DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2015 Q2, but the supplied filing is for the 13 and 26 weeks ended July 30, 2016, compared with the periods ended August 1, 2015. Fiscal 2016 ends January 28, 2017.
Business context and results
The company operates an omni-channel sporting goods retail business, including DICK’S Sporting Goods, Golf Galaxy, Field & Stream and eCommerce sites. At July 30, 2016, it had 747 stores, versus 709 a year earlier. Second-quarter consolidated same-store sales rose 2.8%; eCommerce represented 8.5% of sales, up from 7.3%.
| Metric | 13 weeks ended July 30, 2016 | Prior-year quarter | 26 weeks ended July 30, 2016 | Prior-year period |
|---|---|---|---|---|
| Net sales | $1,967.9 million | $1,823.0 million | $3,628.2 million | $3,388.3 million |
| Gross profit | $597.4 million | $553.6 million | $1,093.2 million | $1,022.5 million |
| Income from operations | $147.2 million | $148.4 million | $237.9 million | $250.3 million |
| Net income | $91.4 million | $90.8 million | $148.3 million | $154.2 million |
| Diluted EPS | $0.82 | $0.77 | $1.32 | $1.30 |
| Gross margin | 30.36% | 30.37% | 30.13% | 30.18% |
| Operating margin | 7.48% | 8.14% | 6.56% | 7.39% |
Financial position, cash flow and capital
- For the first half, operating cash flow was $222.9 million, versus $203.0 million a year earlier. Investing cash outflow was $231.9 million, including $208.4 million of capital expenditures; financing provided $2.3 million. Cash declined $6.6 million to $112.3 million.
- At July 30, cash was $112.3 million and revolving-credit borrowings were $152.0 million. The $1 billion credit facility had $833.4 million of remaining borrowing capacity, net of outstanding letters of credit.
- First-half share repurchases totaled $107.0 million for approximately 2.4 million shares; dividends paid were $34.5 million. The company declared a subsequent quarterly dividend of $0.15125 per share, payable September 30, 2016.
- Management expected fiscal 2016 capital expenditures of approximately $275 million net of tenant allowances and $450 million gross; it planned approximately 47 new stores and construction of its fifth distribution facility.
Changes, outlook and risks
- Quarterly sales increased 8%, driven by store growth and 2.8% same-store sales growth. Same-store sales were up 3.0% at DICK’S Sporting Goods but down 4.3% at Golf Galaxy. For the first half, sales rose 7% and same-store sales rose 1.7%.
- Despite higher sales, operating income fell in both the quarter and first half. SG&A increased 12% in the quarter and 11% year to date, with expense ratios up 73 and 83 basis points, respectively. Management cited store payroll investments and administrative costs supporting planned growth. Higher eCommerce-related shipping costs also offset slight merchandise-margin improvement.
- Second-quarter diluted EPS rose to $0.82 from $0.77, which management attributed primarily to fewer diluted shares. First-half net income declined despite modest EPS growth.
- On July 20, 2016, the company paid $21.3 million for The Sports Authority intellectual property and the right to acquire 31 TSA store leases. The filing does not state that all leases were acquired.
- Management said operating cash flow and the credit facility should cover planned fiscal 2016 capital needs and shareholder returns, while noting additional funding could be needed for acquisitions, greater repurchases, other investments or faster store expansion. Cash flow is seasonal, with peak inventory needs ahead of the holiday season.
- Key disclosed risks include discretionary consumer spending, intense retail competition, changing demand, eCommerce and information-system disruption, supply-chain and product-cost pressures, labor costs, litigation, and risks from acquisitions and store expansion. The company reported no material changes in market risk, no material changes in internal controls, and no expected material adverse effect from ordinary-course legal proceedings.
- Store leases and other purchase commitments are significant off-balance-sheet arrangements; management did not believe they were reasonably likely to have a material effect. No material changes to contractual obligations outside the ordinary course were reported.
Most important facts to verify
- Confirm the intended reporting period: the supplied filing is fiscal 2016 Q2, not 2015 Q2.
- Assess whether same-store sales and eCommerce growth can offset rising SG&A, shipping costs and weaker Golf Galaxy sales.
- Monitor seasonal inventory funding, revolving-credit usage and execution of the capital-spending and store-opening plans.
- Review the economics and lease-acquisition outcome of the TSA assets and the company’s planned shareholder returns.
- Check subsequent filings for changes to outlook, liquidity, store plans, litigation or other risk disclosures; this filing provides no EPS or sales forecast.