DICK'S Sporting Goods, Inc. DKS reported better-than-expected first-quarter fiscal 2019 results, wherein earnings and sales increased year over year. Results gained from solid same-store sales performance. After a slow start in February, the metric remained positive in March and April.
The company lifted its fiscal 2019 view, wherein adjusted earnings are expected to be $3.2-$3.4 per share, up from the earlier guided view of $3.15-$3.35. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $3.26.
Despite robust quarterly results, the stock fell 5.9% during the trading session on May 29, which may have hurt investor sentiment. In the past three months, this Zacks Rank #3 (Hold) stock has lost 6%, underperforming the industry's decline of 1%.
Q1 in Details
In the fiscal first quarter, DICK'S Sporting reported earnings of 62 cents per share, exceeding the Zacks Consensus Estimate of 59 cents. Additionally, the company’s earnings rose 5.1% from the year-ago quarter’s adjusted earnings of 59 cents.
Net sales of $1,920.7 million inched up 0.6% year over year and surpassed the Zacks Consensus Estimate of $1,902 million. Meanwhile, consolidated comparable store sales (comps) remained flat year over year.
The company witnessed positive comps in athletic apparel business and private brands. However, these gains were significantly offset by persistent weakness in the hunting business, which negatively impacted comps by 1%.
Further, e-commerce sales grew 15% year over year. E-commerce penetration improved to about 13% of net sales in the reported quarter, up from roughly 11% in the prior-year quarter.
Gross margin remained almost flat at 29.4% in the quarter under review. This was driven by a 20 bps increase in merchandise margins and higher occupancy costs, offset by increased shipping and fulfillment costs from sturdy e-commerce growth along with inflationary headwinds related to elevated freight costs.
SG&A expenses, as percentage of sales, expanded 73 bps year over year to 25.4% in the reported quarter.
DICK'S Sporting ended first-quarter fiscal 2019 with cash and cash equivalents of $92.4 million, nearly $369.5 outstanding borrowings under its revolving credit facility and total stockholders' equity of $1,826 million.
In the quarter under review, the company used $222.2 million in cash for operating activities. Total inventory rose 16.2% year over year at the end of the fiscal first quarter, driven by investments to support key growth categories. Moreover, total capital expenditure in the quarter amounted to nearly $46.9 million (on a gross basis) and $30.5 million (on a net basis).
For fiscal 2019, management still expects capital expenditure to be nearly $230 million (on a gross basis) and $200 million (on a net basis).
Dividend and Share Repurchases
In first-quarter fiscal 2019, the company bought back nearly 2.97 million shares for $107.3 million. In the first three weeks of fiscal second quarter, the company has already bought back shares worth $78.5 million. It now has roughly $248 million under its standing authorization, extending through 2021.
On May 24, management announced its quarterly cash dividend of 27.5 cents per share, payable on Jun 28 to shareholders of record as on Jun 14.
During the reported quarter, the company opened a Golf Galaxy store, apart from relocating one namesake store and closing two.
As of May 24, 2019, DICK'S Sporting operated 727 namesake stores across 47 states, 95 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 these, 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.
DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise
DICK'S Sporting Goods, Inc. price-consensus-eps-surprise-chart | DICK'S Sporting Goods, Inc. Quote
Encouraged by better-than-expected fiscal first-quarter results, management raised its guidance for fiscal 2019. The company now anticipates same-store sales to be up 2% as compared to a decline of 3.1% in fiscal 2018.
Following the removal of the hunting category at 10 DICK’S Sporting stores at the end of third-quarter fiscal 2018, these stores witnessed increased traffic. Having said this, the company expects hunt comps and sales to remain significantly negative throughout fiscal 2019, as the industry headwinds continue to prevail.
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 a more compelling assortment.
Further, the company is focused on private brands and is on track to launch new brands as part of its $2-billion sales goal in private brands. Additionally, the company is making efforts to improve its digital marketing efforts by strengthening partnerships with Google and Facebook. However, the company’s Athletic apparel business, especially footwear, will face the brunt of the recent increase in tariffs to 25% from 10% on products worth $200 billion imported from China.
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