Sporting goods retailer Dick’s Sporting Goods (NYSE:DKS) beat analysts' expectations in Q3 FY2023, with revenue up 2.8% year on year to $3.04 billion. Turning to EPS, Dick's made a non-GAAP profit of $2.85 per share, improving from its profit of $2.60 per share in the same quarter last year.
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Dick's (DKS) Q3 FY2023 Highlights:
- Revenue: $3.04 billion vs analyst estimates of $2.95 billion (3.3% beat)
- EPS (non-GAAP): $2.85 vs analyst estimates of $2.46 (15.8% beat)
- Full year guidance raised for same-store sales and non-GAAP EPS
- Free Cash Flow was -$89.75 million compared to -$172.7 million in the same quarter last year
- Gross Margin (GAAP): 34.9%, up from 34.2% in the same quarter last year
- Same-Store Sales were up 1.7% year on year (beat vs. expectations of down 0.8% year on year)
- Store Locations: 869 at quarter end, increasing by 19 over the last 12 months
Started as a hunting supply store, Dick’s Sporting Goods (NYSE:DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.
Athletic Apparel and Footwear Retailer
Apparel and footwear was once a category thought to be relatively safe from major e-commerce penetration because of the need to try on, touch, and feel products, but the category is now meaningfully transacted online. Everyone still needs clothes and shoes to go outside unless they want some curious (or horrified) looks. But this ongoing digitization is forcing apparel and footwear retailers–that once only had brick-and-mortar stores–to respond with omnichannel offerings. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stagnate, so the evolution of clothing and shoes sellers marches on.
Sales Growth
Dick's is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.
As you can see below, the company's annualized revenue growth rate of 10.1% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive despite not opening many new stores, implying that growth was driven by higher sales at existing, established stores.
This quarter, Dick's reported decent year-on-year revenue growth of 2.8%, and its $3.04 billion in revenue topped Wall Street's estimates by 3.3%. Looking ahead, analysts expect sales to grow 3.4% over the next 12 months.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Number of Stores
When a retailer like Dick's keeps its store footprint steady, it usually means that demand is stable and it's focused on improving operational efficiency to increase profitability. Dick's store count increased by 19 locations, or 2.2%, over the last 12 months to 869 total retail locations in the most recently reported quarter.
Taking a step back, the company has kept its physical footprint more or less flat over the last two years while other consumer retail businesses have opted for growth. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.
Same-Store Sales
Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
Dick's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 1.4% year on year. Given its flat store count over the same period, this performance stems from increased foot traffic at existing stores or higher e-commerce sales as the company shifts demand from in-store to online.
In the latest quarter, Dick's same-store sales rose 1.7% year on year. By the company's standards, this growth was a meaningful deceleration from the 6.5% year-on-year increase it posted 12 months ago. We'll be watching Dick's closely to see if it can reaccelerate growth.
Key Takeaways from Dick's Q3 Results
With a market capitalization of $10.12 billion, a $1.41 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Dick's has the resources needed to pursue a high-growth business strategy.
We were impressed by how significantly Dick's blew past analysts' revenue expectations this quarter. We were also glad its full-year same-store sales and earnings guidance were both raised and ended up exceeding Wall Street's estimates. The only blemish was that its gross margin missed analysts' expectations. Overall, we think this was a very strong quarter that should satisfy most shareholders. The stock is up 8.7% after reporting and currently trades at $129.3 per share.
Dick's may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.