Riding healthy same-store sales, better-than-expected
margins and an acceleration of its e-commerce business, Dick’s Sporting Goods
managed to report fourth-quarter earnings that exceeded its forecast provided
last November
“We produced record fourth-quarter results, despite a
shorter and more promotional holiday season,” said Ed Stack, chairman and CEO,
on a conference call with analysts.
The company also revealed plans to ramp up its expansion
efforts for 2014, looking to open approximately 50 Dick’s SG flagship stores as
well as about eight Field & Stream stores. In 2013, it opened 40 Dick’s SG
stores and successfully introduced the Field & Stream hunt & fish
concept with two stores.
In the fourth quarter, earnings rose 6.9 percent to $138.6
million, or $1.11 per share, coming in 4 cents above of the upper end of its
$1.04 to $1.07 guidance provided on Nov. 21 during its third-quarter conference
call. On Feb. 10, DKS had indicated that its EPS was expected to come in the
range of $1.10 to 1.11 a share.
Sales in the quarter increased 7.9 percent to $1.9 billion,
impacted by the most recent quarter running 13 weeks and the year-ago lasting
14 weeks due to the 53rd week in 2012. On a 13-week to 13-week basis, sales
grew 12.5 percent.
On a shifted basis, consolidated same store sales increased
7.3 percent, well above the company's November guidance calling for an
approximate 3 to 4 percent increase. Fourth quarter 2012 consolidated same
store sales increased 1.2 percent. Shifted same store sales in the latest
quarter for Dick's SG advanced 7.9 percent while Golf Galaxy decreased 11.7
percent.
Unshifted consolidated same store sales for the quarter
increased 6.3 percent, compared to the company's guidance of an approximate 2
to 3 percent increase. Unshifted same store for Dick's SG increased 6.8 percent
while Golf Galaxy decreased 9.4 percent.
The same-store sales increase in the Dick’s SG business was
driven by a 6.3 percent increase as well as by a 1.6 percent increase in sales
per transaction.
On the call, Stack said the company during the quarter saw
strong performances across multiple categories, led by cold weather-related
products and athletic apparel.
“We also saw strength in licensed apparel, team sports, and
footwear, partially offset by declines in hunting and golf,” said Stack. “With
this broad-based strength and an increase in mix of higher-margin categories,
we were able to expand our merchandise margin, despite the shorter and more
promotional holiday season. Our fourth-quarter traffic increased 6.3 percent,
as we benefited from investments in advertising, store payroll, opening price
points, and cold-weather.”
E-Commerce growth “accelerated and exceeded our original
expectations,” overall reaching 12.2 percent of total sales, up from 8.6
percent a year ago.
Consolidated gross margins were 32.25 percent of sales, 36
basis points lower than the fourth quarter of 2012. Merchandise margin expanded
33 basis points but that was offset by an increase in shipping expense due to
the growth in e-commerce and by occupancy deleverage.
SG&A expenses in the quarter were reduced slightly to
20.69 percent of sales, compared to 20.82 percent of sales, primarily lower due
to lower administrative expenses.
For the full year, net earnings rose 16.1 percent to $337.6
million, or $2.69 a share. Excluding impairments in 2012 due to a loss from its
investment in JJB Sports that pulled down year-ago results, earnings in the
latest year would have been up 6.0 percent.
Sales in the year increased
6.5 percent to $6.2 billion, primarily due to the opening of new stores and a
1.9 percent same-store increase on a 52-week to 52-week basis. On a 52-week to
52-week basis, net sales increased 7.8 percent. Same store sales for Dick's SG
chain advanced 2.4 percent and for Golf Galaxy fell 7.1 percent. E-commerce
penetration for the year was 7.9 percent of total sales.
On the call, Stack noted that during 2013 DKS “made
significant advancements” with its omni-channel network, opened 40 Dick’s SG
stores, increased store traffic, and grew its e-commerce business 65 percent to
over $480 million.
“We also strengthened our mobile capabilities, including the
development and rollout of a new tablet site,” said Stack. “With this new
tablet site, we generated a 12.5 percent increase in dollars per visit, and we
are seeing success across all devices, including strong traffic and a 30
percent-plus increasing in online conversion.”
Ship-from-store capabilities were improved by increasing the
assortment available by over 120 percent. In January, it began testing
buy-online-pickup-in-store in select doors.
Dick’s SG also lowered our per-unit shipping cost by nearly
10 percent in 2013, aided by an increase in units per transaction, an increase
in volume, and adding ship-from-store capabilities, which has reduced delivery
costs.
New store productivity was 91.7 percent in the fourth
quarter. In addition to the opening of 50 doors, it expects to relocate six
Dick’s SG stores and fully remodel five in 2014.
“We are pleased with the improvement we are seeing in the
commercial real estate market, with approximately 75 percent of our 2014
openings attributable to new builds,” said Joe Schmidt, Dick’s SG’s president
and COO, on the call.
The news of the opening of 50 stores in 2014 was in line
with expansion plans revealed on its Analyst Day last September. It plans to have approximately 815 stores by the end
of 2017, up from 558 currently. Officials at the time said it would be opening
between 50 to as much as 75 annually over the time frame.
On its Q413 call, Stack noted that as the retailer looks to
further develop its omni-channel network, “it's critical that we grow our store
base while making our existing stores more productive.”
He noted that according to Forrester Research, it's
anticipated that by 2017 for every $1 the consumer spends online, they will
spend nearly $5 in physical stores. The retailer’s own research indicates that
customers who shop both in-store and online spend three times as much as a
customer who shops in only one channel.
To improve store productivity, the retailer will continue
its space reallocation plan inside Dick’s SG stores, shifting away from challenged
categories like fitness and golf toward faster-growing areas like young
athletes and women's. The changes are expected to be complete by BTS.
“We are excited about the opportunities in athletic apparel,
footwear, and team sports,” added Stack. “We do expect continued headwinds this
year in our hunting business from lapping the guns and ammo business we saw for
most of last year. We also see headwinds in our golf business, as we expect the
softness we saw in Q4 to continue.”
Regarding the ammunition business, Stack said the category
has “really softened.” The first quarter will see the “most significant” impact
because the period was “still relatively close to the tragedy that happened at
Sandy Hook when there was a lot of conversation about gun reform and a lot of
people bought that product because of the issues of what they felt was going to
happen from a legislative standpoint.”
He said the weakness in golf is largely a “secular issue,”
pointing to the overall product pipeline, weakness in rounds played and cold
weather. He did note that Callaway was seeing some strong introductions.
On footwear, Stack said, “The move to the basketball
silhouette, we find, has been really very good for us. And those are higher
average retails than some of the other products that we've had. So we're happy
with that.”
He added that the running business can still continue to
grow, both in footwear and apparel.
New stores and relocated stores will all include its
in-store branded shop efforts, particularly with Nike and Under Armour. It
ended the year with 285 Nike Field House shops, 238 Under Armour All-American
and Blue-Chip shops, and 90 The North Face permanent shops. It also had 218
shared service footwear decks.
Online, Stack said Dick’s SG will further enhance site
functionality, optimize navigation, expand merchandise availability while
improving the profitability of online transactions. By 2017, it expects online
transactions to be more profitable than in-store transactions.
Among its specialty concepts, the retailer ended 2013 with
79 Golf Galaxy stores, reflecting the closing of three underperforming doors in
the quarter. Schmidt said the company is “pleased” with the performance of two
Golf Galaxy stores opened earlier this year in new, larger prototype, enabling
an increase in apparel penetration and enhancement of the customer experience.
In 2014, it expects to open one new Golf Galaxy store and relocate two stores,
all in the larger format.
The first two Field & Stream stores opened in 2013 “were
the most successful grand openings of any stores we've ever opened,” said
Schmidt. Its two Field & Stream stores are more productive than its Dick’s
stores, generating higher sales per square foot and are profitable on a
four-wall basis.
Field & Stream’s “momentum with our customers
continues,” with strong sign-ups of its Sportsmen's Advantage card loyalty
program. The concept has also drawn “very positive reactions” from the vendor
community, partly because of the stores’ strong staffing includes many who have
run their own outdoor businesses. Said Schmidt, “We are very excited about the
opportunity ahead of us.”
Regarding its outlook, the company continues to expects
earnings this year in the range of $3.03 to 3.08 a share. Consolidated same
store sales are expected to increase 3 to 4 percent. It gave its initial 2014
guidance on Feb. 10.
In the first quarter, it expects earnings in the range of 51
to 53 cents a share, up from 48 cents a share, a year ago. Consolidated same
store sales are currently expected to increase 3 to 4 percent in the first
quarter of 2014, compared to a 3.8 percent decrease in the first quarter of
2013.
While the fourth quarter benefited from the weather, Stack
declined to comment on what impact the prolonged winter was having on spring
sales. He did note that the weather conditions to date as well as the likely negative
impact of the late Easter had been “baked into our guidance.”
Stack added that the late winter in 2013 also delayed the
start of team sports and golf and said the current winter extension is
“probably a bit worse than last year.” Still, he added that while ballfields in
the northeast may be “still snow-covered now,” he added, “the quarter doesn't
end until April.”
