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Dick's (DKS) Down 7.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·3 min read

It has been about a month since the last earnings report for Dick's Sporting Goods (DKS). Shares have lost about 7.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dick's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

DICK'S Sporting's Q3 Earnings & Sales Surpass Estimates

DICK'S Sporting posted better-than-expected third-quarter fiscal 2020 results, wherein both top and bottom lines improved year over year. Results gained from favorable customer demand, a solid product portfolio and strength in the online platform. Going forward, the company noted that this strong momentum continued in the fourth quarter, which was somewhat hurt by adverse weather.

Q3 in Detail

In the fiscal third quarter, DICK'S Sporting reported adjusted earnings of $2.01 per share, up more than three-fold from 52 cents in the prior-year quarter. The figure also surpassed the Zacks Consensus Estimate of 94 cents per share.

Net sales of $2,412.1 million rose 22.9% year over year and exceeded the Zacks Consensus Estimate of $2,254 million. This uptick can be attributable to improved store sales and a robust online show. Notably, consolidated same-store sales (comps) grew 23.2% with e-commerce sales surging 95% year over year. E-commerce was nearly 21% of net sales in the reported quarter compared with 13% in the prior-year quarter. Till the first three weeks of the fourth quarter, consolidated comps grew in high teens.

Gross margin expanded roughly 532 basis points (bps) to 34.9% in the quarter under review. Meanwhile, SG&A expenses, as a percentage of sales, contracted 127 bps year over year to 23.8% due to sturdy sales growth. This is inclusive of $48 million of extra compensation and safety expenses associated with COVID-19.

Financial Aspects

DICK'S Sporting ended the quarter with cash and cash equivalents of $1,060 million, no borrowings under its $1.9-billion revolving credit facility and total stockholders' equity of $2,121.6 million. Further, total inventory declined 9.8% year over year as of Oct 31, 2020. In the nine months ending Oct 31, 2020, total capital expenditure amounted to $156.4 million.

Dividend Payments and Share Repurchases

Although the company did not repurchase any shares in the reported quarter, it has resumed its dividend program. It approved a dividend of 31.25 cents per share on its Common Stock and Class B Common Stock, which is payable on Dec 29 as of shareholders record on Dec 11.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 42.19% due to these changes.

VGM Scores

Currently, Dick's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Dick's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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