Dick's Sporting Goods reported adjusted earnings per share rose 10 percent in the third quarter, coming in at the lower end of its guidance. Same-store sales inched up 0.4 percent. The retailer also lowered its EPS and same-store guidance for the year, including forecasting a decline in profits in the fourth quarter..
Third Quarter Results
The company reported consolidated net income for the third quarter ended Oct. 31, 2015 of $47.2 million, or $0.41 per diluted share. The company reported consolidated net income for the third quarter ended Nov. 1, 2014 of $49.2 million, or 41 cents per diluted share. Excluding a litigation settlement charge in the current year, net income was $51.9 million, or 45 cents per diluted share compared to the company's expectations provided on August 18, 2015 of 45 to 48 cents per diluted share.
Net sales for the third quarter of 2015 increased 7.6 percent to approximately $1.6 billion. Consolidated same store sales increased 0.4 percent, compared to the company's guidance of an increase of 1 to 3 percent. Same store sales for Dick's Sporting Goods increased 0.7 percent, while Golf Galaxy decreased 2.9 percent. Third quarter 2014 consolidated same store sales increased 1.1 percent.
Under its previous guidance, the company had expected comp gains in the range of 1 to 3 percent in the third quarter.
"Our positive same store sales for the quarter reflected a strong back-to-school selling season tempered by slowing trends later in the quarter. Strength in athletic footwear, accessories and athletic apparel was moderated by the impact of record warm weather in more seasonal categories," said Edward W. Stack, Chairman and CEO. "With strong operational discipline, we generated earnings per share within our guided range."
Stack continued, "As we look to the fourth quarter, we anticipate a more promotional environment. Our focus will be to actively manage our inventory levels, while continuing to take the appropriate actions to win share and strengthen our business for the long term."
Omni-channel Development
eCommerce penetration for the third quarter of 2015 was 8.0 percent of total net sales, compared to 7.3 percent during the third quarter of 2014.
In the third quarter, the company opened 27 new Dick's Sporting Goods stores and seven new Field & Stream stores. The company also relocated five Dick's Sporting Goods stores and remodeled two Dick's Sporting Goods stores. Additionally, the company closed one Dick's Sporting Goods store. As of Oct. 31, 2015, the company operated 645 Dick's Sporting Goods stores in 47 states, with approximately 34.4 million square feet, 75 Golf Galaxy stores in 29 states, with approximately 1.4 million square feet, and 19 Field & Stream stores in nine states, with approximately 1.0 million square feet.
In the beginning of the fourth quarter, the company opened one new Dick's Sporting Goods store and relocated one Dick's Sporting Goods store, completing its 2015 store development program.
During fiscal 2015, the company opened a total of 44 new Dick's Sporting Goods stores and nine new Field & Stream stores. The company also relocated seven Dick's Sporting Goods stores and one Golf Galaxy store and remodeled two Dick's Sporting Goods stores. Additionally, the company closed one Dick's Sporting Goods store and three Golf Galaxy stores.
Balance Sheet
The company ended the third quarter of 2015 with approximately $74 million in cash and cash equivalents and approximately $342 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 $360 million to shareholders through share repurchases and quarterly dividends. The company expects to end fiscal 2015 with no outstanding borrowings under the revolving credit facility.
Total inventory increased 13.1 percent at the end of the third quarter of 2015 as compared to the end of the third quarter of 2014. The company is working with its vendors to reduce its exposure to slow-selling merchandise by returning product, canceling orders and securing markdown allowances.
Year-to-Date Results
The company reported consolidated net income for the 39 weeks ended Oct. 31, 2015 of $201.4 million, or $1.71 per diluted share. For the 39 weeks ended Nov. 1, 2014, the company reported consolidated net income of $188.7 million, or $1.55 per diluted share.
The company reported consolidated non-GAAP net income for the 39 weeks ended Oct. 31, 2015 of $206.1 million, or $1.75 per diluted share. For the 39 weeks ended Nov. 1, 2014, the company reported consolidated non-GAAP net income of $192.2 million, or a $1.58 per diluted share. The GAAP to non-GAAP reconciliations are included in a table later in the release under the heading "Non-GAAP Net Income and Earnings Per Share Reconciliations."
Net sales for the 39 weeks ended Oct. 31, 2015 increased 8.1 percent from last year's period to approximately $5.0 billion, reflecting the opening of new stores and a 0.9 percent increase in consolidated same store sales.
Capital Allocation
During the third quarter of 2015, the company repurchased approximately 3.2 million shares of its common stock at an average cost of $46.93 per share, for a total cost of $150 million. During the current fiscal year, the company has repurchased approximately 5.8 million shares of its common stock at an average cost of $51.51 per share, for a total cost of $300 million. Since starting its $1 billion share repurchase authorization at the beginning of fiscal 2013, the company has repurchased over $755 million of common stock, and has approximately $245 million remaining under the authorization.
On Nov. 12, 2015, the company's Board of Directors authorized and declared a quarterly dividend in the amount of $0.1375 per share on the company's Common Stock and Class B Common Stock. The dividend is payable in cash on December 31, 2015 to stockholders of record at the close of business on December 11, 2015.
Current 2015 Outlook
The company's current outlook for 2015 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 2015
Based on an estimated 117 million diluted shares outstanding, the company currently anticipates reporting consolidated non-GAAP earnings per diluted share in the range of $2.85 to 3.00, excluding a litigation settlement charge. The company's consolidated earnings per diluted share guidance contemplates the $300 million of share repurchases executed in 2015. For the 52 weeks ended January 31, 2015, the company reported consolidated earnings per diluted share of $2.84. Consolidated non-GAAP earnings per diluted share for the 52 weeks ended January 31, 2015 were $2.87, excluding a gain on the sale of an asset and golf restructuring charges.
Consolidated same store sales are currently expected to be approximately flat to an increase of 1 percent, compared to a 2.4 percent increase in fiscal 2014.
Previously, Dick's SG had expected earnings in the range of $3.13 to 3.21 for the year. Same-store sales were projected to rise between 1 and 3 percent.
Fourth Quarter 2015
Based on an estimated 115 million diluted shares outstanding, the company currently anticipates reporting consolidated earnings per diluted share in the range of $1.10 to 1.25 in the fourth quarter of 2015, compared to consolidated earnings per diluted share of $1.30 in the fourth quarter of 2014.
Consolidated same store sales are currently expected to be in the range of negative 2.0 percent to positive 1.0 percent in the fourth quarter of 2015, as compared to a 3.4 percent increase in the fourth quarter of 2014.
Capital Expenditures
In 2015, the company anticipates capital expenditures to be approximately $245 million on a net basis and approximately $365 million on a gross basis. In 2014, capital expenditures were $247 million on a net basis and $349 million on a gross basis.
As of Oct. 31, 2015, the company operated 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.
