DICK'S Sporting Goods, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2016, the 52 weeks ended January 28, 2017, not fiscal 2015 Q4. It provides quarterly results, including fiscal 2016 Q4; the filing text does not identify itself as a 2015 Q4 report.
Business context
DICK'S is an omnichannel sporting-goods retailer operating DICK'S Sporting Goods, Golf Galaxy, Field & Stream and related digital businesses. At year-end it operated 797 stores in 47 states. E-commerce represented 11.9% of fiscal 2016 net sales, versus 10.3% in fiscal 2015. The company acquired selected assets of The Sports Authority and Golfsmith, as well as sports technology businesses Affinity Sports and GameChanger.
Financial performance
| Metric | Fiscal 2016 | Fiscal 2015 |
|---|---|---|
| Net sales | $7.922 billion | $7.271 billion |
| Same-store sales growth | 3.5% | (0.2)% |
| Gross profit / margin | $2.366 billion / 29.9% | $2.183 billion / 30.0% |
| Operating income / margin | $449.9 million / 5.7% | $535.2 million / 7.4% |
| Net income | $287.4 million | $330.4 million |
| Diluted EPS | $2.56 | $2.83 |
| Operating cash flow | $759.0 million | $643.5 million |
| Cash and cash equivalents at year-end | $164.8 million | $118.9 million |
| Total debt, including lease obligations | $5.3 million | $5.9 million |
Sales increased 9%, driven by store growth and 3.5% same-store sales growth. Earnings declined despite higher sales: gross margin slipped 16 basis points and SG&A rose to 23.7% of sales from 22.2%. Net cash used in investing was $550.3 million, including $118.8 million for acquisitions; capital expenditures were $421.9 million gross and $242 million net of landlord allowances. The company ended the year with no revolver borrowings and $978.7 million of remaining capacity on its $1 billion revolving facility. Working capital was $598.3 million, down from $621.0 million.
Material changes and unusual items
- Fiscal 2016 net income included $62.3 million after tax, or $0.56 per diluted share, of asset write-downs, impairments and merger/integration costs.
- Charges included a $46.4 million inventory write-down tied to a new merchandising strategy; store impairment and closing charges; and TSA/Golfsmith conversion and integration costs. Fiscal 2015 included a $7.9 million litigation settlement charge.
- Excluding the inventory write-down, merchandise margin expanded 61 basis points, principally due to lower promotions; increased e-commerce shipping costs partly offset the improvement.
- Operating cash flow increased by $115.5 million, primarily reflecting working-capital timing, including inventory receipts, accrued expenses and tax payments. This increase was partly offset by lower net income.
- The company repurchased 3.1 million shares for $145.7 million and declared $0.605 per share in dividends. Shares repurchased were fewer than in fiscal 2015, when the company spent $357.3 million.
Outlook, commentary and risks
Management planned approximately $350 million in net capital expenditures ($465 million gross), about 49 new stores, and completion of a fifth distribution center in fiscal 2017. It expected private-brand sales to exceed $1 billion in fiscal 2017; private brands were about 10% of fiscal 2016 sales. The company also planned eight additional Field & Stream stores, all in combo-store format. No specific fiscal 2017 revenue or earnings guidance is provided in the supplied filing text.
The company said operating cash flow and available credit should fund planned fiscal 2017 capital expenditures and shareholder returns, while noting additional funding could be needed for acquisitions, higher repurchases or faster expansion. Key risks include intense competition and price transparency, consumer discretionary spending, weather and seasonal concentration, execution of the newly launched internal e-commerce platform, inventory and merchandising decisions, vendor concentration (Nike and Under Armour were 20% and 12% of merchandise purchases), data security, foreign sourcing and import-cost changes, and regulatory and litigation exposure, including firearms-related matters. Future dividends and repurchases are not guaranteed. Management and the auditor reported effective internal controls; the financial statement audit opinion was unqualified.
Most important facts for investors to verify
- Confirm the intended reporting period: this is fiscal 2016, not fiscal 2015 Q4; fiscal 2016 Q4 sales were $2.483 billion and net income was $90.2 million.
- Assess the quality and sustainability of earnings after the $46.4 million inventory write-down and other special charges, and whether the new merchandising strategy improves margins.
- Track same-store sales, e-commerce growth and profitability, and the operational performance of the internal platform launched January 29, 2017.
- Evaluate acquisition integration, store conversions and closures, and the returns from planned store and distribution-center investment.
- Review lease obligations: the filing reports $3.907 billion of future non-cancellable operating lease payments, in addition to other contractual commitments.
- Monitor working-capital trends, cash conversion, credit-facility availability, and the capacity to sustain dividends and repurchases alongside growth investments.