Dick's Sporting Goods Inc. (DKS), a full-line sporting goods retailer, continues to deliver better-than-expected results on the back of increased sales resulting from opening of new stores and improved margins.
The company’s third-quarter 2011 adjusted earnings jumped 45.5% to 32 cents a share from the year-ago level of 22 cents a share, comfortably outpacing its earnings guidance range of 24 cents to 26 cents a share. Dick’s also came ahead of the Zacks Consensus Estimate of 26 cents.
On a reported basis, earnings in the quarter increased by more than two folds to 33 cents from 14 cents per share earned in the year-ago quarter.
An increase of 4.1% in consolidated comparable-store sales (comps) and opening of new stores aided 9.3% year-over-year increase in total revenue to $1,179.7 million. However, total revenue fell short of the Zacks Consensus Estimate of $1,185.0 million.
The comps growth was driven by a 3.8% rise in Dick's Sporting Goods store sales, a 2.4% increase in Golf Galaxy store sales, along with a 16.8% growth in the e-commerce business.
Gross profit came in at $350.6 million, up 14.2% year over year. Gross margin improved 126 basis points to 29.72%. Operating profit increased more than two folds year over year to $71.6 million, resulting from lower selling, general and administrative expenses as a percentage of sales. Consequently, operating margin expanded 346 basis points to 6.07%.
Financial Aspects
Dick’s ended the quarter with cash and cash equivalents of $483.4 million and shareholders’ equity of $1,562.3 million. The company incurred a capital expenditure of $148.0 million in the quarter.
For 2011, the company expects to incur capital expenditures of $252.0 million on a gross basis and $197.0 million on a net basis.
Dividend
Dick’s Sporting has always been committed to create value to its shareholders by returning capital in the form of dividends. To improve shareholders’ wealth, the company has recently declared a quarterly dividend of 50 cents per share to be payable on December 28, 2011 to shareholders of record as of December 7, 2011. The company intends to pay quarterly dividend on a regular basis from the beginning of 2012.
Store Update
In the reported quarter, Dick’s opened 19 Dick's Sporting Goods stores, bringing the total to 474 stores in 42 states.
Since the beginning of fourth-quarter 2011, the company has opened 6 new Dick's Sporting Goods stores, completing its 2011 projection.
Guidance
For the fourth quarter of fiscal 2011, Dick’s expects earnings per share to be between 87 cents and 89 cents and comps to rise in the band of flat to 1.0%.
For full-year 2011, management expects earnings in the range of $2.01 to $2.03 per share, up from its prior guidance range of $1.94 to 1.96 per share, while comps are expected to increase by 2.0%, up from its previous guidance range of 1% to 2.0%.
Our Recommendation
Based in Pittsburgh, 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 #2 Rank (Buy). We maintain our long-term Outperform recommendation on the company.
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