Dick's Sporting Goods: Fantastic Third Quarter + Dividend = Win
Dick's Sporting Goods (NYS: DKS) , has done it again by not only sporting third-quarter results that exceeded analysts' expectations, but also by pleasing shareholders with its plans to start paying dividends. Dick's has certainly come a long way from its humble beginnings as a bait-and-tackle shop in New York back in 1948. It now operates more than 450 shops across 42 states, along with 81 Golf Galaxy stores in 30 states. Let's take a closer, Foolish look at what Dick's has been up to.
Dick's third-quarter net sales rose by 9.3% from the year-earlier quarter, to almost $1.2 billion, mainly on the back of 4.1% growth in consolidated same-store sales and additional sales from 19 newly opened stores.
The company's gross margins went up by 126 basis points, to 29.7%, mainly because of better inventory management and a change in the product mix.
Selling and administration expenses rang in at $274.4 million. Earnings before interest and taxes was up by 89%, to $71.6 million, and EBIT margins were up by a significant 340 basis points, to 6.1%. The company's net income followed suit and soared by an amazing 146%, to $41.5 million, although it was slightly offset by higher taxes. This sort of performance will surely turn up the heat for competitors like Cabela's (NYS: CAB) to turn out impressive numbers.
Alongside a great set of numbers, Dick's has also steadily built upon its balance sheet, effectively tripling its cash and equivalents from the previous year's figure, to a total of $483.4 million. Dick's plans to make good use of this, which leads to yet another reason for investors to cheer: dividends.
Dick's management decided to pay a dividend for the very first time, starting with an annual cash dividend of $0.50, which would be paid on Dec. 28. The company also announced that it would pay quarterly dividends for the year 2012, subject to board approval in each case. CEO Ed Stack said Dick's great cash position and cash flow outlook would enable it to further invest in profitable opportunities, as well as allow it to reward shareholders in the form of cash dividends.
Home improvement retailer Home Depot (NYS: HD) is also giving shareholders a reason to smile, announcing an even higher dividend of $0.29 per share for the quarter, which would be paid on Dec. 15. This is a 16% increase from the $0.25 it has been paying for the past three quarters. Another peer that's been fattening its shareholders' wallets is Wal-Mart (NYS: WMT) , which has been paying dividends of $0.37 for the past three quarters, up by 23% from the previous year's $0.30.
A look at the dividend yields of these companies shows us that Dick's Sporting Goods has a much lower yield than peers Wal-Mart and Home Depot, but its dividend has room to grow.
|Dick's Sporting Goods||$0.50||1.30%|
Source: Yahoo! Finance. Data as of Nov. 21.
Spreading its wings
Economic uncertainties failed to deter Dick's store expansion plans, as it opened new stores at a rate of 8% in the current year. The company also expects to step up the pace with more new store openings next year. For the longer term, Dick's aims at opening more than 400 additional stores over the next several years, taking the total store count to a minimum of 900 in the United States.
Besides its expansion on the storefront, Dick's is also focusing on expanding its online e-commerce division, which currently forms a really small part of its total business. The company is aiming to enhance its content as well as improve profitability and sales. According to the CEO, Dick's is progressing steadily on this front and expects the e-commerce division to start contributing much more to its results by 2013. With strong brands such as Nike (NYS: NKE) and Under Armour (NYS: UA) available under its banner, Dick's probably won't have too much trouble ramping up online sales.
The Foolish bottom line
So far, the company has pushed up its sales and its profits, which is great news. However, economic concerns, high unemployment levels, and an increasing number of tight-fisted consumers are reasons for concern. With the holiday season rolling in, Dick's will probably have a big fourth quarter. I feel cautiously optimistic for the medium term.
What do you think about the company's prospects? Leave your comments in the box below. To stay up-to-speed with Dick's progress through the holiday season, feel free to add it to your very own personalized watchlist. Don't worry, it's free, and helps you keep up with the latest news and analysis for your choice of companies.
At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and The Home Depot. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.