Earnings Release
DICK’S Sporting Goods Reports Second Quarter Results; Exceeds Earnings Expectations and Raises Full Year Guidance
DICK’S Sporting Goods, Inc. (DKS), the largest U.S. based full-line omni-channel sporting goods retailer, today reported sales and earnings results for the second quarter ended July 30, 2016.
Second Quarter Results
The Company reported consolidated net income for the second quarter ended July 30, 2016 of $91.4 million, or $0.82 per diluted share, compared to the Company’s expectations provided on May 19, 2016 of $0.62 to 0.72 per diluted share. For the second quarter ended August 1, 2015, the Company reported consolidated net income of $90.8 million, or $0.77 per diluted share.
Net sales for the second quarter of 2016 increased 7.9% to approximately $2.0 billion. Consolidated same store sales increased 2.8%, compared to the Company’s guidance of negative 4.0% to negative 1.0%. Same store sales for DICK’S Sporting Goods increased 3.0%, while Golf Galaxy decreased 4.3%. Second quarter 2015 consolidated same store sales increased 1.2%.
"We are pleased with our second quarter results, particularly in light of the liquidation activity in the market," said Edward W. Stack, Chairman and CEO. "Looking ahead, we are focused on capturing the displaced market share and remain confident in our ability to strengthen our leadership position."
Omni-channel Development
eCommerce penetration for the second quarter of 2016 was 8.5% of total net sales, compared to 7.3% during the second quarter of 2015.
In the second quarter, the Company opened five new DICK’S Sporting Goods stores. The Company also relocated two DICK’S Sporting Goods stores. Additionally, the Company closed three DICK’S Sporting Goods stores and one Golf Galaxy store. As of July 30, 2016, the Company operated 649 DICK’S Sporting Goods stores in 47 states, with approximately 34.6 million square feet, 72 Golf Galaxy stores in 29 states, with approximately 1.3 million square feet, and 21 Field & Stream stores in ten states, with approximately 1.1 million square feet.
Store count, square footage and new stores are listed in a table later in the release under the heading "Store Count and Square Footage."
Balance Sheet
The Company ended the second quarter of 2016 with approximately $112 million in cash and cash equivalents and approximately $152 million in outstanding borrowings under its revolving credit facility. Over the course of the last 12 months, the Company continued to invest in omni-channel growth, while returning over $380 million to shareholders through share repurchases and quarterly dividends.
Total inventory increased 6.2% at the end of the second quarter of 2016 as compared to the end of the second quarter of 2015. This increase includes the impact of cold-weather merchandise from fiscal 2015 being held for the 2016 winter season.
Year-to-Date Results
The Company reported consolidated net income for the 26 weeks ended July 30, 2016 of $148.3 million, or $1.32 per diluted share. For the 26 weeks ended August 1, 2015, the Company reported consolidated net income of $154.2 million, or $1.30 per diluted share.
Net sales for the 26 weeks ended July 30, 2016 increased 7.1% from last year’s period to approximately $3.6 billion, reflecting the growth of our store network and a 1.7% increase in consolidated same store sales.
Capital Allocation
On August 11, 2016, the Company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.15125 per share on the Company’s Common Stock and Class B Common Stock. The dividend is payable in cash on September 30, 2016 to stockholders of record at the close of business on September 9, 2016.
During the second quarter of 2016, the Company repurchased approximately 1.3 million shares of its common stock at an average cost of $42.60 per share, for a total cost of $57 million. During the current fiscal year, the Company has repurchased approximately 2.4 million shares of its common stock at an average cost of $44.47 per share, for a total cost of $107 million. Since the beginning of fiscal 2013, the Company has repurchased approximately $920 million of its common stock, and has approximately $1.1 billion remaining under its authorizations that extend through 2021.
Current 2016 Outlook
The Company’s current outlook for 2016 is based on current expectations and includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as described later in this release. Although the Company believes that the expectations and other comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations or comments will prove to be correct.
-- Full Year 2016
• Based on an estimated 111 to 112 million diluted shares outstanding, the Company currently anticipates reporting consolidated earnings per diluted share in the range of $2.90 to 3.05, excluding costs the Company expects to incur to convert former The Sports Authority ("TSA") stores to DICK’S Sporting Goods stores. These costs will be known once the Company determines which TSA store leases it will retain or reject. The Company’s consolidated earnings per diluted share guidance includes the expectation of approximately $100 to 200 million of share repurchases in 2016. The Company reported consolidated earnings per diluted share of $2.83 for the 52 weeks ended January 30, 2016. On a non-GAAP basis, the Company reported consolidated earnings per diluted share of $2.87, excluding a litigation settlement charge, for the 52 weeks ended January 30, 2016.
• Consolidated same store sales are currently expected to increase approximately 2 to 3%, compared to a 0.2% decrease in fiscal 2015.
• The Company expects to open approximately 36 new DICK’S Sporting Goods stores and relocate approximately nine DICK’S Sporting Goods stores in 2016. The Company also expects to open approximately nine new Field & Stream stores and two new Golf Galaxy stores in 2016, largely adjacent to new or relocated DICK’S Sporting Goods stores.
-- Third Quarter 2016
• Based on an estimated 111 million diluted shares outstanding, the Company currently anticipates reporting consolidated earnings per diluted share in the range of $0.39 to 0.42 in the third quarter of 2016, excluding costs the Company expects to incur to convert former TSA stores to DICK’S Sporting Goods stores. These costs will be known once the Company determines which TSA store leases it will retain or reject. This is compared to consolidated earnings per diluted share of $0.41 in the third quarter of 2015. On a non-GAAP basis, the Company reported consolidated earnings per diluted share of $0.45, excluding a litigation settlement charge, for the 13 weeks ended October 31, 2015.
• Consolidated same store sales are currently expected to increase approximately 2 to 3% in the third quarter of 2016, as compared to a 0.4% increase in the third quarter of 2015.
• The Company expects to open approximately 25 new DICK’S Sporting Goods stores and relocate four DICK’S Sporting Goods stores in the third quarter of 2016. The Company also expects to open approximately seven new Field & Stream stores and two new Golf Galaxy stores in the third quarter of 2016, largely adjacent to new or relocated DICK’S Sporting Goods stores.
-- Capital Expenditures
• In 2016, the Company anticipates capital expenditures to be approximately $275 million on a net basis and approximately $450 million on a gross basis. In 2015, capital expenditures were $204 million on a net basis and $370 million on a gross basis.
Conference Call Info
The Company will host a conference call today at 10:00 a.m. Eastern Time to discuss the second quarter results. Investors will have the opportunity to listen to the earnings conference call over the internet through the Company’s website located at investors.DICKS.com. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software.
In addition to the webcast, the call can be accessed by dialing (877) 443-5743 (domestic callers) or (412) 902-6617 (international callers) and requesting the "DICK’S Sporting Goods Earnings Call."
For those who cannot listen to the live webcast, it will be archived on the Company’s website for approximately 30 days. In addition, a dial-in replay of the call will be available. To listen to the replay, investors should dial (877) 344-7529 (domestic callers) or (412) 317-0088 (international callers) and enter confirmation code 10090075. The dial-in replay will be available for approximately 30 days following the live call.
Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties
This release contains forward-looking statements within the meaning of the securities laws. These forward-looking statements are subject to risks and uncertainties and change based on various important factors, many of which may be beyond our control. Our future performance and actual results may differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements should not be relied upon by investors as a prediction of actual results. Forward-looking statements include statements regarding, among other things, the Company’s future performance, capturing market share, strengthening the Company’s leadership position, capital expenditures, outstanding borrowings in future periods and share repurchases.
Factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements include, but are not limited to: impact of recent liquidation sales on customer demand; the weather; changes in consumer discretionary spending; our development of an eCommerce platform; success of our transition to our own eCommerce platform; inventory turn; changes in the competitive market and competition amongst retailers; changes in consumer demand or shopping patterns and our ability to identify new trends and have the right trending products in our stores and on our website; limitations on the availability of attractive retail store sites; omni-channel growth; unauthorized disclosure of sensitive or confidential customer information; risks relating to our private brand offerings and new retail concepts; disruptions with our eCommerce service provider or our information systems; factors affecting our vendors, including supply chain and currency risks; talent needs and the loss of Edward W. Stack, our Chairman and Chief Executive Officer; disruptions of our information systems; developments with sports leagues, professional athletes or sports superstars; weather-related disruptions and seasonality of our business; and risks associated with being a controlled company.
For additional information on these and other factors that could affect our actual results, see our risk factors, which may be amended from time to time, set forth in our filings with the SEC, including our most recent Annual Report filed with the Securities and Exchange Commission on March 25, 2016. The Company disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation. Forward-looking statements included in this release are made as of the date of this release.
About DICK’S Sporting Goods, Inc.
Founded in 1948, DICK’S Sporting Goods, Inc. is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. As of July 30, 2016, the Company operated more than 645 DICK’S Sporting Goods locations across the United States, serving and inspiring athletes and outdoor enthusiasts to achieve their personal best through a blend of dedicated associates, in-store services and unique specialty shop-in-shops dedicated to Team Sports, Athletic Apparel, Golf, Lodge/Outdoor, Fitness and Footwear.
Headquartered in Pittsburgh, PA, DICK’S also owns and operates Golf Galaxy, Field & Stream, True Runner and Chelsea Collective specialty stores. DICK’S offers its products through a content-rich eCommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront. For more information, visit the Press Room or Investor Relations pages at DICKS.com.
Contacts: Investor Relations: Nate Gilch, Director of Investor Relations DICK’S Sporting Goods, Inc. investors@dcsg.com (724) 273-3400
Media Relations: (724) 273-5552 or press@dcsg.com
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
July 30,
% of
August 1,
% of
Net sales
$
1,967,857
100.00 %
$
1,822,979
100.00 %
Cost of goods sold, including occupancy and
1,370,479
69.64
1,269,421
69.63
GROSS PROFIT
597,378
30.36
553,558
30.37
Selling, general and administrative expenses
441,721
22.45
395,935
21.72
Pre-opening expenses
8,487
0.43
9,216
0.51
INCOME FROM OPERATIONS
147,170
7.48
148,407
8.14
Interest expense
1,618
0.08
840
0.05
Other (income) expense
(1,930)
(0.10)
153
0.01
INCOME BEFORE INCOME TAXES
147,482
7.49
147,414
8.09
Provision for income taxes
56,065
2.85
56,575
3.10
NET INCOME
$
91,417
4.65
%
$
90,839
4.98
%
EARNINGS PER COMMON SHARE:
WEIGHTED AVERAGE COMMON SHARES
Cash dividend declared per share
$
0.15125
$
0.13750
(1) Column does not add due to rounding
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
July 30,
% of
August 1,
% of
Net sales
$
3,628,200
100.00 %
$
3,388,287
100.00 %
Cost of goods sold, including occupancy and
2,535,025
69.87
2,365,741
69.82
GROSS PROFIT
1,093,175
30.13
1,022,546
30.18
Selling, general and administrative expenses
840,289
23.16
756,671
22.33
Pre-opening expenses
15,006
0.41
15,557
0.46
INCOME FROM OPERATIONS
237,880
6.56
250,318
7.39
Interest expense
2,749
0.08
1,474
0.04
Other income
(3,997)
(0.11)
(1,997)
(0.06)
INCOME BEFORE INCOME TAXES
239,128
6.59
250,841
7.40
Provision for income taxes
90,834
2.50
96,657
2.85
NET INCOME
$
148,294
4.09
%
$
154,184
4.55
%
EARNINGS PER COMMON SHARE:
WEIGHTED AVERAGE COMMON SHARES
Cash dividends declared per share
$
0.3025
$
0.2750
(1) Column does not add due to rounding
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
July 30,
August 1,
January 30,
Cash and cash equivalents
$
112,325
$
123,220
$
118,936
Accounts receivable, net
144,458
106,753
61,395
Income taxes receivable
2,187
4,652
5,432
Inventories, net
1,715,530
1,615,722
1,527,187
Prepaid expenses and other current assets
110,269
99,882
99,740
Total current assets
2,084,769
1,950,229
1,812,690
Property and equipment, net
1,475,797
1,297,302
1,347,885
Intangible assets, net
130,062
108,240
109,440
Goodwill
200,594
200,594
200,594
Deferred income taxes
4,805
10,273
6,165
Total other assets
96,444
82,726
88,727
TOTAL ASSETS
$
3,987,666
$
3,639,091
$
3,559,336
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
790,217
$
783,722
$
677,864
Accrued expenses
359,607
336,597
289,001
Deferred revenue and other liabilities
153,926
142,083
184,386
Income taxes payable
11,249
19,131
39,835
Current portion of other long-term debt and leasing
612
560
589
Total current liabilities
1,315,611
1,282,093
1,191,675
Revolving credit borrowings
152,000
--
--
Other long-term debt and leasing obligations
5,013
5,627
5,324
Deferred income taxes
14,486
--
6,454
Deferred revenue and other liabilities
670,956
517,873
566,696
Total long-term liabilities
842,455
523,500
578,474
COMMITMENTS AND CONTINGENCIES
Class B common stock
249
249
249
Additional paid-in capital
1,097,205
1,045,084
1,063,705
Retained earnings
1,851,064
1,592,803
1,737,214
Accumulated other comprehensive loss
(125)
(109)
(179)
Treasury stock, at cost
(1,119,650)
(805,443)
(1,012,671)
Total stockholders’ equity
1,829,600
1,833,498
1,789,187
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
3,987,666
$
3,639,091
$
3,559,336
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
148,294
$
154,184
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
96,531
90,596
Deferred income taxes
9,392
(1,319)
Stock-based compensation
16,593
14,200
Excess tax benefit from exercise of stock options
(7,698)
(5,842)
Other non-cash items
361
265
Changes in assets and liabilities:
Accounts receivable
(40,765)
(12,659)
Inventories
(188,343)
(224,955)
Prepaid expenses and other assets
(9,162)
(7,977)
Accounts payable
137,362
147,888
Accrued expenses
33,261
9,638
Income taxes payable / receivable
(17,781)
(13,690)
Deferred construction allowances
68,311
75,082
Deferred revenue and other liabilities
(23,427)
(22,372)
Net cash provided by operating activities
222,929
203,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(208,449)
(154,785)
Deposits and purchases of other assets
(23,412)
(406)
Net cash used in investing activities
(231,861)
(155,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving credit borrowings
1,183,000
465,600
Revolving credit repayments
(1,031,000)
(465,600)
Payments on other long-term debt and leasing obligations
(288)
(263)
Construction allowance receipts
--
--
Proceeds from exercise of stock options
15,978
17,870
Excess tax benefit from exercise of stock options
7,698
5,843
Minimum tax withholding requirements
(6,619)
(7,619)
Cash paid for treasury stock
(107,003)
(150,000)
Cash dividends paid to stockholders
(34,490)
(33,425)
(Decrease) increase in bank overdraft
(25,009)
21,323
Net cash provided by (used in) financing activities
2,267
(146,271)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
54
(36)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(6,611)
(98,459)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
118,936
221,679
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
112,325
$
123,220
Store Count and Square Footage
The stores that opened during the second quarter of 2016 are as follows:
Gainesville, FL
Gainesville
DICK’S Sporting Goods
Quincy, IL
Quincy
DICK’S Sporting Goods
Union Gap, WA
Yakima
DICK’S Sporting Goods
Hayward, CA
San Francisco
DICK’S Sporting Goods
Valley Stream, NY
Long Island
DICK’S Sporting Goods
The following represents a reconciliation of beginning and ending stores and square footage for the periods indicated:
DICK’S
Specialty Store
Total
DICK’S
Specialty Store
Total
Sporting
Concepts (1) (2)
Sporting
Concepts (1) (2)
Beginning stores
644
97
741
603
91
694
Ending stores
652
99
751
619
93
712
Ending stores
649
98
747
619
90
709
DICK’S
Specialty Store
Total (3)
(1) In some markets we operate adjacent stores on the same property with a pass-through for customers. We refer to this format as a "combo store". Combo stores are reflected in both the DICK’S Sporting Goods and Specialty Store Concepts reconciliations. As of July 30, 2016, the Company operated five combo stores.
(2) Includes the Company’s Golf Galaxy, Field & Stream, and other specialty concept stores.
(3) Column may not add due to rounding.
Non-GAAP Financial Measures
In addition to reporting the Company’s financial results in accordance with generally accepted accounting principles ("GAAP"), the Company believes that certain non-GAAP financial information provides users of the Company’s financial information with additional useful information in evaluating operating performance between reporting periods. These measures should be viewed as supplementing, and not as an alternative or substitute for, the Company’s financial results prepared in accordance with GAAP. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies. A reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP financial measures are provided below and on the Company’s website at investors.DICKS.com.
Non-GAAP Net Income and Earnings Per Share Reconciliations:
(in thousands, except per share data):
13 Weeks Ended October 31, 2015
As Reported
Litigation
Non-GAAP
Net sales
$
1,642,627
$
--
$
1,642,627
Cost of goods sold, including occupancy and
1,154,251
--
1,154,251
GROSS PROFIT
488,376
--
488,376
Selling, general and administrative expenses
395,015
(7,884)
387,131
Pre-opening expenses
16,280
--
16,280
INCOME FROM OPERATIONS
77,081
7,884
84,965
Interest expense
1,076
--
1,076
Other expense
1,185
--
1,185
INCOME BEFORE INCOME TAXES
74,820
7,884
82,704
Provision for income taxes
27,605
3,154
30,759
NET INCOME
$
47,215
$
4,730
$
51,945
EARNINGS PER COMMON SHARE:
WEIGHTED AVERAGE COMMON SHARES
During the third quarter of 2015, the Company recorded a pre-tax litigation settlement charge of $7.9 million. The provision for income taxes was calculated at 40%, which approximates the Company’s blended tax rate.
52 Weeks Ended January 30, 2016
As Reported
Litigation
Non-GAAP
Net sales
$
7,270,965
$
--
$
7,270,965
Cost of goods sold, including occupancy and
5,088,078
--
5,088,078
GROSS PROFIT
2,182,887
--
2,182,887
Selling, general and administrative expenses
1,613,075
(7,884)
1,605,191
Pre-opening expenses
34,620
--
34,620
INCOME FROM OPERATIONS
535,192
7,884
543,076
Interest expense
4,012
--
4,012
INCOME BEFORE INCOME TAXES
530,875
7,884
538,759
Provision for income taxes
200,484
3,154
203,638
NET INCOME
$
330,391
$
4,730
$
335,121
EARNINGS PER COMMON SHARE:
WEIGHTED AVERAGE COMMON SHARES
During the third quarter of 2015, the Company recorded a pre-tax litigation settlement charge of $7.9 million. The provision for income taxes was calculated at 40%, which approximates the Company’s blended tax rate.
EBITDA is a key metric that provides a measurement of profitability that eliminates the effect of changes resulting from financing decisions, tax regulations and capital investments. EBITDA should not be considered as an alternative to net income or any other generally accepted accounting principles measure of performance or liquidity and may not be comparable to similarly titled measures reported by other companies.
Provision for income taxes
56,065
56,575
Depreciation and amortization
48,541
48,020
Net income
$
148,294
$
154,184
Provision for income taxes
90,834
96,657
Interest expense
2,749
1,474
Depreciation and amortization
96,531
90,596
Reconciliation of Gross Capital Expenditures to Net Capital Expenditures
The following table represents a reconciliation of the Company’s gross capital expenditures to its capital expenditures, net of tenant allowances.
Gross capital expenditures
$
(208,449)
$
(154,785)
Proceeds from sale-leaseback transactions
--
--
Deferred construction allowances
68,311
75,082
Construction allowance receipts
--
--
Net capital expenditures
$
(140,138)
$
(79,703)
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SOURCE DICK’S Sporting Goods, Inc.
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