DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2015 Q3, but the supplied filing is for the 13 and 39 weeks ended October 29, 2016, compared with periods ended October 31, 2015.
Business context and reporting period
DICK’S is an omni-channel sporting goods retailer operating DICK’S Sporting Goods, Golf Galaxy, Field & Stream and other specialty concepts, alongside eCommerce sites. At quarter-end, it operated 782 stores, versus 744 a year earlier. eCommerce represented 9.6% of quarterly sales and 9.1% of year-to-date sales.
Financial performance
| Metric | 13 weeks ended Oct. 29, 2016 | 39 weeks ended Oct. 29, 2016 |
|---|---|---|
| Net sales | $1.810 billion, up 10% | $5.439 billion, up 8% |
| Consolidated same-store sales | Up 5.2% | Up 2.9% |
| Gross profit / margin | $552.8 million / 30.54% (up 81 bps) | $1.646 billion / 30.27% (up 24 bps) |
| Operating income / margin | $73.8 million / 4.07%, versus $77.1 million / 4.69% | $311.6 million / 5.73%, versus $327.4 million / 6.51% |
| Net income | $48.9 million, versus $47.2 million | $197.2 million, versus $201.4 million |
| Diluted EPS | $0.44, versus $0.41 | $1.75, versus $1.71 |
Quarterly gross margin improved on better merchandise margins and occupancy leverage, partly offset by higher shipping costs. SG&A rose 16% in the quarter and increased 135 basis points as a share of sales, reflecting administrative, payroll, incentive and benefit costs, marketing investment and store staffing. Year-to-date SG&A increased 13%.
For the 39 weeks, operating cash flow was $184.5 million, compared with $115.9 million; investing cash use was $349.2 million, versus $276.4 million; and financing cash provided was $131.2 million, versus $12.7 million. Cash declined $33.5 million to $85.4 million. Capital expenditures were $307.3 million; inventory increased $565.2 million from the start of the fiscal year, with seasonal build and related accounts-payable movements affecting cash flow.
At October 29, 2016, revolving-credit borrowings were $260.9 million, versus none at January 30, 2016; the filing reports $724.5 million of remaining capacity under the $1 billion facility. Current assets were $2.444 billion and current liabilities $1.554 billion. The filing reports no separate total-debt figure; other long-term debt and leasing obligations were $4.9 million, plus $0.6 million current.
Changes, outlook and notable items
- Quarterly sales growth reflected store expansion and 5.2% same-store growth; DICK’S same-store sales increased 5.5%, while Golf Galaxy declined 3.3%. The year-to-date comparison was 3.0% growth at DICK’S and a 2.2% decline at Golf Galaxy.
- Management attributed sales gains to broad increases across hardlines, apparel and footwear, including outdoor and licensed apparel. Unseasonably warm late-quarter weather weighed on cold-weather merchandise.
- Quarterly earnings included $4.7 million after tax ($0.04 per diluted share) of TSA-store conversion costs; the prior-year quarter included a $4.7 million after-tax litigation settlement charge. Current-quarter other income included a $2.9 million sales-tax-refund benefit and investment income; prior-year deferred-compensation investments recorded a loss.
- The company purchased TSA intellectual property and lease rights for $18.2 million net of lease-sale proceeds and retained 22 leases. After quarter-end, it completed a roughly $43 million Golfsmith asset purchase, including $32 million of inventory.
- Fiscal 2016 capital-spending expectations were approximately $275 million net of landlord tenant allowances and $450 million gross. Management planned 49 new stores and to begin construction of a fifth distribution facility. It said operating cash flow and credit availability should fund planned spending and shareholder returns through fiscal year-end; no full-year earnings or sales guidance is stated in the supplied filing text.
- The company paid $51.2 million in dividends and repurchased $116.0 million of shares year to date. It reported $71.1 million remaining under the 2013 repurchase authorization and also disclosed a new $1 billion authorization. A quarterly dividend of $0.15125 per share was declared after quarter-end.
- Risks highlighted include discretionary consumer spending, retail competition, changing demand, eCommerce execution and service-provider disruption, acquisitions and integration, supply-chain and product-cost pressures, data and information-system security, weather and seasonality, and access to capital. The company said ordinary-course legal proceedings were not expected to materially harm financial position or results. Store leases and other purchase commitments are off balance sheet; management did not expect them to have a material effect.
- Management reported effective disclosure controls at quarter-end. An ERP-system update changed internal controls over financial reporting; the company said it was implementing and continuing to assess appropriate controls.
Investor facts to verify
- Confirm the intended reporting period: this filing covers Q3 2016, not Q3 2015.
- Assess whether same-store sales momentum and eCommerce growth can offset SG&A growth and pressure on operating margins.
- Review seasonal inventory and working-capital needs, revolving-credit use, and funding plans for capital spending and shareholder returns.
- Track performance and integration costs from the TSA conversions and Golfsmith acquisition, and the continued decline in Golf Galaxy same-store sales.
- Review the full annual report’s risk factors and lease, purchase-obligation and litigation disclosures; this quarterly text does not provide a complete quantified schedule of those commitments.