DICK’S Sporting Goods, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for the 53-week fiscal year ended February 3, 2018 (fiscal 2017), not “2016 Q4.” It includes quarterly data for fiscal 2017 and fiscal 2016; the fiscal 2017 fourth quarter was 14 weeks.
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, plus its youth-sports digital platform. At year-end it operated 845 stores in 47 states. Fiscal 2017 had 53 weeks; fiscal 2016 and fiscal 2015 each had 52 weeks. The company reports one aggregated operating segment.
Financial performance and liquidity
| Metric | Fiscal 2017 | Fiscal 2016 |
|---|---|---|
| Net sales | $8,590.5 million | $7,922.0 million |
| Gross profit / margin | $2,489.1 million / 29.0% | $2,365.8 million / 29.9% |
| Operating income / margin | $477.6 million / 5.6% | $449.9 million / 5.7% |
| Net income | $323.4 million | $287.4 million |
| Diluted EPS | $3.01 | $2.56 |
| Operating cash flow | $746.3 million | $769.0 million |
| Cash and cash equivalents at year-end | $101.3 million | $164.8 million |
| Total debt, including lease obligations | $65.3 million | $5.3 million |
| Working capital | $581.1 million | $598.3 million |
Net sales rose 8.4%, but comparable sales declined 0.3% on a 52-week comparison. The additional week contributed $105.4 million of sales. E-commerce sales grew approximately 13% on a comparable-week basis and represented 12.4% of sales, up from 11.9%. Fiscal 2017 capital expenditures were $474.3 million gross ($372.6 million net of landlord allowances). The company ended the year with no revolver borrowings and reported $1,233.9 million of remaining credit-facility capacity.
Material changes versus the prior comparable period
- Gross margin fell 89 basis points, primarily due to promotional pressure, occupancy deleverage and higher e-commerce shipping and fulfillment costs.
- Net income increased despite lower margins; fiscal 2017 included favorable contract-termination and sales-tax-refund income, while fiscal 2016 included substantial inventory write-down, impairment and integration charges.
- Comparable sales weakened from 3.5% growth in fiscal 2016 to a 0.3% decline in fiscal 2017. Fiscal 2017 declines in hunting, electronics and licensed categories were partly offset by golf, athletic footwear and private brands.
- Operating cash flow decreased $22.7 million. Inventory rose to $1,711.1 million from $1,638.6 million, while year-end cash declined.
- The company repurchased 8.1 million shares for $284.6 million and paid $73.1 million in dividends during fiscal 2017. A new $1.25 billion revolving facility was put in place, maturing in August 2022.
Outlook, commentary, risks and unusual items
- Management expected some retail-sector challenges to persist in fiscal 2018, including a promotional market, broader vendor distribution, weak firearm and hunting demand, and uncertain product innovation. It cited a stronger expected innovation pipeline and improved inventory alignment as potential positives.
- Fiscal 2018 plans included approximately 19 new DICK’S stores, four relocations, no new Golf Galaxy or Field & Stream stores, and capital expenditures of approximately $250 million net ($280 million gross). These are operating plans, not formal earnings guidance.
- Management said operating cash flow and available credit were expected to fund fiscal 2018 capital needs, planned repurchases and dividends. The board declared a subsequent quarterly dividend of $0.225 per share.
- Fiscal 2017 included $12.0 million of contract-termination income and an $8.1 million sales-tax refund, as well as ScoreCard transition costs, restructuring charges and a litigation-contingency charge. The Tax Act produced provisional tax effects, including a $6.0 million charge for deemed repatriation and a $5.3 million benefit from deferred-tax remeasurement.
- Key risks include intense competition and discounting, changing consumer demand, execution and technology risks for the in-house e-commerce platform, inventory markdowns, store lease obligations, cybersecurity and privacy exposure, supplier concentration (Nike was approximately 18% of merchandise purchases), seasonal and weather sensitivity, and regulatory or litigation risks related in part to firearm sales.
- Operating lease commitments totaled $3,731.8 million. Management reported that ordinary-course legal proceedings were not expected to materially affect the company’s financial position or results.
Important facts for investors to verify
- Confirm the intended period: this is the fiscal 2017 annual filing, not a fiscal 2016 fourth-quarter filing. Fiscal 2017 Q4 sales were $2,664.1 million and net income was $116.0 million; fiscal 2016 Q4 sales were $2,483.4 million and net income was $90.2 million.
- Separate underlying trading performance from the extra fiscal week and one-time items; review comparable sales, merchandise margins and category trends.
- Assess whether e-commerce growth and store productivity can offset fixed occupancy costs, fulfillment expense and the lower planned store-growth rate.
- Review liquidity and capital returns against debt, capital spending, repurchases, dividends and the company’s substantial lease commitments.
- Track the final accounting effects of the Tax Act and execution of the merchandising, vendor, loyalty-program and digital initiatives.