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Dick’s Sporting Goods Raises Full-Year Guidance Despite Tariff Uncertainty

Dick’s Sporting Goods continued to transition its business throughout the first quarter of FY19, producing positive same-store sales growth and raising its full-year guidance on the back of more than $100 million in share repurchases.

In a Nutshell: During its quarterly conference call, the company admitted that it had depressed its outlook for the rest of FY19, despite the estimated 13 cents it could add to its earnings by continuing to purchase shares, due to “general concerns on where the consumer will be in the back half of the year” if tariffs increase as proposed by the Trump administration.

“For us, these tariffs were [previously] mostly concentrated in our hardlines categories and were factored into our original FY19 guidance,” said Dick’s Sporting Goods CFO, Lee Belitsky, in the company’s quarterly conference call. “Effective May 10th, this tariff was increased to 25 percent. We’re still working through the impact of this increase with our manufacturing and brand partners and how this may influence our overall pricing strategy. As a result, we have not specifically contemplated this into today’s guidance.”

Dick’s also said that it would continue to minimize the sale of firearms through its “hunt” category. At the end of the previous fiscal year, the retailer said that it would be replacing the hunt category in 10 pilot stores with a “compelling local assortment.” Dick’s said these stores produced positive sales comps in the first quarter and that it would begin rolling out this strategy in 125 more stores throughout the second quarter as part of a “holistic strategic review” of the category’s place in its business.

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Sales: Dick’s was able to pull in $1.92 billion in sales during the first quarter of FY19, up 0.6 percent year-over-year, and just above the $1.90 billion expected by analysts. Same-store sales were flat, although the company said that this was on the high-end of its growth expectations, reflecting “another quarter of sequential improvement.” For comparison, Dick’s same-store sales decreased by 2.5 percent in the same period last year.

The retailer’s e-commerce sales increased by 15 percent in the first quarter, which the retailer credited to its increased investment in omnichannel services. E-commerce sales penetration for Dick’s increased two percentage points to 13 percent during the quarter, as well.

Inventory levels increased by 16.2 percent during the quarter, the outcome of stock holdings that the company described as “running too lean.”

Dick’s said that it expects its same-store sales to be slightly positive over the rest of the year, possibly increasing by up to 2 percent, compared to a decrease of 3.1 percent in FY18. The company said that it expects to begin delivering positive same-store results beginning in the second quarter, though its outlook was admittedly cautious as the organization continues to consider the possible impacts of a new tariff regime.

Earnings: On net income of $57.5 million in the first quarter, Dick’s earned 61 cents per share—higher than the 58 cents predicted by analysts. Dick’s said it would raise its full-year guidance to $3.20 to $3.40 from the previous range of $3.15 to $3.35 despite an estimated $30 million investment in omnichannel “business transformation initiatives.”

CEO’s Take: Dick’s Sporting Goods chairman and CEO Edward Stack said that higher margins and improved same-store comparisons helped his organization turn in a solid first quarter ahead of a time of uncertainty.

“We were pleased with our start to 2019, delivering higher merchandise margins and first quarter earnings per diluted share above last year. Same-store sales turned positive in March and remained positive in April, as we started to see the benefits of our key strategies and investments,” said Stack. “We are very enthusiastic about our business and are pleased to increase our full-year earnings outlook.”

Dick’s president Lauren Hobart praised the company’s investments, particularly in digital spaces.

“During the first quarter, we made great progress in executing against our strategic priorities and investments as we remain focused on improving the in-store and online experience for our athletes and driving productivity improvements across our business,” added Hobart. “As we continue to build the best omnichannel experience in sporting goods, we see significant opportunity to drive competitive advantage in the marketplace and strengthen our leadership position.”