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Dick’s Nears $500 Million in Profit

Dick’s Sporting Goods CEO and president Lauren Hobart lauded the sporting goods and apparel retailer for what she called “the strongest quarter in our company’s history” with an impressive 20.7 percent sales increase to $3.27 billion and a profit tallying $495.5 million. Revenue smashed Wall Street estimates of $2.85 billion, and represents a 45 percent leap over the second quarter of 2019. 

In a Nutshell: Dick’s Sporting Goods raised its 2021 outlook for the second time after the quarter, with net sales are now anticipated between $11.5 billion to $11.7 billion, up from the previous expectations of $10.5 billion and $10.8 billion. This pins sales growth at a midpoint of 21 percent for the full year, and 33 percent over 2019 totals.

Full-year adjusted earnings per diluted share guidance has been raised to $12.45 to $12.95, above previous guidance of $8 to $8.70 per share.

Strong sales were driven by double-digit sales growth across each of Dick’s three primary categories of hardlines, apparel and footwear on a year-over-year basis. When compared to 2019 totals, Dick’s saw a 7.1 percent increase in average ticket, and a 12.1 percent increase in transactions.

According to Hobart, Dick’s is leaning into experiential retail, converting approximately 25 additional stores to offer premium full-service footwear assortments in the quarter, as well developing 50 new elevated soccer shops. In total, she said Dick’s added 2 million new customers during the period, and has seen “strong retention” of the 8.5 million customers it attracted in Q1.

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During the quarter, Dick’s 850-plus stores enabled more than 90 percent of total sales, and fulfilled more than 70 percent of sales, either through ship-from-store, in-store pickup or curbside.

Total inventory increased 7.2 percent at the end of the quarter to $2.01 billion, compared to the $1.88 billion to close the year-ago quarter. Gross profit totaled $1.31 billion, with gross margin improving to 39.9 percent in the quarter, a 5.4-percentage-point increase over the 34.5 percent in the year-ago quarter and up nearly 10 percentage points on a two-year basis. The improvement is largely driven by higher merchandise margins on the success of its private-label brands, a differentiated assortment and disciplined promotional strategies.

“Despite the industrywide supply chain challenges, our strong flow of product supported record quarterly sales that were ahead of our expectations,” said Lee Belitsky, executive vice president and chief financial officer of Dick’s Sporting Goods in an earnings call. “Looking ahead, our inventory is very clean, and we continue to aggressively chase product to meet demand. We are prioritizing supply chain continuity over costs and expect elevated freight expenses to continue through at least the balance of 2021.”

Belitsky noted that the company feels better about its in-stock positions for the third quarter than the fourth quarter, which he said has “less clarity.” He estimated that Dick’s will get a better read over the next 90 days, and remained confident in the retailer’s ability to fulfill throughout the holiday season.

“It’ll be a little harder to get the kind of upside that we’ve got the first half of the year, but we’re going to have enough product out there to satisfy our athletes as they come into the store and shop with Christmas season this year,” Belitsky said.

Belitsky will transition from the CFO role in October and continue to serve as EVP overseeing several key areas, including supply chain, real estate and construction. Navdeep Gupta, current senior vice president, finance and chief accounting officer, has been appointed to succeed Belitsky.

Dick’s has increased some prices during the quarter, “primarily in hardlines categories,” according to Belitsky. Future price increases are not scheduled, and will depend on where the retailer sees cost increases and whether demand for the product exists.

The sporting goods and apparel retailer expects to open six new Dick’s Sporting Goods stores and eight specialty concept stores in 2021, including the conversion of two former Field & Stream stores into its new outdoor pilot, Public Lands. The company has opened three Dick’s Sporting Goods stores so far this year, which include both House of Sport locations in Knoxville, Tenn. and Victor, N.Y., as well as one specialty concept, Golf Galaxy. The company also expects to relocate 11 Dick’s Sporting Goods stores in 2021.

Dick’s ended the second quarter with approximately $2.24 billion in cash and cash equivalents and no outstanding borrowings under its $1.855 billion revolving credit facility.

Year to date, capital expenditures totaled $167.7 million on a gross basis, or $149.3 million net of construction allowances provided by landlords. For 2021, the retailer anticipates capital expenditures in the range of $370 million to $395 million on a gross basis, and $300 million to $325 million on a net basis.

Due to the continued growth, Dick’s has increased its dividend for shareholders 21 percent and has committed to buy back a minimum of $400 million of its common stock during 2021, an increase of $200 million from its prior guidance.

Net Sales: Dick’s Sporting Goods reported net sales of $3.27 billion, an increase of 20.7 percent compared to $2.71 billion in the second quarter of 2020 and a 45 percent increase compared to the $2.26 billion generated in the second quarter of 2019. Consolidated same-store sales for the quarter jumped 19.2 percent.

E-commerce sales decreased 28 percent compared to the second quarter of last year, which the company said was planned as the prior-year period included temporary store closures. On a two-year basis, e-commerce increased 111 percent.

Digital penetration has grown from 12 percent of total net sales in the second quarter of 2019 to 18 percent for the second quarter of 2021, and is down from approximately 30 percent in the second quarter of 2020.

Net Earnings: The sporting goods retailer reported consolidated net income of $495.5 million, or $4.53 per diluted share, ahead of last year’s second quarter which brought in $276.8 million, or $3.12 per diluted share, and included approximately $14 million of pre-tax expenses in response to Covid-19.

Dick’s said adjusted consolidated net income for the quarter ended July 31, 2021 of $501.2 million, or $5.08 per diluted share, compared to consolidated net income of $281.7 million, or $3.21 per diluted share, for the 2020 period.

CEO’s Take: Hobart noted that Dick’s is currently building a third House of Sport location, with the first two “doing amazing.” She said the retailer will continue to pursue other opportunities related to these locations, and is considering bringing some elements back into Dick’s core stores.

“One of them is the entire fitting room experience—there is a much more elevated model in the fitting rooms where people are bringing outfits and we’re helping people outfit themselves,” Hobart said. “That’s something that we’re looking to try in the Dick’s stores. Even with the idea of having stylists do that, there’s an incredibly strong service model throughout the entire store and then there’s just experiential aspects of the store that have been really positive.”