A couple of days ago, I wrote about Dick's Sporting Goods
For the second quarter, The Sports Authority reported a profit of $14.2 million, or $0.53 per share, an amount that more than doubled last year's performance. It drastically grew earnings even though sales inched ahead by only 2% to $617 million and same-store sales edged up by a scant 0.2%.
The company credits its strong earnings to its ability to improve margins and better manage its operating expenses. Of course, part of those lowered expenses were the result of a decision not to repeat several promotional events. Last year, The Sports Authority offered various coupons that carried deep discounts and also promoted for several weeks a "buy one, get one 50% off" deal on footwear. Those promotions boosted sales results last year, and their elimination this year resulted in the small sales gain.
However, sales were strong enough for the company to reduce inventories by 6% per square foot. If it's able to maintain modest sales growth, grow earnings, and keep inventories at good levels by cutting back on its promotions, I'd say sacrificing sales a bit is well worth it.
I should point out, though, that the company wouldn't go into details about the true impact of its decision to cut back on its promotions. I'd think management would be more forthcoming, since the results seem so positive.
Let's see what The Sports Authority said about its full-year projections. The company now expects to earn between $1.96 and $2.01 per share, up from its earlier range of $1.90 to $1.97. Unless it comes in at the low end of its new guidance, it should exceed analysts' expectations of $1.97. Of course, now that the company is feeling confident, analysts and investors may be looking for even better results.
Announcing these updated projections can be tricky business, as seen by what happened to Dick's. However, the company's changes do seem to be working out well, and its new range isn't too much higher than its earlier guidance. I'm also sure that The Sports Authority is well aware of its competitor's situation, so it's not likely to suffer the same fate by being overly optimistic.
We've recently written about the improvements going on at The Sports Authority, and the changes certainly seem to be benefiting the company and its investors. (The stock has risen by about 8% today.) But it will have to continue performing well to maintain its position in the market, since it faces a plethora of growing competition from Dick's (despite its recent stumble), as well as Wal-Mart
Based on its recent results, The Sports Authority seems to up to the challenge. Like rivaling hoops legends Larry Bird and Magic Johnson years ago, the companies seem to be pushing each other to perform as well as possible, and that should bode well for investors of each in the long run.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any of the companies in this article.