Dick's Sporting Goods (NYSE:DKS) released impressive fiscal fourth-quarter 2019 results on Tuesday morning, and surprised investors with a healthy pop in its comparable sales growth. The national sports and athletics retail chain also provided shareholders with an ample bump to its quarterly dividend and issued a relatively benign 2020 earnings outlook. Let's dive into the report below, bearing in mind that all comparable numbers refer to the prior-year quarter.
Dick's Sporting Goods: A bird's-eye view
|Metric||Q4 2020||Q4 2019||Change|
|Revenue||$2.61 billion||$2.49 billion||4.8%|
|Net income||$69.8 million||$102.6 million||(31.9%)|
|Diluted earnings per share||$0.81||$1.07||(24.3%)|
Important details from the quarter
- Dick's reported an impressive 5.3% increase in comparable sales, which lifted full-year comps to 3.7%, above management's forecasted range of 2.5% to 3%. According to CEO Edward Stack, both higher traffic and higher average purchases drove the comps expansion, and each of the company's three major merchandise categories (hardlines, footwear, and apparel) recorded growth during the quarter.
- Management announced it would remove the hunting department from an additional 440 stores in 2020, continuing the gradual removal of firearms from its locations. Dick's booked $48.8 million in charges related to this action consisting of a $13.1 million inventory writedown and non-cash impairment charges totaling $35.7 million.
- E-commerce sales rose 15% and comprised 25% of total sales, against 23% in the comparable quarter.
- Dick's closed seven underperforming namesake stores and one Golf Galaxy store during the period. The organization finished the year with 726 Dick's stores, 94 Golf Galaxy locations, and 27 Field & Stream stores, encompassing a total of 41.7 million square feet.
- Operating cash flow for the year decreased by $308 million to $404.6 million. This was primarily due to a $378 million rise in inventories in Q4 2019 versus the prior-year quarter. Management attributed the 21% jump in inventory balances (to $2.2 billion), to "strategic investments to support key growth categories."
- The charges related to the hunt department closings formed the major difference in net earnings between the current and prior periods. On an adjusted basis, the company earned $1.32 per share in Q4 2019.
A dividend increase and a robust outlook
Dick's raised its quarterly dividend by 13.6% to $0.31 on Tuesday. As a dividend stock, "DKS" has been kind to its loyalists: The company has nearly doubled its quarterly payout over the last three years. The current increase, coupled with a year-to-date share price decline of nearly 30% (which has been exacerbated by the weak market environment), has pushed the company's forward dividend yield to a handsome 3%. Dick's' dividend payout ratio stands at 29%, indicating room for higher payments to shareholders in the future.
Looking forward to fiscal 2020, Dick's expects comps growth in the range of 0% to 2% for the full year. Diluted earnings per share (EPS) are anticipated to fall in a range of $3.60 to $4, against the $3.69 in diluted EPS the company earned in 2019.
Management presented its thinking on the potential impact of the COVID-19 epidemic on Dick's' current prospects, stating: "The Company's outlook balances the enthusiasm it has for its business with the rapidly evolving coronavirus situation. Accordingly, the low-end of the Company's outlook includes some caution related to supply chain disruption potentially impacting its results beginning in the second quarter."
This statement is interesting in that it doesn't address any potential loss of consumer traffic, and implies that even after factoring in some expected supply chain disruption, Dick's is confident it can, at the least, improve EPS this year.
Of course, the outlook is subject to revision, and investors shouldn't be surprised if it's tweaked -- downward or perhaps even up -- next quarter after management has more clarity on the effects of coronavirus on Dick's' business. Shares were trading up roughly 2% in the late afternoon on Tuesday.