefit from the rising popularity of sports.

The growth of e-commerce has significantly impacted the industry. Online shopping is becoming increasingly well-liked among consumers because of its ease and wide selection of goods. E-commerce websites frequently provide discounts as well, which has increased the allure of online purchasing. According to the US Census Bureau, online athletic goods sales are growing, growing by 11.1% from 2020 and generating $36.4 billion in revenue in 2021. This growth in online sales will persist as consumers take advantage of the convenience of online buying.

Industry players should look to incorporate technology into their products and services as technology advances. The American College of Sports Medicine has named wearable technology one of the top fitness trends for 2021. Consumers may measure their health and well-being using wearable technology, which includes GPS-tracking devices, smart watches, heart rate monitors, and fitness trackers. Virtual reality technology is another technology being used more frequently since it enables people to experience sports in a virtual setting.

The sporting goods stores industry in the US has been heavily impacted by external factors, like the rise in sports popularity, the popularity of e-commerce, and the increased use of technology. Sporting products are becoming more popular among customers with the increases in participation in sports and physical activity as they become more health aware, fueling an increase in industry demand. The ease of online purchasing and the use of technology has also aided in the growth of the industry.

Key Performance Metrics

In evaluating sporting goods stores, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:

  • Average transaction value
  • Sales per square foot
  • Sales volume
  • Conversion rate
  • Inventory turnover rate
  • Foot traffic
  • Digital traffic
  • Customer retention

Industry Organizations & Publications

The following organizations publish useful information:

  • Sports & Fitness Industry Association
  • National Sporting Goods Association
  • Outdoor Industry Association
  • World Federation of the Sporting Goods Industry

Guideline Information: Private Purchase Transactions

Most Sporting Goods Stores are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held Sporting Goods Stores is generally the best source of information to appraise a subject company.

The following are typical appraisal multiples from sale of Sporting Goods Stores:

  • Revenue multiple between 0.24 and 0.94 times
  • Gross profit multiples between 0.84 and 1.44 times
  • EBITDA multiples between 1.9 and 6.2 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.

Guideline Information: Publicly Traded Companies

Most Sporting Goods Stores are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company. 

The four largest publicly traded US Sporting Goods Stores, ranked by market capitalization are: 

  • DICK’S Sporting Goods, Inc. (DKS) – $10.8 billion market capitalization
  • Academy Sports and Outdoors, Inc. (ASO) – $4.6 billion market capitalization
  • Sportsman’s Warehouse Holdings, Inc. (SPWH) – $339.3 million market capitalization
  • Big 5 Sporting Goods Corporation (BGFV) – $195.9 million market capitalization

The Price-to-Earnings (P/E) ratios of these four companies range between 4.4 times to 11.9 times.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Sporting Goods Stores are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.