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DICK'S Sporting (DKS) to Post Q1 Earnings: What's in Store?

Zacks Equity Research

DICK’S Sporting Goods Inc. DKS is slated to report first-quarter fiscal 2019 results on May 29.

In the last reported quarter, the company reported in-line earnings. Notably, the bottom line outpaced the Zacks Consensus Estimate in the preceding five quarters. It has an average trailing four-quarter beat of 25.1%. Let’s see how things are shaping up ahead of the upcoming release.

How Are Estimates Faring?

The Zacks Consensus Estimate for first-quarter earnings is pegged at 59 cents per share, which remains in line with the prior-year period. We note that the Zacks Consensus Estimate has been stable in the past 30 days. For quarterly revenues, the consensus mark stands at $1,904 million, indicating a marginal decline of 0.3% from the year-ago quarter reported number.

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

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

DICK'S Sporting Goods, Inc. price-eps-surprise | DICK'S Sporting Goods, Inc. Quote

 

Factors in Play

DICK’S Sporting has been witnessing soft margins owing to higher cost of investments. Although increased spending toward improving store experience and e-commerce business are likely to weigh on margins in the near term, this will aid expansion in the long term. As of now, lower merchandise margin, higher occupancy costs along with increased freight, shipping and fulfillment expenses are added deterrents.

Soft margin trend might continue in the quarter to be reported, evident from management’s bleak projections for fiscal 2019. Gross margin is likely to be nearly flat to down slightly due to ongoing investments to improve fulfillment capabilities and expectations of double-digit sales growth in e-commerce, which is a lower margin rate operation. Further, the company projects operating margin to contract 20-40 basis points due to SG&A deleverage stemming from continued strategic investments.

Apart from soft margins, DICK’S Sporting has been struggling with dismal comparable-store sales (comps) performance for the past few quarters due to headwinds at its hunting and electronics categories. To offset these headwinds, management already exited the electronics business and plans to eliminate the hunting category from nearly 125 more stores (where the category is underperforming) in fiscal 2019.

It had earlier replaced its hunting category with more compelling assortment in 10 of its flagship stores, which generated positive comps in the last reported quarter. Management expects to deliver positive comps beginning the second quarter of fiscal 2019.

Conversely, DICK’S Sporting remains on track to build the best omni-channel experience by strengthening store network and expanding e-commerce presence. Apart from these, it is committed to develop technology solutions for enhancing athlete experience and employee productivity.

DICK’S Sporting’s core business is also performing well, evident from the positive responses for the company’s endeavors across merchandising, e-commerce and marketing from athletes. This resulted in positive comps for key categories — apparel, athletic footwear, outdoor equipment, fitness and private brands.

A Look at the Zacks Model

Our proven model does not conclusively show that DICK’S Sporting is likely to beat earnings estimates in first-quarter fiscal 2019. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

DICK’S Sporting has a Zacks Rank #4 and an Earnings ESP of 0.00%, which make surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

lululemon athletica inc. LULU has an Earnings ESP of +1.57% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corp. TGT has an Earnings ESP of +0.42% and a Zacks Rank #2.

Abercrombie & Fitch Co. ANF has an Earnings ESP of +1.78% and a Zacks Rank #2.

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