DICK's SPORTING GOODS, INC. annual report, FY2013

DICK’S Sporting Goods, Inc. — Form 10-K Summary

Period clarification: The filing is for fiscal 2013, the 52 weeks ended February 1, 2014, not fiscal 2012 Q4. It includes comparative fourth-quarter data; fiscal 2012 Q4 covered 14 weeks, versus 13 weeks in fiscal 2013 Q4.

Business context and reporting period

DICK’S operates sporting-goods stores and eCommerce businesses, including DICK’S Sporting Goods, Golf Galaxy, Field & Stream, and True Runner. At year-end it operated 642 stores across 46 states; eCommerce represented 7.9% of fiscal 2013 sales.

Financial performance and liquidity

MetricFiscal 2013Fiscal 2012
Net sales$6.213 billion$5.836 billion
Gross profit / margin$1.944 billion / 31.29%$1.837 billion / 31.48%
Operating income / margin$536.8 million / 8.64%$523.7 million / 8.97%
Net income$337.6 million$290.7 million
Diluted EPS$2.69$2.31
Operating cash flow$403.9 million$438.3 million
Capital expenditures$285.7 million$219.0 million

Fiscal 2013 ended with $181.7 million cash, $1.232 billion inventory, and $7.4 million total debt including capital and financing lease obligations. There were no revolver borrowings; remaining availability under the $500 million revolving facility was $487 million. Working capital was $617.5 million. Future non-cancelable operating lease payments totaled $3.418 billion.

Fourth-quarter fiscal 2013 sales were $1.947 billion, operating income $223.0 million, net income $138.6 million, and diluted EPS $1.11. Fiscal 2012 fourth-quarter figures were $1.805 billion, $211.1 million, $129.7 million, and $1.03, respectively; the differing quarter lengths limit direct comparison.

Material changes versus the prior period

  • Annual sales rose 6%; comparable sales increased 1.9% on a 52-week-to-52-week basis. DICK’S comparable sales rose 2.4%, while Golf Galaxy declined 7.1%.
  • Net income increased 16%, but operating margin fell 33 basis points and gross margin declined 19 basis points. Higher occupancy and shipping costs outweighed merchandise-margin expansion.
  • Operating cash flow declined $34.4 million, primarily reflecting less favorable working-capital movements, including income-tax timing and inventory/accounts-payable changes.
  • eCommerce penetration increased to 7.9% from 5.3%. The company opened 40 DICK’S stores and two Field & Stream stores, among other openings, and closed three underperforming Golf Galaxy stores.

Outlook, commentary, risks, and unusual items

  • Management said operating cash flow and available revolver capacity should meet current capital requirements through fiscal 2014. No specific earnings or sales guidance is provided in the supplied filing text.
  • Fiscal 2014 plans included approximately eight additional Field & Stream stores, one new Golf Galaxy store, and relocation of two Golf Galaxy stores. The company also cited long-term potential for approximately 1,100 DICK’S locations.
  • Fiscal 2013 included a $4.3 million after-tax recovery of the previously impaired JJB Sports investment and a $4.7 million after-tax non-cash aircraft impairment. On March 5, 2014, the company sold another corporate aircraft for $73.5 million and recorded a $14.4 million pre-tax gain.
  • Key disclosed risks include discretionary-spending weakness, intense competition, inventory and weather seasonality, vendor concentration (Nike and Under Armour represented about 18% and 11% of merchandise purchases), data-security and eCommerce-provider dependence, supply-chain disruption, and legal/regulatory exposure including firearms sales.
  • The company declared and paid $0.50 per share in regular dividends and repurchased 4.8 million shares for $255.6 million in fiscal 2013. Future dividends and repurchases are not assured. The CEO and relatives control a majority of voting power through dual-class shares.
  • Deloitte issued an unqualified opinion on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.

Important facts for investors to verify

  • Confirm the intended comparison period: the filing is fiscal 2013, while fiscal 2012 included an extra week and its fourth quarter was 14 weeks.
  • Review whether comparable-sales performance, particularly Golf Galaxy’s decline, and margin pressure continued after year-end.
  • Assess inventory growth, inventory turnover (3.18x versus 3.33x), and the cash-flow effects of working capital and planned capital spending.
  • Consider the scale of operating lease commitments alongside reported debt and revolver availability.
  • Review the assumptions behind store expansion, eCommerce investment, and capital returns, and the risks from vendor reliance, seasonality, and CEO voting control.