14 Nov Dick’s Q3 Tops Target, Provides Conservative 2018 Outlook
Dick’s Sporting Goods reported consolidated net income for the third quarter ended October 28, 2017 of $36.9 million, or 35 cents per diluted share, exceeding the company’s expectations provided on August 15, 2017 of 22 cents to 30 cents per share.
Earnings were down 24.5 percent from net income of $48.9 million, or 44 cents, in the same period a year ago.
On a non-GAAP basis excluding adjustments, net income dropped 40.5 percent to $31.9 million, or 30 cents, from $53.6 million, or 48 cents, in the same period a year ago.
Third quarter 2017 non-GAAP results exclude the benefit from a multi-year sales tax refund. Third quarter 2016 non-GAAP results exclude conversion costs for former Sports Authority (TSA) stores.
Net sales for the third quarter of 2017 increased 7.4 percent to approximately $1.94 billion. Consolidated same store sales decreased 0.9 percent, compared to the company’s guidance of a low single-digit decrease. Third quarter 2016 consolidated same store sales increased 5.2 percent.
“In the third quarter, we delivered earnings per diluted share and comp sales at the high end of our expectations, with continued double-digit growth in eCommerce. As expected, margins were under pressure in this highly promotional environment, but our strategy for this environment enabled us to continue to capture market share,” said Edward W. Stack, chairman and chief executive officer. “As we look to the fourth quarter, we are comfortable with our prior implied sales and earnings outlook, and believe we are well positioned to gain additional market share.”
Stack continued, “Looking ahead, we see tremendous opportunity in our industry as it continues to evolve. We plan to make significant investments in our business, which will have a short-term negative impact on our earnings; however, we expect these investments will pay meaningful dividends in the future. We plan to increase investments in our eCommerce business, the technology in our stores and store payroll in order to enhance the customer experience. Meaningful investments will also be made to Dick’s Team Sports HQ, and in the development and support of our private brands. Given these investments, continued gross margin pressure and approximately flat comp sales, we expect earnings per diluted share to decline by as much as 20 percent in 2018.”
Omni-Channel Development
E-commerce sales for the third quarter of 2017 increased approximately 16 percent. E-commerce penetration for the third quarter of 2017 was 10.3 percent of total net sales, compared to 9.6 percent during the third quarter of 2016.
In the third quarter, the company opened 15 new Dick’s Sporting Goods stores and six new Field & Stream stores. The company also closed two specialty concept stores. As of October 28, 2017, the company operated 719 Dick’s Sporting Goods stores in 47 states, with approximately 38.2 million square feet, 98 Golf Galaxy stores in 32 states, with approximately 2.1 million square feet, and 35 Field & Stream stores in 16 states, with approximately 1.6 million square feet.
Balance Sheet
The company ended the third quarter of 2017 with approximately $112 million in cash and cash equivalents and approximately $455 million in outstanding borrowings under its revolving credit facility. Over the course of the last 12 months, the company continued to invest in omni-channel growth, while returning over $343 million to shareholders through share repurchases and quarterly dividends.
Total inventory increased 4.1 percent at the end of the third quarter of 2017 as compared to the end of the third quarter of 2016.
Year-to-Date Results
The company reported consolidated net income for the 39 weeks ended October 28, 2017 of $207.5 million, or $1.91 per diluted share. For the 39 weeks ended October 29, 2016, the company reported consolidated net income of $197.2 million, or $1.75 per diluted share.
On a non-GAAP basis, the company reported consolidated net income for the 39 weeks ended October 28, 2017 of $197.0 million, or $1.81 per diluted share, excluding a corporate restructuring charge, conversion costs for former TSA stores, income related to a contract termination payment and the benefit from a multi-year sales tax refund. For the 39 weeks ended October 29, 2016, the company reported consolidated net income of $201.9 million, or $1.80 per diluted share, excluding conversion costs for former TSA stores.
Net sales for the 39 weeks ended October 28, 2017 increased 9.0 percent to approximately $5.93 billion, reflecting the growth of our store network and a 0.5 percent increase in consolidated same store sales.
Capital Allocation
On November 9, 2017, the company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.17 per share on the company’s Common Stock and Class B Common Stock. The dividend is payable in cash on December 29, 2017 to stockholders of record at the close of business on December 8, 2017.
During the third quarter of 2017, the company repurchased approximately 2.9 million shares of its common stock at an average cost of $26.57 per share, for a total cost of $76 million. During fiscal 2017, the company repurchased approximately 6.8 million shares of its common stock at an average cost of $35.70 per share, for a total cost of $242 million, and has approximately $0.8 billion remaining under its authorization that extends through 2021.
Current 2017 Outlook
Full Year 2017
Based on an estimated 107 to 108 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share in the range of $2.95 to 3.07, which includes approximately $0.05 per diluted share for the 53rd week. The company’s earnings per diluted share guidance is not dependent upon share repurchases beyond the $242 million executed through the third quarter of fiscal 2017. The company reported earnings per diluted share of $2.56 for the 52 weeks ended January 28, 2017.
The company currently anticipates reporting non-GAAP earnings per diluted share in the range of $2.92 to 3.04. This excludes a corporate restructuring charge, conversion costs for former TSA stores, income related to a contract termination payment, the benefit from a multi-year sales tax refund and a one-time cost the company expects to incur to enhance its ScoreCard loyalty program. On a non-GAAP basis, the company reported earnings per diluted share of $3.12 for the 52 weeks ended January 28, 2017.
Consolidated same store sales are currently expected to be in the range of approximately flat to a low single-digit decline on a 52 week to 52 week comparative basis, compared to an increase of 3.5 percent in 2016.
The company expects to open 43 new DICK’S Sporting Goods stores and relocate seven Dick’s Sporting Goods stores in 2017. The company also expects to open eight new Golf Galaxy stores, relocate one Golf Galaxy store and open eight new Field & Stream stores adjacent to DICK’S Sporting Goods stores. These openings include former TSA and Golfsmith stores that the company converted to DICK’S Sporting Goods and Golf Galaxy stores, respectively.
The retailer basically narrowed its guidance for the year. Previously, GAPP EPS was expected in the range of $2.85 to 3.05, and non-GAAP earnings per diluted share in the range of $2.80 to 3.00. The same-store guidance remained the same.
Fourth Quarter 2017
Based on an estimated 105 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share in the range of $1.05 to 1.17, which includes approximately $0.05 per diluted share for the 53rd week. The company reported earnings per diluted share of $0.81 in the fourth quarter of 2016.
The company currently anticipates reporting non-GAAP earnings per diluted share in the range of $1.12 to 1.24. This excludes a one-time cost the company expects to incur to enhance its ScoreCard loyalty program. On a non-GAAP basis, the company reported earnings per diluted share of $1.32 in the fourth quarter of 2016.
Consolidated same store sales are currently expected to decline in the low single-digits in the fourth quarter of 2017, compared to an increase of 5.0 percent in the fourth quarter of 2016.
The company expects to relocate one DICK’S Sporting Goods store in the fourth quarter of 2017.
Capital Expenditures
In 2017, the Company anticipates capital expenditures to be approximately $400 million on a net basis and approximately $515 million on a gross basis. In 2016, capital expenditures were $242 million on a net basis and $422 million on a gross basis.
Photo courtesy Dick’s Sporting Goods