DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended October 27, 2012, compared with periods ended October 29, 2011. Although the request metadata says “2011 Q3,” the filing itself is for fiscal 2012 Q3.
Business context
DICK’S operated 511 DICK’S Sporting Goods stores and 81 Golf Galaxy stores, plus eCommerce businesses, at quarter-end. The company reported 29.2 million square feet of retail space. Results are seasonal, with the fourth quarter typically benefiting from holiday sales and inventory reductions.
Financial performance
| Metric | 13 weeks ended Oct. 27, 2012 | Year-over-year | 39 weeks ended Oct. 27, 2012 | Year-over-year |
|---|---|---|---|---|
| Net sales | $1,312.1 million | Up 11% | $4,030.8 million | Up 12% |
| Same-store sales | Up 5.1% | Prior year: up 4.1% | Up 5.6% | Prior year: up 2.9% |
| Gross profit / margin | $406.1 million / 30.95% | Margin up 123 bps | $1,248.5 million / 30.97% | Margin up 91 bps |
| Operating income | $82.2 million | Up from $71.6 million | $312.6 million | Up from $247.7 million |
| Net income | $50.1 million | Up 21% | $161.0 million | Up from $152.8 million |
| Diluted EPS | $0.40 | Prior year: $0.33 | $1.28 | Prior year: $1.22 |
Quarterly gross-margin improvement reflected merchandise margin expansion and leverage on fixed occupancy costs. SG&A rose 16% in the quarter and increased 90 basis points as a share of sales, including higher advertising and payroll costs. For the 39-week period, SG&A increased 12% and was up 4 basis points as a share of sales.
Quarterly same-store sales growth included increases of 3.9% at DICK’S stores, 2.3% at Golf Galaxy, and 46.7% in eCommerce. Year-to-date growth was 4.5%, 6.4%, and 42.9%, respectively. The company cited broad-based gains, with outdoor apparel and fitness among the weaker categories.
Cash flow, balance sheet, and capital
- Operating cash flow for 39 weeks was $83.3 million, versus $36.2 million a year earlier. Inventory growth used $367.7 million of cash; accounts payable provided $178.7 million.
- Capital expenditures were $157.4 million. Investing cash outflow was $244.3 million; financing cash outflow was $279.0 million, including $198.8 million for repurchases, $45.7 million of dividends, and the headquarters purchase.
- Cash declined to $294.5 million from $734.4 million at January 28, 2012. Management attributed the decrease principally to investing and financing uses of cash.
- Total current assets were $1,799.3 million and current liabilities were $1,066.7 million. Inventory was $1,382.7 million, up from $1,015.0 million at fiscal year-end.
- Other long-term debt and leasing obligations totaled $22.7 million, including the current portion, versus $159.0 million at January 28. The company had no revolver borrowings and $488.7 million of remaining borrowing capacity after letters of credit.
- Stockholders’ equity was $1,704.9 million. The company completed its authorized $200 million repurchase program in May and declared a $0.125-per-share quarterly dividend; a further $0.125 dividend was declared after quarter-end.
Material changes and unusual items
- The company recorded a $32.4 million impairment of its JJB Sports investment in the first half of the year, reducing year-to-date net income by $27.6 million after tax, or $0.22 per diluted share. JJB entered administration in the United Kingdom on October 1, 2012.
- Prior-year year-to-date results included an $8.7 million after-tax gain on sale of the GSI Commerce investment and a $1.3 million after-tax benefit from a partial reversal of litigation accruals. These items affect year-over-year comparability.
- The company purchased its headquarters building for $133.4 million, funded with cash, and purchased Top-Flite intellectual property for $20.0 million. It agreed to acquire specified Field & Stream brand rights for $24.5 million, of which $10.0 million had been paid and $14.5 million remained payable.
- The company’s 39-week effective tax rate was 42.06%, compared with 38.90%; a $7.9 million valuation allowance was recorded against part of the tax asset associated with the JJB-related capital loss.
Outlook, risks, and contingencies
Management expected fiscal 2012 capital expenditures, net of construction allowances and sale-leaseback proceeds, of approximately $190 million. Its fiscal 2012 store plan included 38 new DICK’S stores, five relocations, and repositioning one Golf Galaxy store; a 624,000-square-foot Arizona distribution center was expected to become operational in January 2013. Management said operating cash flows and available credit were expected to meet current capital needs through fiscal 2012. The filing provides no specific earnings or sales guidance.
Key stated risks include consumer spending and economic conditions, sales fluctuations and seasonality, competition, store expansion and site availability, merchandise and vendor supply, labor, cybersecurity and systems disruption, product liability and regulation, and the company’s geographic concentration. Management reported no material change in market-risk exposures, no material control changes, and effective disclosure controls as of quarter-end. It did not expect ordinary-course legal proceedings to materially affect financial position or results. Off-balance-sheet obligations principally involved operating leases, guaranteed contractual payments, and letters of credit; the company said they were not reasonably likely to have a material effect.
Important facts for investors to verify
- How the JJB administration affects any potential recovery, tax treatment, and future reported results.
- Whether sales and merchandise-margin trends persist, particularly given eCommerce growth and softer outdoor apparel and fitness categories.
- Inventory growth, holiday-season execution, and the timing of related operating cash flows.
- Cash requirements and returns from store expansion, the Arizona distribution center, and brand-rights acquisitions.
- Liquidity and capital-return plans, including future dividends and any new repurchase authorization; the filing does not promise future dividends.