DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 30, 2022, compared with periods ended July 31, 2021. Although the request metadata says 2021 Q2, the filing itself is for fiscal 2022 Q2. DICK’S is an omni-channel sporting goods retailer operating DICK’S Sporting Goods and specialty concepts, alongside digital channels and sports-related services.
Financial performance
| Metric | 13 weeks ended July 30, 2022 | 13 weeks ended July 31, 2021 | 26 weeks ended July 30, 2022 | 26 weeks ended July 31, 2021 |
|---|---|---|---|---|
| Net sales | $3.112 billion | $3.275 billion | $5.813 billion | $6.194 billion |
| Gross profit / margin | $1.121 billion / 36.03% | $1.307 billion / 39.91% | $2.106 billion / 36.23% | $2.396 billion / 38.68% |
| Operating income / margin | $460.2 million / 14.79% | $663.6 million / 20.26% | $826.7 million / 14.22% | $1.139 billion / 18.40% |
| Net income | $318.5 million | $495.5 million | $579.1 million | $857.3 million |
| Diluted EPS | $3.25 | $4.53 | $5.70 | $7.96 |
| Operating cash flow | — | $101.7 million | $1.031 billion |
Liquidity and debt: Cash and cash equivalents were $1.896 billion at July 30, 2022, down from $2.643 billion at January 29, 2022. The company had no revolving-credit borrowings and reported $1.58 billion of remaining availability under its $1.6 billion facility, net of standby letters of credit. Debt included $750 million principal each of 2032 and 2052 senior notes, plus $375 million principal of 3.25% convertible notes due 2025. Current liabilities were $2.782 billion; total assets were $9.065 billion.
Cash uses and returns: First-half investing cash outflow was $171.0 million, including $167.7 million of gross capital expenditures. Financing cash outflow was $678.4 million, including $200 million paid in convertible-note exchanges, $392.9 million of treasury-stock purchases and $82.9 million of dividends paid. Inventory rose to $2.996 billion from $2.298 billion at fiscal year-end.
Changes versus the prior comparable period
- Second-quarter sales decreased 5.0%; comparable sales fell 5.1%, following a 20.2% increase in the prior-year quarter. Transactions declined 8.4%, partly offset by a 3.3% increase in sales per transaction. For the first half, sales declined 6.2% and comparable sales declined 6.6%.
- Management attributed sales pressure to normalization in fitness and outdoor categories and apparel inventory constraints; footwear and team sports grew. Second-quarter sales were 38% above the second quarter of 2019.
- Quarterly gross margin declined 388 basis points. Management cited lower merchandise margins, including strategic item-level pricing and higher shrink, increased supply-chain costs, occupancy deleverage and higher e-commerce shipping expense. First-half gross margin declined 245 basis points.
- Quarterly SG&A rose $17.1 million to $657.4 million, primarily reflecting hourly wage and talent investments; SG&A as a share of sales increased 157 basis points. Operating margin fell 547 basis points.
- Interest expense increased to $25.5 million for the quarter and $51.1 million for the first half, primarily reflecting the $1.5 billion senior notes issued in late 2021 and inducement charges on convertible-note exchanges.
- Operating cash flow fell by $929.0 million year over year in the first half. Management cited higher inventory and accounts-payable cash outlays, lower earnings, and changes in accrued expenses and payment timing.
Outlook, risks and notable items
- The company said its revised fiscal 2022 outlook reflects uncertainty from inflation, possible recession, supply-chain disruption and labor-market challenges. The filing text provided here does not give a clear numerical revised sales or earnings outlook.
- Fiscal 2022 gross capital expenditures were projected at $400–$425 million, or $340–$365 million net of landlord tenant allowances. Planned investment includes existing-store improvements, new stores and technology.
- Management said cash on hand and expected operating cash flows should fund operations for at least 12 months, supplemented if needed by the revolving facility. Repayment of the remaining convertible-note principal is expected to use excess cash, free cash flow or facility borrowings; funding availability at maturity or conversion is not assured.
- The company exchanged $200 million principal amount of convertible notes during the first half for $200 million cash and approximately 3.5 million common shares, with related hedge and warrant unwinds. It recorded $12.3 million of first-half inducement charges. About $375 million principal remained outstanding; conversion conditions were met, but no material conversion requests had been received by the filing date.
- Adoption of ASU 2020-06 changed diluted-EPS accounting to the if-converted method. The company said it intends to settle note principal in cash and expects its bond hedge to offset dilution upon conversion, but reported 15.5 million diluted shares related to the notes for the first half under the required accounting method.
- Key stated risks include discretionary-spending sensitivity, inflation and recession, supply-chain and product-cost pressures, competition and promotional activity, labor costs, e-commerce and information-system disruptions, and execution of strategic initiatives. The company reported no material change to previously disclosed risk factors, no material change in market-risk exposures, and no material adverse effect expected from routine legal proceedings.
- The board declared a subsequent quarterly dividend of $0.4875 per share, payable September 30, 2022. Management reported disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Whether comparable-sales trends and gross margins stabilize as category demand normalizes and inventory constraints ease.
- Inventory levels, markdown activity, shrink and supply-chain costs, including their effect on cash conversion and margins.
- How the fiscal 2022 outlook changes; the excerpt references a revised outlook but does not provide its numerical targets.
- Convertible-note settlement, cash needs and actual dilution relative to the company’s stated cash-settlement intent and hedge arrangements.
- The pace of share repurchases, dividends and capital spending relative to cash generation and liquidity.
- Effects of inflation, discretionary-spending pressure and potential recession on customer demand and promotional intensity.