DICK'S Sporting (DKS) Tops Q3 Earnings, Misses Revenues

DICK’S Sporting Goods Inc. (DKS) continues its run on the growth trajectory with successful implementation of its omni-channel strategies and restructuring initiatives, as evident from the third-quarter financial results, reported yesterday.

The company’s consolidated earnings of 41 cents per share for the third quarter of fiscal 2014 not only met management’s earlier prediction of a 38–42 cents band and surpassed the Zacks Consensus Estimate of 40 cents a share, but also climbed 2.5% from the year-ago quarter.

Dick's Sporting Goods, Inc - Earnings Surprise | FindTheBest

Quarter in Detail

The company’s total sales grew 9% to $1,526.7 million in the quarter, primarily driven by store openings, increased eCommerce business and improved consolidated comparable-store sales (comps) performance. However, total revenue of the Zacks Rank #4 (Sell) company missed the Zacks Consensus Estimate of $1,531 million, given the persistent weakness in the golf and hunting businesses.

DICK’S Sporting’s eCommerce business constituted 7.3% of the total sales in the reported quarter, compared with 6.5% in the year-ago quarter.

The company’s consolidated comps increased 1.1% compared with a 3.3% rise in the prior-year period. However, consolidated comps met the lower end of its guidance range of 1–3%.

Comps at DICK’S Sporting Goods stores increased 1.7% while comps at Golf Galaxy stores declined 8.9%. Excluding golf and hunting businesses, the company’s comps jumped 4.6% during the quarter on the back of strong performance at other categories like women’s and youth apparel, which are being enhanced with an increased number of store openings. The year-over-year rise in comps at DICK’S Sporting Goods stores was primarily attributable to a 1% increase in traffic and a rise of 2.7% in sales per transaction.

Gross profit in the reported quarter came in at $452 million, up 6.4% year over year. However, gross margin contracted 74 basis points (bps) to 29.6%, primarily due to a 53 bps reduction in merchandise margin, higher shipping costs owing to a rise in eCommerce sales and occupancy deleverage.

Operating income for the quarter inched up 1.1% year over year to $79.9 million, while the operating margin contracted 40 bps to 5.2%. The year-over-year fall in operating margin was primarily due to lower gross margin and increased store pre-opening expenses, partially offset by lower administrative and payroll expenses, as a percentage of sales.

Financial Aspects

DICK’S Sporting ended the quarter with cash and cash equivalents of $77.9 million and shareholders’ equity of $1,664.2 million. At the quarter-end, the company had nearly $281 million as outstanding borrowings under revolving credit facility. On a comparable basis, the company had ended the third quarter of 2013 with cash and cash equivalents of $65.6 million with the total shareholders’ equity standing at roughly $1,698 million. As of Nov 2, 2013, DICK’S Sporting had $116 million remaining under its credit facility.

During the first three quarters of the fiscal, DICK’S Sporting generated cash flow of $102.8 million from its operational activities. Total inventory at the quarter-end grew 12.4% on a year-over-year basis and net capital expenditure during the third quarter was nearly $78 million.

Dividend & Share Repurchases

DICK’S Sporting has always created value for its shareholders by returning capital in the form of dividends and share repurchases. To boost shareholder wealth, the company, on Nov 13, declared a quarterly dividend of 12.5 cents per share on its Common Stock and Class B Common Stock. This will be paid on Dec 26 to shareholders of record as of Dec 5, 2014.

During the reported quarter, DICK’S Sporting repurchased about 1.6 million shares for a total sum of $75 million. Since the announcement of its $1.0 billion share repurchase program in Mar 2013, the company has bought almost $455.6 million worth of its common stock.

Store Update

In the reported quarter, DICK’S Sporting opened 24, relocated 1, renovated 5 and closed 1 namesake store. During the same time period, it opened 7 Field & Stream stores and 1 new Golf Galaxy store, while it relocated 1 Golf Galaxy store. This brought the total count of DICK'S Sporting Goods stores to 597 across 46 states and Golf Galaxy stores to 80 in 29 states as of Nov 1.

Moreover, with the opening of six new namesake stores in the beginning of the fourth quarter, the company completed its store development program for the current fiscal. Further, in the fourth quarter, it plans to shut down two Golf Galaxy stores.

Guidance

Following a satisfactory quarter, management raised its adjusted earnings guidance for fiscal 2014, as it now envisions adjusted earnings to range from $2.75–$2.85 per share, compared to the previous forecast of $2.70 to $2.85. Currently, the Zacks Consensus Estimate stands at $2.77 per share. Comps are now projected to grow in the range of 1–2%, compared to the previous guidance of 1–3%.

For fiscal 2014, the company continues to anticipate capital expenditure of $340 million on a gross basis and $245 million on a net basis.

Further, management remains positive about the fourth quarter, given its product offerings and advertising initiatives that are expected to boost comps growth. Comps for the fourth quarter are expected to increase in the range of 1–3%.

Also, DICK’S Sporting anticipates its earnings per share for the quarter to come in the range of $1.18–$1.28. Currently, the Zacks Consensus Estimate stands at $1.20 per share.

Other Stocks to Consider

Better-ranked retail stocks include Big 5 Sporting Goods Corp. (BGFV), with a Zacks Rank #1 (Strong Buy), Bed Bath & Beyond Inc. (BBBY), and Tractor Supply Company (TSCO), each carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on TSCO
Read the Full Research Report on BGFV
Read the Full Research Report on DKS
Read the Full Research Report on BBBY


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