Dick’s Sporting Goods raised its guidance after reporting third-quarter results that easily exceeded earnings and comp expectations. The performance was driven by a 5.2-percent comp sales increase and gross margin expansion.

The company reported consolidated net income for the third quarter ended October 29, 2016 of $48.9 million, or 44 cents per diluted share. For the third quarter ended October 31, 2015, the company reported consolidated net income of $47.2 million, or 41 cents per diluted share.

On a non-GAAP basis, the company reported consolidated net income for the third quarter ended October 29, 2016 of $53.6 million, or 48 cents per diluted share, excluding costs the company incurred to convert former Sports Authority stores to Dick’s Sporting Goods stores, compared to the company’s expectations provided on August 16, 2016 of 39 cents to 42 cents per diluted share. For the third quarter ended October 31, 2015, the company reported consolidated non-GAAP net income of $51.9 million, or 45 cents per diluted share, excluding a litigation settlement charge.

Net sales for the third quarter of 2016 increased 10.2 percent to approximately $1.8 billion. Consolidated same-store sales increased 5.2 percent, compared to the company’s guidance of an approximate 2 to 3 percent increase. Same-store sales for Dick’s Sporting Goods increased 5.5 percent, while Golf Galaxy decreased 3.3 percent. Third quarter 2015 consolidated same-store sales increased 0.4 percent.

“We are very pleased with our third-quarter results, which were driven by a 5.2 percent comp sales increase and gross margin expansion. We realized meaningful market share gains and saw growth across each of our three primary categories of hardlines, apparel and footwear, while maintaining tight control of our inventory,” said Edward W. Stack, chairman and CEO. “Looking ahead, we believe our assortment and marketing will help us to continue to capture displaced market share this holiday.”

Omni-channel Development
E-commerce penetration for the third quarter of 2016 was 9.6 percent of total net sales, compared to 8.0 percent during the third quarter of 2015.

In the third quarter, the company opened 27 new Dick’s Sporting Goods stores, seven new Field & Stream stores and two new Golf Galaxy stores. The company also relocated four Dick’s Sporting Goods stores. Additionally, the company closed one Field & Stream store. As of October 29, 2016, the company operated 676 Dick’s Sporting Goods stores in 47 states, with approximately 36.1 million square feet; 74 Golf Galaxy stores in 29 states, with approximately 1.4 million square feet; and 27 Field & Stream stores in 13 states, with approximately 1.3 million square feet.

Balance Sheet
The company ended the third quarter of 2016 with approximately $85 million in cash and cash equivalents and approximately $261 million in outstanding borrowings under its revolving credit facility. Over the course of the last 12 months, the company continued to invest in omni-channel growth while returning over $240 million to shareholders through share repurchases and quarterly dividends.

Total inventory increased 4.8 percent at the end of the third quarter of 2016 as compared to the end of the third quarter of 2015.

Year-to-Date Results
The company reported consolidated net income for the 39 weeks ended October 29, 2016 of $197.2 million, or $1.75 per diluted share. For the 39 weeks ended October 31, 2015, the company reported consolidated net income of $201.4 million, or $1.71 per diluted share.

On a non-GAAP basis, the company reported consolidated net income for the 39 weeks ended October 29, 2016 of $201.9 million, or $1.80 per diluted share, excluding costs incurred to convert former Sports Authority stores to Dick’s Sporting Goods stores. For the 39 weeks ended October 31, 2015, the company reported consolidated non-GAAP net income of $206.1 million, or $1.75 per diluted share, excluding a litigation settlement charge.

Net sales for the 39 weeks ended October 29, 2016 increased 8.1 percent from last year’s period to approximately $5.4 billion, reflecting the growth of our store network and a 2.9 percent increase in consolidated same-store sales.

Capital Allocation
On November 10, 2016, the company’s board of directors authorized and declared a quarterly dividend in the amount of 15.125 cents per share on the company’s Common Stock and Class B Common Stock. The dividend is payable in cash on December 30, 2016 to stockholders of record at the close of business on December 9, 2016.

During the third quarter of 2016, the company repurchased approximately 0.2 million shares of its common stock at an average cost of $51.53 per share, for a total cost of $9 million. During the current fiscal year, the company has repurchased approximately 2.6 million shares of its common stock at an average cost of $44.95 per share, for a total cost of $116 million. Since the beginning of fiscal 2013, the company has repurchased approximately $929 million of its common stock, and has approximately $1.1 billion remaining under its authorizations that extend through 2021.

Golfsmith International Holdings Inc.
On November 2, 2016, the company completed its purchase for certain assets of Golfsmith International Holdings Inc. (Golfsmith), including its intellectual property and rights to acquire store leases, together with inventory for 30 stores. The company’s purchase was made in connection with Golfsmith’s Chapter 11 proceeding. The purchase price was approximately $43 million, of which $32 million is related to inventory. Intellectual property includes the name “Golfsmith”, as well as Golfsmith’s domain names, owned trademarks and customer information. The company also committed to offer employment to at least 500 current Golfsmith employees. The company expects this transaction to be accretive to its fiscal 2017 earnings.

The Sports Authority
On July 20, 2016, the company completed its purchase of Sports Authority’s intellectual property assets and the right to acquire 31 store leases. The company’s rights with respect to the store leases allowed the company a period of time to determine whether to accept or reject any particular store lease. The company has determined to retain 22 of these leases for conversion to Dick’s Sporting Goods stores. In addition, the company will leverage the Sports Authority customer information it purchased in its marketing during the fourth quarter of 2016.

Current 2016 Outlook

Full Year 2016
Based on an estimated 112 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share in the range of $2.91 to $3.03. The company’s earnings per diluted share guidance is not dependent upon share repurchases beyond the $116 million executed through the third quarter of fiscal 2016. The company reported earnings per diluted share of $2.83 for the 52 weeks ended January 30, 2016.

On a non-GAAP basis, the company currently anticipates reporting earnings per diluted share in the range of $2.99 to $3.11, excluding costs the company expects to incur to convert former Sports Authority and Golfsmith stores. The company reported non-GAAP earnings per diluted share of $2.87, excluding a litigation settlement charge, for the 52 weeks ended January 30, 2016.

Under its former guidance, Dick’s had expected earnings in the range of $2.90 to $3.05 a share, excluding costs to convert former Sports Authority locations.

Consolidated same-store sales are currently expected to increase approximately 3 to 4 percent, compared to a 0.2-percent decrease in fiscal 2015. Previously, Dick’s had projected its same-store sales would increase 2 to 3 percent for the year.

The company expects to open 38 new Dick’s Sporting Goods stores and relocate nine Dick’s Sporting Goods stores in 2016. The company also expects to open nine new Field & Stream stores and two new Golf Galaxy stores in 2016, largely adjacent to new or relocated Dick’s Sporting Goods stores.

The company is currently operating 30 Golfsmith stores, with plans to retain and convert these stores to the Golf Galaxy brand by the end of the fourth quarter.

Fourth Quarter 2016
Based on an estimated 112 million diluted shares outstanding, the company currently anticipates reporting earnings per diluted share in the range of $1.15 to $1.27 in the fourth quarter of 2016. This is compared to earnings per diluted share of $1.13 in the fourth quarter of 2015. The outlook is below Wall Street’s current consensus estimate of $1.32 a share.

On a non-GAAP basis, the company currently anticipates reporting earnings per diluted share in the range of $1.19 to $1.31 in the fourth quarter of 2016, excluding costs the company expects to incur to convert former Sports Authority and Golfsmith stores.

Consolidated same-store sales are currently expected to increase approximately 3 to 6 percent in the fourth quarter of 2016, as compared to a 2.5-percent decrease in the fourth quarter of 2015.

The company expects to re-open three former Sports Authority stores as new Dick’s Sporting Goods stores in the fourth quarter of 2016.

The company is currently operating 30 Golfsmith stores, with plans to retain and convert these stores to the Golf Galaxy brand by the end of the fourth quarter.

Capital Expenditures
In 2016, the company anticipates capital expenditures to be approximately $275 million on a net basis and approximately $450 million on a gross basis. In 2015, capital expenditures were $204 million on a net basis and $370 million on a gross basis.

Photo courtesy Dick’s Sporting Goods