DICK'S Sporting (DKS) Q3 Earnings Beat, Sales Miss Estimates

DICK'S Sporting Goods, Inc. (NYSE:DKS) reported mixed third-quarter fiscal 2018 results, wherein earnings outpaced estimates while sales missed. Further, 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 fiscal 2018.

Shares of this sporting goods retailer have been up 2.6% yesterday. Year to date, this Zacks Rank #2 (Buy) stock has gained 32.2%, outperforming the industry's 14.8% rally.

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 was below 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 on Dec 28, 2018, to shareholders of record as of Dec 14.

Over the course of the past year, the company has returned more than $417 million to 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. Earnings guidance does not include additional share buybacks. In fiscal 2017, the company reported earnings per share of $3.01. The Zacks Consensus Estimate for fiscal 2018 is pegged at $3.15.

Three Other Retail Stocks You May Count on

MarineMax, Inc. (NYSE:HZO) delivered a positive earnings surprise of 87.5% in the last reported quarter. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) has posted an average earnings beat of 1% in the trailing four quarters and it currently carries a Zacks Rank #2.

Regis Corporation (NYSE:RGS) is also a Zacks Ranked #2 stock, which has an expected long-term earnings growth rate of 9%.

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