DICK’S Sporting Goods, Inc. — Form 10-K Summary
Reporting period: Fiscal 2019, the 52 weeks ended February 1, 2020. The request metadata says “2018 Q4,” but the supplied filing is the fiscal 2019 annual report; it also provides fourth-quarter results. Figures are in U.S. dollars unless noted.
Business context
DICK’S is an omni-channel sporting goods retailer operating DICK’S Sporting Goods, Golf Galaxy and Field & Stream stores, as well as an eCommerce platform and the GameChanger youth sports app. At year-end it operated 850 stores in 47 states. eCommerce generated approximately 16% of fiscal 2019 net sales, up from approximately 15% in fiscal 2018.
Financial performance and liquidity
| Metric | Fiscal 2019 | Fiscal 2018 |
|---|---|---|
| Net sales | $8.751 billion | $8.437 billion |
| Gross profit / margin | $2.555 billion / 29.2% | $2.438 billion / 28.9% |
| Operating income / margin | $375.6 million / 4.3% | $444.7 million / 5.3% |
| Net income | $297.5 million | $319.9 million |
| Diluted EPS | $3.34 | $3.24 |
| Cash from operations | $404.6 million | $712.8 million |
| Capital expenditures, gross | $217.5 million | $198.2 million |
| Cash and cash equivalents at year-end | $69.3 million | $113.7 million |
Same-store sales increased 3.7%, supported by 1.7% transaction growth and 2.0% higher sales per transaction. eCommerce sales rose approximately 16%. Gross margin improved 29 basis points, principally from occupancy leverage, partly offset by higher eCommerce fulfillment costs and the hunt inventory write-down. SG&A increased 9.4% and rose 129 basis points as a share of sales, reflecting restructuring and other charges, wage inflation, incentive compensation and strategic investments.
Operating cash flow fell $308.1 million, primarily because inventory and accounts payable changes together reduced cash flow by $314.9 million amid inventory investment in footwear, apparel, baseball and golf. Inventory was $2.202 billion, versus $1.825 billion a year earlier; inventory turnover declined to 2.83x from 3.19x.
At February 1, 2020, the company had $224.1 million outstanding on its $1.6 billion secured revolving credit facility, $1.360 billion of remaining borrowing capacity and $69.3 million in cash. It reported $227.2 million of total debt including finance lease obligations in selected financial data. Separately, adoption of lease accounting put $2.876 billion of operating lease liabilities on the balance sheet; undiscounted future operating lease payments totaled $3.562 billion. Working capital was $333.5 million. Management said operating cash flow and credit availability should meet capital requirements for at least 12 months, before the impact of COVID-19 was known.
Material changes and unusual items
- Fiscal 2019 net sales increased 3.7%, but net income fell 7.0% and operating margin declined by about one percentage point. Diluted EPS increased 3.1%, alongside a reduction in weighted-average diluted shares to 89.1 million from 98.8 million.
- The hunt restructuring generated $57.7 million of pretax charges: $35.7 million of non-cash trademark and store-asset impairments, a $13.1 million inventory write-down and an $8.9 million charge for exiting eight Field & Stream stores. The company planned to remove hunt departments from approximately 440 more DICK’S stores in fiscal 2020.
- The sale of Blue Sombrero and Affinity Sports generated $40.4 million of net proceeds and a $33.8 million pretax gain. The company also sold a corporate aircraft for $45.0 million and recognized an $15.3 million non-cash impairment charge before sale.
- The company repurchased 11.1 million shares for $402.2 million and paid $98.3 million in dividends during fiscal 2019. It declared $1.10 per share in annual dividends, versus $0.90 in fiscal 2018.
- Fiscal 2019 fourth-quarter net sales were $2.609 billion versus $2.492 billion in the prior-year quarter; net income was $69.8 million versus $102.6 million. Fourth-quarter results included $43.5 million of hunt restructuring charges.
- Adoption of the new lease accounting standard increased reported assets and liabilities; it did not materially affect consolidated net income or cash flows. Prior-year balance-sheet data was not restated.
Outlook, risks and contingencies
The company issued fiscal 2020 guidance on March 10, 2020, then withdrew it after COVID-19 caused a significant reduction in store traffic and demand. It announced temporary closure of all stores for two weeks beginning March 18, while continuing eCommerce, contactless curbside pickup and ship-from-store. Management expected adverse effects on results, cash flows and financial position, but said the impact could not then be reasonably estimated. The filing does not provide a current fiscal 2020 forecast.
Fiscal 2020 plans disclosed before the guidance withdrawal included approximately nine new DICK’S stores and six Golf Galaxy stores, relocations of 14 DICK’S and three Golf Galaxy stores, and no new Field & Stream stores. The company also identified promotional competition, weak hunting and firearms demand, vendor direct-to-consumer expansion, tariff and supply-chain exposure, labor costs, eCommerce execution, cybersecurity and seasonal/weather dependence as risks. Nike accounted for approximately 21% of merchandise purchases; the company had no long-term purchase contracts with vendors.
The company reported ordinary-course legal proceedings that management did not expect to have a material adverse effect. It disclosed $4.3 million of tax contingencies, including interest and penalties, and $3.925 billion of contractual obligations, primarily operating leases. The auditor issued an unqualified opinion on the financial statements and identified inventory valuation and hunt trademark impairment as critical audit matters.
Most important facts for investors to verify
- How COVID-19 affected subsequent-period sales, store operations, cash flow, liquidity and whether guidance was later restored.
- Whether elevated inventory converts to sales without increased markdowns, and whether inventory turnover recovers.
- Whether hunting-space changes and Field & Stream exits deliver the expected benefits, and whether further impairments or restructuring costs arise.
- Credit-facility usage, borrowing capacity and compliance with covenants, alongside the substantial operating-lease commitments.
- Whether share repurchases and dividends remain sustainable given lower operating cash flow and heightened uncertainty.
- Whether the technology-subsidiary sale’s gain and the other unusual items obscure underlying operating trends; compare reported and adjusted results carefully.