Dick's Sporting Goods Inc. (NYSE: DKS) reported higher-than-expected first quarter results Tuesday, while Saks Inc. (NYSE: SKS) posted a smaller-than-expected net loss for the first quarter.

For the first quarter ended May 2, Dick's posted a profit of $10.2 million, or $0.11 per share excluding items. Revenue increased 5% from a year ago to $959.7 million. Analysts surveyed by Thomson Reuters had expected earnings of $0.07 a share on revenue of $914.3 million.

Following today's close Dick's Sporting Goods (DKS) announced an acquisition of Golf Galaxy (GGXY). DKS is going to pay about $225 million for the company ($18.82/share) which is a premium of 20% over Monday's closing price. The transaction will be financed using an existing credit facility according to Marketwatch.

Golf Galaxy (most recent 10Q) operates 61 golf stores in 24 states, primarily located in the northern and Midwestern United States, and an e-commerce/catalog business. Golf Galaxy recently completed an acquisition of The GolfWorks – a company focused on selling golf club components, clubmaking tools, and technical information on golf clubs. The company came public on August 3, 2005 with an offering price of $14 per share.

According to Capital IQ Golf Galaxy did $250 million in revenues, $13 million in EBIT, and $7.7 million in net income over the last twelve months (LTM). Therefore DKS paid about .9x sales, 17x EBIT, and 29x net income. These figures are above peer valuations. For example, Golfsmith International (GOLF) trades for .5x sales and 13x EV/EBIT, however the firm's net income is negative. Big Five Sporting Goods (BGFV) fetches .7x sales, 11.4x EV/EBIT and 18.6x earnings.

While it seems DKS didn't purchase GGXY at a discount to the peers, the valuation makes more sense when looking at the valuations of retailers experiencing similar rates of growth. The average analyst estimate of long term growth for GGXY is 26% and analysts believe the company will grow revenues to roughly $365 million in 2008. The average estimate of long term growth for Hibbett Sporting Goods (HIBB) is only 19%. However, HIBB currently fetches 2x sales, 14.5x EV/EBIT and 29x earnings.

Golf is an extremely lucrative segment of sporting goods due to the sport's rapidly growing popularity and typically affluent user-base. Dick's Sporting Good's acquisition of Golf Galaxy will likely help the company gain traction in this competitive sub-sector of the sporting goods market in a relatively cost-effective manner.