A month has gone by since the last earnings report for Dick's Sporting Goods (DKS). Shares have added about 0.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dick's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
DICK'S Sporting Tops on Q2 Earnings & Sales, Raises View
DICK'S Sporting Goods posted better-than-expected second-quarter fiscal 2022 top and bottom lines. However, earnings and sales declined year over year. On a two-year basis, DKS witnessed 38% sales growth, driven by strength in its core strategies. The company is also gaining from the favorable shift in consumer behavior to a healthy lifestyle. Also, the company has been benefiting from its structural transformation in recent years.
Adjusted earnings were $3.68 per share in the fiscal second quarter, down 27.6% from the prior-year figure of $5.08. The decline can be attributed to lower sales, dismal gross margins and higher operating expenses in the reported quarter. However, adjusted earnings beat the Zacks Consensus Estimate of $3.53 per share.
Net sales of $3,112.4 million declined 5% year over year but surpassed the Zacks Consensus Estimate of $3,074 million. However, net sales advanced 38% from second-quarter fiscal 2019, driven by strength in its core strategies.
Consolidated comparable store sales (comps) declined 5.1% from comps growth of 20.2% in the year-ago quarter. However, comps for the quarter reflected a sequential improvement from the first quarter of fiscal 2022. In the fiscal second quarter, transactions declined 8.4%, while the average ticket rose 3.3%. Also, comps improved 40% on a 2-year stack basis in the fiscal second quarter.
The gross margin contracted 388 basis points (bps) year over year to 36.03% in the fiscal second quarter due to a decline in merchandise margin rate from last year, higher supply-chain-related costs and deleverage in fixed occupancy costs. The merchandise margin rate declined 197 bps year over year in the fiscal second quarter.
However, the company’s merchandise margin rate improved 439 bps from the second-quarter fiscal 2019 level on differentiated product assortments, disciplined pricing strategies and a favorable product mix. The company’s favorable product mix was a result of its shift to higher-margin categories, including the reduction of its exposure to the hunting business. The hunt business had margins of 1,700 bps below the company average in 2019.
In the fiscal second quarter, the SG&A expense rate of 21.12% increased 157 bps year over year due to lower sales. SG&A expenses, in dollar terms, increased 2.7% to $657.4 million, driven by continued investment in hourly wage rates and talent to support its growth strategies.
DICK’S Sporting ended the fiscal second quarter with cash and cash equivalents of $1,895.5 million, and no borrowings under the $1.6-billion revolving credit. Total inventory improved 49% year over year to $2,996 million as of Jul 30, 2022.
In the reported quarter, net capital expenditure amounted to $84.5 million. The company paid out dividends of $36.9 million and repurchased 3.9 million shares for $319 million at an average price of $80.84.
DICK’S Sporting projects capital expenditure of $400-$425 million on a gross basis and $340-$365 million on a net basis for fiscal 2022.
On Aug 22, DICK’s Sporting declared a quarterly dividend of 48.75 cents per share on common stock and Class B common stock, which is payable on Sep 30 to its shareholders of record as of Sep 9.
Management remains confident about the strength of its core strategies, which have been aiding DICK’S Sporting’s quarterly performances. It notes that DKS’ inventory is healthy and well-positioned, with improved in-stock levels in key categories at the end of the fiscal second quarter. It expects to benefit from its assortments for the back-to-school season.
As a result of its robust first half fiscal 2022 performance and improved inventory position for the back-to-school season, the company raised the guidance for fiscal 2022. However, the company remains cautious of the macroeconomic environment and the dynamic global supply chain.
For fiscal 2022, the company expects comps between negative 6% and negative 2% compared with the negative 8% to negative 2% stated earlier. It envisions adjusted earnings of $10.00-$12.00 per share versus the prior mentioned $9.15-$11.70. The adjusted earnings view assumes 88 million shares outstanding as of fiscal 2022. The earnings guidance is based on an effective tax rate of 24%.
The company anticipates GAAP earnings per share of $8.85-$10.55 for fiscal 2022 compared with the $7.95-$10.15 mentioned earlier. The revised view assumes shares outstanding of 102 million shares as of fiscal 2022. The company’s GAAP earnings view does not include share repurchases beyond the $360 million repurchased in the first half of fiscal 2022.
The company expects an EBT (pre-tax income) margin of 10.7%, at the mid-point, for fiscal 2022, suggesting double the 2019 rate. Going forward, the company expects the merchandise margin rate to be meaningfully higher than pre-COVID levels on an annual basis.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 7.93% due to these changes.
Currently, Dick's has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Dick's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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DICK'S Sporting Goods, Inc. (DKS): Free Stock Analysis Report
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