Away from the noise of the NFL, Dreams Inc is having another very good year

Sports licensed products  retailer Dreams Inc. saw its stock jump Tuesday as the NFL’s 4 ½ month lockout came to an end on July 25, ensuring a full playing season without interruption. There is nothing worse than inaction to sap merchandise sales. Sales in this category are often driven by the performance of individual athletes or teams; both requiring actual competition. While Dreams is not entirely dependent on the NFL, sources state that it represents nearly 35% of its consolidated revenues.  It also markets licensed products from MLB, NHL, NBA, NCAA, and NASCAR. However, NFL merchandising accounts for $2.5 billion of what Dreams estimates to be a $14 billion sports licensed products  industry- no small change.
Away from the noise of the NFL, Dreams has been having another very good year. 2011 first quarter revenue rose 42.4% to $23.5 million from $16.5 million in the year-ago quarter. Net loss grew to $1.2 million from $864,000. The company is a fully integrated retailer, consisting of a web division, brick and mortar, and manufacturing and distribution capabilities
Web sales was the key revenue driver, growing 52.7% from $11 million to $16.8 million year-over-year. It now accounts for 71.5% of all company sales. Growth is powered by performance at the flagship FansEdge.com website and other sites owned by the company which together grew 61%. Its mushrooming web syndication service also grew quickly with revenue rising 51% from $3.8 million to $5.7 million in the same year-ago quarter.
Additional retail sales came from the company’s FansEdge and Field of Dreams stores. Sales in this segment rose 36% from $2.5 million to $3.4 million. There are currently nine FansEdge stores, five owned Field of Dream stores, and four franchised Field of Dreams. Two Field of Dream stores were closed this January bringing the go-forward FOD store count to 5 .
A prominent feature found in FansEdge stores is a large interactive kiosk with an interactive display for ordering products. It allows shoppers to access the company’s entire portfolio of 200,000 products and has provided a  10-20% lift  in store sales. Dreams is now  providing its entire inventory feed featured in its online Fan Shop to  JC Penney who rolled out its version of an in-store kiosk in over 120 JCP brick & mortar locations.  Dreams seeks to provide their kiosk and or inventory feed to other prominent retailers who are seeking to grow the category.
Finally, manufacturing and distribution kicked in a respectable 17.9% revenue increase to $3.3 million from $2.8 million the prior year. This segment holds licenses with multiple sports leagues as well as individual athletes, producing authentic celebrity memorabilia products, custom framing, and display cases.
If these growth rates continue, web sales will become increasingly dominant with each passing quarter. However, management sees a competitive advantage in full integration. Storefronts in prominent locations provide high visibility to the brand and drive online conversation rates  while manufacturing and distribution capabilities allow the company to create novel memorabilia quickly and provide exclusive items, keeping it one step ahead of the competition. Amazingly, steps taken by the company has led to same-store sales increases of 80%, even as overall retail store sales were hurt by the closure of low-performing outlets.
The performance of Dreams’ web division has been phenomenal; FansEdge.com now ranks No. 181 in the Internet Retailer Top 500 Guide. There is plenty of room to grow. According to the company, only 7% to 8% of retail sales are currently conducted on-line. As shoppers increasingly shift their buying habits toward the web, FansEdge is set to reap significant benefits. In 2010,  the FansEdge brand sales hit $50.7 million alone.
And though web retail sales have not ebbed, the company’s web syndication initiative, begun towards the end  of 2008, has flourished. Under this business model , Dreams leverages its internet infrastructure and vast inventory to run sports themed websites for client companies. The services include hosting, custom site design, order fulfillment, purchasing, inventory management, marketing, and analytics. Companies handing over operation their online stores to Dreams have experienced increased traffic, better selection, increased sales, and enhanced customer service.  
The business grew from only 31 clients in 2008 to 65 in 2010 as revenue soared from just $3 million to $34 million in the same period. Web syndication has grown to the point that Dreams is now becoming more selective in seeking new clients and may let some smaller accounts go once the contracts expire.
The company’s current syndication portfolio includes high quality names including: JC Penney, the Chicago Bulls, Majestic Athletic, NBC Sports and the Philadelphia Eagles. Just when some observers thought Dreams would begin running out of new firms, it added the Charlotte Bobcats and MLS’s Chicago Fire, then the Golden State Warriors and Purdue University.
The list goes on, but one that stands out is a deal with Beyond Graduation. While Dreams will be running the online store, providing logistics and customer services as usual, the partnership broadens its offerings to software, technology, and other education-related items not currently stocked by the company. According to Kevin Bates, Dreams’ retail president, this partnership has the potential to generate exponential growth by affecting the company’s customer base and product base.
In another sign of diversification, towards the end of 2010, Dreams acquired a 51% stake in The Comet Clothing Company, owner of the Zubaz line of casual sportswear. The transaction provided entry into game-day and stadium sales through Comet’s retail contract with the University of Texas. Dreams is now providing that same service for the Chicago Fire franchise of Major League Soccer
One other item the company gained from the acquisition is the ability to manufacture apparel. This adds to its product mix and will allow for the production of many new items both for its own stores and partner websites.
The company’s vertically integrated, multipronged strategy appears to be serving it well so far. With the NFL lockout over, any uncertainty over the next few quarters have now dissipated. Roth Capital is bullish on Dreams Inc, expecting strong Q2 growth. It reiterated a Buy rating on June 15.