Dick's Sporting Goods, Inc. reported second-quarter earnings jumped 32.3% to $51.5 million, or 43 cents per diluted share. Results exceeded estimated earnings expectations provided on May 18 of 37 to 39 cents per diluted share. The 5.7% consolidated same store sales increase consisted of a 5.6% increase in Dick's Sporting Goods stores, a 2.9% increase in Golf Galaxy stores and a 28.0% increase in e-commerce.
For the second quarter ended August 1, 2009, the Company reported consolidated non-GAAP net income of $42.4 million, or 36 cents per diluted share, excluding merger and integration costs. On a GAAP basis, consolidated earnings per diluted share for the second quarter ended August 1, 2009 were 33 cents a share.
Net sales for the second quarter of 2010 increased by 8.8% from the second quarter of 2009 to $1.23 billion due primarily to a 5.7% increase in consolidated same store sales and the opening of new stores. The 5.7% consolidated same store sales increase consisted of a 5.6% increase in Dick's Sporting Goods stores, a 2.9% increase in Golf Galaxy stores and a 28.0% increase in e-commerce.
“We delivered strong results in the second quarter, generating our highest level of earnings per share in any second quarter and producing our fourth straight quarter of positive same store sales,” said Edward W. Stack, Chairman and CEO. “Based on our performance and our expectations for the remainder of the year, we are raising our full year guidance and now believe that consolidated non-GAAP earnings per diluted share will increase 22 to 24% from 2009 to 2010.”
Stores
In the second quarter, the company opened one new Dick's Sporting Goods store and remodeled three Dick's Sporting Goods stores. In the first two quarters of 2010, the company has opened six new Dick's Sporting Goods stores and remodeled three Dick's Sporting Goods stores. As of July 31, 2010, the company operated 425 Dick's Sporting Goods stores in 42 states, with approximately 23.7 million square feet, and 91 Golf Galaxy stores in 31 states, with approximately 1.5 million square feet.
The company plans to close 12 underperforming Golf Galaxy stores in the third quarter of 2010, with total square footage expected to decline from 1.5 million to 1.3 million.
“After evaluating individual store contributions, we have decided to close these underperforming stores. The decisions to open these stores were made by the previous Golf Galaxy management team and produced inadequate locations, sites that were too expensive, or a combination of both,” said Mr. Stack, “By rationalizing the store base, we expect to significantly increase Golf Galaxy's earnings by more than 50% on an annualized basis.”
The closing of the Golf Galaxy stores will result in a charge related to lease exposure, severance and inventory liquidation costs. These charges are expected to total approximately $19.0 million, pre-tax, and will be recognized in the third quarter of 2010.
Balance Sheet
The company ended the second quarter of 2010 with $278 million in cash and cash equivalents and did not have any outstanding borrowings under its $440 million revolving credit facility. At the end of the second quarter of 2009, the company had $51 million in cash and cash equivalents and $20 million of outstanding borrowings under its credit facility.
The inventory per square foot was 0.5% higher at the end of the second quarter 2010 as compared to the end of the second quarter 2009.
Year-to-Date Results
The Company reported consolidated net income for the 26 weeks ended July 31, 2010 of $77.7 million, or 64 cents per diluted share. For the 26 weeks ended August 1, 2009, the Company reported consolidated non-GAAP net income of $55.2 million, or 47 cents per diluted share, which excluded merger and integration costs. On a GAAP basis, the Company reported consolidated net income for the 26 weeks ended August 1, 2009 of $49.1 million, or 42 cents per diluted share.
Net sales for the first half of 2010 increased 9.0% from the first half of 2009 to $2,273.6 million primarily due to a consolidated same store sales increase of 6.8% and the opening of new stores.
Current 2010 Outlook
Based on the second quarter results and expectations for the second half of the year, the Company is raising its annual consolidated non-GAAP earnings estimates and increasing the expected consolidated same store sales for 2010.
Full Year 2010
- Based on an estimated 121 million diluted shares outstanding, the company currently anticipates reporting consolidated non-GAAP earnings per diluted share of approximately $1.46 – 1.49, excluding an approximate $0.10 per diluted share impact from store closures. For the full year 2009, the company reported consolidated non-GAAP earnings per diluted share of $1.20, excluding merger and integration costs. On a GAAP basis, the company reported consolidated earnings per diluted share of $1.15 in 2009.
- Consolidated same store sales are currently expected to increase approximately 4 to 5% compared to a 1.4% decrease in 2009. The consolidated same store sales calculation for the full year 2010 includes Dick's Sporting Goods stores, Golf Galaxy stores and the company's e-commerce business. The consolidated same store sales calculation for the full year 2009 included Dick's Sporting Goods stores and Golf Galaxy stores only.
- The company currently expects to open approximately 26 new Dick's Sporting Goods stores, relocate two Dick's Sporting Goods stores, remodel 11 Dick's Sporting Goods stores, open two new Golf Galaxy stores, and close 12 underperforming Golf Galaxy stores.
- Based on an estimated 121 million diluted shares outstanding, the company currently expects reporting third quarter non-GAAP consolidated earnings per diluted share of approximately $0.15 – 0.16, excluding an approximate $0.10 per diluted share impact from store closures. In the third quarter of 2009, the company reported consolidated earnings per diluted share of $0.16. As discussed in the third quarter 2009 earnings call, the $0.16 consolidated earnings per diluted share included approximately $0.03 earnings per diluted share from the pull forward of cold weather product sales from the fourth quarter of 2009 into the third quarter of 2009, as a result of unusually early, cold weather.
- Consolidated same store sales are currently expected to increase approximately 1 to 2% compared to a 1.9% increase in the third quarter last year. The consolidated same store sales calculation for the third quarter of 2010 includes Dick's Sporting Goods stores, Golf Galaxy stores, the converted Chick's Sporting Goods stores and the Company's e-commerce business. The consolidated same store sales calculation for the third quarter of 2009 included Dick's Sporting Goods stores and Golf Galaxy stores only.
- The company currently expects to open approximately 12 new Dick's Sporting Goods stores, relocate one Dick's Sporting Goods store, remodel seven Dick's Sporting Goods stores, and close 12 underperforming Golf Galaxy stores in the third quarter.
- For the full year 2010, the Company currently anticipates capital expenditures to be approximately $175 million on a gross basis and approximately $145 million on a net basis.
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED | ||||||||||
(In thousands, except per share data) | ||||||||||
13 Weeks Ended | ||||||||||
July 31, | % of Sales | August 1, | % of Sales (1) | |||||||
2010 | 2009 | |||||||||
Net sales | $ 1,226,063 | 100.00% | $ 1,126,767 | 100.00% | ||||||
Cost of goods sold, including occupancy | ||||||||||
and distribution costs | 865,918 | 70.63 | 816,866 | 72.50 | ||||||
GROSS PROFIT | 360,145 | 29.37 | 309,901 | 27.50 | ||||||
Selling, general and administrative expenses | 271,372 | 22.13 | 238,745 | 21.19 | ||||||
Merger and integration costs | – | – | 5,760 | 0.51 | ||||||
Pre-opening expenses | 715 | 0.06 | 1,569 | 0.14 | ||||||
INCOME FROM OPERATIONS | 88,058 | 7.18 | 63,827 | 5.66 | ||||||
Interest expense | 3,502 | 0.29 | 1,051 | 0.09 | ||||||
Other expense (income) | 646 | 0.05 | (961) | (0.09) | ||||||
INCOME BEFORE INCOME TAXES | 83,910 | 6.84 | 63,737 | 5.66 | ||||||
Provision for income taxes | 32,394 | 2.64 | 24,812 | 2.20 | ||||||
NET INCOME | $ 51,516 | 4.20% | $ 38,925 | 3.45% | ||||||
