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Dick’s Raises 2021 Outlook After Q1 Sales Shatter Expectations

Dick’s Sporting Goods smashed sales and earnings estimates in its first quarter, with net sales reaching $2.92 billion, handily outperforming estimates of $2.18 billion from analysts polled by Refinitiv. The sales boost represented a 119 percent jump from last year’s first quarter and even a 52 percent increase from 2019, when all stores were open.

In fact, the record quarter was so promising that it completely rewrote the retailer’s expectations for the rest of 2021.

In a Nutshell: Dick’s now expects adjusted earnings in fiscal 2021 to be in a range of $8 to $8.70 per share, a massive jump in expectations compared to the $4.40 to $5.20 range set in the fourth quarter. Net sales are now expected to be between $10.5 billion and $10.8 billion, ahead of the initially anticipated $9.5 billion to $9.9 billion. This would expected put sales growth at a midpoint of 11 percent for the full year, and 22 percent over 2019 totals.

Given the uncertainty around consumer demand, the sporting goods retailer has maintained its third and fourth-quarter expectations in line with original guidance, which assumes comparable store sales will decline in the range of high-single to low-double-digits.

The sales improvement at Dick’s came amid a resurgence in team sports as well as sales growth of over 100 percent within each of its three primary categories: hardlines, apparel and footwear. The retailer also increased average ticket 25 percent and transactions 90 percent year over year.

During the quarter, Dick’s converted more than 40 additional stores to include a premium full-service footwear area, where shoppers can interact with trained staffers on getting matched for the right shoe style and size. Over 50 more stores will be converted by the end of the year, taking this experience to approximately 60 percent of the Dick’s chain.

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According to president and CEO Lauren Hobart, Dick’s maintained a disciplined promotional strategy and cadence as certain categories in the marketplace continue to be supply constrained. As a result, the company expanded its merchandise margin rate by 787 basis points (7.87 percentage points) versus 2020 and 312 basis points (3.12 percentage points) versus 2019. This merchandise margin expansion, along with substantial leverage on fixed costs, drove a significant improvement in gross margin, she said in the company’s earnings call.

 Gross profit in the first quarter was $1.09 billion, and gross margin was 37.3 percent of net sales, improving approximately 2,100 basis points (21 percentage points) compared to last year. Alongside the merchandise margin, approximately 1,000 basis points (10 percentage points) related to the leveraging on fixed occupancy costs drove the increase. Compared to 2019, gross margin improved by 795 basis points (7.95 percentage points).

“Due to the strengthened demand kind of across our product assortment, we’re not really creating much in way of clearance merchandise,” Edward Stack, executive chairman of Dick’s Sporting Goods, told investors. “We don’t have a little bit of an anchor on our merchandise margin rates coming from dealing with clearance that we would typically have. And the clearance stores that we’ve opened have also helped us to more efficiently deal with our clearance inventory. So structurally, that’s helped us with our merchandise margin rates, but strong demand has helped us as well.” 

Total inventory decreased 4 percent at the end of the first quarter to $2.01 billion from $2.09 billion in the year-ago period.

“Our strong flow of products supported first-quarter sales growth in excess of our expectations,” Lee Belitsky, Dick’s executive vice president and chief financial officer, said in the call. “Looking ahead, our inventory is very clean and we continue to expect a robust product flow. In terms of supply chain expense, we are seeing elevated costs, which we expect to continue, but thus far have mitigated this pressure through higher ticket as a result of being less promotional and increasing prices in select categories.”

Stores enabled approximately 90 percent of total sales at Dick’s Sporting Goods and fulfilled approximately 70 percent of its online sales through either ship from store, in-store pickup or curbside. Over 90 percent of curbside orders were ready within 15 minutes. And upon checking in at the store, 50 percent were delivered to a shopper’s car in under 2.5 minutes.

Over the past year, the company has looked to diversify its brick-and-mortar operations with different store formats, including its House of Sport locations, its shop-in-shop Soccer Shops, the remodeling of its Golf Galaxy stores and its upcoming Public Lands outdoors model.

But not all of the new concepts will be open for the long term, Hobart confirmed. The Warehouse and Going, Going, Gone! discount banners that sell the company’s excess inventory will remain trial locations.

“That is truly just a test,” Hobart said. “We’re using it as a clearance vehicle in the Dick’s channel and we will have more to come on that. But it’s just…a handful of stores right now, and it is a test just in order to keep our clearance moving.”

Dick’s Sporting Goods ended the first quarter with approximately $1.86 billion in cash and cash equivalents and no outstanding borrowings under its $1.855 billion revolving credit facility.

For the quarter, capital expenditures totaled $71.1 million on a gross basis, or $57.2 million net of construction allowances provided by landlords.

Net Sales: Net sales for the first quarter of 2021 were $2.92 billion, an increase of 119 percent compared to the first quarter of 2020, or a 52 percent increase compared to the first quarter of 2019.

The increase compared to last year’s quarter was driven by a 115 percent increase in consolidated same store sales, which included a 14 percent jump in e-commerce sales. E-commerce sales increased 110 percent in last year’s first quarter.

E-commerce penetration has grown from 13 percent of total net sales in the first quarter of 2019 to 20 percent in the 2021 quarter.

Net Earnings: Dick’s reported consolidated net income for the first quarter of $361.8 million, or $3.41 per diluted share, compared to a consolidated net loss for the first quarter of 2020 of $143.4 million, or $1.71 per diluted share. In the same period two years ago, the company reported consolidated net income of $57.5 million, or 61 cents per diluted share.

On an adjusted basis, the company reported consolidated net income for the first quarter of $367.2 million, or $3.79 per diluted share. The adjustment excludes taxes of the debt discount associated with the company’s convertible senior notes.

CEO’s Take: When asked whether any categories were hard to “chase” in the supply chain, Hobart said the challenge has spread companywide.

“Originally it was in the hard goods and fitness, but it’s hit at almost every aspect of the business, so we’re chasing all the time,” Hobart said. “We’re chasing everything. But we’ve gotten really good at it, and we have tech teams on it day in and day out. We’re working with our vendors. We’re picking up product wherever it is and helping get it into our supply chain sooner. And so I think this has actually become a core capability of ours that we can drive growth with a challenged and challenging supply chain.”