About a month has gone by since the last earnings report for DICK'S Sporting Goods Inc (DKS - Free Report) . Shares have added about 1.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
DICK'S Sporting Q2 Earnings Miss, Revenues In Line
DICK'S Sporting posted second-quarter fiscal 2017 adjusted earnings of 96 cents per share in the second quarter that rose 17.1% from the year-ago quarter but fell short of the Zacks Consensus Estimate of $1.00. Also, the reported figure came below the company’s guidance range of $1.02–$1.07 per share. On a GAAP basis, the bottom line increased 25.6% to $1.03 per share.
Net sales of $2,156.9 million met the Zacks Consensus Estimate and grew 9.6% from the prior-year quarter. Consolidated comps inched up 0.1%, lagging the company’s forecast of 2-3% increase.
Comps improvement was backed by 2.1% rise in ticket, which was somewhat compensated by 2% decline in transactions. This growth amid a tough retail backdrop is attributable to improvement in the golf and footwear categories, along with solid e-commerce performance. However, sales remained soft at the hunting, athletic apparel, licensed and electronics businesses.
Backed by growth of its omni-channel network, DICK’S Sporting’s e-Commerce sales rose 19% in the quarter. Notably, the e-Commerce business constituted 9.2% of total sales, slightly higher than 8.5% in the year-ago period.
Gross margin contracted 82 basis points (bps) to 29.54%. This reduction was due to lower merchandize margins, coupled with occupancy de-leverage as well as increased shipping and fulfillment expenses, as a percentage of sales.
However, the operating income grew 8.2% to $159.2 million, while the operating margin contracted 10 bps to 7.4%.
DICK’S Sporting ended the quarter with cash and cash equivalents of $131.6 million and total shareholders’ equity of $1,921.3 million. Further, the company had $186.8 million outstanding borrowings under its revolving credit facility as of Jul 29, 2017.
Management amended the revolving credit facility by increasing its limit to $1.25 billion from $1 billion, and also extended the maturity to August 2022, retaining the same terms.
During the first half of fiscal 2017, DICK’S Sporting generated roughly $244.5 million cash from operating activities. Total inventory at the end of the quarter grew 11.8% on a year-over-year basis, while total capital expenditures during the quarter amounted to nearly $122 million (on a gross basis) and $83 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 $18.2 million during the quarter. On Aug 10, management declared a quarterly cash dividend of 17 cents per share. This is payable on Sep 29 to shareholders of record as on Sep 8, 2017.
Furthermore, DICK’S Sporting repurchased roughly 3.4 million shares worth $143 million during the quarter, following which it had shares worth nearly $875 million remaining under its standing authorization that extends through 2021.
During the quarter, the company inaugurated 13 namesake stores, while it shuttered one specialty concept outlet. These actions took the total store count, as of Jul 29, 2017 to 704 DICK'S Sporting Goods outlets across 47 states, 98 Golf Galaxy stores in 32 states, and 29 Field & Stream stores in 14 states.
Management remains hopeful about driving future growth and capturing market share driven by the success of its e-Commerce platform and impressive progress on the 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.
However, the company lowered its fiscal 2017 outlook. For fiscal 2017, which will have an additional week, management now expects adjusted earnings in the range of $2.80-$3 per share versus $3.65-$3.75, guided earlier. In fact, the guidance includes nearly 5 cents from the 53rd week.
Further, consolidated comps for the year are anticipated to be flat to low single-digit negative, compared with 1-3% growth projected earlier. Operating margins are also expected to decrease on a year-over-year basis.
For the third quarter of fiscal 2017, the company envisions earnings per share to lie in the band of 22-30 cents. For the said quarter, management anticipates comps on low single-digit negative.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
Currently, Dick's Sporting's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
The stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.