Retail Trends Accelerate At Dick’s Sporting Goods
I have noticed a new trend developing among retailers. The retailers that have managed to survive and/or thrive during the pandemic. The stronger-than-expected rebound that began in the 2nd quarter is not only alive and well, but it is also accelerating. Reports from Target (NYSE:TGT), The TJX Companies (NYSE:TJX), and Williams-Sonoma (NYSE:WSM) fit into this category and so does Dick’s Sporting Goods (NYSE:DKS). What these companies have in common, aside from a certain-resiliency, is a healthy presence in eCommerce, a well-recognized brand, and relatively healthy dividends.
"Our stores continue to be the hub of our industry-leading omni-channel platform and were the key to our unprecedented third-quarter growth… and our stores fulfilled approximately 70% of our online sales, which increased nearly 100% for the quarter ... our stores drove 90% of our total Q3 sales growth, whether an athlete purchased at the register, picked up curbside or had their order delivered through ship-from-store," said Lauren R. Hobart, President.
Dick’s Smashes The Consensus, Guides Positive
Dick’s reported a great quarter but there is a noticeable shift in consumer habits. While eCommerce continues to underpin the company’s results growth in that segment slowed. But that’s from nearly 200% YOY in the 2nd quarter to a mere 95% YOY and strong any way you look at it. So, the top line consolidated revenue came in at $2.41 billion or down 11% on a sequential basis. The sequential decline is nothing to worry about, however, as it is seasonally expected. The salient point is that revenue is up 23% over last year, an acceleration of the up 20% posted in the 2nd quarter and 800 basis points above the consensus.
On a segment basis, brick&mortar stores saw their comps rise 23.2% YOY to set a company record. The company reports strength in all categories and sees comps trending near 20% for the first few weeks of the year.
"Overall, the favorable trends in our business have continued into Q4. These strong sales results have been partially offset by warmer weather that has negatively impacted sales in important cold-weather categories. Taken together, through the first three weeks of Q4, our consolidated comp sales have increased in the high-teens," said Edward R. Stack, Chairman and CEO.
Moving down to the bottom line, results are equally impressive. The $1.84 in GAAP earnings includes $0.37 of incremental costs related to COVID that include employee compensation. On an adjusted basis, EPS came in at $2.01 or $0.90 better than the consensus. The GAAP earnings beat the consensus by $0.80.
Dicks’s Is On Track For A Big Distribution Increase
Dick’s is a great dividend-growth stock and one on track to make a big distribution increase in early calendar 2021. The company has been increasing the payout annually for 8 years and has more than ample cash-flow and cash to make another one happen. At face value, the payout ratio is running below 30% which is very low and that is back up by the balance sheet. The balance sheet shows roughly $12 per share in cash, a modest amount of long-term debt, no short-term debt, high-coverage, and high-free-cash-flow. Based on the 17% CAGR the next increase could be worth $0.21 or about 0.35% in yield.
The Technical Outlook: Dick’s Moves Higher, The Rally Resumes
Shares of Dick’s Sporting Goods have done little but move higher since hitting the March lows and it looks like that trend will continue. The stock has been in correction/consolidation the last month to 6 weeks and now the bottom is in. Shares are confirming support at the $50 and higher prices are indicated by both MACD and stochastic. The 3Q earnings report has price action up about 2.0% in early trading and poised to set a one-month high. Assuming price action moves up from here the next target for resistance is near $62.25, a move above that level will be very bullish and set a new all-time high.
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