DICK’S Sporting Goods, Inc. (NYSE: DKS), the largest U.S. based full-line omni-channel sporting goods retailer, today reported sales and earnings results for the second quarter ended August 1, 2020.
Second Quarter Results
The Company reported consolidated net income for the second quarter ended August 1, 2020 of $276.8 million, or $3.12 per diluted share. As a result of actions taken to prioritize the health and well-being of its teammates and athletes, the Company incurred approximately $42 million of incremental teammate compensation and safety costs during the current quarter. This was partially offset by the recovery of $28 million of inventory write-downs recorded in the first quarter due to the Company’s strong second quarter sales. The net impact of these items resulted in approximately $14 million of pre-tax expenses, or $0.12 per diluted share, during the current quarter. The Company reported consolidated net income for the second quarter ended August 3, 2019 of $112.5 million, or $1.26 per diluted share.
On a non-GAAP basis, the Company reported consolidated net income for the second quarter ended August 1, 2020 of $281.7 million, or $3.21 per diluted share. Second quarter 2020 non-GAAP results exclude non-cash amortization of the debt discount associated with the Company’s convertible senior notes, as well as the share impact of the convertible note hedge purchased by the Company, which is antidilutive for GAAP purposes. The GAAP to non-GAAP reconciliations are included in a table later in the release under the heading “GAAP to Non-GAAP Reconciliations.”
Net sales for the second quarter of 2020 increased 20.1% to approximately $2.71 billion. Consolidated same store sales increased 20.7%, even with approximately 15% of the Company’s stores closed on average. eCommerce sales increased 194%, including Curbside Contactless Pickup. eCommerce penetration for the second quarter of 2020 was approximately 30% of total net sales, compared to approximately 12% during the second quarter of 2019. Second quarter 2019 consolidated same store sales increased 3.2%.
“We had an exceptionally strong Q2 in which we delivered our highest ever quarterly sales and earnings. These results are a testament to the hard work and dedication of our teammates, who reacted quickly to favorable shifts in consumer demand throughout the quarter,” said Edward W. Stack, Chairman and Chief Executive Officer. “During this pandemic, the importance of health and fitness has accelerated and participation in socially distant, outdoor activities has increased. There has also been a greater shift toward athletic and active lifestyle product with people spending more time working and exercising at home. The majority of our assortment sits squarely at the center of these trends, and while mindful of the uncertainty in the current environment, we are in a great lane right now.”
Lauren R. Hobart, President, added, “Our Q2 comps were supported by increases in both average ticket and transactions, as well as growth across each of our three primary categories of hardlines, apparel and footwear. By the end of June, we re-opened 100% of our stores to the public, while continuing to prioritize the health and well-being of our teammates and athletes. As our stores re-opened, we saw the power of our industry-leading omni-channel platform. We delivered positive double-digit brick-and-mortar store comps during both June and July, and our eCommerce sales remained very strong, increasing nearly 200% for the quarter. In recognition of our hourly store and distribution center teammates’ efforts, which helped make these results possible, we recently announced the 15% pay premium will be extended through the end of the year.”
Mr. Stack concluded, “The favorable shifts in consumer demand that drove our strong comps during Q2 have continued into Q3 but have been partially offset by softness across key back-to-school categories because of the uncertain timing of a return to school and fall team sports. Taken together, through the first three weeks of Q3, our consolidated comp sales have increased 11%, which demonstrates the strength of our diverse category portfolio.”
Balance Sheet
The Company ended the second quarter of 2020 with $1.1 billion in cash and cash equivalents and no outstanding borrowings under its $1.855 billion revolving credit facility, repaying the $1.4 billion of borrowings that were outstanding at the end of the first quarter. In April, the Company issued $575 million aggregate principal amount of 3.25% Convertible Senior Notes, which added over $500 million of net proceeds to its cash position.
Total inventory decreased 12.2% at the end of the second quarter of 2020 as compared to the end of the second quarter of 2019.
Year-to-Date Results
The Company reported consolidated net income for the 26 weeks ended August 1, 2020 of $133.4 million, or $1.53 per diluted share. As a result of actions taken to prioritize the health and well-being of its teammates and athletes, the Company incurred approximately $76 million, or $0.65 per diluted share, of incremental teammate compensation and safety costs during the 26 weeks ended August 1, 2020. For the 26 weeks ended August 3, 2019, the Company reported consolidated net income of $170.1 million, or $1.85 per diluted share.
On a non-GAAP basis, the Company reported consolidated net income for the 26 weeks ended August 1, 2020 of $139.1 million, or $1.60 per diluted share, which excludes non-cash amortization of the debt discount associated with the Company’s convertible senior notes, as well as the share impact of the convertible note hedge purchased by the Company, which is antidilutive for GAAP purposes. For the 26 weeks ended August 3, 2019, the Company reported consolidated net income of $171.0 million, or $1.86 per diluted share, excluding a non-cash asset impairment and the favorable settlement of a litigation contingency. The GAAP to non-GAAP reconciliations are included in a table later in the release under the heading “GAAP to Non-GAAP Reconciliations.”
Net sales for the 26 weeks ended August 1, 2020 decreased 3.2% to approximately $4.05 billion. Despite temporary store closures during March, April and May to help prevent the spread of COVID-19, consolidated same store sales decreased only 2.3%. eCommerce sales increased 154%, including Curbside Contactless Pickup. eCommerce penetration for the 26 weeks ended August 1, 2020 was approximately 33% of total net sales, compared to approximately 12% during the 26 weeks ended August 3, 2019. Consolidated same store sales increased 1.7% for the 26 weeks ended August 3, 2019.
Capital Allocation
On June 10, 2020, the Company reinstated its dividend program, declaring a dividend of $0.3125 per share on its Common Stock and Class B Common Stock. The dividend was paid on June 30, 2020.
On August 21, 2020, the Company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.3125 per share on the Company’s Common Stock and Class B Common Stock. The dividend is payable in cash on September 25, 2020 to stockholders of record at the close of business on September 11, 2020.
During the second quarter of 2020, the Company did not repurchase shares of its common stock. The Company may resume opportunistic share repurchases under its existing authorizations of $1.0 billion.
Full Year 2020 Outlook
As previously announced on March 19, 2020, the Company withdrew its fiscal 2020 outlook. The Company is not providing an updated outlook at this time.
Non-GAAP Financial Measures
In addition to reporting the Company’s financial results in accordance with generally accepted accounting principles (“GAAP”), the Company reports certain financial results that differ from what is reported under GAAP. These non-GAAP financial measures include consolidated non-GAAP net income, non-GAAP earnings per diluted share, and net capital expenditures, which management believes provides investors with useful supplemental information to evaluate the Company’s ongoing operations and to compare with past and future periods. Management believes that excluding non-cash debt discount amortization and the diluted shares from its convertible senior notes is useful to investors because it provides a more complete view of the economics of the transaction and the offsetting share benefit received from the convertible note hedge. Management also uses certain non-GAAP measures internally for forecasting, budgeting, and measuring its operating performance. These measures should be viewed as supplementing, and not as an alternative or substitute for, the Company’s financial results prepared in accordance with GAAP. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies. A reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP financial measures are provided below and on the Company’s website at investors.DICKS.com.
Fiscal 2020 Consolidated Same Store Sales
Consolidated same store sales include stores that were temporarily closed as a result of COVID-19. The method of calculating consolidated same store sales varies across the retail industry, including the treatment of temporary store closures as a result of COVID-19. Accordingly, our method of calculating this metric may not be the same as other retailers’ methods. For additional information on consolidated same store sales, please see our most recent Annual Report on Form 10-K, and any subsequent Quarterly Reports on Form 10-Q, filed with the Securities and Exchange Commission.
