Dick’s SG Lifts Outlook on Robust Q3 Comps

November 17, 2012
SGB Update

Continuing to benefit from healthy new store productivity and robust same-stores sales, Dick’s Sporting Goods Inc. reported earnings rose 20.9 percent in the third quarter and again raised its guidance for the year.

Earnings reached 40 cents a share, exceeding its 36-cent estimate given in mid-August. Sales advanced 11.2 percent, driven by new store expansion as well as a 5.1 percent comp gain that came on top of a 4.1 percent increase in the 2011 third quarter.

At the Dick’s SG chain, same store sales grew 3.9 percent, driven by a 2.9 percent gain in sales per transaction and a 1 percent increase in traffic. Comps at Golf Galaxy advanced 2.3 percent. E-commerce revenues surged 46.7 percent and represented 4.4 percent of total sales.

“We generated positive comps in all three of our major categories, Apparel, Footwear and Hardlines,” said Ed Stack, Dick’s SG’s chairman and CEO, on a conference call with analysts.

Gross margins improved 123 basis points to 30.95 percent, driven by merchandise margin expansion of 91 basis points and occupancy leverage while freight and distribution remained relatively flat. SG&A expense was slightly higher, at 24.0 percent of sales from 23.3 percent a year ago, reflecting previously-announced shifts of expenses from Q2 to Q3 related to the Dick's Sporting Goods Open, its World Series marketing sponsorship, and increased administrative expenses.

Inventory per square foot increased by 4 percent at the end of the third quarter this year, compared to the end of the third quarter of last year.

At the store level, new Dick's SG stores achieved new store productivity of 98.9 percent in the quarter, compared to 101.9 percent in the third quarter last year. Thirty-eight stores opened this year to complete its annual expansion plan while five Dick’s SG stores were relocated. One Golf Galaxy was repositioned in the fourth quarter to a larger location to support more services and more experiential shopping.

At its 511 stores, Dick’s SG had 166 shared service Footwear decks, 159 Nike Fieldhouse concepts, 88 Under Armour All American shops, and 10 Under Armour Blue Chip shops at the end of the third quarter. By the end of the year, it expects to have 174 shared service Footwear decks, 171 Nike Fieldhouse concepts, 97 UA All American shops and 10 UA Blue Chip shops.

A fourth distribution center, measuring 600,000 square feet, is set to open in Arizona in January 2013 to extend its support to a total of 750 stores.

In the Q&A session, Stack said the continuing improvement in merchandising margin reflects its newer merchandising planning system, inventory controls, as well as healthy sell-through of in its Apparel and Footwear departments with the aid of its newer shared service Footwear concept as well as in-store shops from Nike, Under Armour and The North Face.

The apparel gains are being driven more from the technical apparel side rather than outerwear, which is expected to be a bigger contributor in the current quarter. Stack said that despite the warm winter last season, the chain’s carryover of winter merchandise is “no more this year than it was last year.”

Added Stack, “If we have a winter like we had last year, we would expect the carryover to be no worse than it was last year. We feel pretty comfortable about where we're at.”

NFL sales have “been good” with the takeover of the license by Nike although that’s been offset by comparative-weakness in MLB merchandise with the World Series win by the San Francisco Giants as well as the NHL lockout. Stack added, “Overall, we're very pleased with what's going on from an athletic standpoint.”

Golf comparisons become difficult in the first quarter due a healthy product cycle in early 2012 although Stack said the product cycle “for next year is probably as strong as it has been this past year.” He cited the update to TailorMade’s Rocketballz, a new driver from Nike, and strength with Callaway. Golf Footwear is benefiting from a shift to spikeless shoes and overall golf apparel assortments are benefiting from learnings being applied from its Nike and UA shops. Said Stack, “Where we've done that in a couple test areas the results have been very encouraging.”

On the digital front, Stack noted that Dick’s SG continues to improve transaction profitability, increase inventory productivity, and expand its omni-channel reach. Apparel and Footwear is selling better online than in the past. Ship-from-store testing was expanded to 115 stores and is doing better than planned.

“Ship-from-store is an incredibly powerful tool as it reduces delivery time to the customer, while improving productivity and transaction profitability,” said Stack. “Because ship-from-store allows us to utilize inventory located in our stores, which was previously unavailable online to customers, we are seeing a meaningful increase in our online sales. We will continue to roll this program out and add more stores in 2013.”

A mobile app was recently launched to support its ScoreCard Rewards loyalty program, giving consumers the ability to locate stores and purchase directly through the app as well as be rewarded for engaging with Dick’s SG on social media.

“The digital space provides us a powerful growth opportunity,” said Stack. “So while we have accomplished a lot on this front, we continue to aggressively invest in our people, infrastructure and partner relationships, so that we are positioned to maximize this opportunity.”

Dicks’ SG now expects fourth-quarter earnings of $1.03 to $1.05 a share in the 14-week fourth quarter, up from a previously-anticipated range of $1.01 to $1.05. On a 13-week basis, EPS is expected to reach $1.00 to $1.02, compared with 88 cents for the same period last year. Consolidated same store sales are expected to increase approximately 4 percent. The conservative comp forecast – given last year’s 0.10 percent increase – reflects possible repercussions from Superstorm Sandy, the NHL lockout, and the Fiscal Cliff. Said Stack, “There's a number of things that are going on out there that we're aware of and we need to be careful of.”

The Q4 guidance includes includes a donation of approximately $1 million in retail value of outdoor supplies, Footwear and cold-weather Apparel made to the American Red Cross to assist with Sandy relief efforts. While declining to quantify the impact of Sandy, Stack mentioned that 114 stores in the Tri-State area were closed at one point during the event.

“Our heart goes out to the people affected by this storm,” added Stark. “As they started to redevelop their lives and kind of try to get things back to normal, coming to shop at a sporting goods store was probably not at the top of their list. They had other more essentials that they needed to take care of. So yes, it had an impact and we put that impact into our guidance into the fourth quarter.”

For the full year, EPS is expected to increase 25 percent to 26 percent, to between $2.53 and $2.55 a share. On a 52-week basis, EPS is expected to range between $2.50 to $2.52. Consolidated comps are expected to grow approximately 5 percent on top of a 2 percent increase last year.

Dick’s SG Lifts Outlook on Robust Q3 Comps

November 14, 2012
SGB Update
Continuing to benefit from healthy new store productivity and robust same-stores sales, Dick’s Sporting Goods Inc. reported earnings rose 20.9 percent in the third quarter and again raised its guidance for the year.

 

Earnings reached 40 cents a share, exceeding its 36-cent estimate given in mid-August. Sales advanced 11.2 percent, driven by new store expansion as well as a 5.1 percent comp gain that came on top of a 4.1 percent increase in the 2011 third quarter.

 

At the Dick’s SG chain, same store sales grew 3.9 percent, driven by a 2.9 percent gain in sales per transaction and a 1 percent increase in traffic. Comps at Golf Galaxy advanced 2.3 percent. E-commerce revenues surged 46.7 percent and represented 4.4 percent of total sales.

 

“We generated positive comps in all three of our major categories, Apparel, Footwear and Hardlines,” said Ed Stack, Dick’s SG’s chairman and CEO, on a conference call with analysts.

 

Gross margins improved 123 basis points to 30.95 percent, driven by merchandise margin expansion of 91 basis points and occupancy leverage while freight and distribution remained relatively flat. SG&A expense was slightly higher, at 24.0 percent of sales from 23.3 percent a year ago, reflecting previously-announced shifts of expenses from Q2 to Q3 related to the Dick's Sporting Goods Open, its World Series marketing sponsorship, and increased administrative expenses.

 

Inventory per square foot increased by 4 percent at the end of the third quarter this year, compared to the end of the third quarter of last year.

 

At the store level, new Dick's SG stores achieved new store productivity of 98.9 percent in the quarter, compared to 101.9 percent in the third quarter last year. Thirty-eight stores opened this year to complete its annual expansion plan while five Dick’s SG stores were relocated. One Golf Galaxy was repositioned in the fourth quarter to a larger location to support more services and more experiential shopping.

 

At its 511 stores, Dick’s SG had 166 shared service Footwear decks, 159 Nike Fieldhouse concepts, 88 Under Armour All American shops, and 10 Under Armour Blue Chip shops at the end of the third quarter. By the end of the year, it expects to have 174 shared service Footwear decks, 171 Nike Fieldhouse concepts, 97 UA All American shops and 10 UA Blue Chip shops.

 

A fourth distribution center, measuring 600,000 square feet, is set to open in Arizona in January 2013 to extend its support to a total of 750 stores.

 

In the Q&A session, Stack said the continuing improvement in merchandising margin reflects its newer merchandising planning system, inventory controls, as well as healthy sell-through of in its Apparel and Footwear departments with the aid of its newer shared service Footwear concept as well as in-store shops from Nike, Under Armour and The North Face.

 

The apparel gains are being driven more from the technical apparel side rather than outerwear, which is expected to be a bigger contributor in the current quarter. Stack said that despite the warm winter last season, the chain’s carryover of winter merchandise is “no more this year than it was last year.”

 

Added Stack, “If we have a winter like we had last year, we would expect the carryover to be no worse than it was last year. We feel pretty comfortable about where we're at.”

 

NFL sales have “been good” with the takeover of the license by Nike although that’s been offset by comparative-weakness in MLB merchandise with the World Series win by the San Francisco Giants as well as the NHL lockout. Stack added, “Overall, we're very pleased with what's going on from an athletic standpoint.”

 

Golf comparisons become difficult in the first quarter due a healthy product cycle in early 2012 although Stack said the product cycle “for next year is probably as strong as it has been this past year.” He cited the update to TailorMade’s Rocketballz, a new driver from Nike, and strength with Callaway. Golf Footwear is benefiting from a shift to spikeless shoes and overall golf apparel assortments are benefiting from learnings being applied from its Nike and UA shops. Said Stack, “Where we've done that in a couple test areas the results have been very encouraging.”

 

On the digital front, Stack noted that Dick’s SG continues to improve transaction profitability, increase inventory productivity, and expand its omni-channel reach. Apparel and Footwear is selling better online than in the past. Ship-from-store testing was expanded to 115 stores and is doing better than planned.

 

“Ship-from-store is an incredibly powerful tool as it reduces delivery time to the customer, while improving productivity and transaction profitability,” said Stack. “Because ship-from-store allows us to utilize inventory located in our stores, which was previously unavailable online to customers, we are seeing a meaningful increase in our online sales. We will continue to roll this program out and add more stores in 2013.”

 

A mobile app was recently launched to support its ScoreCard Rewards loyalty program, giving consumers the ability to locate stores and purchase directly through the app as well as be rewarded for engaging with Dick’s SG on social media.

 

“The digital space provides us a powerful growth opportunity,” said Stack. “So while we have accomplished a lot on this front, we continue to aggressively invest in our people, infrastructure and partner relationships, so that we are positioned to maximize this opportunity.”

 

Dicks’ SG now expects fourth-quarter earnings of $1.03 to $1.05 a share in the 14-week fourth quarter, up from a previously-anticipated range of $1.01 to $1.05. On a 13-week basis, EPS is expected to reach $1.00 to $1.02, compared with 88 cents for the same period last year. Consolidated same store sales are expected to increase approximately 4 percent. The conservative comp forecast - given last year’s 0.10 percent increase – reflects possible repercussions from Superstorm Sandy, the NHL lockout, and the Fiscal Cliff. Said Stack, “There's a number of things that are going on out there that we're aware of and we need to be careful of.”

 

The Q4 guidance includes includes a donation of approximately $1 million in retail value of outdoor supplies, Footwear and cold-weather Apparel made to the American Red Cross to assist with Sandy relief efforts. While declining to quantify the impact of Sandy, Stack mentioned that 114 stores in the Tri-State area were closed at one point during the event.

 

“Our heart goes out to the people affected by this storm,” added Stark. “As they started to redevelop their lives and kind of try to get things back to normal, coming to shop at a sporting goods store was probably not at the top of their list. They had other more essentials that they needed to take care of. So yes, it had an impact and we put that impact into our guidance into the fourth quarter.”

 

For the full year, EPS is expected to increase 25 percent to 26 percent, to between $2.53 and $2.55 a share. On a 52-week basis, EPS is expected to range between $2.50 to $2.52. Consolidated comps are expected to grow approximately 5 percent on top of a 2 percent increase last year.

 

 

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