Dick’s Sporting Goods Inc. (DKS), an authentic full-line sporting goods retailer, posted strong fourth quarter 2010 results, ended January 29, 2011, on the heels of higher sales and improved margins. Quarterly earnings climbed to 76 cents a share from the year-ago level of 56 cents and comfortably outpaced its earnings guidance in the range of 69 to 71 cents. Dick’s also surpassed the Zacks Consensus Estimate of 72 cents.  On a GAAP basis, the company reported earnings per share of 71 cents.

In fiscal 2010, the company reported earnings per share of $1.63 compared with $1.20 in fiscal 2009 and beat the Zacks Consensus Estimate of $1.59.

A 9.4% increase in consolidated comparable-store sales (comps) and opening of new stores aided the 13.6% year-over-year increase in total revenue, which climbed to $1,518.9 million. Total revenues beat the Zacks Consensus Estimate of $1,450.0 million.

The comps growth was driven by an 8.6% rise in Dick’s Sporting Goods store sales, a 2.2% increase in Golf Galaxy store sales, coupled with a 36.3% growth in e-commerce.

Gross profit came in at $479.6 million, up 23.0% year over year. Gross margin improved 240 basis points to 31.6%. Operating profit increased 29.1% year over year to $145.9 million, resulting from higher gross profit.

Financial Aspects

Dick’s ended the year with cash and cash equivalents of $546.1 million and long-term debt of $139.8 million.

Store Update

In the reported quarter, Dick’s opened 8, remodeled 1, relocated 1 and closed 1 Dick’s Sporting Goods Store, bringing the total to 444 stores in 42 states. The company also opened 2 new Golf Galaxy stores. The Golf Galaxy store count in 30 states came in at 81.

Dick’s plans to open 3 new Dick’s Sporting Goods stores in the first quarter of 2011.

In fiscal 2011, the company expects to open 34 and remodel 13 Dick’s Sporting Goods stores. Dick’s also has plans to open 3 new Golf Galaxy stores.

Guidance

For first quarter 2011, Dick’s expects earnings per share to be between 26 cents and 28 cents and comps to rise between 4% and 5%. The Zacks Consensus Estimate for the quarter is pegged at 27 cents a share.

For full year 2011, management expects earnings in the range of $1.89 to $1.91 per share, while comps are expected to increase 3.0%. The Zacks Consensus Estimate for fiscal 2011 earnings stands at $1.59.

Our Recommendation

Pittsburgh-based Dick’s Sporting Goods is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment.

Dick’s remains the dominant player in the industry with significant store expansion and potential share gain opportunities in the U.S. We remain optimistic about the company’s competitive position, quality of management and consistency of earnings growth.

However, the sporting goods market is highly competitive in nature and Dick’s failure to compete effectively in terms of price, quality or product will hamper its growth potential. The company faces competition from Foot Locker Inc. (FL) and Wal-Mart Stores Inc. (WMT). Moreover, a weak economy will likely continue to weigh on the company’s profitability in the long term.

Dick’s Sporting Goods currently has a short-term Zacks #2 Rank (‘Buy’) rating. We maintain our long-term Neutral recommendation on the company.

 
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