DICK’S Sporting Goods, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended April 30, 2016, compared with the 13 weeks ended May 2, 2015. This differs from the request metadata indicating 2015 Q1. The interim financial statements are unaudited.
Business context and results
The company operates sporting-goods stores and eCommerce businesses, including DICK’S Sporting Goods, Golf Galaxy and Field & Stream. At quarter-end it had 746 stores, versus 704 a year earlier. Net sales increased primarily from store growth and modest same-store sales growth.
| Metric | 13 weeks ended Apr. 30, 2016 | Prior comparable period | Change |
|---|---|---|---|
| Net sales | $1,660.3 million | $1,565.3 million | Up 6% |
| Consolidated same-store sales | Up 0.5% | Up 1.0% | Slower growth |
| Gross profit | $495.8 million; 29.86% margin | $469.0 million; 29.96% margin | Margin down 10 bps |
| Income from operations | $90.7 million; 5.46% margin | $101.9 million; 6.51% margin | Down 11% |
| Net income | $56.9 million | $63.3 million | Down 10% |
| Diluted EPS | $0.50 | $0.53 | Down $0.03 |
| Cash dividend declared per share | $0.15125 | $0.13750 | Higher |
Cash flow, debt and liquidity
- Operating cash flow was negative $0.1 million, compared with positive $35.5 million a year earlier. Inventory investment used $215.8 million of cash; accounts payable provided $145.7 million.
- Capital expenditures were $88.8 million, up from $65.7 million. Investing cash outflow was $88.8 million.
- Cash declined $26.4 million during the quarter to $92.5 million. Financing activities provided $62.4 million, including net revolving-credit borrowing.
- Revolving-credit borrowings were $157.6 million at April 30, 2016, versus none at January 30, 2016 and $51.2 million at May 2, 2015. The $1 billion facility had $827.8 million of remaining borrowing capacity; letters of credit outstanding were $14.6 million.
- Total current liabilities were $1,283.3 million and current assets were $2,070.7 million. The company reported $5.8 million of other long-term debt and leasing obligations, in addition to revolving borrowings and lease-related liabilities.
Material changes and management commentary
- Sales rose 6%, but same-store sales growth slowed to 0.5% from 1.0%. eCommerce sales penetration increased to 9.2% from 8.5%; management reported approximate eCommerce sales growth of 15%.
- Gross margin slipped despite a 19-basis-point improvement in merchandise margin: higher occupancy and shipping costs more than offset that improvement.
- SG&A increased 10% to $398.6 million and rose 96 basis points as a percentage of sales, principally due to store payroll investments and costs supporting planned growth. These cost pressures contributed to lower operating income and earnings.
- The effective tax rate declined to 37.9% from 38.8%, primarily due to earlier legislative approval of certain employment tax credits.
- The company opened five stores, including two Field & Stream stores, and relocated three stores. It repurchased 1.1 million shares for $50.0 million and paid $17.6 million in dividends.
Outlook, risks and contingencies
- No specific earnings or sales guidance is provided in the supplied filing text. Management stated that operating cash flows and available credit were expected to meet current capital requirements through the remainder of fiscal 2016.
- Management expects capital investment to support the omni-channel platform, specialty concepts, stores, supply chain and information technology. Future acquisitions, investment or faster expansion could require additional funding.
- Key risks cited include discretionary consumer spending, intense retail competition, demand and shopping-pattern changes, eCommerce execution and service-provider disruption, data security, supply-chain and vendor issues, wage increases, real-estate costs, seasonality and execution of growth initiatives.
- Operating leases and purchase commitments are among the off-balance-sheet arrangements; the company said it did not expect them to have a material effect. It reported no material contractual-obligation changes outside the ordinary course. Routine legal proceedings were not expected to have a material adverse effect.
- A quarterly dividend of $0.15125 per share was declared on May 13, 2016, payable June 30, 2016. The company also authorized a new five-year share-repurchase program of up to $1 billion.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for Q1 2016, not Q1 2015.
- Review whether same-store sales and eCommerce growth can improve enough to offset rising payroll, occupancy and shipping costs.
- Track working-capital needs, inventory growth, operating cash flow and seasonal revolver borrowings.
- Assess planned capital expenditures, store expansion, dividends and repurchases against cash generation and available credit.
- Review the company’s annual report for fuller discussion of lease commitments, legal matters and the risk factors referenced in this filing.