DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 28, 2012, compared with periods ended July 30, 2011. The filing is for 2012 Q2; this differs from the request metadata’s “2011 Q2.” Figures below are in millions of dollars, except per-share data.
Business context
The company operated 490 DICK’S stores and 81 Golf Galaxy stores, plus eCommerce businesses. It reported 571 stores and approximately 28.1 million square feet at quarter-end. Results are seasonal, with sales and earnings typically higher in the fiscal fourth quarter.
Financial results
| Metric | 13 weeks ended July 28, 2012 | 13 weeks ended July 30, 2011 | 26 weeks ended July 28, 2012 | 26 weeks ended July 30, 2011 |
|---|---|---|---|---|
| Net sales | $1,437.0 | $1,306.7 | $2,718.7 | $2,420.5 |
| Gross profit / margin | $447.8 / 31.16% | $401.1 / 30.69% | $842.4 / 30.98% | $731.5 / 30.22% |
| Income from operations / margin | $134.6 / 9.37% | $111.7 / 8.55% | $230.4 / 8.47% | $176.1 / 7.28% |
| Net income / net margin | $53.7 / 3.73% | $73.8 / 5.65% | $110.8 / 4.08% | $111.3 / 4.60% |
| Diluted EPS | $0.43 | $0.59 | $0.88 | $0.89 |
| Cash from operating activities | Not stated separately for the quarter | $67.0 | $126.0 |
- Quarter sales rose 10%; consolidated same-store sales increased 3.8%. For the half-year, sales rose 12% and same-store sales increased 5.9%.
- Quarter same-store sales growth included DICK’S 2.9%, Golf Galaxy 4.4%, and eCommerce 34.6%; half-year rates were 4.9%, 7.8%, and 34.1%, respectively.
- Gross margin improved 47 basis points for the quarter and 76 basis points for the half-year. Management attributed gains mainly to occupancy-cost leverage and merchandise margin expansion, partly offset by higher freight and distribution costs associated with eCommerce.
- Operating income increased in both comparison periods, while net income declined 27% for the quarter and was nearly flat for the half-year. The quarter included a $32.4 million pre-tax JJB Sports impairment ($27.6 million after tax, or $0.22 per diluted share); the prior-year periods included an $8.7 million after-tax gain on sale of an investment.
Liquidity, cash flow, and capital allocation
- Cash and cash equivalents were $350.4 million at July 28, 2012, down from $734.4 million at January 28, 2012. Current assets were $1,641.3 million and current liabilities $946.3 million.
- The company had no borrowings under its credit agreement. Remaining borrowing capacity after letters of credit was $487.9 million. The agreement provides a $500 million revolving facility and matures December 5, 2016.
- Cash from operations was $67.0 million for the first half, down from $126.0 million. Management cited working-capital timing, inventory and accounts-payable movements, and higher income-tax payments. Cash used in investing was $171.6 million; cash used in financing was $279.4 million. Ending cash was $350.4 million.
- Capital expenditures were $95.2 million in the first half. Fiscal 2012 capital expenditures, net of deferred construction allowances and sale-leaseback proceeds, were expected to be approximately $190 million.
- First-half uses of cash included $198.8 million for repurchases of approximately 4.0 million shares, $30.4 million of dividends, $133.4 million to purchase the headquarters building, a $32.0 million JJB Sports investment, and a $20.0 million purchase of Top-Flite intellectual property.
- Other long-term debt and leasing obligations totaled $23.0 million, including current and long-term portions. The filing reports no outstanding credit-facility borrowings.
Outlook, changes, and notable items
- Management expected operating cash flows and available credit to fund current capital requirements through fiscal 2012. It planned approximately 38 new DICK’S stores, five DICK’S relocations, and one Golf Galaxy repositioning during the fiscal year.
- Construction continued on a 624,000-square-foot distribution center in Goodyear, Arizona, then expected to open in January 2013 and support distribution capacity for approximately 750 stores.
- After quarter-end, the company agreed to acquire Field & Stream intellectual property rights for approximately $25 million. The board also declared a $0.125-per-share quarterly dividend payable September 28, 2012.
- The company purchased its headquarters for $133.4 million using cash on hand; the transaction extinguished the prior financing-lease obligation. Interest expense fell partly because of this purchase.
- The JJB Sports investment was impaired in full based on the company’s assessment of JJB’s performance, UK macroeconomic conditions, and weather-related factors. A $7.9 million valuation allowance was recorded against part of the related deferred tax asset.
- Risks cited include consumer spending and economic conditions, sales volatility and seasonality, competition, store expansion and real-estate costs, supply-chain and vendor risks, eCommerce and information-security risks, product liability and regulation, regional concentration, and execution risks from strategic investments. The company said routine legal proceedings were not expected to have a material adverse effect; no material change in market-risk exposures was reported.
- Management said disclosure controls were effective at period-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the period: the filing covers Q2 2012, not Q2 2011.
- Assess the JJB Sports impairment, valuation assumptions, collateral recovery prospects, and potential implications of the $7.9 million tax valuation allowance.
- Reconcile the sharp first-half cash decline and lower operating cash flow with inventory growth, tax payments, capital spending, repurchases, dividends, and the headquarters purchase.
- Track same-store sales and eCommerce growth against their effects on margins, freight, and distribution costs.
- Monitor execution and funding for planned store openings, the Arizona distribution center, and the Field & Stream acquisition, alongside the stated capital-spending outlook.