Dick’s Sporting Goods raised its full-year guidance after reporting earnings and sales in the second quarter that topped Wall Street expectations. Comps expanded 3.2 percent, the highest gain since 2016.

In the quarter, earnings slid 5.8 percent to $112.5 million, or $1.26 per share, from $119.4 million, or $1.20, a year ago. Wall Street’s consensus estimate had been $1.21.

Net sales for the second quarter of 2019 increased 3.8 percent to approximately $2.26 billion, ahead of Wall Street’s consensus estimate of $2.2 billion.

Consolidated same-store sales increased 3.2 percent. Same-store sales were expected to rise 1.1 percent, according to Consensus Metrix. The comp gains were driven by increases in both average ticket and transactions. The gain was the strongest since the fourth quarter of 2016, when comps rose 5.0 percent.

Second-quarter 2018 consolidated same-store sales decreased 4.0 percent, adjusted for the calendar shift due to the 53rd week in fiscal 2017, which the company believes is the best view of its business.

“We are very pleased with our second-quarter results, as we delivered a 3.2 percent comp sales increase and earnings per diluted share above last year. Our strong comp sales performance was driven by increases in both average ticket and transactions and represented our strongest quarterly comp since 2016. We saw growth across each of our three primary categories of hardlines, apparel and footwear, our brick-and-mortar stores comped positively and our eCommerce channel remained strong, increasing 21 percent,” said Edward W. Stack, chairman and chief executive officer. “Our key strategies and investments are working, our major headwinds are behind us and we’ve bent the curve on sales. We are very enthusiastic about our business and are pleased to increase our full year sales and earnings outlook.”

“During the second quarter, we made great progress in executing against our strategic priorities and investments,” added Lauren R. Hobart, president. “Our stores have really championed our new service standards, and their efforts are moving the needle by supporting improved conversion rates and our return to positive brick-and-mortar store comps during the second quarter. Additionally, we remain focused on continuously improving our online experience, and the opening of our two new eCommerce fulfillment centers earlier this week will provide our athletes with faster and more reliable delivery.”

Omni-channel Development

eCommerce sales for the second quarter of 2019 increased 21 percent. E-commerce penetration for the second quarter of 2019 was approximately 12 percent of total net sales, compared to approximately 11 percent during the second quarter of 2018.

In the second quarter, the company opened two new DICK’S Sporting Goods stores and closed two DICK’S Sporting Goods stores. As of August 3, 2019, the company operated 727 DICK’S Sporting Goods stores in 47 states, with approximately 38.6 million square feet, 95 Golf Galaxy stores in 32 states, with approximately 2.0 million square feet, and 35 Field & Stream stores in 16 states, with approximately 1.7 million square feet.

Balance Sheet

The company ended the second quarter of 2019 with approximately $116.7 million in cash and cash equivalents and approximately $441.5 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 $502 million to shareholders through share repurchases and quarterly dividends.

Total inventory increased 19.0 percent at the end of the second quarter of 2019 as compared to the end of the second quarter of 2018. This planned increase was due primarily to strategic investments to support key growth categories.

The company also amended and extended its revolving credit facility as it increased its limit from $1.25 billion to $1.6 billion and extended the maturity to June 28, 2024 under substantially the same terms.

Year-to-Date Results

The company reported consolidated net income for the 26 weeks ended August 3, 2019 of $170.1 million, or $1.85 per diluted share. For the 26 weeks ended August 4, 2018, the company reported consolidated net income of $179.5 million, or $1.78 per diluted share.

On a non-GAAP basis, the company reported consolidated net income for the 26 weeks ended August 3, 2019 of $171.0 million, or $1.86 per diluted share, excluding a non-cash asset impairment and the favorable settlement of a litigation contingency.

Net sales for the 26 weeks ended August 3, 2019 increased 2.3 percent to approximately $4.18 billion. Consolidated same store sales increased 1.7 percent. Consolidated same store sales decreased 3.3 percent for the 26-weeks ended August 4, 2018, adjusted for the calendar shift due to the 53rd week in 2017, which we believe is the best view of the business.

Capital Allocation

On August 19, 2019, the company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.275 per share on the company’s Common Stock and Class B Common Stock. The dividend is payable in cash on September 27, 2019 to stockholders of record at the close of business on September 13, 2019.

During the second quarter of 2019, the company repurchased approximately 4.5 million shares of its common stock at an average cost of $35.52 per share, for a total cost of $159.3 million. Under the five-year share repurchase program authorized by the Board of Directors in March 2016, the company has repurchased $833 million of common stock and has approximately $167 million remaining under the program. On June 12, 2019, the company’s Board of Directors authorized an additional five-year share repurchase program of up to $1 billion of the company’s common stock. The company plans to continue to purchase under the 2016 program until it is exhausted or expired.

Subsequent Event

On August 22, 2019, the company completed the sale of two of its technology subsidiaries, Blue Sombrero and Affinity Sports, to Stack Sports for $45 million. Stack Sports has no affiliation with Edward W. Stack, Chairman and Chief Executive Officer. The sale is expected to result in a one-time gain which will be determined later in the third quarter.

Full Year 2019 Outlook

  • Based on an estimated 90 million average diluted shares outstanding, the company currently projects earnings per diluted share to be approximately $3.30 to 3.45. Previously, guidance called for earnings in the range of $3.20 to 3.40. The company reported earnings per diluted share of $3.24 for the 52 weeks ended February 2, 2019.
  • The company is continuing the strategic review of its hunt business, including Field & Stream.
  • Consolidated same store sales are currently expected to increase low single-digits, compared to a 3.1 percent decrease in 2018. Previously, guidance called for comp gains to be slightly positive to an increase of 2 percent.
  • The company expects to open eight new Dick’s Sporting Goods stores and relocate three Dick’s Sporting Goods stores in 2019. Previously, the company said it expected to open seven new Dick’s Sporting Goods stores and relocate threein 2019. The company also still expects to open two new Golf Galaxy stores and relocate two Golf Galaxy stores in 2019. Seven of the new stores are expected to open during the third quarter.
  • In 2019, the company still anticipates capital expenditures to be approximately $230 million on a gross basis and approximately $200 million on a net basis. In 2018, capital expenditures were $198 million on a gross basis and $170 million on a net basis.

Photo courtesy Dick’s Sporting Goods