Dick’s Sporting Goods Misses Street In Q3, Profits Decline

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Dick's Sporting Goods
Courtesy photo

The third quarter continues to be a challenged one for companies in the footwear-and-apparel space.

Dick’s Sporting Goods’ share price has been in the red — down 17.5 percent at press time — since the company revealed its lower-than-expected Q3 earnings before the market open Tuesday.

The sporting-goods retailer posted diluted earnings per share of 45 cents, missing Wall Street’s average bet of 47 cents per share. Meanwhile, it’s profits decreased 4.1 percent year-over-year. (Reported diluted EPS were 41 cents per share).

Comparable store sales were also a source of disappointment for investors. Dick’s posted comp growth of 0.4 percent — well below forecasts for 2 percent comp gains.

Overall, we were very pleased with our performance across important categories such as athletic apparel, athletic footwear and accessories. At the conclusion of back-to-school our comps were running at the higher end of our guidance,” explained Dick’s Chairman and CEO Edward Stack. “However, as the quarter progressed, record warm weather across the majority of our markets negatively impacted sales and traffic. This impact was notable in the critical cold weather categories. The outdoor category comped relatively flat in the quarter.”

Dick’s struggling golf business, Stack said, continued to show meaningful improvement — decreasing 2.9 percent, compared to last-years decline of 8.9 percent.

“During the quarter our golf margins expanded over 200 basis points compared to last year as both golf apparel and equipment comped positive on a consolidated basis,” the CEO said.

Looking ahead, Stack said he anticipates ongoing inventory issues stemming from unseasonable weather. (Inventory was up 13 percent in Q3).

The firm, which has been engaging in aggressive door expansion this year, opened 27 stores in the quarter — the largest number per quarter in 2015.

Net Income: Net income, for the third quarter ending Oct. 31, 2015, totaled $47.2 million, a 4.1 percent decline from the comparable quarter’s earnings of $49.2 million.

EPS: Reported diluted EPS remained flat year-over-year at 41 cents per share.

Net Revenue: Net sales increased 7.6 percent to $1.6 billion, from $1.5 billion in the same year-ago quarter.

Adjustments: Excluding a litigation settlement charge in the current year, net income was $51.9 million, or 45 cents per diluted share.

Hit, Miss or Beat: Dick’s missed Wall Street’s estimates for the third quarter. Analysts polled by Yahoo Finance had predicted EPS of 47 cents and revenues of $1.64 billion.

Executive Insights: “[Regarding] the fourth quarter, we’re off to a slow start as the continuation of unseasonably warm weather across the majority of our markets is putting pressure on sales and traffic. This is obviously affecting our inventory levels, which are higher than we’d planned. To address this situation, we’re working with key vendors to return slow-moving product as well as canceling some orders. We are also developing markdown strategies and securing markdown allowances. We expect a more promotional holiday season that will create additional margin pressure.” — Stack during Q3 conference call

Looking Ahead: The company reduced full-year guidance. Dick’s now expects non-GAAP earnings per diluted share in the range of $2.85 to $3. Same-store sales are forecast to be approximately flat to an increase of 1 percent. Gross margin is expected to decrease, primarily driven by occupancy deleverage, increased shipping expense as a percent of sales due to the growth of the firm’s e-commerce business and lower merchandise margin.

Analyst Insights: “Comp growth of 0.4 percent was below our 2 percent estimate, as strength in athletic footwear, accessories and athletic apparel was mitigated by weak performance in seasonal categories due to the unseasonably warm weather… Comp growth was driven by e-commerce (up 18 percent) as weak store traffic continues to put pressure on store comps.”— Camilo Lyon, Canaccord Genuity Inc. analyst

“We believe that slow selling cold weather product contributed to the 13 percent increase in inventory as compared to an 8 percent increase in revenue. Dick’s has the scale to successfully push back on its vendors.” — Sam Poser, Sterne Agee CRT analyst

“We expect that the difficult comp numbers, coupled with reduced full-year guidance and comments around a more promotional environment will weigh on Dick’s stock in the near term.”— Kate McShane, Citi Research analyst