DICK’S Sporting Goods, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 2, 2013 (fiscal 2012), comprising 53 weeks; comparable fiscal 2011 comprised 52 weeks. Although the request metadata refers to “2011 Q4,” the filing is an annual report for fiscal 2012, not a standalone 2011 Q4 filing. Fourth-quarter comparisons below are reported in the filing and are not week-adjusted.
Business context
The company operates Dick’s Sporting Goods and Golf Galaxy retail stores and eCommerce businesses. At year-end it had 518 Dick’s stores and 81 Golf Galaxy stores in 44 states. eCommerce represented approximately 5% of fiscal 2012 sales.
Financial performance and liquidity
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net sales | $5.836 billion | $5.212 billion |
| Gross profit / margin | $1.837 billion / 31.48% | $1.595 billion / 30.60% |
| Operating income / margin | $523.7 million / 8.97% | $432.0 million / 8.29% |
| Net income | $290.7 million | $263.9 million |
| Diluted EPS | $2.31 | $2.10 |
| Operating cash flow | $438.3 million | $410.4 million |
| Capital expenditures | $219.0 million | $201.8 million |
| Cash and cash equivalents | $345.2 million | $734.4 million |
| Total debt, including lease obligations | $16.3 million | $159.0 million |
| Working capital | $595.1 million | $928.2 million |
Sales rose 12%, driven by 4.3% comparable sales growth on a 52-week basis, store expansion and the extra week. Comparable sales increased 2.4% at Dick’s, 5.5% at Golf Galaxy and 48.5% in eCommerce. Gross margin improved 88 basis points, mainly from occupancy-cost leverage and merchandise-margin expansion. SG&A increased 13% and rose 20 basis points as a share of sales.
Fourth-quarter sales were $1.805 billion versus $1.612 billion; net income was $129.7 million versus $111.1 million. Fiscal 2012 Q4 covered 14 weeks, compared with 13 weeks in fiscal 2011.
Cash declined by $389.2 million during the year, primarily reflecting investment and capital spending, headquarters purchase, share repurchases and dividends. The company reported no revolving-credit borrowings; its $500 million facility had $488.7 million of remaining capacity after letters of credit. Current liabilities exceeded current assets by $595.1 million, as reported working capital remained positive.
Material changes and unusual items
- Net income included a $32.4 million pre-tax impairment of the company’s JJB Sports investment ($27.6 million after tax, or $0.22 per diluted share). JJB entered administration in October 2012.
- Fiscal 2011 included a $13.9 million pre-tax gain on sale of the GSI Commerce investment and a $1.3 million after-tax benefit from a partial reversal of litigation accruals.
- The company purchased its headquarters for $133.4 million and completed a $198.8 million share repurchase of approximately 4.0 million shares. It paid $307.0 million of dividends, including a $2.00-per-share special dividend.
- Inventory increased to $1.096 billion from $1.015 billion. Inventory turnover was 3.33x versus 3.37x.
Outlook, plans and risks
- Management expected fiscal 2013 capital expenditures, net of specified allowances and sale-leaseback proceeds, of approximately $258 million. The filing does not provide a fiscal 2013 earnings or revenue forecast.
- Plans included approximately 40 new Dick’s stores, one new and one relocated Golf Galaxy store, two True Runner stores, two Field & Stream stores, and substantial store remodels and technology/omni-channel investment.
- Management stated operating cash flow and available credit were expected to cover current fiscal 2013 capital requirements. A new five-year share repurchase authorization of up to $1 billion was approved after year-end.
- Key risks include discretionary consumer spending, competition and pricing pressure, inventory and demand forecasting, seasonal/weather exposure, store expansion and lease commitments, vendor concentration (Nike represented about 17% of merchandise purchases), supply-chain and foreign sourcing risks, customer-data and IT security, and legal/regulatory exposure, including firearms-related matters.
- Contractual obligations totaled $3.527 billion, including $3.324 billion of operating lease obligations. The company also disclosed litigation incidental to normal business and stated it did not expect pending proceedings to materially affect financial position or results.
- The company’s dual-class structure gives Class B shares ten votes per share; the CEO and relatives controlled a majority of voting power. The filing also describes a related-party asset assignment agreement with a $60.3 million total purchase price payable through 2013.
Most important facts for investors to verify
- How much of reported growth and Q4 performance reflects the extra fiscal week versus underlying comparable-store demand.
- Whether gross-margin gains and comparable-sales momentum continue, particularly given weak outerwear/cold-weather and large fitness equipment sales.
- Execution and returns on the planned store, remodel, eCommerce and distribution investments, alongside the fiscal 2013 capital-spending plan.
- Cash generation and liquidity after the special dividend, headquarters purchase, buyback and new $1 billion repurchase authorization; assess lease obligations alongside low reported debt.
- Implications of the fully impaired JJB investment, vendor concentration and the company’s sizable operating-lease commitments.