A Grand Slam Quarter For Dick's Sporting Goods

Dick's Sporting Goods Rockets Higher On Blowout Results

Dick's Sporting Goods (NYSE/DKS) is a pandemic winner that just keeps on winning. The company reported a grand slam quarter in which top and bottom-line results beat the consensus, the company raised its guidance, and a respectable special dividend was announced. Already a strong dividend payer with a very positive outlook for dividend growth, the company increased the regular payout by 20.7%, doubled its plans for share repurchases in the year, and announced a special dividend worth $5.05 per share. The special dividend alone amounts to $475 million in capital returned to shareholders for a yield near 4% and it's going to come out of cash on hand.  

Dick's Sporting Goods Knocked The Ball Out Of The Park

Why is Dick's Sporting Goods able to pay such a hefty special dividend you ask?  It's because Dick's Sporting Goods has had such a phenomenally game-changing year that its results not only knock the ball out of the park in regards to analysts’ expectations, they hit the ball across the field next door as well. Not only are pandemic tailwinds still strongly blowing for this company but the return to school and the resumption of intramural and competitive team sports are helping to boost results far above the analyst expectations. 

The company reported $3.27 billion in net consolidated revenue for a gain of 20.7% over last year. This beat the consensus by 1500 basis points and is on top of a very strong comp in last year's quarter as well. In the two-year comparison, Dick's Sporting Goods sales are up 45% and expected to get stronger.

On a comp-store basis, comps are up 19.2% versus the expectations of 5.2% with notable strength in e-commerce channels. eCommerce sales are down 28% year over year but up 111% versus the 2019 period. Also of note, eCommerce improved to 18% of net sales versus 12% in  2019. Moving down the report, the company reports significant margin expansion due to cost control efforts, sales leverage, and a reduced discounting environment. On a GAAP basis, the earnings of $4.53 are up roughly 50% from last year and beat the consensus by $1.88. On the adjusted level, the $5.08 in reported earnings beat the consensus by $2.26.

Dick's executives not only provided guidance but raised the full-year outlook for the second time this year. The company is expecting full-year revenue in the range of $11.52 to $11.72 billion versus the previous range which had a high end of $10.81 billion. This should drive earnings in the range of $12.45 to $12.95 versus the prior range with its high of $8.70 and the consensus estimate of $9.09. In this light, we will not be surprised to see Dick’s make another substantial dividend increase next year or pay another special dividend. Dick's Sporting Goods ended the quarter with $2.24 billion in cash and a very light debt load.

A Bad Time To Be Short Dicks Sporting Goods

As good as DIcks’s results are, including the increased allocation of capital return, the short interest has as much to do with today's pop as anything else. Marketbeat short-interest data Dick's Sporting Goods has been running with a high short interest for the last couple of months and short interest was above 15% going into the release of earnings. In that light, we have to assume that at least a  portion of the market strength is short covering.

The Technical Outlook: Don't Rush In To Dick's Sporting Goods

Dick's Sporting Goods chart was bullish going into the report and continues to look bullish now. The caveat is that today's 15% pop is driven in part by short covering and the technicals are a bit weak. Because Dick's has posted such a strong rally over the past year we expect to see profit-taking set in at this level and cap gains in the near-term if not drive a pullback in search of firm support. Once that support is found, we would become interested buyers once again.