DKS: Still Looking Elsewhere

These results from DKS don’t cut the mustard. This is the 1st time DKS has missed its own comp guidance in over 5-years, and by a wide margin.  They’re one of the few retailers playing the ‘keeping inventory tight and GM% high’ game so EPS impact was muted. But as we discussed yesterday in our note (DKS: Look Elsewhere) this stock is priced to grow.  The company is not following suit.

 

DKS: $0.30 vs. $0.29E

  • Lower than expected top-line offset by greater than expected expense control.
  • Core DKS comp of +1.4% begs the question of the source of underperformance. Our sense is that it came from the hardgood category given the strength we’ve seen in both athletic footwear and apparel during the quarter both of which have been up HSD.
  • Consolidated comp came in below the company’s range of guidance for the first time in our recollection since at least 2007. They have come in at the lower end of their range – but have never missed entirely.
  • Gross margins were a positive surprise in the quarter coming in up +80bps against the toughest comp of the year. While only 30bps higher than our estimate, this is one of the few positive surprises in the quarter and likely driven by mix to the extent hardgoods underperformed during the quarter – more to come on the call.
  • SG&A growth was substantially lower than we expected adding $0.03 in EPS in the quarter. Yes, the company is anniversaring higher investment spending from last year, but this is not exactly how you want to see a growth company hit numbers.
  • Contrary to our expectation [we said that they would likely not give forward guidance], management took up full-year guidance for the 9th consecutive quarter though only by the margin of the Q1 beat maintaining its outlook for the rest of the year.
  • The sales/inventory spread turned sharply lower following a run of seven straight quarters of a +4% or better, though in fairness remained in positive territory despite the negative delta. Inventories increased +4% on +6% sales growth against a more favorable compare as same store sales came in well below expectations.

DKS: Still Looking Elsewhere - DKS CompGuid Q1 5 17 11

 

DKS: Still Looking Elsewhere - DKS S 5 11

 

Casey Flavin

Director