Dicks Sporting Goods (DKS) Stock: Falls After Strong Earnings


Dicks Sporting Goods Inc (NYSE: DKS) is having a relatively rough day in the pre-market hours this morning, and it’s proving to be a bit of a surprise for many. The company reported its earnings for the third quarter, beating expectations and setting the stage for a strong Q4 based on guidance. However, with margins feeling some pain and expectations for 2018 earnings to fall by around 20%, investors are reacting negatively. Today, we’ll talk about what we saw from earnings, what we’re seeing from the stock, and what we’ll be watching for with regard to DKS ahead.

DKS Announces Earnings

As mentioned above, Dicks Sporting Goods released its financial results for the third quarter this morning, beating expectations on all fronts. Here’s what we saw from the report:

  • Earnings Per Share – In terms of earnings per share, DKS did overwhelmingly well. During the third quarter, it was expected that the company would generate earnings in the amount of $0.26 per share. However, the company beat expectations, announcing earnings in the amount of $0.35 per share. After adjusting for pretax gains, earnings came in at $0.30 per share with both figures beating expectations.
  • Revenue – Revenue also proved to be a strong figure for DKS. During the quarter, it was expected that the company would generate revenue in the amount of $1.89 billion. However, the company actually reported revenue in the amount of $1.94 billion.
  • Guidance – Finally, guidance proved to be yet another bit of positive news for Dicks Sporting Goods. For the fourth quarter, it is expected that the company will generate between $1.12 per share and $1.24 per share in earnings. At the moment, analysts are only expecting for the company to generate earnings in the amount of $1.10 per share.

In a statement, Edward W. Stack, Chairman and CEO at DKS, had the following to offer:

In the third quarter, we delivered earnings per diluted share and comp sales at the high end of our expectations, with continued double-digit growth in eCommerce. As expected, margins were under pressure in this highly promotional environment, but our strategy for this environment enabled us to continue to capture market share… As we look to the fourth quarter, we are comfortable with our prior implied sales and earnings outlook, and believe we are well positioned to gain additional market share.

Looking ahead, we see tremendous opportunity in our industry as it continues to evolve. We plan to make significant investments in our business, which will have short-term negative impact on our earnings; however, we expect these investments will pay meaningful dividends in the future. We plan to increase investments in our eCommerce business, the technology in our stores and store payroll in order to enhance the customer experience. Meaningful investments will also be made to DICK’S Team Sports HQ, and in the development and support of our private brands. Given these investments, continued gross margin pressure and approximately flat comp sales, we expect earnings per diluted share to decline by as much as 20 percent in 2018.”

What We’re Seeing From The Stock

Normally, when earnings and revenue come in ahead of expectations, we can expect to see gains in the stock. However, in this particular case, while earnings and revenue were positive, there are some big concerns with regard to margins, comp sales, and earnings in the year ahead. As a result, investors are reacting negatively to the report. Currently (9:11), DKS is trading at $24.91 per share after a loss of $1.41 per share or 5.36% thus far today.

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What We’ll Be Watching For Ahead

Moving forward, the CNA Finance team will continue to keep a close eye on DKS. In particular, we’re interested in following the company’s efforts to tackle a larger percentage of the market share in the promotional environment while staking claim to a stronger eCommerce presence. While their efforts are going to cost them, and 2018 isn’t likely to be a great year, these moves could be a major positive for the long run. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!

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