It has been about a month since the last earnings report for Dick's Sporting Goods (DKS - Free Report) . Shares have lost about 1.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dick's due for a breakout? Before we dive into how investors and analysts have reacted as 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 Beat, Sales Miss Estimates
DICK'S Sporting reported mixed second-quarter fiscal 2018 results, wherein earnings outpaced the estimates but sales missed. However, both the top and bottom line improved year over year. In fact, this marked the fourth straight positive earnings surprise, while sales lagged estimates after a beat in the last reported quarter. Furthermore, management raised its earnings outlook for fiscal 2018.
In the fiscal second quarter, DICK’S Sporting reported earnings of $1.20 per share, which outpaced the Zacks Consensus Estimate of $1.04. The bottom-line figure also grew 25% from the year-ago quarter number.
Net sales came in at $2,177.5 million, which increased 1% year over year but came below the Zacks Consensus Estimate of $2,236 million. After adjusting for the calendar shift owing to the 53rd week last year, consolidated comps fell 4%. Further, excluding this adjustment, consolidated comps dipped 1.9% in the quarter. Consolidated comps were up 0.1% in the year-ago quarter.
Quarterly comps were hurt by the strategic decisions owing to slow growth, soft hunt and electronics businesses, which comprise roughly 50% of decline in comps. Also, the company is witnessing major decline in Under Armour sales due to the expansion of its distribution.
Furthermore, solid e-commerce growth of 12% year over year, after adjusting the calendar shift due to the 53rd week in fiscal 2017, contributed to the quarterly results. Notably, e-commerce penetration improved to about 11% of net sales compared with 9% in the prior-year quarter.
Gross margin improved 80 basis points (bps) to 30.3% in the quarter under review. The uptick was driven by higher sales along with merchandise margins, courtesy of lower promotions and a favorable product mix.
Further, SG&A expenses deleveraged nearly 100 bps owing to higher investments in growth initiatives.
However, operating income (EBIT) increased 2.1% to $162.5 million with the operating margin expansion of 10 bps to 7.5% mainly owing to higher gross margin, somewhat offset by increased SG&A expenses.
DICK’S Sporting ended the quarter with cash and cash equivalents of $124.3 million and total shareholders’ equity of $1,931.2 million. Furthermore, the company had roughly $108 million as outstanding borrowings under its revolving credit facility as of Aug 4, 2018.
In the first half of fiscal 2018, DICK’S Sporting generated $315.9 million in cash from operating activities. Total inventory fell 6.4% year over year at the end of the reported quarter. Moreover, total capital expenditures in the first half amounted to nearly $96.5 million (on a gross basis) and $83.4 million (on a net basis).
For fiscal 2018, management expects to spend nearly $225 million (on a net basis) compared with $373 million last year.
Dividend and Share Repurchases
DICK’S Sporting has always created value for shareholders by returning capital in the form of dividends and share repurchases. In second-quarter fiscal 2018, the company bought back nearly 2.2 million shares for a total cost of $73.8 million. Following this, DICK’S Sporting had shares worth nearly $575 million remaining under its standing authorization that extends through 2021.
In a year’s time, the company returned more than $381 million to shareholders via share repurchases and dividends.
On Aug 24, management also announced a quarterly cash dividend of 22.5 cents per share, payable Sep 28 to shareholders of record as of Sep 14, 2018.
During the reported quarter, the company inaugurated five namesake stores. As of Aug 4, 2018, DICK'S Sporting Goods operated 729 namesake stores across 47 states, 94 Golf Galaxy stores in 32 states and 35 Field & Stream stores in 16 states.
In fiscal 2018, the company still plans to open 19 and relocate four flagship stores. Further, management does not intend to open Field & Stream or Golf Galaxy stores in the fiscal year.
Following the mixed quarterly results, management raised its earnings per share guidance for fiscal 2018. Consolidated comps are now estimated to be down 3-4% (on a 52-week basis comparison) versus earlier projection of flat to down low single-digit. Comps dipped 0.3% last year.
Further, earnings per share are now envisioned in the band of $3.02-$3.20, up from the earlier guided range of $2.92-$3.12. In fiscal 2017, it reported earnings per share of $3.01. Earnings guidance is not based on additional share buybacks.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 14.81% due to these changes.
At this time, Dick's has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Dick's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.