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DICK'S Sporting (DKS) Falls as Q4 Earnings & Sales Dip Y/Y

Zacks Equity Research

DICK'S Sporting Goods, Inc. DKS reported mixed fourth-quarter fiscal 2018 results, wherein earnings were in line with estimates while sales beat. Results gained from strength in the core business, which resulted in comparable store sales (comps) growth across key categories as well as double-digit growth in e-commerce and private brand sales.

Further, management remains optimistic about continued growth in 2019 and expects to return to positive comps trend, beginning the fiscal second quarter.

However, top and bottom lines declined year over year due to impacts of the additional week in fiscal 2017 and a calendar shift. Moreover, weakness in the hunting and electronics businesses continued to weigh on comps performance and sales. Consequently, shares of this sporting goods retailer declined 11% yesterday.

In the past year, this Zacks Rank #3 (Hold) stock has gained 0.1%, underperforming the industry's 18.3% rally.


Q4 Highlights

In the fiscal fourth quarter, DICK'S Sporting reported earnings of $1.07 per share, in line with the Zacks Consensus Estimate. However, the company’s earnings declined 12.3% from the year-ago quarter’s adjusted earnings of $1.22. Earnings were mainly hurt by a calendar shift and an additional 14th week in the year-ago quarter. The calendar shift impacted earnings by nearly 8 cents per share in fourth-quarter fiscal 2018. Moreover, the additional week contributed about 9 cents per share to the year-ago quarter’s earnings.

DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise


DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise | DICK'S Sporting Goods, Inc. Quote

Net sales of $2,492.1 million decreased 6.5% year over year but surpassed the Zacks Consensus Estimate of $2,480 million. This decline is attributed to difficult comparison due to sales worth $105 million from the additional week in the year-ago quarter and a $39-million impact of the calendar shift.

Excluding sales due to the calendar shift and an additional 53rd week in fiscal 2017, consolidated comparable store sales (comps) fell 2.2%. Including the 53rd week, consolidated comps declined 3.7%. In the year-ago quarter, comps dipped 2%.

Core business gains primarily contributed to sales growth, backed by positive response from athletes for the company’s merchandising, e-commerce and marketing initiatives. This resulted in positive comps for key categories — including apparel, athletic footwear, outdoor equipment, fitness and private label brands. However, these gains were significantly offset by persistent weakness in hunting and electronics businesses, which negatively impacted comps by 3% on a combined basis.

Further, e-commerce sales grew 17% year over year, excluding the calendar shift. E-commerce penetration improved to about 23% of net sales in the reported quarter, up from 19% in the prior-year quarter.

Delving Deeper

Gross margin contracted 168 bps to 27.9% in the quarter under review. This was driven by a 37 bps decrease in merchandise margins, higher occupancy costs, and increased freight, shipping and fulfillment expenses due to robust e-commerce growth.

SG&A expenses, as a percentage of sales, remained in line with last year at 22.2% as cost reductions more than offset investments and higher incentive compensation.

Financial Aspects

DICK'S Sporting ended fiscal 2018 with cash and cash equivalents of $113.7 million, no outstanding borrowings under its revolving credit facility and total stockholders' equity of $1,904.2 million.

In fiscal 2018, the company generated $712.8 million in cash from operating activities. Total inventory rose 6.6% year over year at the end of the fiscal fourth quarter, driven by investments to support key growth categories. Moreover, total capital expenditure in fiscal 2018 amounted to nearly $198.2 million (on a gross basis) and $170.5 million (on a net basis).

For fiscal 2019, management expects capital expenditure to be nearly $230 million (on a gross basis) and $200 million (on a net basis).

Dividend and Share Repurchases

In fiscal 2018, the company returned more than $412 million to shareholders, including share buybacks worth $323 million and dividend payouts of $21 million. In fourth-quarter fiscal 2018, it bought back nearly 957,000 million shares for $33.7 million. Following this, DICK'S Sporting had nearly $433 million left under its standing authorization extending through 2021.

On Feb 27, management increased its quarterly cash dividend by 22% to 27.5 cents per share, payable on Mar 29 to shareholders of record as of Mar 15.

Store Update

During the reported quarter, the company closed three namesake stores.

As of Feb 2, 2019, DICK'S Sporting operated 729 namesake stores across 47 states, 94 Golf Galaxy stores in 32 states, and 35 Field & Stream stores in 16 states.

In fiscal 2019, the company plans to open seven namesake and two Golf Galaxy stores. Of the planned openings, it expects to inaugurate six stores in the third quarter of fiscal 2019. Meanwhile, the company plans to relocate three namesake stores and one Golf Galaxy store.


In fiscal 2019, the company expects to invest in building the best omni-channel experience in sporting goods. Investments through the fiscal year will be focused on enhancing in-store experiences for athletes, improving e-commerce fulfillment capabilities, and developing technology solutions to boost athlete experience and employee productivity.

Backed by these growth plans and improved focus on digital and omni-channel growth, management provided an optimistic view for fiscal 2019. It anticipates earnings per share of $3.15-$3.35 compared with $3.24 reported in fiscal 2018. Consolidated comps are projected to be flat to up 2% versus 3.1% increase in fiscal 2018.

As previously mentioned, the company expects to start delivering positive comps from the second quarter of fiscal 2019 on the back of the execution of its strategies and the subsiding of the headwinds related to the hunt and electronics business.

Notably, the company exited from the electronics business in the fourth quarter of fiscal 2017. Further, it witnessed favorable trends from the removal of the hunting category in 10 DICK’S Sporting stores at the end of third-quarter fiscal 2018. Notably, these stores generated positive comps and strong margin growth in the fiscal fourth quarter.

Consequently, the company now plans to eliminate the hunting category from nearly 125 more stores (where the category is underperforming) in fiscal 2019. As previously done, this category will be replaced with more compelling assortment with growth potential.

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