Full-line sporting goods retailer, Dick's Sporting Goods Inc.’s (DKS) first-quarter fiscal 2013 earnings per share increased 6.7% from the year-ago level to 48 cents. Moreover, it came in line with the average of the company’s previously provided guidance range of 47–49 cents as well as the Zacks Consensus Estimate of 48 cents per share.
Net sales grew 4.1% to $1,333.7 million, primarily driven by the opening of new stores and increased e-Commerce business, partially offset by weak consolidated comparable-store sales (comps) performance. Total revenue, however, fell short of the Zacks Consensus Estimate of $1,368 million. Dick’s Sporting’s e-Commerce business constituted 5.8% of the total sales in the first quarter.
The company’s consolidated comps after adjusting the calendar shift due to 53 weeks in 2012 fell 3.8%, while on an unadjusted basis comps were down 1.7%. The decline in comps was primarily due to weak performances by the company’s DICK’s Sporting Goods and Golf Galaxy stores. On a shift adjusted basis, comps at DICK’s Sporting Goods and Golf Galaxy stores fell 3.2% and 11.8%, respectively. On an unshifted basis, on the other hand, comps at the above-mentioned store concepts declined 1.3% and 7.4%, respectively.
First-quarter gross profit came in at $411.7 billion, up 4.3% year over year, with gross margin expanding 8 basis points (bps) to 30.87%. Strong top-line growth and improved merchandise margin, slightly offset by increased cost of sales, drove the upside in gross margin.
Operating income increased 2.0% year over year to $97.6 million. However, operating margin contracted 16 bps to 7.31%. The year-over-year fall in operating margin was primarily due to increase in selling, general and administrative (SG&A) expenses as a percentage of net sales, partially offset by improved gross margin.
We believe that the solid performance reflects the company’s sustained focus on enhancing its store network base and e-Commerce capabilities, while strategically partnering with brands and executing marketing plans.
Financial Aspects
Dick’s Sporting ended the first quarter with cash and cash equivalents of $113.9 million, shareholder equity of $1,576.5 million and no outstanding borrowings under its $500 million credit facility. Additionally, it incurred net capital expenditure of $34.0 million. Inventory per square foot, at the end of the fourth quarter, grew 2.5% compared with the year-ago period.
Dividend & Share Repurchases
Dick’s Sporting has always created value for its shareholders by returning capital in the form of dividends and share repurchases. To boost shareholders’ wealth, the company recently declared a quarterly dividend of 12.5 cents per share, payable on Jun 28, 2013 to shareholders of record as of Jun 7, 2013.
Additionally, during the quarter, the company repurchased 1.7 million shares for a total sum of $80.6 million under its $1.0 billion share repurchase program authorized in Mar 2013. The average cost at which Dick’s Sporting repurchased its shares was $47.41 per share.
Store Update
In the reported quarter, Dick’s Sporting opened 2 namesake stores. This brought the company’s count of DICK's Sporting Goods stores to 520, located across 44 states, and Golf Galaxy stores to 81, in 30 states.
Guidance
For the second quarter of fiscal 2013, Dick’s Sporting expects earnings per share in the range of 75–77 cents. Comps, adjusted for the calendar shift in fiscal 2012, are expected to increase in the range of 2%–3%. Excluding the adjustment, second-quarter comps will likely range from 3.5%–4.5%, against a 3.8% increase recorded in the comparable year-ago quarter.
For fiscal 2013, management reaffirms its earnings guidance range of $2.84–2.86 per share, while comps are projected to increase by 2%–3%. This compares with the company’s adjusted earnings per share of $2.53 in fiscal 2012 and comps growth of 4.3%.
During fiscal 2013, the company plans to open 40 new namesake stores and relocate 1 of them. Of the total DICK’s Sporting stores to be opened, 7 will be in the second quarter. Additionally, the company hopes to complete the remodeling of 4 DICK's Sporting Goods stores, while partly remodeling 75 stores. It also intends to open 1 new Golf Galaxy store and relocate 1 Golf Galaxy store in fiscal 2013.
For fiscal 2013, the company anticipates capital expenditure of $299 million on a gross basis and $258 million on a net basis.
Other Stocks Worth Considering
Currently, Dick's Sporting carries a Zacks Rank #3 (Hold). Better performing stocks in the retail space include Big 5 Sporting Goods Corp. (BGFV), with a Zacks Rank #1 (Strong Buy), as well as Cabela’s Inc. (CAB) and Zumiez Inc. (ZUMZ), both carrying a Zacks Rank #2 (Buy).
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