RyanJLane
We have traded DICK’S Sporting Goods, Inc. (NYSE:DKS) several times in the last few years. This stock remains one of the favorites, particularly among options traders, over at our Investing Group. The stock is back in business in a big way, and surging to new highs on its just-reported quarterly results. As we take down $200 per share here, our last buy call publicly on DICK’s was when it was in the $40s. What a run, to be sure.
At this point, it can be tough to chase it after almost a five month run straight higher. However, the stock is still reasonably valued for the growth on display. All of the work management put in by being aggressive with inventory, shifting stores, introducing new concepts, and cutting new deals, has paid off. DICK’s stock is a winner. Those who traded it with us also are winners. Let’s talk about the results, and why there may be more upside ahead.
Earnings in Q4 strong
In Q4 2023, the company reported net income of $320 million, or $3.85 per share, on an adjusted basis. Not only did this surpass our bullish expectations of $3.65 per share, a $0.20, but it also was better than consensus by a whopping $0.49. This is also a nice growth from last year’s $258 million, or $2.93 per share. With this solid outperformance relative to our own expectations and to consensus, we believe this result justifies shares rallying today. Let’s take a look at our key metric for retail, comparable sales.
Comparable sales shine
We had expected positive same-store sales in Q4 and expect them in 2024 as well. From a gross margin perspective, it is worth noting that more tame inflation has tempered input costs to generate these sales. Consolidated comparable same-store sales increased 2.8%. This is positive, and follows a Q4 2022 that saw 5.3% increases in comps. While the degree of growth is lower, the comps are off of higher sales figures, so it’s still quite positive.
So, why the increase? Well first, there have been years of transformation. But in 2023, DICK’s conducted a business optimization during to improve its talent base, organizational design, store concepts, and its spending in support to help streamline its overall cost structure. This was completed in Q4 2023. DICK’s saw increases in traffic, perhaps due to 50% more specialty concept stores in the portfolio. With this increase in same-store sales, coupled with a strong merchandising strategy, and increases in digital sales, we saw a year-over-year revenue increase of 7.8% to $3.88 billion. This was ahead of our expectations slightly for $3.75 billion in sales.
Balance sheet
Of course, all of this investment into optimization and reorganization has led to some being concerned about leverage, but folks, things have improved dramatically. First, there is $1.8 billion in cash and equivalents on the balance sheet. Second, total debt is down 4% from last year to $1.48 billion. So there is more cash than debt. That is pretty positive. In the past, we had concerns that by refusing to shutter losing operations, it would be costly to the balance sheet. But over the last few years, DICK’s has been strategic in closing and openings of stores, and selective in more inclusive house of sports concept stores. It is paying off.
Inventories were about flat from a year ago and at manageable levels of $2.8 billion. In 2023, the company repurchased $649 million of stock, and more than doubled the amount of dividends paid. Further, the company just announced it would hike the dividend another 10%. That is a win.
Forward look
The company has guided for sales of $13.0 billion to $13.13 billion, with comparable sales positive 1-2%. The comp guidance was a little light in our estimation, but understand they are being compared to a very strong 2023. All told, EPS was guided to $12.85-$13.25. Barring economic malaise, this figure should be surpassed. We see success at concept stores and demand for sporting good high. With the transformation complete, sales of $13.25 billion and EPS of $13.50 are not out of the question. At $200 a share, this would be a still attractive 14.8X FWD earnings multiple.
Our take
At present levels, DICK’S Sporting Goods, Inc. shares have made a run. New highs are justified on this performance, but growth is normalizing on a comparable basis. Still, bigger dividends, more repurchases, improving earnings. We think shares are still a buy for the long term. Pick your spots.
