DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Period clarification: The request metadata says “2020 Q1,” but this filing covers the 13 weeks ended May 1, 2021 (fiscal 2021 Q1), with comparison to the 13 weeks ended May 2, 2020.
Business context and reporting period
DICK’S is an omni-channel sporting goods retailer operating DICK’S Sporting Goods, Golf Galaxy and Field & Stream stores, and the GameChanger app. It reported 855 stores at quarter-end. Results against 2020 are significantly affected by temporary COVID-19 store closures in the prior-year quarter; management also compared sales with 2019 to provide context.
Financial performance and liquidity
- Net sales: $2.919 billion, up 119% year over year and 52% versus Q1 2019. Consolidated same-store sales rose 115% versus Q1 2020; they were flat in Q1 2019. The 2020 comparison reflects temporary closures and unusually low traffic.
- Digital sales: eCommerce sales increased approximately 14% year over year and 139% versus Q1 2019. eCommerce represented approximately 20% of sales, versus 39% in the closure-affected prior-year quarter and 13% in Q1 2019.
- Profitability: Gross profit was $1.089 billion; gross margin was 37.30%, versus 16.45%. Operating income was $475.8 million, compared with an operating loss of $186.2 million; operating margin was 16.30%, versus negative 13.96%. Net income was $361.8 million, versus a net loss of $143.4 million. Diluted EPS was $3.41, versus a loss of $1.71 per share.
- Drivers and costs: Management cited improved merchandise margin from fewer promotions and favorable sales mix, as well as occupancy-cost leverage. SG&A rose 51% to $608.3 million but declined as a share of sales to 20.84% from 30.24%. Interest expense was $13.4 million, including $7.3 million of non-cash convertible-debt discount amortization.
- Cash flow: Operating cash flow was $447.4 million, versus cash used of $214.8 million. Capital expenditures were $71.1 million; investing cash outflow was $73.4 million. Cash increased $200.7 million to $1.859 billion.
- Debt and liquidity: No revolving-credit borrowings were outstanding; remaining facility capacity was approximately $1.601 billion after letters of credit. Convertible Senior Notes have $575 million principal outstanding and a $425.8 million carrying value. Current assets were $4.041 billion and current liabilities $2.588 billion.
- Shareholder returns: The company repurchased approximately 1.03 million shares for $76.8 million and paid $33.3 million in dividends. The board subsequently declared a $0.3625-per-share dividend for payment in June 2021.
Material changes and unusual items
- Q1 2020 included approximately $62 million of pre-tax COVID-related costs, including $28 million of inventory write-downs later recovered in Q2 2020. Q1 2021 included approximately $13 million of pre-tax COVID-related safety costs.
- Management reported broad-based sales increases, including a nearly 190% increase in brick-and-mortar same-store sales versus the closure-affected prior-year quarter. Transactions increased 90% and sales per transaction 25%.
- Q1 2021 diluted EPS included 9.2 million shares related to the convertible notes that management said would be offset at conversion by the bond hedge; non-cash interest expense and these shares together reduced diluted EPS by $0.38.
- The effective tax rate was 23.0%, versus 31.0%; the current-quarter rate benefited from the vesting of share-based awards at a higher share price. The prior-year rate reflected a CARES Act-related estimated tax benefit.
Outlook, risks and contingencies
- Fiscal 2021 capital expenditures were projected at $300–$325 million, net of landlord construction allowances. Management also stated plans for at least $200 million of share repurchases in fiscal 2021; $954 million remained under the 2019 authorization at quarter-end.
- Management said it expected COVID-related costs to decline significantly in Q2, but could not estimate the pandemic’s full impact on future results. It cited uncertainty around consumer spending and stimulus effects, inflation, product costs, and supply-chain delays.
- The company expected to fund repayment of the $575 million convertible-note principal with excess cash, free cash flow and potentially facility borrowings. Holders could convert after the stock-price conditions were met, but no conversion requests had been received by the filing date. Management cautioned that required liquidity may not be available on favorable terms, or at all.
- Other identified risks include intense retail competition, discretionary-spending sensitivity, wage and tax changes, eCommerce or information-system disruptions, and litigation and regulatory risks. No material developments were reported for the legal proceedings disclosed in the prior annual report; the filing identifies commitments and contingencies but does not provide a clear quantified total.
Most important facts for investors to verify
- Confirm the reporting period: this is fiscal 2021 Q1, not 2020 Q1.
- Assess sales and margin trends against Q1 2019 as well as Q1 2020, given the prior-year closures and unusually low comparison base.
- Monitor whether strong demand and merchandise margins persist as stimulus effects, promotions, inflation and supply constraints evolve.
- Review the convertible notes’ conversion, dilution and cash-repayment implications, including available liquidity and facility capacity.
- Track execution against capital-spending and share-repurchase plans, and any changes to COVID-related costs or consumer demand.