Riding higher comps and margins, Dick's Sporting Goods’ earnings, excluding one-time items, climbed 38% in the third quarter to $26.7 million, or 22 cents. The sporting goods giant beat its prior guidance and raised its earnings forecasts for the year by ten cents a share.


Including an eight cents per share charge from the closing of 12 Golf Galaxy stores, net earnings were $16.9 million, or 14 cents a share, down from $18.9 million, or 16 cents, a year ago. Earnings exceeded the company's forecast range of 15 cents to 16 cents a share provided on Aug. 19. Sales advanced 9.0% to $1.08 billion and grew 5.1% on a same-store basis. The comp improvement reflects a 3.8% gain at Dick's SG stores, a 2.4% increase at Golf Galaxy and an 82.4% jump in e-commerce.


At the DSG chain, the sales increase was driven in part by a 5.2% increase in transactions and a 1.4% decrease in sales per transaction. Hard lines, apparel, and footwear all comped positive.


On a conference call with analysts, company Chairman and CEO Ed Stack said the mix continues to benefit from greater softline sales, partly because of a depressed gun and ammunition business. He anticipates the hunt business “will get a little better” in Q4 due to easier comparisons. He also said apparel and footwear are both benefiting from ongoing strength specifically with Nike and Under Armour. He added the Nike Fieldhouse in-store concepts have “seen great results.”


Golf within the DSG stores was also positive and comparable to the same-store sales generated by Golf Galaxy. E-commerce's gain was led by footwear, golf and outdoor. The introduction of in-store ordering — in which an associate will find an out-of-stock item for a customer at an in-store terminal — resulted in increased traffic and conversion. Golf Galaxy saw improving profitability, particularly at the gross margin level, due to the store closings.


Gross margins improved 150 basis points to 28.5% of sales due to a 128 basis point increase in merchandise margin as well as occupancy leverage. The merchandise margin gain was due to a change in mix at DSG stores, partially offset by the liquidation of Golf Galaxy inventory due to store closures. Excluding the impact of the Golf Galaxy store closings, SG&A expenses were $256 million, representing 23.7% of sales versus 23.3% in the year-ago quarter.


New store productivity for the third quarter was 102%. In the same quarter of 2009, new store productivity was 67.9%. “As you would expect, we've been able to sign new leases on more favorable terms and conditions than the past few years,” said Stack.


Stack also noted that third quarter comps in their Texas stores have outperformed the company average “by a wide margin.”


Stack said e-commerce sales are up 39.6% so far this year off a low base. He expects e-commerce to “continue to grow significantly faster” than the brick & mortar business as they refine their in-store associate ordering system and launch a order online pickup and store service.


Stack expects overall margins to improve through better terms and conditions of sales with its vendor partners and a more profitable mix as the retailer continues to grow both the apparel and footwear businesses as a percent of sales. Margins are also expected to benefit as private label sales expand from 15% of sales currently to 20% over the next five years.  Stack said that decreasing price points due to the downtown “impeded upon some of our private brands” but the improving economy is opening up more opportunities.


Said Stack, “We feel we can get to 20% without taking share from our premium vendor partners.”


Also supporting the margin rate is an improved allocation process, along with a disciplined markdown process, that has significantly improved inventory productivity over the past two years. Clearance inventory was down 19% at quarter-end and merchandise margin rate has increased 154 basis points year-to-date.


Stack also said he is “very pleased” with the sales results and the customer's reaction to the test of new shared-service-footwear-model in some stores. The tested shops have outpaced footwear chain-wide results by approximately 500 basis points in comp sales. The average ticket in the renovated new footwear areas are up $3.44 per store compared to the chain average. In the past two years DSG has converted 32 stores and has opened 46 new stores with this presentation. For 2011, the retailer plans to renovate approximately 20 footwear departments to the new concept and open all new stores going forward with the shared service concept.


In the fourth quarter, the company now expects EPS of 69 cents to 71 cents a share, which compares with 56 cents a year ago. Comps are projected to increase 3% to 4% versus a 2.5% increase in Q4 last year.
Dick’s SG full-year estimates were raised to $1.56 to $1.58 per share, versus the forecast range of $1.46 to $1.49 given previously, and representing a year-over-year gain of 30% to 32%.  Comps are expected to grow 4.5% to 5.5%, up from previous guidance of 4% to 5% and comparable to a decline of 1.4% in 2009.

 

Stack said the company plans to open approximately 34 new DSG stores in 2011 and will continue to remodel key stores. For the full year 2010 DKS opened 26 and remodeled 12 DSG stores. The retailer also opened two Golf Galaxy stores in the year. 


Approximately 60% of the new stores this year were opened in existing markets and 40% in new markets.


Inventory per square foot was up 2.5% at quarter-end.