Dick’s Sporting Goods reported record sales and earnings for the fourth quarter and year and predicted continued strong demand across golf, outdoor, fitness, and active lifestyle categories and team sports recovery in 2021. Conservative guidance was still provided for 2021 as the company seeks to hurdle 2020’s pandemic-driven gains.
Shares of Dick’s were trading down $4.30, or 5.6 percent, to $72.38 in mid-day trading Tuesday despite the better-than-expected fourth-quarter results marked by a 19.6 percent same-store hike.
The stock’s weakness was attributed to the soft guidance. The stock had been on a strong run after starting the year at $56.21. Shares had dropped as low as $13.46 on March 18, 2020, when the pandemic emerged.
For 2021, Dick’s guided for flattish comps, slightly off from Wall Street’s consensus target of positive two percent. EPS on an adjusted basis is expected to decline in the range of 15 percent to 30 percent to a range of $4.40 to $5.20, which is lower than analysts’ average target of $5.15.
However, Dick’s encouraged analysts to view the outlook on a two-year stack basis to gauge the chain’s progress. Compared to 2019, sales for 2021 are expected to expand in the range of 9.1 percent to 13.5 percent, while non-GAAP EPS is projected to surge 20-to-40 percent.
“We never had a more challenging year than 2020,” said Ed Stack, executive chairman and chief merchandising officer, on a call with analysts.” We were challenged in so many ways, as were so many others. But, as an organization, we not only survived, we thrived. The strength of our category portfolio, technology capabilities and advanced omnichannel execution helped us capitalize on the favorable shifts in consumer demand across golf, outdoor activities, home fitness, and active lifestyle.”
For the full year, same-store sales increased a record 9.9 percent on top of a 3.7 percent comp increase in 2019. On an adjusted basis, EPS also reached a record $6.12, representing a 66 percent increase over last year.
Lauren Hobart, who assumed the CEO role from Stack at the start of the year, said the strong showing over the last year reflects efforts in past years to modernize the business that had already started to pay off before the pandemic.
“It’s clear that our strategies over the past several years are working, and it’s helped us not only withstand the pandemic but thrive, setting us up for long-term success,” said Hobart. “As we enter 2021, our business has so much momentum, and we are pleased with the start to our year.”
Fourth-Quarter Same-Store Sales Jump 19.3 Percent
In the fourth quarter, January 30, total sales rose 19.8 percent to $3.13 billion, topping Wall Street’s consensus estimate of $3.07 billion.
The increase was driven by a 19.3 percent increase in consolidated same-store sales. The gains were driven by a 20.3 percent increase in average tickets, partially offset by a one percent decrease in transactions. Fourth-quarter 2019, same-store sales increased 5.3 percent.
Brick & mortar comped up mid-single-digits even though stores were closed on Thanksgiving Day. E-commerce sales vaulted 57 percent. E-commerce penetration was 32 percent of total sales, compared to 25 percent a year ago.
Within e-commerce, the strongest growth was seen across in-store pickup and curbside, which increased nearly 250 percent compared to BOPIS (buy-online, in-store pickup) sales in the prior year.
Said Hobart, who also continues to serve as president, “These same-day services are fully enabled by our stores, which are the hub of our industry-leading omnichannel experience, both serving our in-store athletes and providing over 800 forward points of distribution for digital fulfillment. In fact, during Q4, our stores enabled 90 percent of our total sales and fulfilled over 70 percent of our online sales, either to ship-from-store, in-store pickup or curbside.”
From a category standpoint, the retailer saw significant growth across all three primary categories: hardlines, apparel and footwear.
Gross margin reached 33.7 percent. On a non-GAAP basis, gross margins improved 507 basis points compared to last year. The improvement was driven by merchandise margin rate expansion of 372 basis points and leverage on fixed occupancy costs of 148 basis points.
Fewer promotions and lower clearance activity primarily drove merchandise margin rate expansion. Said Hobart, “We again remained very disciplined in our promotional strategy and cadence as certain categories in the marketplace continued to be supply-constrained.”
Dick’s incurred higher shipping costs due to increased volume and industry-wide holiday surcharges but were offset by higher average tickets and higher margins in e-commerce primarily due to the installation of curbside pickup.
SG&A expenses were $761.2 million, or 24.4 percent of sales. On a non-GAAP basis, SG&A increased 142 basis points. The increase was primarily due to $51 million of pre-tax incremental employee compensation and safety costs in response to COVID-19 and a $30 million donation made to the Dick’s Foundation to support youth sports programs.
Dick’s reported consolidated net income $219.6 million, or $2.21 a share, up from $69.8 million, or 81 cents, a year ago. On a non-GAAP basis, excluding non-recurring items, earnings rose 98.6 percent to $225.0 million, or $2.43, well ahead of Wall Street’s consensus estimate of $2.21.
Quarter-end inventory levels decreased 11 percent compared to the end of the same period of last year. Belitsky said, “Looking ahead, our inventory is very clean, and we will continue to chase products and improve in-stock positions in the most in-demand categories.”
New Men’s Vrst Private Label To Launch In March
Looking ahead to 2021, Hobart said Dick’s focus would “center around enhancing our existing strategies to accelerate our core and enable long term growth.”
Within merchandising, she said the retailer’s “strategic partnerships with key brands has never been stronger, and we will continue to make big bets with important brand partners. At the same time, we will continue to elevate our vertical brands.”
She noted that, as Dick’s has previously discussed, vertical brands “have become a significant source of strength and growth.” Sales across vertical brands eclipsed $1.3 billion in sales in 2020, with comps outperforming the company average by over 400 basis points.
The chain’s DSG private label finished the year as its largest vertical brand, while Calia was again Dick’s second-largest women’s athletic apparel brand behind Nike. Together, vertical brands represented the company’s largest brands in golf, fitness, outdoor equipment, and team sports.
In 2021, improved space allocation, increased marketing and expansion into additional product categories are expected to further vertical brands’ growth. Later this month, a new men’s private-label premium apparel collection, Vrst, will debut. Hobart said Vrst would serve “the modern athletic male” and puts Dick’s “in a much stronger position to compete with similar offerings from premium apparel brands and specialty athletic apparel stores.”
Dick’s officials said in the Q&A section that the brand reaches “white space” of offerings not currently available at Dick’s, similar to Calia, and won’t directly compete with its national brands. Belitsky described Vrst as similar to Lululemon’s men’s offering, offering lifestyle apparel “that can be worn to work” rather than primarily workout items.
Dick’s will also, in 2021, look to build on the momentum from 2020 in categories including golf, athletic apparel, footwear, team sports, and fitness.
“In 2020, our golf business across both Dick’s and Golf Galaxy was tremendous,” Hobart said, “As the country’s largest golf retailer, we are very well-positioned to capitalize on increased participation and other favorable trends.” Investments in 2021 including adding more TrackMan 4 Simulator fitting bays to stores. Its Golf Galaxy location will also enable online booking of lessons and club fittings and upgrade store talent.
100 Additional Full-Service Footwear Decks Planned
In athletic apparel and footwear, a continued emphasis on complete head-to-toe looks is planned to build on the categories’ momentum in 2021. As part of this, Dick’s will convert over 100 additional stores to premium full-service footwear, bringing full-service decks to over 60 percent of Dick’s chain. Hobart said, “We believe that these enhancements, with strong consumer trends and improving allocations of the most in-demand styles, will drive continued positive results in our athletic apparel and footwear business.”
Finally, the team sports business is expected to provide “a nice tailwind” during 2021 as kids return to organized sports after canceled seasons in 2020. Dick’s also plans to re-conceptualize its approach to the soccer category after postponing the initiative in 2020 due to COVID-19. Said Hobart, “We will follow the same playbook we used to attack the baseball category in 2019 centered around more premium products, enhanced store experiences and exceptional service.”
Beyond merchandising, Dick’s will further look to improve omnichannel offerings in 2021. Curbside pickup was introduced last March and enhanced through the year to drive the 100 percent hike in online sales in 2020.
Curbside pickup with fewer promotions and logistics costs drove “significant improvements” in online profitability in 2020. Curbside is expected to remain a “meaningful piece” of Dick’s omnichannel offering as customers look for speed and convenience of service. Leading with mobile will be another priority for 2021 as in 2020, it represented over 50 percent of online sales. Shortening the purchase path, reducing delivery times and achieving a “more integrated loyalty experience” are other priorities online.
Hobart said the “the key to our omnichannel offering” is its Scorecard loyalty program, which drove over 70 percent of total sales in 2020. Dick’s will continue to use metrics to leverage its extensive customer database to drive more personalized, one-on-one marketing to increase loyalty among its 8.5 million new customers acquired in 2020.
Dick’s plans to open its first experiential prototype store, Dick’s House Of Sport, next week in Rochester, NY, focusing on service and community. The store will feature an outdoor field to host sporting events and for product trials, a rock climbing wall and health and wellness for indoor programming. Hobart added, “It will serve as a test and learn center, and we will roll out the most successful elements into our core Dick’s stores.”
Hobart concluded, “As I look at our business, we are in a great position. Our brick & mortar stores and our technology platforms work seamlessly together to deliver an industry-leading omnichannel experience. We have world-class vertical brands, and our vendor relationships with key partners have never been stronger. We’ve become more athlete-centric, focusing on friendly, knowledgeable and available service. Importantly, we have a respected and loved brand and are aligned behind our common purpose to create confidence and excitement by personally equipping all athletes to achieve their dreams. In closing, we’re extremely pleased with our Q4 and 2020 results and look forward to building on this success in 2021.”
Photos courtesy Dick’s Sporting Goods
