07 Mar Dick’s Q4 Tops Guidance
Dick’s Sporting Goods Inc. reported first-quarter earnings on an adjusted basis grew 17 percent, ahead of Wall Street analysts, as same-store sales rose 5 percent. The nation’s largest sporting goods chain also forecast double-digit earnings gains in its initial forecast for 2017 although its targeting flattish first quarter profits.
Fourth Quarter Results
The company reported consolidated net income for the fourth quarter ended January 28, 2017 of $90.2 million, or 81 cents per diluted share, compared to the company’s expectations provided on November 15, 2016 of $1.15 to 1.27 per diluted share. The company reported consolidated net income for the fourth quarter ended January 30, 2016 of $129.0 million, or $1.13 per diluted share.
In the fourth quarter, the company incurred pre-tax charges totaling $93 million, or $0.51 per diluted share, comprised of $46 million to write-down the value of its inventory that does not fit within its new merchandising strategy, and $47 million related to asset impairments and store closing charges, as well as costs to convert former Sports Authority (TSA) and Golfsmith stores.
Excluding these charges, the company reported consolidated non-GAAP net income for the fourth quarter ended January 28, 2017 of $147.8 million, or $1.32 per diluted share, compared to the company’s expectations provided on November 15, 2016 of $1.19 to 1.31 per diluted share. Wall Street’s consensus target had been $1.29.
Net sales for the fourth quarter of 2016 increased 10.9 percent to approximately $2.5 billion. Consolidated same store sales increased 5.0 percent compared to the company’s guidance of an approximate 3 to 6 percent increase. Same store sales for Dick’s Sporting Goods increased 5.3 percent, while Golf Galaxy increased 13.2 percent. Fourth quarter 2015 consolidated same store sales decreased 2.5 percent.
“We are very pleased with our strong fourth quarter results, as we delivered a 17 percent increase in non-GAAP earnings per diluted share driven by strong comp sales and gross margin expansion. We realized meaningful market share gains and saw growth across each of our three primary categories of hardlines, apparel and footwear,” said Edward W. Stack, chairman and chief executive officer. “In 2016, we capitalized on opportunities in the marketplace, and further solidified our leadership position by enhancing the shopping experience in our stores, building brand equity and successfully relaunching our eCommerce business on our own web platform.”
Stack continued, “In 2017, we will continue to be aggressive and evolve our business. We will implement a new merchandising strategy aimed at rationalizing our vendor base and optimizing our assortment to deliver a more refined offering for our customers. We are in the process of reviewing our entire vendor base, which will be segmented into strategic partners and transactional vendors, with tertiary vendors being eliminated. This strategy, combined with our efforts to enhance our digital capabilities, will enable us to stay ahead of consumer trends and differentiate us from the competition.”
Omni-channel Development
E-commerce penetration for the fourth quarter of 2016 was 17.9 percent of total net sales, compared to 15.7 percent during the fourth quarter of 2015. eCommerce penetration for the 52 weeks ended January 28, 2017 was 11.9 percent of total net sales, compared to 10.3 percent during the 52 weeks ended January 30, 2016.
In the fourth quarter, the company opened three former TSA stores as new Dick’s Sporting Goods stores and closed three Dick’s Sporting Goods stores, 13 Golf Galaxy stores and two True Runner stores. The company also acquired 30 Golfsmith stores, which are being converted to the Golf Galaxy brand. Ten of the 13 Golf Galaxy store closures were located in close proximity to an acquired Golfsmith store that is better positioned to serve the company’s customers. As of January 28, 2017, the company operated 676 Dick’s Sporting Goods stores in 47 states, with approximately 36.0 million square feet, 91 golf specialty stores in 32 states, with approximately 1.9 million square feet and 27 Field & Stream stores in 13 states, with approximately 1.3 million square feet.
Balance Sheet
The company ended 2016 with approximately $165 million in cash and cash equivalents and no outstanding borrowings under its revolving credit facility. In 2016, the company continued to invest in omni-channel growth, while returning over $210 million to shareholders through share repurchases and quarterly dividends.
Full Year Results
The company reported consolidated net income for the 52 weeks ended January 28, 2017 of $287.4 million, or $2.56 per diluted share. For the 52 weeks ended January 30, 2016, the company reported consolidated net income of $330.4 million, or $2.83 per diluted share.
The company reported consolidated non-GAAP net income for the 52 weeks ended January 28, 2017 of $349.7 million, or $3.12 per diluted share. For the 52 weeks ended January 30, 2016, the company reported consolidated non-GAAP net income of $335.1 million, or $2.87 per diluted share.
Net sales for the 52 weeks ended January 28, 2017 increased 9.0 percent from last year’s period to $7.9 billion, reflecting the opening of new stores and an increase of 3.5 percent in consolidated same store sales.
Capital Allocation
On February 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 March 31, 2017 to stockholders of record at the close of business on March 10, 2017. This dividend represents an increase of approximately 12 percent over the company’s previous quarterly per share amount and is equivalent to an annualized rate of $0.68 per share.
During the fourth quarter of 2016, the company repurchased approximately 0.6 million shares of its common stock at an average cost of $54.06 per share, for a total cost of $29.7 million. In total for 2016, the company repurchased approximately 3.1 million shares of its common stock at an average price of $46.55 per share, for a total cost of $145.7 million. Since the beginning of fiscal 2013, the company has repurchased approximately $959 million of common stock and has approximately $1,041 million remaining under its authorizations that extend through 2021.
Current 2017 Outlook
Full Year 2017 (53 week year)
Consolidated same store sales are currently expected to increase approximately 2 to 3 percent on a 52 week to 52 week comparative basis, compared to an increase of 3.5 percent in 2016.
The company expects to open approximately 43 new Dick’s Sporting Goods stores and relocate approximately seven Dick’s Sporting Goods stores in 2017. The company also expects to open approximately nine new Golf Galaxy stores, relocate one Golf Galaxy store and open eight new Field & Stream stores in 2017, largely adjacent to new or relocated Dick’s Sporting Goods stores. These openings include former TSA and Golfsmith stores that the company plans to convert to Dick’s Sporting Goods and Golf Galaxy stores, respectively.
Based on an estimated 111 to 112 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share of approximately $3.63 to 3.73, which includes approximately 5 cents per diluted share for the 53rd week. The company’s earnings per diluted share guidance includes the expectation of share repurchases to fully offset dilution in 2017. The company reported earnings per diluted share of $2.56 for the 52 weeks ended January 28, 2017.
Excluding TSA conversion costs, the company currently anticipates reporting non-GAAP earnings per diluted share of approximately $3.65 to 3.75. The company reported non-GAAP earnings per diluted share of $3.12 for the 52 weeks ended January 28, 2017.
Consolidated same store sales are currently expected to increase approximately 2 to 3 percent on a 52 week to 52 week comparative basis, compared to an increase of 3.5 percent in 2016.
The company expects to open approximately 43 new Dick’s Sporting Goods stores and relocate approximately seven Dick’s Sporting Goods stores in 2017. The company also expects to open approximately nine new Golf Galaxy stores, relocate one Golf Galaxy store and open eight new Field & Stream stores in 2017, largely adjacent to new or relocated Dick’s Sporting Goods stores. These openings include former TSA and Golfsmith stores that the company plans to convert to Dick’s Sporting Goods and Golf Galaxy stores, respectively.
First Quarter 2017
Consolidated same store sales are currently expected to increase approximately 3 to 4 percent in the first quarter of 2017, compared to a 0.5 percent increase in the first quarter of 2016.
The company expects to open 16 new Dick’s Sporting Goods stores, relocate two Dick’s Sporting Goods stores, and open two new Field & Stream stores and nine new Golf Galaxy stores in the first quarter of 2017. These openings include former TSA and Golfsmith stores that the company plans to convert to Dick’s Sporting Goods and Golf Galaxy stores, respectively.
Based on an estimated 111 to 112 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share of approximately $0.48 to 0.53 in the first quarter of 2017, compared to earnings per diluted share of 50 cents in the first quarter of 2016.
The company currently anticipates reporting non-GAAP earnings per diluted share in the range of 50 to 55 cents in the first quarter of 2017.
Consolidated same store sales are currently expected to increase approximately 3 to 4 percent in the first quarter of 2017, compared to a 0.5 percent increase in the first quarter of 2016.
The company expects to open 16 new Dick’s Sporting Goods stores, relocate two Dick’s Sporting Goods stores, and open two new Field & Stream stores and nine new Golf Galaxy stores in the first quarter of 2017. These openings include former TSA and Golfsmith stores that the company plans to convert to Dick’s Sporting Goods and Golf Galaxy stores, respectively.
Capital Expenditures
In 2017, the company anticipates capital expenditures to be approximately $350 million on a net basis and approximately $465 million on a gross basis. In 2016, capital expenditures were $242 million on a net basis and $422 million on a gross basis.