Battered by the sluggish consumer environment and unfavorable weather conditions, DICK's Sporting Goods Inc. (DKS - Analyst Report) posted lower-than-expected results for the second quarter of fiscal 2013. Weak quarterly results prompted management to lower its fiscal 2013 earnings guidance. This generated negative sentiment in the market and caused 7.81% fall in the share price of this full-line sporting goods retailer.
DICK’s Sporting’s second-quarter adjusted earnings of 71 cents per share came below the company’s previously provided guidance range of 75–77 cents as well as the Zacks Consensus Estimate of 74 cents. However, the company’s adjusted earnings were 9.2% higher than the year-ago comparable quarter’s figure of 65 cents per share.
On a reported basis, earnings came in at 67 cents per share, up from 43 cents in the year-ago comparable quarter. During both the periods, earnings included an asset impairment charge related to its investment in JJB Sports.
Quarter in Detail
Net sales grew 6.6% to $1,531.4 million, primarily driven by the opening of new stores and increased e-Commerce business, partially offset by weak consolidated comparable-store sales (comps) performance. Total revenue, however, fell short of the Zacks Consensus Estimate of $1,570.0 million. DICK’s Sporting’s e-Commerce business constituted 5.6% of the total sales in the second quarter.
The company’s consolidated comps after adjusting the calendar shift due to 53 weeks in 2012, fell 0.4%, while on an unadjusted basis, comps were up 1.2%. The decline in comps was primarily due to weak performances by the company’s Golf Galaxy stores.
On a shift-adjusted basis, comps at Golf Galaxy stores fell 6.1% while comps at DICK’s Sporting Goods stores inched up 0.1%. On an unshifted basis, comps at the Golf Galaxy stores fell 7.2% while comps at DICK’s Sporting Goods stores nudged up 1.9%.
Second-quarter gross profit came in at $479.3 million, up 7.0% year over year, with gross margin expanding 14 basis points (bps) to 31.30%. Improved merchandise margin, slightly offset by increased occupancy costs, drove the upside in gross margin.
Operating income increased 1.8% year over year to $137.1 million. However, operating margin contracted 42 bps to 8.95%. The year-over-year fall in operating margin was primarily due to increase in selling, general and administrative (SG&A) expenses as a percentage of net sales, partially offset by improved gross margin.
DICK’s Sporting ended the second quarter with cash and cash equivalents of $134.8 million, shareholder equity of $1,664.5 million and no outstanding borrowings under its $500 million credit facility. Additionally, the company had net capital expenditure of $95.5 million. Inventory per square foot, at the quarter-end, grew 5.0% compared with the year-ago period.
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, payable on Sep 27, 2013 to shareholders of record as of Sep 6, 2013.
In the reported quarter, DICK’s Sporting opened 7 namesake stores. This brought the company’s count of DICK's Sporting Goods stores to 527, located across 44 states, and Golf Galaxy stores to 81, in 30 states.
For the third quarter of fiscal 2013, DICK’s Sporting expects earnings per share in the range of 37–39 cents. Comps, adjusted for the calendar shift in fiscal 2012, are expected to range approximately from flat to an increase of 1%. Excluding the adjustment, third-quarter comps will likely decrease in the range of 2%–3%, against a 5.1% increase recorded in the comparable year-ago quarter. The Zacks Consensus Estimate currently stands at 46 cents per share.
For the fourth quarter of fiscal 2013, DICK’s Sporting expects earnings per share in the range of $1.04–$1.07. Comps, adjusted for the calendar shift in fiscal 2012, are expected to increase in the range of 3%–4%. Excluding the adjustment, fourth-quarter comps will likely decrease in the range of 1%–2%, against a 1.2% increase recorded in the comparable year-ago quarter.
Battered by lower-than-expected second-quarter results, DICK’s Sporting lowered its outlook for fiscal 2013. Management now anticipates adjusted earnings to be from $2.60 to $2.65 per share compared with the earlier guidance range of $2.84–2.86. Comps are now projected to range approximately from flat to an increase of 1%.
This compares with the company’s adjusted earnings per share of $2.53 in fiscal 2012 and comps growth of 4.3%. Currently, the Zacks Consensus Estimate stands at $2.83 per share, which may undergo revisions in the coming days.
During fiscal 2013, the company plans to open 40 new namesake stores and relocate 1 of them. Of the total DICK’s Sporting stores to be opened, 7 have been already opened in the second quarter while 20 will be opened in the third quarter. Additionally, the company hopes to complete the remodeling of 4 DICK's Sporting Goods stores, while partly remodeling 75 stores.
It also intends to open 1 new Golf Galaxy store and relocate 1 Golf Galaxy store in fiscal 2013. Furthermore, DICK’s Sporting wants to open 1 True Runner store and 2 new Field & Stream stores in 2013.
For fiscal 2013, the company anticipates capital expenditure of $299 million on a gross basis and $258 million on a net basis.
Other Stocks Worth Considering
Currently, DICK's Sporting carries a Zacks Rank #3 (Hold). Better performing stocks in the retail space include Five Below, Inc. (FIVE - Snapshot Report), Staples, Inc. (SPLS - Analyst Report) and Steiner Leisure Ltd. . All the stocks carry a Zacks Rank #2 (Buy).