What Happened:
Shares of sporting goods retailer Dick’s Sporting Goods (NYSE:DKS) jumped 17.3% in the morning session after the company reported a "beat and raise" quarter. First-quarter revenue and EPS exceeded analysts' expectations. Looking ahead, guidance was strong. The company raised its full-year revenue and earnings guidance, beating Wall Street's estimates, as it expects its same-store sales to rise by 2.5% year on year. As a reminder, same-store sales growth is more profitable than growth from new locations because it's less capital intensive. Overall, we think this was a really good quarter that should please shareholders.
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What is the market telling us:
Dick's's shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. Moves this big are very rare for Dick's and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock dropped 21% on the news that the company reported disappointing second-quarter earnings, with revenue coming in below Wall Street's expectations. In addition, both earnings per share (EPS) and EBITDA missed analysts' estimates by a wide margin due to inventory shrinkage. This shrinkage (caused by clerical error, goods being damaged, lost, or stolen) led to a decline in profits. Similarly, the company lowered full-year EPS guidance, which came in below consensus estimates. On a non-GAAP basis, the updated EPS guidance eliminates the impact of severance expected to be incurred as part of the company's new business optimization drive, which includes the elimination of some positions primarily at the customer support center on August 21, 2023. However, potential cost savings from the optimization efforts are expected to be mostly offset by "strategic talent investments over the next twelve months."
On the other hand, the company maintained the full year same store sales growth forecast at flat to positive 2.0%. Management also highlighted "robust transaction growth and continued market share gains" as the company continued to add new stores. Overall, the results could have been better, with the markets likely reacting to the weak earnings and lowered guidance.
Dick's is up 54.4% since the beginning of the year. Investors who bought $1,000 worth of Dick's's shares 5 years ago would now be looking at an investment worth $6,695.
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