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Can DICK'S Sporting (DKS) Retain Robust Earnings Trend in Q2?

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DICK’S Sporting Goods Inc. (DKS - Free Report) is slated to report second-quarter fiscal 2018 results on Aug 29, before the opening bell. In the last-reported quarter, the company recorded positive earnings surprise of 40.5%. Notably, its earnings have surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 13.4%.

The Zacks Consensus Estimate for the quarter under review is $1.03 per share, reflecting year-over-year growth of 7.3%. We note that the Zacks Consensus Estimate for the to-be-reported quarter has moved up in the last 30 days. Analysts polled by Zacks expect revenues of $2.23 billion, reflecting 3.6% growth from the prior-year quarter. Let’s see how things are shaping up ahead of the upcoming release.

Factors at Play

DICK’S Sporting has a robust surprise history, having reported earnings beat consecutively for the last three quarters and a sales beat in three out of the last four quarters. Solid execution of the company’s merchandising strategies has led to increased merchandise margins, which is aiding the bottom line. As part of its merchandising strategy (announced in fourth-quarter fiscal 2016), the company is focused on optimizing inventory in order to make shelves available for popular and private label brands. The company is keen on investing in the supply chain to improve in-stock levels as well as the speed and reliability of online delivery in the future. These investments will not only improve customer satisfaction and inventory turnover but also boost merchandise margin rates.

DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise

 

DICK'S Sporting Goods, Inc. Price, Consensus and EPS Surprise | DICK'S Sporting Goods, Inc. Quote

Further, DICK’S Sporting has been gaining from the continued focus on developing every possible avenue to generate greater sales. The company remains on track to build the best omni-channel experience for athletes by strengthening its store network and expanding e-commerce presence. Notably, e-commerce penetration improved to 11% of net sales in first-quarter fiscal 2018 from 9% in the prior-year quarter. Moreover, e-commerce sales grew 24% year over year in the fiscal first quarter.

Alongside solid e-commerce growth, sales are gaining from strength in Team Sports, Fitness Equipment, outdoor apparel and private brands. As part of its long-term plan, the company intends to make significant investments in e-commerce, technology, store payroll, Team Sports HQ and private brands. These endeavors are likely to enrich customers’ experience and augment the top line.

Backed by these initiatives, the company’s shares have surged 26.2% in the past three months, outperforming the industry’s growth of 9%. Further, the stock’s rally of 8.2% in the past month reflects a significant positive sentiment ahead of the earnings release.

 



Despite the solid sales performance, we note that continued softness in the hunting and electronic categories remain deterrents to top-line growth. The company expects hunting, firearm and electronics businesses to experience headwinds throughout fiscal 2018, which is likely to continue hurting comps. The hunting and firearm business will continue to be impacted by the recent changes to the company’s firearm policies while the electronics business will be hurt by the reduced exposure to this business.

Furthermore, the company is witnessing strained margins for quite a while now. This is clear from the decline in gross and operating margins in the last five quarters. Though the margin trend improved in the fiscal first quarter due to enhanced merchandise margins and lower promotions, it still remained negative. The company expects greater product innovation from its key partners and further expansion of its private brands business to lower margin pressures than previously anticipated. However, it still expects gross margin to remain slightly negative for fiscal 2018, including rent expenses, and shipping and fulfillment costs.

What the Zacks Model Unveils

Our proven model does not conclusively show that DICK’S Sporting is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

DICK’S Sporting currently has an Earnings ESP of -2.11% and a Zacks Rank #2. Though the company’s Zacks Rank raises chances of delivering a surprise, its negative Earnings ESP makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Foot Locker, Inc. (FL - Free Report) has an Earnings ESP of +3.55% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Big Lots Inc. (BIG - Free Report) has an Earnings ESP of +4.48% and a Zacks Rank of 2.

Hibbett Sports, Inc. (HIBB - Free Report) has an Earnings ESP of +57.90% and a Zacks Rank #3.

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