DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Period: The filing covers the 13 weeks ended April 28, 2012, compared with the 13 weeks ended April 30, 2011. This differs from the request metadata’s “2011 Q1.” The company operated 486 DICK’S stores and 81 Golf Galaxy stores at quarter-end.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $1,281.7 million | $1,113.8 million | +15% |
| Gross profit / margin | $394.6 million / 30.79% | $330.4 million / 29.67% | Margin +112 bps |
| Operating income / margin | $95.7 million / 7.47% | $64.4 million / 5.79% | Income +49% |
| Net income | $57.2 million | $37.5 million | +53% |
| Diluted EPS | $0.45 | $0.30 | +$0.15 |
| Operating cash flow | $(17.8) million | $(14.5) million | More cash used |
Consolidated same-store sales rose 8.4%, versus 2.1% a year earlier: DICK’S stores +7.3%, Golf Galaxy +12.6%, and e-commerce +33.4%. Growth was broad-based, especially in golf, team sports, athletic apparel and footwear; fitness declined. Gross-margin improvement primarily reflected better leverage of fixed occupancy costs; merchandise margin slipped 8 bps, partly due to clearance of cold-weather and fitness products. SG&A rose 12% in dollars but declined 58 bps as a share of sales.
Cash, liquidity and balance sheet
Cash and cash equivalents were $521.0 million at April 28, 2012, down from $734.4 million at January 28. Current assets were $1,856.5 million and current liabilities $1,158.8 million. Inventory increased to $1,201.8 million from $1,015.0 million; management cited higher outerwear and cold-weather inventory after an unusually warm winter and increased e-commerce inventory.
Cash used in investing was $98.4 million, including $41.3 million of capital expenditures, a $32.0 million JJB investment and the $20.0 million Top-Flite brand purchase. Financing used $97.2 million, including $103.9 million of share repurchases and $15.4 million of dividends, partly offset by other financing inflows. Net cash declined $213.4 million.
The company reported no borrowings under its $500 million revolving credit facility; remaining capacity after letters of credit was $479.6 million. Balance-sheet “other long-term debt and leasing obligations” totaled $153.0 million, of which $138.6 million was classified current. Interest expense primarily included the headquarters financing lease. The company stated that operating cash flows and credit-facility availability should cover current capital needs through fiscal 2012.
Material developments, outlook and risks
- During the quarter, the company repurchased 2.1 million shares for $103.9 million and declared and paid a $0.125-per-share dividend.
- It invested £20 million (about $32.0 million) in JJB Sports, including junior secured convertible notes and ordinary shares. The notes are secured by a second-ranking interest in JJB assets; their reported fair value was $35.8 million, including a $3.3 million unrealized gain.
- The company acquired worldwide Top-Flite intellectual-property rights for $20.0 million; these indefinite-lived assets are not amortized.
- After quarter-end, it bought its headquarters building on May 7 for about $133.4 million, funded with cash on hand. On May 14 it completed the $200 million repurchase authorization, including approximately 2.0 million additional shares for $94.9 million, and declared another $0.125-per-share dividend.
- Fiscal 2012 plans included approximately $190 million in capital expenditures, about 40 new DICK’S stores, repositioning two Golf Galaxy stores, and continued construction of a 624,000-square-foot Arizona distribution center expected to be operational in January 2013. No earnings or revenue guidance is stated in the provided filing text.
- Results are seasonal, with stronger sales and cash generation typically in the fourth quarter. Principal stated risks include consumer spending and economic conditions, sales volatility, competition, inventory and vendor/supply-chain risks, store expansion and real-estate costs, e-commerce and information-security risks, seasonality, geographic concentration, and risks from strategic investments. Management reported effective disclosure controls and no material change in internal financial controls. It did not expect pending ordinary-course legal proceedings to materially adversely affect financial position or results.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is Q1 2012, not Q1 2011.
- Assess inventory growth and product-clearance exposure, particularly given the warm-winter inventory build.
- Evaluate the cash impact of the headquarters purchase, completed buyback, dividends and planned capital spending against seasonal cash needs.
- Review JJB’s credit, conversion, collateral and valuation risks, including the Level 2 fair-value assumptions.
- Monitor execution of store-opening and distribution-center plans, same-store sales trends, and whether margin gains persist.