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DICK'S Sporting (DKS) Stock Up on Solid Q2 Earnings & View

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Shares of DICK’S Sporting Goods Inc. (DKS - Free Report) jumped 7.1% following the company’s spectacular second-quarter fiscal 2016 results and robust guidance for the fiscal year. Both sales and earnings topped expectations and improved year over year in the quarter, thus encouraging management to raise its outlook for fiscal 2016.

The sporting goods company’s quarterly earnings of 82 cents per share cruised much ahead of the Zacks Consensus Estimate of 68 cents, alongside rising 6.5% year over year. Moreover, the bottom line significantly exceeded the company’s guidance range of 62–72 cents per share.

DICKS SPRTG GDS Price, Consensus and EPS Surprise

 

DICKS SPRTG GDS Price, Consensus and EPS Surprise | DICKS SPRTG GDS Quote

Quarter in Detail

Net sales advanced 7.9% to $1,967.9 million in the reported quarter, also surpassing the Zacks Consensus Estimate of $1,885 million.

Further, consolidated comparable store sales (comps) rose 2.8%, faring much better than the company’s guidance range of -4% to -1%. Comps at DICK’S Sporting stores improved 3%, though comps at Golf Galaxy stores dropped 4.3%.  

Backed by the growth of its omni-channel network, DICK’S Sporting’s eCommerce business constituted 8.5% of the total sales in the reported quarter, up from 7.3% in the year-ago quarter.

Gross profit came in at nearly $597.4 million, up 7.9% year over year, while the gross margin remained almost flat at 30.4%. Benefits from enhanced merchandise margins and lower occupancy expenses were offset by higher shipping expenses related to the company’s eCommerce operations.

However, the operating income dipped 0.8% to $147.2 million, while the operating margin contracted 60 basis points to 7.5%, mainly 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 $112.3 million, and shareholders’ equity of $1,829.6 million. At quarter end, the company had about $152 million as outstanding borrowings under its revolving credit facility.

During the first half of fiscal 2016, DICK’S Sporting generated cash worth roughly $222.9 million from operating activities. Total inventory at quarter end grew 6.2% on a year-over-year basis, while total capital expenditures during the first half amounted to roughly $208.4 million, on a gross basis.

For fiscal 2016, the company anticipates capital expenditure of $450 million on a gross basis and $275 million on a net basis.

Dividend and Share Repurchases

DICK’S Sporting has always created value for its shareholders by returning capital in the form of dividends and share repurchases. Over the last 12 months, the company invested its capital for omni-channel growth and returned more than $380 million to shareholders.

DICK’S Sporting repurchased roughly 1.3 million shares worth $57 million during the second quarter, following which it had shares worth $1.1 billion remaining under its standing authorization. The company also paid dividends worth nearly $16.9 million, during the quarter.

Further, on Aug 11, 2016, management declared a quarterly cash dividend of 15.125 cents per share, payable on Sep 30, 2016, to shareholders of record as on Sep 9.

Store Update

DICK’S Sporting opened five namesake stores, alongside relocating two during the reported quarter. Further, the company shut down three namesake and one Golf Galaxy store. This took the total store count, as of Jul 30, 2016, to 649 DICK'S Sporting Goods stores across 47 states, 72 Golf Galaxy stores in 29 states, and 21 Field & Stream stores in 10 states.

In fiscal 2016, the company plans to open nearly 36 new namesake stores, 9 new Field & Stream outlets and 2 new Golf Galaxy stores. Also, it intends to relocate 9 namesake stores. In the third quarter, the company plans to introduce 25 namesake stores, 7 new Field & Stream outlets and 2 new Golf Galaxy stores. It also intends to relocate four namesake stores in the third quarter.

Guidance

Management remains impressed with its splendid quarterly performance, which outperformed all expectations. Going forward, this Zacks Rank #3 (Hold) company intends to remain committed to further store expansion, store productivity enhancement and investments in omni-channel business for continued improvement.

This encouraged management to raise its earnings and comps outlook for fiscal 2016. For fiscal 2016, the company now expects earnings to range from $2.90–$3.05 per share, up from $2.60−$2.90 predicted earlier. Further, comps growth is now anticipated in a range of 2−3%, compared with -1% to +1% projected earlier.

However, DICK’S Sporting continues to witness some near-term pressure from the recent liquidation activities in the sporting goods space. Additionally, the company is on track with investments related to collaboration with the United States Olympic Committee and Team USA in the third quarter, alongside continuing with its eCommerce investments. Considering these factors, management provided the following view for the third quarter.
 
For third-quarter fiscal 2016, the company envisions earnings per share to lie in the band of 39–42 cents, while it anticipates comps growth to range from 2%−3%.

Key Picks

Better-ranked stocks in the same industry include Barnes & Noble, Inc. , Big 5 Sporting Goods Corp. (BGFV - Free Report) and Five Below, Inc. (FIVE - Free Report) , each carrying a Zacks Rank #2 (Buy).

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