DICK'S Sporting Goods Inc.’s (DKS) third-quarter fiscal 2013 earnings of 40 cents per share came ahead of its own guidance range of 37–39 cents and beat the Zacks Consensus Estimate by a penny. However, quarterly earnings were in line with the year-ago comparable quarter earnings as the benefit from increased top line was fully offset by higher occupancy and shipping costs.
Quarter in Detail
Net sales grew 6.7% to $1,400.6 million, primarily driven by the opening of stores, increased e-Commerce business and improved consolidated comparable-store sales (comps) performance. Total revenue, moreover, surpassed the Zacks Consensus Estimate of $1,375.0 million. DICK’S Sporting’s e-Commerce business constituted 6.5% of the total sales in the reported quarter.
The company’s consolidated comps after adjusting the calendar shift due to 53 weeks in 2012, increased 3.3%, while on an unadjusted basis, comps were up 0.3%. The year-over-year rise in comps was primarily driven by the company’s initiatives related to pricing and marketing.
On a shift-adjusted basis, comps at DICK’S Sporting Goods stores and Golf Galaxy stores increased 3.4% and 2.2%, respectively. On an unshifted basis, comps at the Golf Galaxy stores fell 4.7% while comps at DICK’S Sporting Goods stores nudged up 0.6%.
Gross profit in the said quarter came in at $424.9 million, up 4.6% year over year. However, gross margin contracted 61 basis points (bps) to 30.3% primarily due to increased occupancy costs and higher shipping costs owing to increased mix of e-Commerce sales.
Operating income decreased 3.8% year over year to $79.1 million. Moreover, operating margin contracted 62 bps to 5.6%. The year-over-year fall in operating margin was primarily due to lower gross margin and increase in pre-opening store expenses as a percentage of net sales, partially offset by reduced selling, general and administrative (SG&A) expenses as a percentage of sales.
DICK’s Sporting ended the quarter with cash and cash equivalents of $65.6 million, shareholder equity of $1,698.0 million and outstanding borrowings of $116.4 million under its $500 million credit facility. Additionally, the company had net capital expenditure of $77.0 million in the quarter. Inventory per square foot, at the quarter-end, grew 5.6% compared with the year-ago period.
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 shareholders’ wealth, the company recently declared a quarterly dividend of 12.5 cents per share, which will be paid on Dec 27, 2013 to shareholders of record as of Dec 6, 2013. During the reported quarter, DICK’S Sporting repurchased about 0.5 million shares for a total sum of $25.0 million.
In the reported quarter, DICK’S Sporting opened 25 namesake, 1 Golf Galaxy and 2 Field & Stream stores. Apart from this, the company completed the remodeling of 3 full and 22 apparel stores of DICK’S Sporting Goods. Furthermore, the company relocated 1 DICK’S Sporting Goods store and repositioned 1 Golf Galaxy store. This brought the company’s count of DICK'S Sporting Goods stores to 552, located across 45 states, and Golf Galaxy stores to 82 in 30 states.
DICK’S Sporting has completed its previously announced target of opening 40 DICK’S Sporting Goods, 1 Golf Galaxy, 2 Field & Stream and 1 True Runner store in fiscal 2013.
For the fourth quarter of fiscal 2013, DICK’S Sporting reaffirmed its earnings per share guidance range of $1.04–$1.07. Currently, the Zacks Consensus Estimate stands at $1.06 per share. Comps, adjusted for the calendar shift in fiscal 2012, is expected to increase in the range of 3%–4%. Excluding the adjustment, fourth-quarter comps will likely increase in the range of 2%–3%, against a 1.2% increase recorded in the comparable year-ago quarter.
Buoyed by better-than-expected third-quarter results, DICK’S Sporting raised its lower-end earnings guidance for fiscal 2013. Management now anticipates adjusted earnings between $2.62 and $2.65 per share compared with the earlier guidance range of $2.60–$2.65. Comps are still projected to range approximately from flat to an increase of 1%.
This compares with the company’s adjusted earnings per share of $2.53 in fiscal 2012 and comps growth of 4.3%. Currently, the Zacks Consensus Estimate stands at $2.64 per share, which may undergo revisions in the coming days.
For fiscal 2013, the company anticipates capital expenditure of $299 million on a gross basis and $258 million on a net basis.
Other Stocks Worth Considering
Currently, DICK's Sporting carries a Zacks Rank #3 (Hold). Better performing stocks in the retail space include Five Below, Inc. (FIVE), Marinemax Inc. (HZO) and Tractor Supply Company (TSCO). All of these have a Zacks Rank #2 (Buy).