AC/DC's "Back in Black" is an appropriate theme song for Dick's Sporting Goods' (NYSE:DKS) third quarter. After posting a loss this time last year, the company has rallied with a profit in its latest quarter.
Dick's saw comparable same-store sales increase a solid 2.9% versus the same period a year ago. If this figure doesn't sound too impressive, consider that competitor The Sports Authority (NYSE:TSA) managed only 1.2% of comps growth in the third quarter.
Overall net sales climbed to $582.7 million, an increase of 7.7%, also exceeding that of The Sports Authority. However, single-digit figures aren't exactly impressive unless we're talking about an athlete's body-fat percentage. Fortunately, year to date, Dick's revenues have grown 34.4%. Investors will likely see similar strong performance going forward as the company completes its integration of the recent Galyan's acquisition. Current remodeling and relocation efforts (as well as opening 16 new stores in the recent quarter, increasing its existing unit count by 6.7%) should add up to improved revenue growth.
In addition, the company has done well in keeping gross margins in check. In fact, its cost of goods sold as a percentage of revenue actually declined to 73.7%, compared with 74.5% in the comparable period a year ago. The Sports Authority is currently doing slightly better, with cost of goods sold at 72.5% of revenues. But as Dick's continues to iron out the remaining wrinkles with its recent acquisition, we should see this metric improving.
Growing sales and improving margins certainly helped its bottom line. But the lack of a $7.7 million hit from merger expenses that it had to absorb this time last year is the primary reason for the $0.08 gain per share, as opposed to a $0.04 loss last year. Still, it's a good thing that Dick's is back in black, since it has plenty of work to do to pay off long-term liabilities totaling almost half a billion dollars. Additionally, investors should be wary of increasing inventories -- the company showed inventory growth slightly outpacing sales growth in the third quarter.
All in all, Dick's isn't exactly packing a knockout punch, but improving margins and solid sales are evidence that it has some goods to work with. And a stock valued at 19 times estimated forward earnings is not an unreasonable price to pay for such a business with expected long-term growth of 20%. If you're looking for some exposure in the sporting-goods market, Dick's reasonable valuation and long-term growth prospects could provide an opportunity.
Check out this related Foolishness, old sport:
- The Sports Authority is on top of its game,
- Whereas Reebok (NYSE:RBK) finds itself running in a headwind,
- And Columbia Sportswear (NASDAQ:COLM) had a difficult hike this year.
Reebok is a Motley Fool Stock Advisor pick. For a 30-day free trial to the best of Tom and David's picks, click here.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
