It has been about a month since the last earnings report for Dick's Sporting Goods (DKS). Shares have added about 5.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.
DICK'S Sporting's Q3 Earnings Beat & FY24 View Raised
DICK'S Sporting posted impressive third-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While earnings declined year over year, sales improved from the prior year.
Adjusted EPS was $2.75, down 4% from the year-ago figure of $2.85. Also, the metric beat the Zacks Consensus Estimate for earnings of $2.68.
DKS’ Quarterly Performance: Key Metrics & Insights
Net sales of $3.06 billion improved 0.5% year over year and surpassed the consensus estimate of $3.02 billion. The upside was driven by robust comps and healthy transaction growth.
Consolidated comps grew 4.2% year over year. Our model estimated comps to grow by 1%. The upside was driven by its four strategic pillars, including an omnichannel athlete experience, a differentiated product assortment, deep engagement with the DICK'S brand and knowledgeable, passionate teammates who provide exceptional service.
DKS Records Higher Margins & Expenses
Gross profit rose 3% year over year to $1.09 billion and surpassed our estimate of $1.04 billion. Meanwhile, the gross margin expanded 67 basis points (bps) year over year to 35.8%. This growth was primarily driven by an 84-bps improvement in merchandise margin due to a favorable sales mix and the quality of the assortment. These gains were partially offset by expected deleverage on occupancy costs resulting from the total sales caused by the calendar shift.
The adjusted SG&A expense rate of 25.8% fell 935 bps year over year. Adjusted SG&A expenses, in dollar terms, decreased 26.3% to $787.2 million, and was higher than our estimate of $736.9 million.
DKS’ Financial Health Snapshot
DICK’S Sporting ended the fiscal third quarter with cash and cash equivalents of $1.5 billion and no outstanding borrowings under the revolving credit facility. It had a total debt of $1.5 billion as of Nov. 2, 2024. Total inventory rose 13% year over year to $3.7 billion.
The company repurchased 0.8 million shares under its share repurchase program for $170.3 million in the 39 weeks ended Nov. 2, 2024. It had $609.3 million remaining under its authorization as of the same date. It paid quarterly dividends of $273 million in the 39 weeks ended Nov. 2, 2024.
What to Expect From DKS in FY24?
Management now expects comps growth to be 3.6-4.2% compared with the prior-expected growth of 2.5-3.5%. It now expects net sales to be $13.2-$13.3 billion compared with $13.1-$13.2 billion mentioned earlier.
DKS envisions adjusted earnings to be $13.65-$13.95 per share compared with the earlier guided $13.55-$13.90 per share. The adjusted EPS view assumes 83 million shares outstanding as of fiscal 2024. Also, the company’s effective tax rate is expected to be around 23%.
Management forecasts the gross margin to grow year over year. EBT margin is likely to be 11.2% at the midpoint. It expects modest deleveraged adjusted SG&A expenses year over year, thanks to strategic investments to aid growth in the long haul. DICK’S envisions pre-opening expenses for the fourth quarter of 2024 to be moderately higher than the last year, led by the timing and mix of its store openings.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Dick's has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dick's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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