Back to top

Image: Bigstock

Dick's (DKS) Down 13% Since Last Earnings Report: Can It Rebound?

Read MoreHide Full Article

It has been about a month since the last earnings report for Dick's Sporting Goods (DKS - Free Report) . Shares have lost about 13% 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 Q3 Earnings Beat, Sales Miss Estimates

DICK'S Sporting reported mixed third-quarter fiscal 2018 results, wherein earnings outpaced estimates while sales missed. However, the bottom line improved year over year. With this, the company reported its fifth straight positive earnings surprise while sales lagged estimates for the second straight time. Nevertheless, management raised its earnings outlook for the fiscal year.

Q3 Highlights

In the fiscal third quarter, DICK'S Sporting reported earnings of 39 cents per share, exceeding the Zacks Consensus Estimate of 27 cents. The bottom-line figure also grew 30% from the year-ago quarter.

Net sales were $1,857.3 million, which decreased 4.5% year over year and missed the Zacks Consensus Estimate of $1,874 million. Excluding sales from the calendar shift due to an additional 53rd week in the last year, consolidated comparable store sales (comps) fell 3.9% and remained within the management’s expected range. Including the 53rd week, consolidated comps dropped 6.1%. In the year-ago quarter, comps dipped 0.9%.

Persistent weakness across the hunt and electronics businesses hurt comps, contributing roughly 255 basis points (bps) decline.

Further, e-commerce sales grew 16% year over year, excluding the 53rd week in fiscal 2017. E-commerce penetration improved to about 12% of net sales in the reported quarter, up from 10% in the prior-year quarter.

Delving Deeper

Gross margin improved 72 bps to 28.2% in the quarter under review. This was driven by a 213 bps increase in merchandise margins, partly compensated with higher occupancy, freight, shipping and fulfillment expenses.

SG&A expenses deleveraged nearly 76 bps as cost reductions more than offset investments for higher incentive compensation.

Further, operating income (EBIT) increased 5.8% to $52.9 million, with operating margin expanding 20 bps to 2.8%. This can be attributed to higher gross margin coupled with lower SG&A expenses.

Financial Aspects

DICK'S Sporting ended the reported quarter with cash and cash equivalents of $92.1 million and total stockholders' equity of $1,847 million. Furthermore, the company had roughly $382 million as outstanding borrowings under its revolving credit facility as of Nov 3, 2018.

In the first nine months of fiscal 2018, DICK'S Sporting generated $160.5 million in cash from operating activities. Total inventory inched up 0.8% year over year at the end of the fiscal third quarter. Moreover, total capital expenditure in the nine-month period amounted to nearly $135.3 million (on a gross basis) and $111.8 million (on a net basis).

For fiscal 2018, management expects to spend nearly $165 million (on a net basis) compared with $373 million in the last year.

Dividend and Share Repurchases

In third-quarter fiscal 2018, the company bought back nearly 3.1 million shares worth $107.9 million. Following this, DICK'S Sporting had nearly $467 million left under its standing authorization extending through 2021.

On Nov 23, management also announced a quarterly cash dividend of 22.5 cents per share, payable Dec 28, 2018, to its shareholders of record as of Dec 14.

Over the course of the past year, the company returned more than $417 million to its shareholders via dividends and share buybacks.

Store Update

During the reported quarter, the company inaugurated six namesake stores, thus, accomplishing its store expansion program for fiscal 2018.

As of Nov 3, 2018, DICK'S Sporting Goods operated 732 namesake stores across 47 states, 94 Golf Galaxy stores in 32 states, and 35 Field & Stream stores in 16 states.

Guidance

Despite the mixed quarterly results, management raised its earnings per share guidance for the rest of fiscal 2018. Consolidated comps are still projected to be down 3-4% (on a 52-week basis comparison) versus 0.3% decline in comps in the last year.

However, earnings per share are now envisioned to be $3.15-$3.25, up from the prior guidance of $3.02-$3.20. Notably, the earnings guidance does not include additional share buybacks. In fiscal 2017, the company reported earnings of $3.01 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Dick's has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dick's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


DICK'S Sporting Goods, Inc. (DKS) - free report >>

Published in