Dick's Sporting Goods shoots and scores

The sporting goods giant sprints past estimates, raises guidance and announces a dividend.

By Benzinga Nov 15, 2011 5:07PM

By Jonathan Chen, Benzinga Staff Writer

Dick's Sporting Goods (DKS) reported better-than-expected third quarter earnings Tuesday and the company also announced a dividend for the first time. Shares jumped about 5% in early trading and held those gains much of the day, closing at $41.41, a gain of 4.5%.


Third quarter earnings came in at 32 cents per share on $1.18 billion in revenues. Wall Street was looking for earnings of 26 cents per share on $1.16 billion in revenues. Same-store sales in the quarter were up 4.1%.


Dick's also raised its full-year estimated non-GAAP earnings from a prior $1.94-$1.96 per share to $2.01-$2.03 per share.


"In the third quarter, we generated sales and earnings meaningfully above our expectations while increasing our margins and further strengthening our balance sheet," said Edward W. Stack, Chairman and CEO.


Beating earnings and raising guidance are impressive enough in a weak economy, but for the company to have the confidence to announce a dividend of 50 cents per year is particularly unusual. This works out to be a dividend yield of 1.2% at current share prices. As the company continues to take market share and expand its reach, there continues to be potential for further dividend increases in the future.


Stack talked about the dividend and said, "Our board's decision to initiate a dividend demonstrates its confidence in the company's financial strength and growth potential. Our solid cash position and cash flow outlook enable us to continue to invest in future profitable growth opportunities, while also returning cash to our shareholders through the dividend."


J.P. Morgan was extremely positive on the earnings report in a research note, pointing out that, gross margin increased an impressive 130 basis points -- better than they were estimating. Total operating expenses also came in lower than the firm expected. 

Trading at 17 times expected 2012 earnings, shares of Dick's are not cheap, but the company has been able to grow revenues nearly 9% year-over-year, and earnings jumped 45% year-over-year. This shows that the company has been successful in rolling out stores and capturing the customer. For a retailer to have $483 million in cash is incredibly attractive.


Metrics like this prove that Dick's management has taken the ball and is running with it all the way to the endzone.



Traders who believe that the strong fundamentals in Dick's will continue might want to consider the following trades:

  • This could be good for other names like Foot Locker (FL), and private retailers, like Modell's and Sports Authority.

Traders who believe that the strong earnings from Dick's are likely to end may consider alternate positions:

  • Shares have done well this year, gaining 11.5% compared to the S&P 500's return. If same store sales fall, this could hit the stock. Consider initiating a short in this name. 

Neither Benzinga nor its staff offer investment advice, nor do they recommend that you buy, sell, or hold any security.

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