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Dick's Sporting Goods Inc. (DKS - Analyst Report), a full-line sporting goods retailer, delivered fourth quarter and fiscal 2011 results in line with the Zacks Consensus Estimate. The results came ahead of the year-ago comparisons mainly driven by increased sales resulting from opening of new stores and improved margins.
Dick’s’ fourth-quarter 2011 adjusted earnings jumped 16% to 88 cents a share from the year-ago level of 76 cents a share, meeting the high-end of the company’s recently revised guidance range of 87 – 88 cents per share. Dick’s also fully met the Zacks Consensus Estimate of 88 cents per share.
In fiscal 2011, the company reported adjusted earnings of $2.02 per share, up 24% from last year and at the higher-end of the company’s guidance range of $2.01 to $2.02 per share. Annual earnings also met the Zacks Consensus Estimate of $2.02 a share.
An increase of 0.1% in consolidated comparable-store sales (comps) and opening of new stores aided an increase of 6.1% year over year in net sales to $1,611.6 million during the quarter. However, total revenue fell marginally short of the Zacks Consensus Estimate of $1,612.0 million.
Net sales at Dick’s spiked 7% to $5,211.8 million for fiscal 2011, mainly driven by a 2.0% consolidated comps growth and opening of new stores. Fiscal year revenue slightly missed the Zacks Consensus Estimate of $5,217.0 million.
The 0.1% comps growth in the fourth quarter was in line with the company’s January 2012 guidance and was driven by a 9.0% increase in Golf Galaxy store sales and a 52.0% growth in the e-commerce business, offset by a 2.5% rise in Dick's Sporting Goods store sales.
Fourth quarter gross profit came in at $512.8 million, up 6.9% year over year. Gross margin improved 25 basis points to 31.8%. Adjusted EBITDA in the quarter increased 16.1% year over year to $218.2 million, with EBITDA margin expanding 110 basis points to 13.5%.
Dick’s ended fiscal 2011 with cash and cash equivalents of $734.4 million, shareholders’ equity of $1,632.7 million and no borrowing outstanding under its credit facility. The company incurred net capital expenditures of $154.0 million in fiscal 2011.
In December 2011, the company added a $500 million worth revolving credit facility through a new five-year credit agreement. The facility also has the option to increase the aggregate revolving loan commitment by $250 million.
Dividend and Share Repurchase
Dick’s Sporting has always been committed to create value to its shareholders by returning capital in the form of dividends. To improve shareholders’ wealth, the company has recently declared a quarterly dividend of 1.25 cents per share, payable on March 30, 2012 to shareholders of record as of March 2, 2012.
Dick’s also approved a new $200 million share repurchase program in January 2012, which would span over the next 12 months. This program will help reduce the number of shares outstanding in 2012, which is expected to rise from the exercise of a substantial number of stock options issued following the company's 2002 initial public offering. These stocks options, which are set to expire in 2013, carry an option to be exercised in 2012, resulting in the issuance of additional shares. The company expects to fund the share buyback with its cash available on hand.
In the reported quarter, Dick’s opened six Dick's Sporting Goods stores, bringing the Dick's Sporting Goods stores total to 480 stores in 43 states. Additionally, as of fiscal year-end 2011, the company operated 81 Golf Galaxy stores in 30 states.
For the first quarter of fiscal 2012, Dick’s expects earnings per share to be between 36 cents and 38 cents and comps to rise in the band of 3%-4%. In the first quarter, Dick’s plans to expand its stores network by opening six more Dick's Sporting Goods stores and relocating one Dick's Sporting Goods store.
For fiscal 2012, management expects earnings in the range of $2.38 to $2.41 per share, while comps are expected to increase in the 2%-3% range. Store openings for fiscal 2012 are expected to be approximately 40 Dick's Sporting Goods stores. Moreover, the company also plans to relocate about four Dick’s Sporting Goods stores in 2012.
For 2012, the company expects to incur capital expenditures of $241 million on a gross basis and $190 million on a net basis.
Pittsburgh-based Dick's Sporting Goods remains the dominant player in the industry with significant store expansion and potential share gain opportunities in the U.S. We remain optimistic about the company’s competitive position and consistency of earnings growth.
However, the sporting goods market is highly competitive in nature and Dick’s failure to compete effectively in terms of price, quality or product will thwart its growth potential. The company faces stiff competition from Foot Locker Inc. (FL - Snapshot Report) and Wal-Mart Stores Inc. (WMT - Analyst Report). Moreover, a weak economy will likely continue to weigh on the company’s profitability in the long term.
Dick's Sporting Goods currently has a short-term Zacks #2 Rank (Buy). We maintain our long-term ‘Neutral’ recommendation on the stock.
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