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DICK’S Sporting (DKS) Q1 Earnings Meet, Soft Sales Hurt Stock


After delivering positive top and bottom-line surprises for three straight quarters, DICK’S Sporting Goods Inc. DKS posted in-line earnings in first-quarter fiscal 2017, while sales lagged estimates. Moreover, comparable store sales (comps) fell short of expectations. Additionally, management announced plans to curtail store growth.

Consequently, shares of this sporting goods retailer plunged 13.7% yesterday, highlighting investors’ fears associated with the company’s ongoing prospects.

Nonetheless, backed by its solid surprise history, growth strategies and opportunities arising from the consolidation in the sporting goods space, DICK’S Sporting outperformed the Retail-Miscellaneous/Diversified industry with its shares having jumped 9% in the past one year, compared with the industry’s 4.7% growth.

Q1 Highlights

Coming back to the first-quarter, quarterly adjusted earnings of 54 cents per share came in line with the Zacks Consensus Estimate, while it increased 8% year over year. Notably, earnings came in the higher end of the company’s guidance range of 50–55 cents per share. On a GAAP basis, earnings per share rose 4% to 52 cents.

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 advanced 9.9% to $1,825.3 million, while missing the Zacks Consensus Estimate of $1,833 million. Consolidated comps grew about 2.4%, lagging the company’s forecast of 3–4% increase.

Comps gained from improvement in both, ticket and traffic. The year-over-year growth amid a tough retail backdrop was attributable to improvement witnessed across all major categories including apparel, footwear and hardlines, along with solid performance by the company’s latest online site. Further, results continued to gain from the consolidation in the sporting goods space, and opportunities arising from the liquidation of rivals The Sports Authority (TSA), Sport Chalet and Golfsmith.

Delving Deeper

Backed by the growth of its omni-channel network and launch of the latest e-commerce site in the first quarter, DICK’S Sporting’s e-commerce sales surged 11% in the quarter. Notably, the e-commerce business constituted 9.3% of the total sales in the quarter, slightly higher than 9.2% in the year-ago period.

Gross margin contracted 17 basis points (bps) to 29.69%. Benefits from enhanced merchandise margins were countered by higher shipping and fulfillment expenses.

Further, the operating income dipped 0.8% to $90.1 million, while the operating margin contracted about 53 bps to 4.9%, because of selling, general and administrative expenses deleverage (as a percentage of sales).

Financial Aspects

DICK’S Sporting ended the quarter with cash and cash equivalents of $108.4 million and shareholders’ equity of $1,960.8 million. Further, the company had $92 million as outstanding borrowings under its revolving credit facility as of Apr 29, 2017.

During the quarter, DICK’S Sporting generated roughly $36.5 million cash from operating activities. Total inventory at quarter end grew 10% on a year-over-year basis, while total capital expenditures during the quarter amounted to nearly $113.9 million (on a gross basis) and $88.8 million (on a net basis).

For fiscal 2017, the company still anticipates capital expenditure of $465 million on a gross basis and $350 million on a net basis.

Dividend and Share Repurchases

DICK’S Sporting has always created value for shareholders by returning capital in the form of dividends and share repurchases.

The company paid dividends worth nearly $19.3 million during the quarter. On May 11, management declared a quarterly cash dividend of 17 cents per share on the company's Common Stock and Class B Common Stock. This is payable on Jun 30 to shareholders of record as on Jun 9.

Further, Dick's Sporting repurchased roughly 0.5 million shares worth $23 million during the quarter, following which it had shares worth roughly $1.0 billion remaining under its standing authorization that extends through 2021.

Store Update

During the quarter, DICK’S Sporting inaugurated 15 namesake stores, two Field & Stream outlets and eight Golf Galaxy stores. Moreover, the company relocated two namesake stores, alongside shuttering one golf Galaxy store down. These actions took the total store count, as of Apr 29, to 691 DICK'S Sporting Goods stores across 47 states, 98 Golf specialty stores in 32 states, and 29 Field & Stream stores in 14 states.

However, given the current real estate scenario and the challenges looming over the retail space, many retailers have opted for store closures. Following suit, DICK’s Sporting also announced plans to bring a slowdown in its store growth plan. The company plans to reduce its store openings significantly from 43 namesake openings expected in fiscal 2017, to 15–20 anticipated in fiscal 2018, narrowing down to 5 to no store openings in fiscal 2019.

Delving deeper into the plans for fiscal 2017, the company aims to open nearly 43 new namesake stores (including conversion of 19 old TSA stores), eight new Field & Stream outlets and Golf Galaxy stores (including conversion of some Golfsmith stores), each. Also, it intends to relocate six namesake stores and one Golf Galaxy store.

In the second quarter of fiscal 2017, the company plans to open 13 new namesake stores, which also includes conversion of some old TSA stores.


Management remains hopeful of driving future growth and capturing market share, given the success of its latest e-commerce platform and impressive progress on its recent merchandise plan of reducing vendor base, concentrating on areas with greater growth potential and optimizing collection. Also, the company remains focused on cutting down costs and amending its operating structure in an attempt to sponsor long-term growth initiatives.

Management also foresees continued gains in regions exited by its rivals TSA and Golfsmith. Further, outdoor retailer Gander Mountain is expected to liquidate all its stores by August end. While this will help DICK’s capture further market share once the liquidation is concluded, it expects third-quarter sales to be somewhat dented by this liquidation. This is because management at DICK’s Sporting expects out of business sales by Gander to cause customers to stock up on firearms, ammunition and other hunting and fishing products discounted.

All said, this Zacks Rank #3 (Hold) company reiterated its fiscal 2017 earnings outlook, while slightly adjusting its sales view.

For fiscal 2017, which will have an additional week, the company continues to expect adjusted earnings to range from $3.65–$3.75 per share. The Zacks Consensus Estimate is pegged at $3.72. The company envisions GAAP earnings to come in a band of $3.59−$3.69 per share. Consolidated comps growth for fiscal 2017 is now anticipated in a range of 1–3%, compared with 2–3% projected earlier.

For the second quarter of fiscal 2017, the company envisions earnings per share to lie in the band of $1.02 – $1.07, which is pegged little higher than the Zacks Consensus Estimate of $1.00. For the second quarter, management anticipates comps growth to range from 2– 3%.

Key Picks

Better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. BGFV, Build-A-Bear Workshop, Inc. BBW and The Michaels Companies, Inc. MIK.

Big 5 Sporting has a long-term earnings growth rate of 12%, and has a superb earnings surprise history. Further, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Build-A-Bear, with a long-term earnings growth rate of 22.5%, currently flaunts a Zacks Rank #1.

Michaels Companies which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 16%.

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