Retail store Dick's Sporting Goods (DKS, Financial) has really stayed on top of things in recent years by being innovative and carrying a diverse product lineup. The company's online store has helped drive sales, and e-commerce penetration has been consistently above 20% over the last several quarters. In the past two years, Dick's Sporting Goods has beaten its revenue and earnings per share estimates every time it's reported results. The company's store unit count is even steadily increasing thanks to its success, even as other retailers reduce their store count. In August 2019, it had 727 stores; as of the most recent quarterly report, the figure had risen to 850 (including retail concepts).
Dick's Sporting Goods is an impressive example of resilience when the retail sector is struggling. Despite the economic challenges that retail businesses generally face, Dick's Sporting Goods has successfully navigated the pandemic and is growing, with recent reports revealing it's been opening more stores and delivering significant earnings beats over the last several quarters. In particular, Dick's Sporting Goods' ability to quickly adapt to changes in purchasing behavior has been critical to its success, enabling the company to remain competitive while other companies continue to struggle. It has also retained its agility by keeping a strong balance sheet.
This adaptive approach has enabled Dick's Sporting Goods to survive and even thrive during this difficult period as it continues to expand its presence both in brick-and-mortar locations and online. Dick's Sporting goods is setting an inspiring example for other retailers in how they can successfully persevere despite today's marketplace challenges. Even with the recent share price runup, its stock still looks cheap thanks to incresing earnings:
Another strong quarter in the books
Dick's Sporting Goods has been beating analyst estimates for several quarters. The third quarter was no exception.
It made record revenues of $2.96 billion, up 7.7% from the year-ago period, and more than the consensus estimate of $2.70 billion. The comparable store sales were up by 6.5% versus a 12.8% increase in the year-ago period. CEO Lauren Hobart emphasized that the quarter's performance was due to an increase in average tickets and transactions. Furthermore, Hobart mentioned the Ebit margin of 10.3% was three times more despite the aggressive inventory cleanup carried out by the company recently. At the end of the quarter, the retailer also had $1.44 billion in cash and cash equivalents.
In light of this strong performance, the company raised its full-year 2022 guidance. It now expects diluted earnings per share in a range of $10.50 to $11.10, up from the prior outlook of $8.85 to 10.55. The non-GAAP earnings per diluted share guidance were raised from $10.00 to $12.00 to $11.50 to $12.10.
The company repurchased 4.4 million shares for $361 million during the quarter. In one year, the company has reduced the share count by 15%, which is a good use of its excess free cash flow. In addition, Dick's Sporting Goods has not reduced its dividend in the last 12 years. For income investors, this puts the company into an elite category in the retail space, though the dividend yield isn't particulary high at 1.57%.
Partnerships expand the scope of the retailer's offerings
For years, Dick's Sporting Goods has partnered with Nike (NKE, Financial) to provide customers with certain exclusive access to Nike products. This partnership has reached another milestone, as Dick's will offer certain exclusive Nike products on their website. In addition, Dick's will host workout events at various locations across the country. This is an excellent example of cross-promotion. Dick's Sporting Goods is a leading sport and outdoor equipment retailer, and the move is in line with the company's goal to expand its presence in the fitness market.
The company will offer a wide range of Peloton (PTON, Financial) products, including treadmills, bikes and accessories. It has announced that it will become the first brick-and-mortar retailer to sell Peloton products outside of Peloton stores. The move will provide consumers with greater access to Peloton products and will allow Dick's Sporting Goods to tap into a growing market.
These are not the only partnerships the company has executed in recent months. In August, the company entered into a multi-year partnership with The Chicago Sky, part of the Women's National Basketball Association. It became the team's official marketing partner and goods retailer. This deal will help the company invest in and promote women's sports and enhance its consumer base.
In September, Dick's partnered with Metrical AI to improve targeted customer engagement and decrease cart abandonment. With Metrical AI's analytics, the company will be able to better cater to customers' real-time needs. It will ultimately increase revenue, brand recognition and customer loyalty.
Takeaway
Dick's Sporting Goods is a rare company that has aggressively grown even through the pandemic and following economic downturn, all while maintaining a strong balance sheet. The strategy of strengthening its inventory position has served it well, as the strong third-quarter financial results show.
Investors are right to be cautious of the retail industry due to the economic climate, but this is one company bucking the trend. It is one of the few retailers operating well despite headwinds and inflationary pressures. The company's dedication to innovation and customer satisfaction is commendable. All thinks considered, I believe this is a company worth consideration.
