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Sporting goods and apparel retailer Dick's Sporting Goods (NYSE:DKS) reported fantastic third quarter results. Revenue grew 11% year-over-year to $1.3 billion, roughly in-line with consensus expectations. Earnings jumped 25% year-over-year to a better-than-expected $0.40 per share. Still, Dick's Sporting Goods doesn't fit the profile of a winning stock (please click here).

Unlike big box retailers like Best Buy (NYSE:BBY) and Barnes & Noble (NYSE:BKS) that have struggled to compete with online competition from Amazon (NASDAQ:AMZN), Dick's Sporting Goods has taken them head on. E-commerce revenue jumped 47% year-over-year, and we think the company is doing a fantastic job capturing sales in the space that are moving online. Execution has been great-the company's online business is highlighted by several free shipping deals, frequent 10%-15% off coupons, and prompt order fulfillment. Though the layout is different, the strategy is similar to Footlocker's (NYSE:FL) Eastbay, which also uses its cost advantage to be promotional and focus on timely order fulfillment.

Brick-and-mortar sales continue to be strong, with same-store sales surging 3.9% at Dick's Sporting Goods and 2.3% at Golf Galaxy. Due to well-executed store within a store concepts with partners like Nike (NYSE:NKE) and Under Armour (NYSE:UA), we think the company is stealing market share from competitors like The Sports Authority. We've frequently mentioned the importance of brand differentiation for today's consumer, and these concepts highlight that Dick's understands this dynamic as well as any retailer. The company receives exclusive merchandise deals with the two apparel giants, which leads to better margins and increased store traffic. The company also mentioned how well the new Nike NFL apparel has been selling, in-line with our earlier thesis that Nike would monetize NFL apparel significantly better than Reebok.

Gross margins during the third quarter were strong, growing 120 basis points year-over-year to 30.9%. The firm hasn't been incredibly promotional, and it continues to ride the momentum in athletic apparel. Management suggests it won't have to be highly promotional during the holiday season, which would translate to strong margins during the fourth quarter.

Going forward, the company expects to earn $1.03-$1.05 per share during the fourth quarter (was $1.01-$1.05) on same-store sales growth of 4%, compared to 0.9% during the same period last year. We think both targets are easily attainable, and we see some upside in terms of sales, especially if the company doesn't become too promotional. Operating cash flow throughout 2012 has been much stronger than it was last year, and although the company made a mistake with respect to JJB Sports in England, capital allocation remains solid. The firm opened 21 stores during the third quarter, and it has already opened its projected 7 stores for the fourth quarter.

While we believe the quarter was excellent, we think shares are fairly valued at this time. Execution has been top-notch, but the company's relative valuation simply isn't that compelling. In the athletic retail space, Finish Line (NASDAQ:FINL) looks most attractive, in our view.

Source: Amazon Can't Stop Dick's Sporting Goods