Dick's Sporting Goods, Inc. reported third quarter earnings slumped 24.6% to $9.2 million, or 8 cents per diluted share, from $12.2 million, or 10 cents, a year ago.The third quarter earnings per diluted share are at the top end of earnings guidance provided on Aug. 21 of 4 cents to 8 cents per diluted share. However, the retailer lowered its fourth quarter guidance due to “current business trends, the uncertainty in the overall economic environment and the unpredictability of consumer behavior approaching the holiday season.”
The third quarter results exclude the impact of costs related to the Golf Galaxy integration. Including the pre-tax impact of costs related to the Golf Galaxy integration of $3.1 million, or 2 cents a share, the retailer reported net income for the third quarter ended Nov. 1, 2008 of $7.4 million, or 6 cents a share.
Net sales for the quarter increased 10.2% to $924.2 million due to the opening of new stores, the inclusion of Chick's Sporting Goods in this year's quarterly results and a 2.8% decrease in comparable store sales. The 2.8% consolidated same store sales decline consisted of a 2.5% decrease in Dick's Sporting Goods stores and a 7.4% decline in the Golf Galaxy stores. Chick's Sporting Goods is excluded from the comparable store sales calculation.
“We are pleased to generate results in line with our expectations, particularly in light of the current environment,” said Edward W. Stack, chairman, CEO and president. “In these difficult times, we are carefully growing the business, successfully managing inventory and enforcing strict expense controls.”
Golf Galaxy Integration
By the end of this fiscal year, the company said it expects to integrate Golf Galaxy's operations. Costs related to the integration were $3.1 million in the third quarter. The company estimates $4.0 million will be incurred in the fourth quarter of 2008. Merger and integration costs include the expense of severance, retention, office closure and related taxes.
In the third quarter, the company opened 26 Dick's Sporting Goods stores and one Golf Galaxy store. The company also converted one Chick's Sporting Goods store.
The company reported net income for the 39 weeks ended Nov. 1, 2008 of $75.5 million, or 64 cents per diluted share, excluding the costs associated with the integration of Golf Galaxy. For the 39 weeks ended November 3, 2007, net income and earnings per diluted share were $81.9 million and 71 cents, respectively. The Pro-forma to GAAP reconciliation is included in a table later in the release under the heading “Pro-forma Net Income and Pro-forma Earnings Per Share Reconciliation.”
Including the integration costs related to Golf Galaxy, which totals $6.2 million, or 5 cents per diluted share, the company reported net income for the 39 weeks ended Nov. 1, 2008 of $69.3 million, or 59 cents per diluted share.
Net sales increased 9% to $2,922.6 million primarily due to the opening of new stores, the inclusion of Chick's Sporting Goods in this year's results and a comparable store sales decrease of 3.7%. Year-to-date comparable store sales exclude Golf Galaxy and Chick's Sporting Goods.
At the end of the third quarter, inventory per square foot was 4.4% less than in 2007 on a pro-forma consolidated basis and 5.3% less per square foot for Dick's Sporting Goods stores only. The company ended the quarter with approximately $185 million in outstanding borrowings on its $350 million line of credit and expects to end fiscal 2008 with no outstanding borrowings on the revolving credit facility. The company has also amended its credit agreement to exercise the accordion feature and increase the aggregate revolving loan commitments by $90 million to a total of $440 million, under the same terms and conditions.
Current 2008 Outlook
Considering current business trends, the uncertainty in the overall economic environment and the unpredictability of consumer behavior approaching the holiday season, the company is lowering its guidance for the year and the fourth quarter.
For full year 2008, the company currently anticipates reporting consolidated earnings per diluted share of approximately $1.13 to $1.20, excluding costs from the Golf Galaxy integration. The company anticipates earnings per diluted share of approximately $1.06 to $1.13, including the integration costs. Earnings per diluted share for the full year 2007 were $1.33.
Comparable store sales, which include Dick's Sporting Goods stores only, are expected to decrease approximately 5% to 4%. The comparable store sales calculation for the full year excludes the Golf Galaxy and Chick's Sporting Goods stores.
In reporting third quarter results on Aug. 21, Dick's Sporting Goods said it expected full year earnings ranging from $1.27 and 1.36 excluding costs from the Golf Galaxy integration, and between $1.20 to $1.29, including the integration costs. Comps were expected to decrease approximately 5% to 3%.
The company has opened 43 new Dick's Sporting Goods stores, relocated one Dick's Sporting Goods store and converted one Chick's Sporting Goods store to a Dick's Sporting Goods store, completing the new store program for Dick's Sporting Goods stores in 2008. The company expects to open ten new Golf Galaxy stores in 2008.
For the fourth quarter, the company anticipates reporting consolidated earnings per diluted share of approximately 49 cents to 56 cents a share, excluding costs from the Golf Galaxy integration. The company anticipates reporting earnings per diluted share of approximately 47 cents to 54 cents, including the Golf Galaxy integration costs. Earnings per diluted share for the fourth quarter of 2007 were 62 cents a share.
Comparable store sales are expected to decrease approximately 10 to 6%, which compares to a 3.4% increase in the fourth quarter last year, as adjusted for the shifted retail calendar. The comparable store sales calculation for the fourth quarter includes Golf Galaxy stores and excludes the Chick's Sporting Goods stores. The company expects to open four new Golf Galaxy Stores in the period.
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED
(In thousands, except per share data)
13 Weeks Ended
November 1, % of November 3, % of
2008 Sales(1) 2007 Sales(1)
———- ——- ——— ———
Net sales $924,191 100.00% $838,831 100.00%
Cost of goods sold, including
occupancy and distribution costs 671,091 72.61 600,168 71.55
———- ——- ——— ———
GROSS PROFIT 253,100 27.39 238,663 28.45
Selling, general and administrative
expenses 228,861 24.76 209,303 24.95
Pre-opening expenses 7,541 0.82 7,678 0.92
Merger and integration costs 3,096 0.33 – –
———- ——- ——— ———
INCOME FROM OPERATIONS 13,602 1.47 21,682 2.58
Interest expense, net 2,902 0.31 1,725 0.21
———- ——- ——— ———
INCOME BEFORE INCOME TAXES 10,700 1.16 19,957 2.38
Provision for income taxes 3,307 0.36 7,724 0.92
———- ——- ——— ———
NET INCOME $7,393 0.80% $12,233 1.46%
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EARNINGS PER COMMON SHARE:
Basic $0.07 $0.11
Diluted $0.06 $0.10