DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: Unaudited 13 and 26 weeks ended August 3, 2013; comparisons are to periods ended July 28, 2012. The filing’s period is 2013 Q2, notwithstanding the request metadata specifying 2012 Q2.
Business context and results
The company operates Dick’s Sporting Goods and Golf Galaxy stores and describes itself as an omni-channel sports and fitness retailer. At quarter-end it operated 527 Dick’s stores and 81 Golf Galaxy stores, with about 30.0 million square feet. Results are seasonal, with management noting that the fourth quarter typically generates higher sales, earnings, and operating cash flow.
| Metric | 13 weeks ended Aug. 3, 2013 | 26 weeks ended Aug. 3, 2013 |
|---|---|---|
| Net sales | $1.531 billion, up 7% | $2.865 billion, up 5% |
| Gross profit / margin | $479.3 million / 31.30% | $891.0 million / 31.10% |
| Operating income / margin | $137.1 million / 8.95% | $234.7 million / 8.19% |
| Net income | $84.2 million | $149.0 million |
| Diluted EPS | $0.67 | $1.18 |
| Operating cash flow | Not separately presented | $5.4 million, versus $67.0 million |
Financial position, cash flow, and capital
- At August 3, cash and equivalents were $134.8 million, down from $350.4 million at July 28, 2012. Inventories were $1.275 billion; total current assets were $1.653 billion and current liabilities $1.025 billion.
- Other long-term debt and leasing obligations totaled $14.7 million, including $8.3 million current and $6.4 million long-term. There were no borrowings under the $500 million revolving credit facility; remaining capacity after letters of credit was $487.0 million. The company reported compliance with its credit agreement covenants.
- First-half operating cash flow of $5.4 million reflected working-capital demands, including a $179.0 million inventory increase. Investing cash outflow was $132.9 million, including $95.5 million of capital expenditures. Financing cash outflow was $82.9 million, including $80.6 million of share repurchases and $33.6 million of dividends, partly offset by option proceeds and other items.
- First-half capital expenditures were $95.5 million. Management said fiscal 2013 capital investment would be substantial and store-related spending was expected to nearly double versus fiscal 2012.
Changes versus comparable periods and unusual items
- Quarterly net income rose from $53.7 million to $84.2 million; first-half net income rose from $110.8 million to $149.0 million. Comparisons were affected by prior-year’s $32.4 million JJB Sports investment impairment and current-period aircraft impairment and JJB recovery.
- Quarterly gross margin increased 14 basis points, primarily from merchandise margin expansion, partly offset by occupancy-cost deleverage. First-half gross margin increased 12 basis points; merchandise margin gains were partly offset by occupancy and eCommerce freight/distribution costs.
- Reported quarterly consolidated same-store sales increased 1.2%, but management estimated the prior-year 53rd-week calendar shift favorably affected sales comparisons by about $20 million; on its adjusted calendar basis, comparable sales decreased 0.4%. For the first half, reported same-store sales fell 0.2%; adjusted for the calendar shift, they fell 2.0%.
- Golf Galaxy same-store sales declined 7.2% in the quarter and 7.3% in the first half. Management cited weakness in golf, outdoor equipment, and fitness, including weather-related pressure on golf and outdoor equipment. eCommerce represented about 5.6% of quarterly sales versus 3.9% a year earlier.
- Current-quarter SG&A included a $7.9 million non-cash impairment of a Gulfstream G450 aircraft held for sale; management stated it was not the aircraft sold to a related party. Separately, the company sold a Gulfstream G200 to an entity 50% owned by its CEO for $11.0 million, equal to carrying value; the filing says the transaction was approved under the related-party policy.
- First-half other income included an estimated $4.3 million recovery on the previously impaired JJB Sports investment, with no related tax expense. The filing reports the aircraft impairment as $4.7 million net of tax in its earnings discussion.
Outlook, risks, and contingencies
- Management planned about 40 new Dick’s stores, one new Golf Galaxy store, one new True Runner store, and two new Field & Stream stores in fiscal 2013, alongside store remodels and omni-channel, technology, and distribution investments. It stated that operating cash flows and available credit were expected to meet current fiscal 2013 capital needs.
- The board authorized a five-year, up-to-$1 billion share repurchase program. The company repurchased 1.7 million shares for $80.6 million in the first half; $919.4 million remained authorized. A $0.125-per-share quarterly dividend was declared after quarter-end.
- Management cited risks including consumer spending and economic conditions, competition, changing demand, weather and seasonality, supply-chain and vendor issues, eCommerce and information-system disruption, store expansion costs, litigation and product regulation, and key-person and control-related risks. It cautioned that interim results are not necessarily indicative of full-year results.
- The company reported no material changes in market-risk exposures and no material changes in internal controls; management concluded disclosure controls were effective at period-end. Ordinary-course legal proceedings were not expected to have a material adverse effect. The filing says off-balance-sheet obligations were primarily operating leases, minimum guaranteed payments, and letters of credit, with no significant changes since fiscal year-end.
Most important facts for investors to verify
- How sales and comparable-sales trends develop after adjusting for the fiscal-calendar shift, especially at Golf Galaxy and in golf, outdoor, and fitness categories.
- Whether gross-margin improvement can offset higher SG&A, occupancy, and eCommerce fulfillment costs.
- How inventory investment and working-capital timing affect operating cash generation through the remainder of the year.
- Execution and funding of planned store openings, remodels, and omni-channel investments, alongside dividends and share repurchases.
- Details and subsequent accounting for the aircraft impairment, related-party aircraft sale, and JJB Sports recovery.