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DICK’S Sporting Goods Inc. DKS is expected to register year-over-year sales and earnings growth when it releases third-quarter fiscal 2023 results on Nov 21. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $3 billion, indicating a decline of 0.4% from the year-ago quarter’s reported figure.
The consensus estimate for fiscal third-quarter earnings is pegged at $2.41, which suggests a decline of 7.3% from the year-ago reported number. Also, the consensus mark has moved down by a penny in the past 30 days.
In the last reported quarter, the company delivered a negative earnings surprise of 25%. It has a trailing four-quarter negative earnings surprise of 0.22% on average.
DICK'S Sporting Goods, Inc. Price and EPS Surprise
DICK'S Sporting Goods, Inc. price-eps-surprise | DICK'S Sporting Goods, Inc. Quote
Factors to Note
Escalating operating costs and expenses amid a high inflationary environment have been weighing on DICK’S Sporting’s margin performance. The company’s operating margin is likely to have been affected by elevated inventory shrink, a highly serious issue facing many retailers. The company has also been witnessing higher SG&A rates, driven by investments in its hourly wage rates, talent and technology to support its growth strategies. The continuation of higher SG&A expenses and elevated inventory shrink is likely to have partly marred the company’s margins and the bottom line in the to-be-reported quarter.
On the last reported quarter’s earnings call, management anticipated gross margin growth in the back half of the year. The metric is likely to be affected by higher inventory shrink to the tune of 50 basis points. Also, the company expects to incur $20 million of severance expenses in the fiscal third quarter as it eliminated certain positions, particularly at its customer support center, as part of its business optimization efforts. These are likely to get reflected in the to-be-reported quarter’s margin performance.
As a percentage of sales, we expect SG&A expenses to increase 230 basis points (bps) to 25.3% in the fiscal third quarter. In dollar terms, SG&A expenses are expected to increase 9.4% year over year to $743.9 million. This is anticipated to have offset growth in the gross margin in the to-be-reported quarter. Our model predicts the adjusted operating margin to decline 100 bps to 10% in the fiscal third quarter.
Our model predicts comps for the third quarter of fiscal 2023 to decline 0.6%, whereas it reported growth of 6.5% in the year-ago quarter.
However, DICK’S Sporting has been benefiting from strength in its businesses, strong operational execution and store expansion initiatives. Strong growth in demand for its key product categories, driven by differentiated assortments across footwear, athletic apparel and team sports, has been aiding its top-line performance. Healthy transaction growth and higher average tickets have resulted in increased comparable store sales (comps).
The company’s compelling assortment and structural transformation initiatives have been beneficial in recent quarters. Gross margin rates have been benefiting from reduced merchandise margin rates due to the normalization of pricing activity from the prior year. Additionally, lower supply-chain costs have been aiding the gross margin performance. On the last reported quarter’s earnings call, management stated that the gross margin rate is likely to improve in third-quarter fiscal 2023.
We expect the adjusted gross margin to expand 140 bps year over year to 35.6% in the fiscal third quarter.