DICK’s Sporting Goods (NYSE:DKS) appeared to have a great quarter, at least on the headline numbers. It beat estimates on the top and bottom line, but the stock is getting hit. In this column, we will discuss why the stock is being hit and what the results were:
We thought that the quarter was stronger than expected. DICK’s Sporting Goods reported consolidated net income for the third quarter ended October 28, 2017 of $36.9 million, or $0.35 per diluted share, compared to DICK’s Sporting Goods’ expectations provided on August 15, 2017 of $0.22 to 0.30 per diluted share. For the third quarter ended October 29, 2016, DICK’s Sporting Goods reported consolidated net income of $48.9 million, or $0.44 per diluted share.
On a non-GAAP basis, DICK’s Sporting Goods reported consolidated net income for the third quarter ended October 28, 2017 of $31.9 million, or $0.30 per diluted share. For the third quarter ended October 29, 2016, DICK’s Sporting Goods reported consolidated net income of $53.6 million, or $0.48 per diluted share. Third quarter 2017 non-GAAP results exclude the benefit from a multi-year sales tax refund. Third quarter 2016 non-GAAP results exclude conversion costs for former Sports Authority (“TSA”) stores. The GAAP to non-GAAP reconciliations are included in a table later in the release under the heading “GAAP to Non-GAAP Reconciliations.”
Net sales for the third quarter of 2017 increased 7.4% to approximately $1.94 billion. Consolidated same store sales decreased 0.9%, compared to DICK’s Sporting Goods guidance of a low single-digit decrease. Third quarter 2016 consolidated same store sales increased 5.2%.
But it was not so much the results of the present quarter that hurt the name, but rather the warning on margins:
Looking ahead, DICK’s Sporting Goods expects Q4 EPS of $1.12 to $1.24 vs. $1.11 consensus and full-year EPS of $2.92 to $3.04 vs. $2.80 to $3.00 prior view and $2.87 consensus. Due to margin pressure, DICK’s Sporting Goods expects EPS to fall by as much as 20% in 2018.
“As expected, margins were under pressure in this highly promotional environment, but our strategy for this environment enabled us to continue to capture market share,” said Dick’s CEO Edward Stack.
So despite beating estimates, this warning has brought on more selling. We believe it is over done after the stock has fallen so far.
We rate shares a value buy under $25.
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