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DICK'S Sporting Q4 Earnings Beat Estimates

Zacks Equity Research

The sporting goods retailer, DICK'S Sporting Goods Inc. (DKS) yesterday came up with its fourth-quarter fiscal 2013 financial results, which was in line with its own guidance range and beat the Zacks Consensus Estimate. This generated positive sentiment among investors, as was reflected in a 4.3% rise in the stock price.

The company’s fourth quarter earnings per share of $1.11 was up 7.8% from the year-ago comparable quarter figure of $1.03 and beat the Zacks Consensus Estimate of $1.10. Moreover, quarterly earnings met the higher-end of its previously revised guidance range of $1.10–$1.11 per share. DICK’S Sporting’s bottom-line results mainly benefited from strong revenues.

The company’s fourth-quarter fiscal 2013 had 13 weeks while the fourth quarter of fiscal 2012 had 14 weeks. On a comparable 13-week period basis, DICK’S Sporting’s earnings per share increased 11% to $1.11 compared with $1.00 in the year-ago comparable quarter.

Quarter in Detail

Total sales grew 7.9% to $1,947.4 million in the quarter, primarily driven by store openings, increased e-Commerce business and improved consolidated comparable-store sales (comps) performance. On a comparable 13-week basis, total sales grew 12.5% year over year.

DICK’S Sporting’s e-Commerce business constituted 12.2% of the total sales in the reported quarter. Total revenue, moreover, surpassed the Zacks Consensus Estimate of $1,922.0 million.

The company’s consolidated comps after adjusting the calendar shift due to 53 weeks in 2012, increased 7.3%, while on an unadjusted basis, comps were up 6.3%. The year-over-year rise in comps was primarily attributable to a rise of 6.3% in traffic owing to pricing and advertisement initiatives, store pay roll and cold weather.

On a shift-adjusted basis, comps at DICK’S Sporting Goods stores increased 7.9% while comps at Golf Galaxy stores declined 11.7%. On an unshifted basis, comps at DICK’S Sporting Goods stores rose 6.8% while comps at the Golf Galaxy stores fell 9.4%.

Gross profit in the said quarter came in at $628.1 million, up 6.7 year over year. However, gross margin contracted 36 basis points (bps) to 32.25% primarily due to increased occupancy costs and higher shipping costs owing to increased mix of e-Commerce sales. These negatives were partially offset by 33 bps expansion in merchandise margin.

Operating income increased 5.7% year over year to $223.0 million. However, operating margin contracted 24 bps to 11.45%. The year-over-year fall in operating margin was primarily due to lower gross margin and increased pre-opening store expenses as a percentage of net sales, partially offset by lower selling, general and administrative (SG&A) expenses as a percentage of sales.

Fiscal 2013 Performance – A Synopsis

Net sales for the fiscal increased 6.5% to $6,213.2 million from $5,836.1 million in fiscal 2012 and beat the Zacks Consensus Estimate of $6,189.0 million. On a 52-week comparable basis, net sales increased 7.8%. Earnings for the period came in at $2.69 per share, up 6.3% from fiscal 2012 adjusted earnings of $2.53. Fiscal 2013 earnings per share also met the higher-end of the company’s own guidance range of $2.68–$2.69 while beating the Zacks Consensus Estimate by a penny. On a 52-week comparable basis, earnings rose 7.6% from fiscal 2012 earnings of $2.50 per share.

Financial Aspects

DICK’S Sporting ended the fiscal with cash and cash equivalents of $181.7 million and shareholder equity of $1,692.2 million. Moreover, the company did not have any outstanding borrowings under its $500 million credit facility.

During the fiscal, DICK’S Sporting generated cash flow of $403.9 million from its operational activities. Additionally, the company had net capital expenditure of $285.7 million in the fiscal. Total inventory at the fiscal-end grew 12.4%.

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 Mar 28, 2014 to shareholders of record on Mar 7, 2014.

During the reported quarter, DICK’S Sporting repurchased about 2.6 million shares for a total sum of $150.0 million. In fiscal 2013, the company bought back about 4.8 million shares for $255.6 million.

Store Update

In the reported quarter, DICK’S Sporting opened 6 namesake stores and 1 new True Runner store while closing 3 Golf Galaxy stores. Apart from this, the company completed the remodeling of 1 DICK’S Sporting Goods store. This brought the company’s count of DICK'S Sporting Goods stores to 558, located across 46 states, and Golf Galaxy stores to 79 in 29 states as of Feb 1.

Guidance

For the first quarter of fiscal 2014, DICK’S Sporting anticipates its earnings per share to come in the range of 51–52 cents on a non-GAAP basis. On a GAAP basis, the company expects earnings of 52 cents per share. Currently, the Zacks Consensus Estimate stands at 54 cents per share. Comps (adjusted for the calendar shift in fiscal 2012) for the first quarter is expected to increase in the range of 3%–4%. Further, during the quarter, DICK’S Sporting intends to open eight new namesake stores and relocate one store each of its namesake as well as Golf Galaxy.

For fiscal 2014, management anticipates earnings per share to be between $3.03 and $3.08. Currently, the Zacks Consensus Estimate stands at $3.09 per share. Comps are projected to be in the range of 3%–4%. Further, the company intends to open about 50 namesake stores, 8 Field & Stream stores and 1 Golf Galaxy store. It also expects to relocate 6 namesake stores and 2 Golf Galaxy stores.

For fiscal 2014, the company anticipates capital expenditure of $360 million on a gross basis and $265 million on a net basis.

Other Stocks Worth Considering

Currently, DICK's Sporting carries a Zacks Rank #3 (Hold). Some better-ranked players in the retail space include Barnes & Noble, Inc. (BKS), Foot Locker, Inc. (FL) and Iconix Brand Group, Inc. (ICON). While Barnes & Noble sports a Zacks Rank #1 (Strong Buy), Foot Locker and Iconix Brand have a Zacks Rank #2 (Buy).

Read the Full Research Report on FL
Read the Full Research Report on BKS
Read the Full Research Report on DKS
Read the Full Research Report on ICON


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