DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Period: 13 weeks ended April 29, 2017 (first quarter fiscal 2017); comparative period ended April 30, 2016. The filing reports unaudited consolidated results. The request metadata says 2016 Q1, but the filing itself covers 2017 Q1.
Financial performance
- Revenue: Net sales were $1.825 billion, up 9.9% year over year. Consolidated same-store sales increased 2.4%, versus 0.5% a year earlier. eCommerce sales grew approximately 11% and were 9.3% of sales, compared with 9.2%.
- Profit and margins: Gross profit rose 9.3% to $541.9 million, while gross margin declined 17 basis points to 29.69%. Operating income was $90.1 million, down slightly from $90.7 million; operating margin fell 53 basis points to 4.93%. Net income increased to $58.2 million from $56.9 million, and diluted EPS was $0.52 versus $0.50. Net margin was 3.19%, compared with 3.43%.
- Cash flow: Operating cash flow was $36.5 million, compared with $7.5 million. Investing used $116.2 million, primarily for capital expenditures of $113.9 million. Financing provided $23.4 million. Cash declined $56.4 million to $108.4 million.
- Liquidity and debt: At April 29, cash was $108.4 million and revolver borrowings were $92.5 million. The $1 billion credit facility had $884.7 million of remaining borrowing capacity; letters of credit were $22.8 million. Total current assets were $2.255 billion and current liabilities $1.514 billion. Borrowings fluctuated seasonally, with a maximum daily balance of $152.8 million during the quarter.
- Capital returns: The company paid $19.3 million in dividends and repurchased approximately 0.5 million shares for $23.2 million. The quarterly dividend declared was $0.17 per share.
Changes versus the prior-year quarter
- Sales growth reflected store-network expansion and higher same-store sales; comparable-sales gains came from hardlines, apparel and footwear, especially golf and athletic footwear, partly offset by outdoor and electronics declines.
- Gross margin pressure reflected higher shipping and fulfillment costs, which more than offset improved merchandise margins. Occupancy costs and SG&A also rose; SG&A as a share of sales increased 6 basis points, primarily due to store payroll for the full-service footwear initiative.
- Pre-opening expense rose to $12.5 million from $6.5 million, including costs to convert former The Sports Authority stores. The company opened 25 stores and closed one specialty store during the quarter, versus five openings and no closures in the prior-year quarter.
- Operating cash flow improved, partly due to the timing of income-tax payments. Investing cash use increased, mainly because of higher capital expenditures. Net income includes $2.2 million after tax, or $0.02 per diluted share, in costs related to TSA-store conversions.
Outlook, risks and notable items
- The company expects fiscal 2017 capital expenditures of approximately $350 million net of tenant allowances and $465 million gross. It plans approximately 49 new store sites, excluding seven former Golfsmith locations, and expects to complete its fifth distribution facility.
- Management believes operating cash flow and available credit will fund planned fiscal 2017 capital needs, dividends and repurchases. Additional funding could be required for acquisitions, additional investment or expansion beyond current plans. No full-year revenue or earnings guidance is provided in the filing text.
- Management described ongoing retail-industry disruption and plans to align resources with digital capabilities, Dick’s Team Sports HQ and private brands. Key risks include consumer discretionary spending, intense competition, eCommerce execution, changing consumer demand, supply-chain and vendor disruption, wage and product-cost pressures, weather and seasonality, information-system or data-security issues, and store and distribution operations.
- Operating leases and other commitments are off balance sheet under the then-applicable accounting rules. The company expects adoption of the new lease standard to recognize significant right-of-use assets and related liabilities. It early adopted accounting updates, including one that reduced retained earnings by $1.7 million and another that lowered current-quarter tax expense by $0.9 million.
- Management reported effective disclosure controls as of quarter-end. It modified and added control processes following the transition to an insourced eCommerce platform. The company said ordinary-course legal proceedings were not expected to have a material adverse effect; it reported no material changes in market-risk exposures or contractual obligations outside the ordinary course.
Important facts for investors to verify
- Whether sales and comparable-sales momentum can continue, particularly given category-level declines and competitive disruption.
- Whether shipping, fulfillment, payroll and occupancy costs continue to pressure margins despite sales growth.
- Execution and returns from the planned store openings, distribution-center construction and digital investments, alongside the stated capital-spending plan.
- Seasonal working-capital needs, inventory growth and revolver usage; inventory was $1.917 billion at quarter-end versus $1.743 billion a year earlier.
- Effects of TSA conversions, lease commitments and future lease-accounting adoption on costs, balance-sheet leverage and cash requirements.