Dick's Sporting Goods Inc. (DKS), a full-line sporting goods retailer, posted strong second quarter 2011 results on the heels of higher sales and improved margins.
Quarterly earnings climbed to 52 cents a share from the year-ago level of 43 cents a share and comfortably outpaced its earnings guidance in the range of 47 cents to 49 cents a share. Dick’s also inched past the Zacks Consensus Estimate of 50 cents.
A 2.5% increase in consolidated comparable-store sales (comps) and opening of new stores aided the 6.6% year-over-year increase in total revenue, which climbed to $1,306.7 million. However, total revenues fell short of the Zacks Consensus Estimate of $1,324.0 million.
The comps growth was driven by a 1.7% rise in Dick's Sporting Goods store sales, a 4.0% increase in Golf Galaxy store sales, along with a 31.9% growth in the e-commerce business.
Gross profit came in at $401.1 million, up 11.4% year over year. Gross margin improved 130 basis points to 30.7%. Operating profit jumped 26.8% year over year to $111.7 million, resulting from higher gross profit. Operating margin expanded 140 basis points to 8.6%.
Financial Aspects
Dick’s ended the year with cash and cash equivalents of $626.4 million and shareholders’ equity of $1,510.2 million. The company incurred a capital expenditure of $85.6 million in the quarter.
For 2011, the company expects to incur capital expenditures of $252 million on a gross basis and $197 million net.
Store Update
In the reported quarter, Dick’s opened 8 Dick's Sporting Goods stores, bringing the total to 455 stores in 42 states.
Dick’s plans to open 18 new Dick's Sporting Goods stores in the third quarter of fiscal 2011.
In fiscal 2011, the company expects to open 36 and remodel 14 Dick's Sporting Goods stores. Dick’s also has plans to relocate one Golf Galaxy store.
Guidance
For the third quarter of fiscal 2011, Dick’s expects earnings per share to be between 24 cents and 26 cents and comps to rise in a band of 1% to 2.0%.
For full year 2011, management now expects earnings in the range of $1.94 to $1.96 per share, up from the prior guidance range of $1.91 to 1.93 per share, while comps are expected to increase in a range of 1% to 2.0%.
Our Recommendation
Pittsburgh-based Dick's Sporting Goods is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment.
Dick’s remains the dominant player in the industry with significant store expansion and potential share gain opportunities in the U.S. We remain optimistic about the company’s competitive position and consistency of earnings growth.
However, the sporting goods market is highly competitive in nature and Dick’s failure to compete effectively in terms of price, quality or product will thwart its growth potential. The company faces competition from Foot Locker Inc. (FL) and Wal-Mart Stores Inc. (WMT). Moreover, a weak economy will likely continue to weigh on the company’s profitability in the long term.
Dick's Sporting Goods currently has a short-term Zacks #3 Rank (Hold) rating. We maintain our long-term Neutral recommendation on the company.
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