DICK’S Sporting (DKS) Up 19% on Q3 Earnings Beat & Upbeat View

DICK'S Sporting Goods, Inc. DKS delivered robust third-quarter fiscal 2019 results, wherein earnings and sales surpassed the Zacks Consensus Estimate and also grew year over year.

Quarterly results gained from solid same-store sales (comps) performance. Comps were driven by higher average ticket and transactions coupled with growth at each of its three major categories — hardlines, apparel and footwear. Its brick and mortar stores also delivered positive comps and e-commerce business remained strong in the reported quarter. Notably, the company witnessed broad-based improvement in its business and remains optimistic about the holiday season.

As a result, management raised its fiscal 2019 view. The company now expects adjusted earnings of $3.50-$3.60 per share, up from the earlier guided view of $3.30-$3.45. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $3.39, which is likely to witness upward revisions in the coming days. Further, consolidated comps are projected to increase 2.5-3% versus the earlier expectation of low-single digits growth and a 3.1% decline in fiscal 2018.

Driven by these positives, shares of the company gained 18.6% on Nov 26. Moreover, this Zacks Rank #3 (Hold) stock has surged 39.2% in the past three months against the industry’s 4.7% decline.

Q3 in Details

In the fiscal third quarter, DICK'S Sporting reported earnings of 52 cents per share, exceeding the Zacks Consensus Estimate of 38 cents. Additionally, the bottom line jumped 33.3% from the year-ago quarter’s earnings of 39 cents.

Net sales of $1,962.2 million grew 5.6% year over year and surpassed the Zacks Consensus Estimate of $1,906 million. Consolidated comps rose 6% year over year. Further, e-commerce sales grew 13% year over year. E-commerce penetration improved to about 13% of net sales in the reported quarter, up from roughly 12% in the prior-year quarter.

Moreover, gross margin expanded 140 basis points (bps) to 29.6% in the quarter under review. This was due to a 60-bps rise in merchandise margins and 87-bps leveraged occupancy costs.

Adjusted SG&A expenses, as a percentage of sales, increased 102 bps year over year to 26.3%, thanks to rise in incentive compensation expenses. Further, adjusted operating margin expanded 32 bps to 3.17%.

Financial Aspects

DICK'S Sporting ended third-quarter fiscal 2019 with cash and cash equivalents of $87.6 million, nearly $719.3 outstanding borrowings under its revolving credit facility and total stockholders' equity of $1,708.9 million.

Further, total inventory rose 17.1% year over year at the end of the fiscal third quarter, driven by investments to support growth categories.

In the first nine months of fiscal 2019, the company used $212.8 million in cash for operating activities. Moreover, total capital expenditure amounted to nearly $165.7 million (on a gross basis) and $140.1 million (on a net basis).

Dividend and Share Repurchases

During third-quarter fiscal 2019, the company bought back nearly 2.8 million shares for $99.5 million. It now has roughly $67 million under its standing authorization, extending through 2021. On Jun 12, 2019, the company's board has approved an additional five-year share repurchase program of up to $1 billion of its common stock.

On Nov 21, management announced a quarterly cash dividend of 27.5 cents per share, payable Dec 31, 2019, to its shareholders of record as on Dec 13.

Store Update

During the reported quarter, DICK'S Sporting opened six flagship outlets and one Golf Galaxy store. Notably, this completes its store development program for fiscal 2019. Also, it exited eight Field & Stream stores that were sub-leased to Sportsman's Warehouse while shuttered one Golf Galaxy store.

As of Nov 2, 2019, DICK'S Sporting operated 733 flagship stores across 47 states, 95 Golf Galaxy stores in 32 states and 27 Field & Stream stores in 16 states.

Guidance

Management plans to continue the strategic review of the hunt business, which includes Field & Stream. The company now envisions earnings per share in the range of $3.63-$3.73, on a GAAP basis, for fiscal 2019. This view includes roughly $30 million of net investments for business-transformation efforts. It also includes the anticipated impact from all tariffs presently in effect, and tariffs slated to be imposed.

For fiscal 2019, management still expects capital expenditure to be nearly $230 million (on a gross basis) and $200 million (on a net basis).

Key Picks in the Same Space

Hibbett Sports Inc. HIBB has an expected long-term earnings growth rate of 10.9%. %. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Office Depot, Inc. ODP has an expected long-term earnings growth rate of 11.1% and a Zacks Rank #2 (Buy) at present.

The Michaels Companies, Inc. MIK, which presently carries a Zacks Rank #2, has an expected long-term earnings growth rate of 7%.

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