DICK'S Sporting Goods Inc.DKS has been continuing its growth trajectory with successful expansion of its omni-channel network, powerful marketing and merchandising strategies, as evident from the fourth-quarter financial results, reported yesterday.
The company's consolidated earnings of $1.30 per share for the fourth quarter of fiscal 2014 not only surpassed management's earlier prediction of $1.18-$1.28 and the Zacks Consensus Estimate of $1.22, but also increased 17.1% from the year-ago quarter.
Quarter in Detail
Total sales grew 10.9% to $2,160 million in the quarter, primarily driven by store openings, increased eCommerce business and improved consolidated comparable-store sales (comps) performance. Total revenue of this Zacks Rank #3 (Hold) company beat the Zacks Consensus Estimate of $2,115 million.
The company's consolidated comps increased 3.4%, compared with a 7.3% rise in the prior-year period, which was higher than its guidance range of 1%-3%. The increase was driven by rise in both ticket and traffic.
Comps at DICK'S Sporting Goods stores increased 3.8%, while comps at Golf Galaxy stores declined 7.1%. Excluding golf and hunting businesses, the company's comps jumped 6% during the quarter on the back of strong performance at other owing to its merchandizing and space allocation strategies. The year-over-year rise in comps at DICK'S Sporting Goods stores was primarily attributable to increase in most categories of apparel, footwear and hard lines.
Driven by the growth of its omni-channel network, DICK'S Sporting's eCommerce business constituted 14.4% of the total sales in the reported quarter, compared with 12.2% in the year-ago quarter.
Gross profit in the reported quarter came in at $691.3 million, up 19.3% year over year. However, gross margin contracted 25 basis points (bps) to 32%, primarily due to a 64 bps reduction in merchandise margin, higher shipping costs owing to a rise in eCommerce sales and increased promotional levels, offset by favorable occupancy leverage.
Operating income for the quarter rose 12.3% year over year to $250.5 million while operating margin expanded 15 bps to 11.6%. The improvement in operating margin was primarily due to lower administrative and payroll expenses, as a percentage of sales, offset by gross margin contraction.
Fiscal 2014, in Brief
DICK'S Sporting reported net sales of $6,814.5 million for fiscal 2014, up 9.7% year over year and ahead of the Zacks Consensus Estimate of $6,771 million. Comps for the year increased 2.4%. Adjusted earnings per share increased 6.7% to $2.87 and were ahead of the Zacks Consensus estimate of $2.79 per share.
DICK'S Sporting ended fiscal 2014 with cash and cash equivalents of $221.7 million and shareholders' equity of $1,832.2 million. At fiscal year-end, the company had nearly $500 million as outstanding borrowings under its revolving credit facility.
During fiscal 2014, DICK'S Sporting generated cash flow of $606 million from operational activities. Total inventory at the fiscal year-end grew 12.9% on a year-over-year basis, while net capital expenditure for the year totaled to nearly $349 million. During fiscal 2014, the company invested its capital in omni-channel growth and returned over $260 million to shareholders in the form of dividends and share repurchases.
Dividend & Share Repurchases
DICK'S Sporting has always created value for its shareholders by returning capital in the form of dividends and share repurchases. To boost shareholder wealth, the company, on Feb 18, declared a quarterly dividend of 13.75 cents per share on its Common Stock and Class B Common Stock. This will be paid on Mar 31 to shareholders of record as of Mar 13.
During fiscal 2014, DICK'S Sporting repurchased about 4.3 million shares for a total sum of $200 million. Since the announcement of its $1.0 billion share repurchase program in Mar 2013, the company has repurchased over $455 million worth of its common stock and has about $545 million remaining under its authorization.
In the reported quarter, DICK'S Sporting opened 6 namesake stores and closed 6 Golf Galaxy stores. This brought the total store count as of Jan 31, 2015, to 603 DICK'S Sporting Goods stores across 46 states, 78 Golf Galaxy stores in 29 states and 10 Field & Stream stores in five states.
For fiscal 2015, the company projects earnings per share of $3.10-$3.20. The guidance assumes shares outstanding in the range of 119-120 million and expectations to repurchase about $100-$200 million worth of shares. Comps for fiscal 2015 are expected to grow in the range of 1%-3%, compared with a 2.4% increase in fiscal 2014.
For fiscal 2015, the company continues to anticipate capital expenditure of $365 million on a gross basis and $245 million on a net basis. Further, during the fiscal year, the company plans to open about 45 DICK'S Sporting Goods stores and nearly 9 Field & Stream stores. The company also expects to relocate 9 namesake and 1 Golf Galaxy stores.
Further, management remains positive about first-quarter fiscal 2015, anticipating earnings per share in the range of 49-53 cents, with estimated shares outstanding of 120 million. Comps for the first quarter are expected to remain flat or increase by 2%.
During the first quarter, the company plans to open about 9 DICK'S Sporting Goods stores and 1 Field & Stream store. At the same time, it expects to relocate 1 each of DICK'S Sporting Goods and Golf Galaxy stores.
Other Stocks to Consider
Better-ranked stocks in the same industry include Marinemax Inc. HZO , Build-A-Bear Workshop Inc. BBW and Tractor Supply Company TSCO . While Marinemax and Build-A-Bear sport a Zacks Rank #1 (Strong Buy), Tractor Supply holds a Zacks Rank #2 (Buy).
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