DICK'S Sporting Goods, Inc. — Form 10-K Summary
Period clarification: The filing is for the 52-week fiscal year ended January 31, 2015, not a standalone 2013 Q4 filing. It also reports quarterly results, including fiscal 2014’s fourth quarter.
Business context and reporting period
DICK'S is an omni-channel sporting goods retailer operating DICK'S Sporting Goods, Golf Galaxy, Field & Stream and True Runner stores, alongside DICK'S and Golf Galaxy eCommerce sites. At year-end it operated 694 stores in 46 states; eCommerce represented 9.2% of sales. Fiscal 2013 also had 52 weeks.
Key financial metrics
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Net sales | $6.814 billion | $6.213 billion |
| Gross profit / margin | $2.087 billion / 30.62% | $1.944 billion / 31.29% |
| Operating income / margin | $554.1 million / 8.13% | $536.8 million / 8.64% |
| Net income / diluted EPS | $344.2 million / $2.84 | $337.6 million / $2.69 |
| Operating cash flow | $606.0 million | $403.9 million |
| Cash and cash equivalents at year-end | $221.7 million | $181.7 million |
| Total debt, including leases | $6.5 million | $7.4 million |
| Working capital | $731.6 million | $617.5 million |
Fiscal 2014 capital expenditures were $349.0 million. Inventory was $1.391 billion, up from $1.232 billion; inventory turnover declined to 3.10x from 3.18x. The company had no year-end revolver borrowings and reported $486 million of remaining borrowing capacity after letters of credit.
Material changes versus the prior year
- Sales increased about 10%, driven by 2.4% consolidated same-store sales growth and new stores. DICK'S same-store sales rose 3.1%, while Golf Galaxy declined 9.2%.
- Net income rose about 2% and diluted EPS rose from $2.69 to $2.84, supported in part by a lower weighted-average diluted share count.
- Gross margin declined 67 basis points, principally due to increased promotions and eCommerce shipping costs; occupancy leverage partly offset the pressure. Operating margin fell 51 basis points.
- Operating cash flow increased by $202.1 million. Management attributed much of the increase to working-capital movements, including deferred construction allowances, tax-payment timing and inventory receipts.
- The company opened 55 stores, including eight Field & Stream stores, and closed three stores. It repurchased 4.3 million shares for $200 million and paid $61.3 million in dividends.
Outlook, commentary, risks and unusual items
- Management said operating cash flows and available revolver capacity were expected to meet current capital requirements through fiscal 2015. It planned continued investment in omni-channel capabilities, stores, specialty concepts and technology; approximately nine additional Field & Stream openings were planned for fiscal 2015.
- Fiscal 2014 included an $8.7 million after-tax gain on the sale of a corporate aircraft and $12.2 million in after-tax golf restructuring charges. The restructuring included impairment and severance charges; a $2.4 million golf inventory write-down was also recorded.
- Fiscal fourth-quarter sales were $2.160 billion, operating income was $250.5 million and net income was $155.5 million. Diluted EPS was $1.30. The quarter included the golf restructuring charges; the prior-year quarter included a $4.7 million after-tax aircraft impairment.
- Key disclosed risks include discretionary consumer spending, intense retail competition, merchandise demand and inventory forecasting, weather and seasonality, store expansion, eCommerce-platform implementation, reliance on a third-party DICKS.com provider, data security, vendor concentration, supply-chain disruption and regulation of firearms and other products.
- Long-term operating lease obligations totaled $3.504 billion. The company reported ordinary-course legal proceedings and did not expect them to materially affect financial position or results. The $500 million secured revolving facility matures December 5, 2016 and includes financial and other covenants; the company reported compliance at year-end.
- The board declared a subsequent quarterly dividend of $0.1375 per share, up from $0.125. Future dividends and repurchases remain subject to board decisions and financial needs. The CEO and relatives controlled a majority of combined voting power through the dual-class share structure.
Important facts for investors to verify
- Whether same-store sales and Golf Galaxy trends improved after fiscal 2014, and whether gross-margin pressure from promotions and shipping persisted.
- Whether inventory growth, turnover and markdown exposure remained consistent with sales trends.
- Progress, costs and returns from the internal eCommerce-platform development and omni-channel investments.
- Execution and profitability of new stores and specialty concepts, alongside the substantial lease commitments.
- Cash-flow sustainability after considering capital expenditures, share repurchases, dividends and working-capital timing effects.
- Potential effects of the golf restructuring, vendor concentration, seasonal weather exposure, credit-facility covenants and CEO-related voting control.