Earnings Preview: Dick's Sporting

Dick's Sporting Goods Inc. (DKS - Analyst Report) – a full-line sporting goods retailer – is expected to release its third-quarter 2012 financial results on Tuesday, November 13, 2012.

The current Zacks Estimate for the company’s earnings stands at 37 cents, with a low of 36 cents and a high of 39 cents, reflecting an increase of about 15.6% compared with the earnings of 32 cents reported in the prior-year quarter. Revenue, as per Zacks Consensus Estimate is pegged at $1,296.0 million.

Second Quarter Recap

Dick's Sporting’s second-quarter 2012 adjusted earnings per share surged 25% to 65 cents a share from the year-ago level of 52 cents a share, swaying past the company’s guidance range of 62–63 cents per share. Earnings per share also modestly exceeded the Zacks Consensus Estimate of 64 cents.

During the quarter, net sales grew 10% to $1,437.0 million driven by a 3.8% rise in consolidated comparable-store sales (comps) and opening of new stores. Total revenue also surpassed the Zacks Consensus Estimate of $1,433 million.

The increase in comps was aided by a 2.9% rise in Dick's Sporting’s store sales, 4.4% increase in Golf Galaxy store sales and a 34.6% growth in e-commerce business.

Guidance

For the third quarter of fiscal 2012, Dick’s Sporting expects earnings per share of 36 cents, compared with the year-ago earnings of 32 cents. Comps for the upcoming quarter are expected to rise 4% against a 4.1% growth recorded in the last year. Moreover, Dick’s Sporting’s plans to further expand its stores network in the third quarter by opening 21 more Dick's Sporting Goods stores and relocating 3 of these.

Agreement of Estimate Revisions

We observe only 1 estimate moving up for the to-be-reported quarter (out of 24) as well as for the fiscal 2012 (out of 22) over the last 30 days, whereas no revisions were made in the opposite direction. Furthermore, no revisions were noticed in the last 7 days for both third-quarter and fiscal 2012.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate remains unchanged mainly due to no major revisions by the analysts’, keeping the earnings per share at 37 cents for the upcoming quarter over the last 7 and 30 days. Moreover, we observed the same for fiscal 2012, with the Zacks Consensus Estimate stagnant at $2.53 per share over the last 7 and 30 days.

Positive Earnings Surprise History

With respect to earnings surprise, Dick’s Sporting has surpassed the Zacks Consensus Estimate in three out of four quarters, and met in one, with an average of 14.4%. Considering the company’s last quarter’s performance, it can be stated that Dick’s Sporting will surpass the Zacks Consensus Estimate in the upcoming quarters as well.

Neutral on Dick’s

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. The company’s outlook for 2012 looks bright given the company’s continued investments in new stores and e-commerce business as well as in practices that drive margin expansion including inventory management, private brands, and product mix shift.

However, the sporting goods market is highly competitive in nature and Dick’s failure to compete effectively on the grounds of price, quality or product will thwart its growth potential. Moreover, a weak economy will likely continue to weigh on the company’s performance.

As a result, we maintain our long-term ‘Neutral’ recommendation on the stock. However, Dick's Sporting Goods currently has a short-term Zacks #2 Rank (Buy) for the next 1-3 months based on the company’s positive earnings surprise in the last two quarters.

One of the company’s peers Wal-Mart Stores Inc. (WMT - Analyst Report) is scheduled to release its third-quarter 2012 financial results on Thursday, November 15, 2012.