DICK’S Sporting Goods, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2010, the 52 weeks ended January 29, 2011—not fiscal 2009 Q4. It also reports quarterly results, including the fiscal 2010 fourth quarter.
Business context and reporting period
DICK’S operates full-line sporting goods stores and e-commerce businesses. At year-end it operated 444 DICK’S stores and 81 Golf Galaxy stores across 43 states. Fiscal 2010 included 26 new DICK’S stores and two new Golf Galaxy stores; the company also closed 12 underperforming Golf Galaxy stores.
Financial performance
| Metric | Fiscal 2010 | Fiscal 2009 |
|---|---|---|
| Net sales | $4,871.5 million | $4,412.8 million |
| Gross profit / margin | $1,449.0 million / 29.75% | $1,216.9 million / 27.58% |
| Income from operations / margin | $309.2 million / 6.35% | $225.6 million / 5.11% |
| Net income | $182.1 million | $135.4 million |
| Diluted EPS | $1.50 | $1.15 |
| Cash from operations | $390.0 million | $401.3 million |
| Capital expenditures | $159.1 million gross | $140.3 million gross |
Sales rose 10.4%, driven by 7.4% consolidated comparable-store sales growth and new stores. Comparable sales increased 6.8% at DICK’S, 5.1% at Golf Galaxy and 38.1% online; online sales were included in the comparable-sales measure for the first time in fiscal 2010. Gross margin expanded 217 basis points, principally on improved merchandise margins and fixed-cost leverage. SG&A rose 16% and increased to 23.18% of sales from 22.03%.
Fiscal 2010 fourth-quarter sales were $1,518.9 million, operating income $146.0 million and net income $87.5 million, versus $1,336.6 million, $113.1 million and $67.4 million, respectively, in fiscal 2009’s fourth quarter.
Financial position, debt and liquidity
At January 29, 2011, cash and cash equivalents were $546.1 million, inventory $896.9 million, working capital $715.8 million and total assets $2,597.5 million. Total debt, including capital and financing lease obligations, was $140.8 million; there were no revolving-credit borrowings. Remaining credit availability after letters of credit was $418.5 million. The company reported compliance with its credit agreement.
Operating cash flow decreased from $401.3 million to $390.0 million, principally reflecting prior-year favorable vendor-payment timing and inventory actions. Cash used in investing was $161.1 million; financing provided $91.6 million, mainly from stock-option exercises, related tax benefits and bank overdraft activity. Cash increased by $320.4 million to $546.1 million.
Operating lease obligations totaled $3,319.1 million, including $381.8 million due within one year. The company also reported a $130.5 million financing-lease obligation related to its corporate headquarters. These commitments are significant alongside reported debt.
Changes, outlook and material items
- Fiscal 2010 net income included after-tax charges of about $9.8 million for Golf Galaxy closures and $6.5 million for the wage-and-hour litigation settlement. Fiscal 2009 included $6.1 million of after-tax merger and integration costs.
- The settlement of the Barrus and related wage-and-hour claims was subject to court approval; payments depend on claims submitted and are capped at $15 million plus interest and taxes. The company recorded a $10.8 million pretax charge.
- Management expected cash from operations and available credit to meet current capital requirements through fiscal 2011. Planned fiscal 2011 openings were approximately 34 DICK’S stores and three Golf Galaxy stores, with 13 DICK’S remodels. Planned capital expenditures, net of construction allowances and sale-leaseback proceeds, were approximately $197 million. No fiscal 2011 earnings or revenue guidance is provided in the supplied filing text.
- Management cited continued long-term growth potential in golf and an aspiration to reach at least 900 DICK’S locations. Store expansion was slower than pre-2009 levels, in part because of weaker real-estate development.
- Key risks include discretionary consumer spending, competition and promotional pressure, weather and seasonality, vendor and overseas supply exposure, store-site availability, systems and data security, product liability, and dependence on key executives. The fourth quarter generated approximately 31% of fiscal 2010 sales.
- The company disclosed an asset-assignment agreement with a related party: total purchase price of $59.5 million payable in installments through 2013; up to $3.5 million of deposits may be nonrefundable if terminated before delivery.
Important facts for investors to verify
- Confirm the reporting-period distinction: this is fiscal 2010, not fiscal 2009 Q4, and compare the quarter-on-quarter figures using the filing’s fiscal calendar.
- Assess the sustainability of comparable-sales growth and gross-margin improvement, including the effect of e-commerce’s first inclusion in the comparable-sales calculation.
- Review the cash-flow drivers and the extent to which working-capital benefits, vendor terms and stock-option proceeds recur.
- Evaluate total lease commitments, the headquarters financing lease and future capital spending alongside the company’s available credit and liquidity.
- Track court approval and claims under the wage-and-hour settlement, and monitor the performance and costs of the Golf Galaxy closures.
- Check actual fiscal 2011 store openings, remodels and capital expenditures against management’s plans; the filing gives no fiscal 2011 earnings or revenue forecast.