Dick’s Sporting Goods reported earnings in the second quarter on an adjusted basis jumped 150 percent topping Wall Street targets as same-store sales grew 20.7 percent. E-commerce sales nearly tripled. Dick’s officials said the performance was helped by a shift toward athletic and active lifestyle products with people spending more time working and exercising at home.

The company reported consolidated net income for the second quarter ended August 1, 2020 of $276.8 million, or $3.12 per diluted share. As a result of actions taken to prioritize the health and well-being of its employees and athletes, the company incurred approximately $42 million of incremental employee compensation and safety costs during the current quarter. This was partially offset by the recovery of $28 million of inventory write-downs recorded in the first quarter due to the company’s strong second-quarter sales. The net impact of these items resulted in approximately $14 million of pre-tax expenses, or 12 cents per diluted share, during the current quarter. The company reported consolidated net income for the second quarter ended August 3, 2019 of $112.5 million, or $1.26 per diluted share.

On a non-GAAP basis, the company reported consolidated net income for the second quarter ended August 1, 2020 of $281.7 million, or $3.21 per diluted share, well ahead of Wall Street’s consensus target of $1.26. Second-quarter 2020 non-GAAP results exclude the non-cash amortization of the debt discount associated with the company’s convertible senior notes, as well as the share impact of the convertible note hedge purchased by the company, which is anti-dilutive for GAAP purposes.

Net sales for the second quarter of 2020 increased 20.1 percent to approximately $2.71 billion, also easily topping Wall Street’s consensus estimate of $2.46 billion.

Consolidated same-store sales increased 20.7 percent, even with approximately 15 percent of the company’s stores closed on average. E-commerce sales increased 194 percent, including Curbside Contactless Pickup. E-commerce penetration for the second quarter of 2020 was approximately 30 percent of total net sales, compared to approximately 12 percent during the second quarter of 2019. Second-quarter 2019 consolidated same-store sales increased 3.2 percent.

“We had an exceptionally strong Q2 in which we delivered our highest-ever quarterly sales and earnings. These results are a testament to the hard work and dedication of our teammates, who reacted quickly to favorable shifts in consumer demand throughout the quarter,” said Ed Stack, chairman and chief executive officer. “During this pandemic, the importance of health and fitness has accelerated and participation in socially distant, outdoor activities has increased. There has also been a greater shift toward athletic and active lifestyle products with people spending more time working and exercising at home. The majority of our assortment sits squarely at the center of these trends, and while mindful of the uncertainty in the current environment, we are in a great lane right now.”

Lauren R. Hobart, president, added, “Our Q2 comps were supported by increases in both average ticket and transactions, as well as growth across each of our three primary categories of hardlines, apparel and footwear. By the end of June, we re-opened 100 percent of our stores to the public, while continuing to prioritize the health and well-being of our teammates and athletes. As our stores re-opened, we saw the power of our industry-leading omnichannel platform. We delivered positive double-digit brick & mortar store comps during both June and July, and our eCommerce sales remained very strong, increasing nearly 200 percent for the quarter. In recognition of our hourly store and distribution center teammates’ efforts, which helped make these results possible, we recently announced the 15 percent pay premium will be extended through the end of the year.”

Stack concluded, “The favorable shifts in consumer demand that drove our strong comps during Q2 have continued into Q3 but have been partially offset by softness across key back-to-school categories because of the uncertain timing of a return to school and fall team sports. Taken together, through the first three weeks of Q3, our consolidated comp sales have increased 11 percent, which demonstrates the strength of our diverse category portfolio.”

Balance Sheet
The company ended the second quarter of 2020 with $1.1 billion in cash and cash equivalents and no outstanding borrowings under its $1.855 billion revolving credit facility, repaying the $1.4 billion of borrowings that were outstanding at the end of the first quarter. In April, the company issued $575 million aggregate principal amount of 3.25 percent Convertible Senior Notes, which added over $500 million of net proceeds to its cash position.

Total inventory decreased 12.2 percent at the end of the second quarter of 2020 as compared to the end of the second quarter of 2019.

Year-to-Date Results
The company reported consolidated net income for the 26 weeks ended August 1, 2020 of $133.4 million, or $1.53 per diluted share. As a result of actions taken to prioritize the health and well-being of its employees and athletes, the company incurred approximately $76 million, or $0.65 per diluted share, of incremental employee compensation and safety costs during the 26 weeks ended August 1, 2020. For the 26 weeks ended August 3, 2019, the company reported consolidated net income of $170.1 million, or $1.85 per diluted share.

On a non-GAAP basis, the company reported consolidated net income for the 26 weeks ended August 1, 2020 of $139.1 million, or $1.60 per diluted share, which excludes non-cash amortization of the debt discount associated with the company’s convertible senior notes, as well as the share impact of the convertible note hedge purchased by the company, which is anti-dilutive for GAAP purposes. For the 26 weeks ended August 3, 2019, the company reported consolidated net income of $171.0 million, or $1.86 per diluted share, excluding non-cash asset impairment and the favorable settlement of a litigation contingency.

Net sales for the 26 weeks ended August 1, 2020 decreased 3.2 percent to approximately $4.05 billion. Despite temporary store closures during March, April and May to help prevent the spread of COVID-19, consolidated same-store sales decreased only 2.3 percent. eCommerce sales increased 154 percent including Curbside Contactless Pickup. eCommerce penetration for the 26 weeks ended August 1, 2020 was approximately 33 percent of total net sales, compared to approximately 12 percent during the 26 weeks ended August 3, 2019. Consolidated same-store sales increased 1.7 percent for the 26 weeks ended August 3, 2019.

Capital Allocation
On June 10, 2020, the company reinstated its dividend program, declaring a dividend of $0.3125 per share on its Common Stock and Class B Common Stock. The dividend was paid on June 30, 2020.

On August 21, 2020, the company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.3125 per share on the company’s Common Stock and Class B Common Stock. The dividend is payable in cash on September 25, 2020 to stockholders of record at the close of business on September 11, 2020.

During the second quarter of 2020, the company did not repurchase shares of its common stock. The company may resume opportunistic share repurchases under its existing authorizations of $1.0 billion.

Full Year 2020 Outlook
As previously announced on March 19, 2020, the company withdrew its fiscal 2020 outlook. The company is not providing an updated outlook at this time.

Photo courtesy Dicks Sporting Goods