DICK'S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2013, the 13 weeks ended May 4, 2013; comparative period ended April 28, 2012. The filing describes a sporting-goods and fitness omnichannel retailer, including Dick's Sporting Goods and Golf Galaxy. It operated 520 Dick's stores and 81 Golf Galaxy stores at quarter-end. Interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2013 | Prior-year quarter |
|---|---|---|
| Net sales | $1,333.7 million | $1,281.7 million |
| Gross profit / margin | $411.7 million / 30.87% | $394.6 million / 30.79% |
| Income from operations | $97.6 million | $95.7 million |
| Net income | $64.8 million | $57.2 million |
| Diluted EPS | $0.52 | $0.45 |
| Operating cash flow | $(75.4) million | $(17.8) million |
- Reported sales rose approximately 4%, primarily from store growth, but consolidated same-store sales fell 1.7%. Management said the shifted retail calendar added approximately $31 million to the sales comparison; calendar-adjusted same-store sales declined 3.8%.
- Gross margin increased 8 basis points. Merchandise-margin expansion of 84 basis points was partly offset by higher occupancy costs and freight and distribution costs. SG&A rose 6% to $312.7 million and increased 35 basis points as a share of sales; operating margin declined 15 basis points to 7.32%.
- Net income increased 13%, including a $4.3 million after-tax estimated recovery of the previously impaired JJB Sports investment, equal to $0.04 per diluted share. The effective tax rate was 37.2%, versus 39.3%.
- Cash and cash equivalents were $113.9 million at May 4, 2013, down from $345.2 million at fiscal year-end and $521.0 million a year earlier. Operating cash use reflected seasonal inventory investment and higher income-tax payments; inventory increased $216.6 million in operating cash-flow terms.
- Investing cash use was $68.6 million, including $34.0 million of capital expenditures; financing cash use was $87.3 million, including $80.6 million of share repurchases and $18.2 million of dividends paid.
- No borrowings were outstanding under the $500 million revolving credit facility; remaining capacity after letters of credit was $487.0 million. Current and long-term debt and leasing obligations totaled $15.5 million. The company reported compliance with its credit agreement.
Material changes and notable items
- Same-store sales reversed from an 8.4% increase in the prior-year quarter to a 1.7% decrease; calendar-adjusted declines were 3.2% at Dick's and 11.8% at Golf Galaxy. Management cited weakness in golf, fitness, baseball, and some outdoor categories. Dick's sales per transaction rose 2.0%, while transactions fell 5.2%.
- Two Dick's stores opened in the quarter, versus six in the prior-year quarter. Total store count increased to 601 from 567 a year earlier.
- Gross margin improved modestly despite lower comparable sales, while SG&A growth outpaced sales growth. Lower interest expense partly reflected the purchase of the corporate headquarters building in May 2012.
- The company repurchased 1.7 million shares for $80.6 million under a newly authorized five-year, $1 billion program; $919.4 million remained authorized at quarter-end. It declared and paid a $0.125 per-share quarterly dividend.
- Investing cash use was lower than the prior-year period, which included a $32.0 million JJB investment and a $20.0 million Top-Flite brand purchase. Current-quarter investing activities included a $29.7 million corporate-aircraft lease buyout.
Outlook, risks, and contingencies
- No specific earnings or sales guidance is provided in the filing. Management planned approximately 40 new Dick's stores and one relocation, one new Golf Galaxy store and one relocation, two True Runner stores, and two Field & Stream stores in fiscal 2013. It also planned four full and 75 partial Dick's remodels and substantial omnichannel, technology, and store investment; store-related capital expenditures were expected to nearly double from fiscal 2012.
- Management believed operating cash flow and available credit would fund current fiscal-2013 capital requirements; additional strategic investments or faster expansion could require more funding. The filing notes seasonal cash-flow patterns, with inventory investment generally preceding peak selling periods.
- Key disclosed risks include consumer spending and economic conditions, intense competition, demand and inventory forecasting, store expansion costs and availability, supply-chain disruption, vendor relationships, cybersecurity and information systems, e-commerce service-provider disruption, product liability and recalls, firearms-related regulation and litigation, seasonality, and geographic concentration.
- The company expected to materially complete its LIVESTRONG-brand divestiture in the third quarter of fiscal 2013. It said ordinary-course legal proceedings were not expected to materially adversely affect financial position or results. No significant change in off-balance-sheet commitments or market-risk exposures was reported.
Investor facts to verify
- Separate the reported sales increase from the approximately $31 million calendar-shift benefit; review the calendar-adjusted comparable-sales decline and its category drivers.
- Assess earnings quality excluding the $4.3 million JJB recovery and consider the higher SG&A rate and lower operating margin.
- Monitor seasonal inventory funding, operating cash flow, and cash levels alongside planned store, technology, and omnichannel spending.
- Track execution and returns on the $1 billion repurchase authorization, dividends, and planned store openings and remodels.
- Review the full risk-factor discussion and credit-facility covenants, including availability requirements, in the filing and latest annual report.