July 8, 2013
Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated .
Reason for Report: Flash Update: Store Open
Prev. Ed.: Jun 19, 2013, 1Q13 Earnings Update
On Jul 8, 2013 , DICK’S Sporting Goods took another small step in its store expansion plan by announcing the opening a new outlet at Chico Mall in Chico, Calif. Celebrations to mark the store’s opening will begin on Jul 12, and last through the weekend.
MORE DETAILS WILL COME IN THE IMMIMENT EDITIONS OF ZACKS RD REPORTS ON DKS.
Dick's Sporting Goods Inc. (DKS), a sporting goods retailer, together with its subsidiaries, offers sporting goods equipment, apparel, and footwear for men, women, and children.
Of the 22 firms in the Digest group covering the stock, 16 assigned positive ratings and 6 firms rendered neutral ratings, while none of the firms provided a negative rating on the stock.
The following are the summarized opinions of the diverse brokerage viewpoints:
Positive or equivalent (72.7%; 16/22 firms): The firms remain impressed by DKS’ strong quarterly performance characterized by robust same-store sales growth, on the basis of regained strength in sales compared with last year, impressive gross margin and aggressive capital allocation. The company ’s prospects seem bright with expansion in merchandise margin, improvement in earnings outlook and better-than-expected sales trends. Simultaneously, the company is strengthening its e-
C ommerce business with the rollout of DKS’s ship-from-store scheme, driving product availability and improved margins.
Overall, the firms prefer DKS for its health and wellness trends, product innovation and companyspecific sales and margin drivers. The firms believe that the company ’s private label initiatives and more disciplined markdown strategy are expected to help sustain margin expansion over the next several years. Further, the company continues to build a strong vendor relationship, bringing in an element of exclusivity and driving more favorable mix dynamics, shielding the company against online competition. This also drive s incremental sales as DKS continues to roll out its ‘store within a store
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program’ with Nike, Under Armour and The North Face and is developing a Nike micro-site within its e-
Commerce site.
The firms note that Dick’s Sporting is ranked higher in the list of the best performing companies in 2012 based on its favorable sales and margin dynamics for the near and longer term. Primary drivers for the future include leading footage growth potential, acquiring established brands, developing and testing retail concepts, launching e-Commerce technologies and creating new marketing strategies.
Neutral or equivalent (27.3%; 6/22 firms): The firms with a neutral stance believe that Dick's Sporting distinguishes itself with its best-in-class performance, reporting positive comps, while expanding merchandise margins. While the neutrally biased firms remain impressed by the company’s long-term top-line growth and margin expansion opportunities, some of them remain concerned about the company’s inventory, undefined capital allocation and core DKS comps growth.
The firms believe DKS’s competitive position, quality of management, and consistency of earnings growth have justified a premium to industry multiples.
On the flip side, the firms note that a major long-term risk D ick’s Sporting might face is a potential product overlap and a price premium to online competition. Additionally, the firms believe that the stock could be vulnerable to further pressure resulting from deteriorating macroeconomic conditions impacting the entire industry, cannibalization of sales, higher borrowing costs, and the continued risk of promotional pressure in the near future, as the industry consolidates.
June 19, 2013
The firms identified the following factors for evaluating the investment merits of DKS:
Key Positive Arguments Key Negative Arguments

Dick's Sporting is the best specialty concept among largeformat sporting goods’ retailers. The company has a greater mix of high-end merchandise categories, where it seeks to maximize its brand potential.

With scope for growth and apparently no serious near-term threats to its core big box, DKS has the possibility of becoming one of the big growth stories in retailing.
 Dick’s remains well positioned to gain market share as it leverages its big box positioning with key vendors, continues to expand its proprietary product assortments, and maintains its superior presentation.

Option expenses are heavy for DKS and can affect the company negatively.

Dick's Sporting faces increased competition in both sporting goods and mass merchant categories.

Any marked slowdown in the athletic performance apparel market is expected to negatively impact
DKS’ sales trends.

Logistics and distribution are becoming more difficult as the company expands.
Pittsburgh-based Dick's Sporting Goods Inc. is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel, and footwear in a specialty store environment. As of May 4, 2013, the company operated 520 Dick's Sporting Goods stores in 44 states, and 81 Golf Galaxy stores in 30 states. Dick’s also owns e-Commerce websites and catalog operations for Dick's Sporting Goods and Golf Galaxy. Its website is www.dickssportinggoods.com
. The company
’s fiscal year ends on Jan 31.
June 19, 2013
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The firms believe that DKS continues to maintain its position as the best-in-class retailer. Further, the company will experience growth in share price throughout the year due to its strong top line and earnings performance. Based on these, investors are becoming more confident about DKS's ability to accelerate store growth relative to its peers over the next couple of years.
Overall, Dick's Sporting Goods continues to be the finest performer, with strong square footage growth, less exposure to fashion trends than other specialty retailers, and a strong brand offering with Under
Armour, The North Face, and Nike. Significant room for growth exists in several populous states
(relatively a few stores in Calif., Texas, and Fla.). The firms forecast mid-teens square footage growth over the next several years, as Dick’s expands into new markets in the western part of the United
States as well as the existing markets.
Dick’s Sporting drives growth by expanding its store base, strengthening its e-Commerce business, and continuing to develop its margin rate accelerators. On the stores front, the company has initiated a new store growth strategy of expanding into smaller markets. This new strategy provides a range of new expansion opportunities for the company and has led to an alteration of the company’s store growth target in the U.S. to over 1,100 stores from the earlier goal of about 900 stores.
Further, the company is making remarkable progress in its e-Commerce business, where it is on track to implement new capabilities that will improve the profitability of this business.
Latest development in the company’s e-Commerce initiatives is the ship-from-store program, which is progressing well. The firms believe the company’s e-Commerce sales will largely improve from this initiative as it significantly lowers the delivery time.
Looking ahead, the company ’s strategy to drive sustained long-term growth will be based on investing in new stores, consistently building its omni-channel capabilities, boosting margins through inventory management, increasing the prominence of private brands and relentlessly shifting its product mix to higher-margin merchandise categories.
Dick’s Sporting is focusing on achieving 20% margin growth in the next several years. Of late, an excellent product mix and effective inventory management have been the leading contributors to growth in merchandise margins.
In order to augment its private labels and brands portfolio, the company has been continuously looking for lucrative acquisition deals. Earlier this year, it entered into one such deal, agreeing to buy the intellectual property rights to the Field & Stream brand, following the acquisition of Top-Flite brand last year. Longer term, the firms believe these acquisitions would enable the company to achieve its strategic goal of increasing private-brand penetration. Management aims to grow private brands to 20% of sales from the existing 15% of sales in the next three to five years.
The firms believe that DKS is the best long-term growth story in hardlines retail. The company has the opportunity to more than double its current store base. Dick
’s Sporting’s stores feature the best shopping experience in the segment and its relationship with vendors continues to improve. The firms expect DKS to look for additional opportunities to reaccelerate store growth.
June 19, 2013
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Rating Distribution
Positive
Neutral
72.7%

27.3%

Negative
Avg. Target Price
Maximum Target
0.0%
$59.00

$63.00
$57.00

Minimum Target
No. of Analysts with Target Price/Total 17/22
Risks to the target price include inability to identify and obtain appropriate store locations; logistical issues caused by geographic expansion; inability to adapt to changes in consumer tastes; inability to effect ively integrate and operate acquired Golf Galaxy and Chick’s stores; consumer weakness due to macroeconomic factors; relatively high debt levels; competition in the space; logistics and distribution becoming potentially more difficult as the company expands and potentially higher interest rates hurting valuations.
On Jun 14, 2013 , Dick's Sporting announced the addition of a new store in Florida at the Cordova Mall in Pensacola.
Located a t the Cordova Mall, 5100 N 9th Avenue, this will be Dick’s Sporting’s 22nd store in Florida and its 524th store across the country. This latest store’s offerings will include over 40 convenient in-store services carried out by DICK'S certified PROS in Golf, Bike, Hunting, Fishing, Team
Sports and many more. The store will cater to the needs of athletes of all ages in the Pensacola community, enabling them enhance their skills.
On Jun 4, 2013 , Dick's Sporting announced its plans to open a new store at the East Washington
Place in Petaluma, California. The store commenced operations from Jun 7. Located at the new East
Washington Place, 401 Kenilworth Drive, Suite 1030, this store will be Dick’s Sporting’s 28th store in
California and its 523rd store across th e country. This latest store’s offerings will include over 40 convenient in-store services carried out by DICK'S certified PROS in Golf, Bike, Hunting, Fishing, Team
Sports and many more.
On May 21, 2013 , Dick's Sporting Goods reported 1Q13 earnings per share of $0.48 a share, up 6.7% from the year-ago level and in line with the midpoint of the company’s guidance range of $0.47–$0.49 per share. The quarterly earnings also remain in line with the Zacks Consensus Estimate of $0.48 per share. During 1Q13, net sales grew 4.1% to $1,333.7 million, but fell short of the Zacks Consensus
Estimate of $1,368.0 million.
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Provided below is a summary of total revenue as per Zacks Digest:
Revenue ($ M) 1Q12A 4Q12A 1Q13A 2Q13E 2012A
Digest High
Digest low
Total Revenue
Y-o-Y Growth
2013E 2014E 2015E
$1,282.0 $1,805.3 $1,334.0 $1,599.9 $5,836.1 $6,394.5

$7,089.7

$7,481.2
$1,281.7 $1,805.0 $1,333.7 $1,567.0 $5,836.0 $6,199.0

$6,780.3

$7,481.2
$1,281.7 $1,805.3 $1,333.7 $1,585.3 $5,836.1 $6,260.7

$6,894.3

$7,481.2
15.1% 12.0% 4.1% 10.3% 12.0% 7.3%

10.1%

8.5%
Sequential Growth -20.5% 37.6% -26.1% 18.9%
The Zacks Digest average revenues in 1Q13 were $1,333.7 million, up 4.1% from $1,281.7 million in
1Q12 primarily driven by the opening of new stores and increased e-Commerce business, partially offset by weak consolidated comparable-store sales (comps) performance.
The company’s consolidated comps after adjusting the calendar shift due to 53 weeks in 2012 fell
3.8%, while on an unadjusted basis comps were down 1.7%. The decline in comps was primarily due to weak performances by the company’s DICK’s Sporting Goods and Golf Galaxy stores. On a shift adjusted basis, comps at DICK’s Sporting Goods and Golf Galaxy stores fell 3.2% and 11.8%, respectively. On an unadjusted basis, on the other hand, comps at the above-mentioned store concepts declined 1.3% and 7.4%, respectively.
Guidance
Comps, adjusted for the calendar shift in FY12, are expected to increase in the range of 2% –3% in
2Q13. Excluding the adjustment, second-quarter comps will likely range from 3.5% –4.5%, against a
3.8% increase recorded in the comparable year-ago quarter. For FY13, the company projects comps to increase between 2% and 3% compared with comps growth of 4.3% in FY12.
Outlook
The firms believe that the robust performance reflects the company’s sustained focus on enhancing its store network base and e-Commerce capabilities while strategically partnering with brands and executing marketing plans.
Please refer to the Zacks Research Digest spreadsheet of DKS for specific revenue estimates.
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The Zacks Digest average cost of goods sold (COGS) increased 3.9% y/y to $922.0 million in 1Q13.
The Zacks Digest average gross profit in 1Q13 came at $411.7 million, up 4.3% y-o-y, with gross margin expanding 10 basis points (bps) to 30.9%. Strong top-line growth and improved merchandise margin, slightly offset by increased cost of sales, drove the upside in gross margin.
Provided below is a summary of margins as per Zacks Digest:
Margins
Gross Margin
EBITDA Margin
Operating Margin
1Q12A
30.8%
9.6%
7.5%
4Q12A
32.6%
13.7%
11.7%
1Q13A
30.9%
9.7%
7.3%
2Q13E
31.4%
11.9%
9.9%
2012A
31.5%
11.1%
9.0%
2013A
31.5%

11.5%
9.4%
2014E
32.0%

12.0%

9.9%

2015E
32.0%
Net Margin 4.5% 7.2% 4.5% 6.0% 5.5% 5.7% 6.0%
Selling, general, and administrative (SG&A) expense was $312.7 million in 1Q13 versus $296.1 million in 1Q12, an increase of 5.6% y/y. SG&A expense, as a percentage of sales, expanded 30 bps to 23.4% in 1Q13. The SG&A deleverage was due to increased administrative expenses primarily related to payroll for IT and e-Commerce.
EBITDA in the quarter increased 5.2% y-o-y to $130.0 million, with EBITDA margin expanding 10 bps to 9.7%.
In 1Q13, operating income increased 2.0% y-o-y to $97.7 million. However, operating margin contracted 20 bps to 7.3%. The y-o-y fall in operating margin was primarily due to increase in selling, general and administrative (SG&A) expenses as a percentage of net sales, partially offset by improved gross margin.
Guidance
Dick’s Sporting forecasts gross profit margin to expand year over year in 2Q13, driven by merchandise margins expansion partially offset by higher e-commerce supply chain costs as a percentage of net sales.
SG&A, as a percentage of sales, is expected to decrease in 2Q13 primarily due to lower incentive pay as a percentage of sales.
For FY13, the company expects gross margin is expected to deleverage due to an increase in occupancy costs partially offset by merchandise margin expansion. The increase in occupancy costs is expected to come mainly from higher new store costs and store remodels.
SG&A, as a percent of sales, is expected to leverage compared to FY12, despite the increased investments relating to e-Commerce, IT and new concepts as well as developing additional growth drivers.
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Outlook
Going forward, the firms expect the rate of margin expansion to gather momentum in FY14, given the apparent synergies from systems-related benefits, including price optimization and labor scheduling.
The firms believe Dick’s Sporting’s margin is primarily benefiting from product mix. Furthermore, they confirmed that t he company’s bestselling categories, namely apparel and footwear, are the strongest margin driving categories as well.
Please refer to the Zacks Research Digest spreadsheet of DKS for specific margin estimates.
Provided below is a summary of EPS as per Zacks Digest:
EPS 1Q12A 4Q12A 1Q13A 2Q13E 2012A 2013E 2014E 2015E
Digest High
Digest low
Digest Average
Y-o-Y Growth
$0.45
$0.45
$0.45
50.1%
$1.03
$1.03
$1.03
16.8%
$0.48
$0.48
$0.48
6.7%
$0.77
$0.74
$0.76
16.8%
$2.53
$2.52
$2.53
25.1%
$2.87

$2.83

$2.85

12.8%

$3.40
↑
$3.21
↑
$3.32
↑
16.4% ↑
$3.80
$3.80
$3.80
14.4%
Sequential Growth -48.9% 157.2% -53.3% 58.3%
The Zacks Digest average adjusted earnings per share in 1Q13 were $0.48 per share, up 6.7% from
$0.45 per share in 1Q12 and down 53.3% from $1.03 per share in 4Q12. The results came in line with the average of the company’s previously provided guidance range of $0.47–$0.49.
According to the Zacks Digest average, shares outstanding were 125.9 million in 1Q13, compared with
127.0 million in 1Q12.
Guidance
For the 2Q 13, Dick’s Sporting expects earnings per share in the range of $0.75–$0.77.
For FY13, management reaffirms its earnings guidance range of $2.84
–2.86 per share. This compares favorably with the company’s adjusted earnings per share of $2.53 in FY12.
Outlook
Going forward, the company expects to boost profitability based on 3 primary growth drivers, including broadening its store base, improving its e-Commerce business and the ongoing development of its margin rate accelerators.
Looking into FY13, some firms believe the company’s planned investments into store remodels, new concepts, e-Commerce and systems should impact 2013 earnings.
Please refer to the Zacks Research Digest spreadsheet of DKS for specific EPS estimates.
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Discover what other investors are saying abou t Dick’s Sporting Goods Inc. (DKS) at:
Research Analyst Vaishali Doshi Shah
Copy Editor Sumit Singh
Content Ed.
Lead Analyst
QCA
No. of brokers reported/Total brokers
Reason for Update
Sumit Singh
Sumit Singh
Sumit Singh
Flash
June 19, 2013
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