Dick’s embraces golf’s business reality while announcing Q2 sales rise, profit drop

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The conference call that Dick’s Sporting Goods executives held Tuesday to talk about the Findlay retailer’s second-quarter earnings sounded, at moments, like a press conference with a star athlete leaving the big game.

An Oppenheimer & Co. analyst noted that having PGA professionals in the sporting goods chain’s stores has long set it apart from competitors and he wondered if Dick’s blinked this summer by eliminating around 500 of those positions.

Edward W. Stack, Dick’s chairman and CEO, didn’t think so. “… As much as we all love golf, the business reality of it is that golf from a retail standpoint is under pressure, and we had to change that labor model to meet the demands and the sales.”

The company’s shares closed at $44.21 on Tuesday, up 70 cents or 1.61 percent.

Sales in the second quarter rose 10.3 percent, and profit dropped 17 percent for the three months ended Aug. 2. Dick’s management conceded that profit margins were hurt by clearance deals that boosted sales.

“We got very promotional from a golf standpoint to drive traffic in,” said Mr. Stack, who described the sport as in structural decline. “And we also put together a tent sale where we took some products and put them out in the tent and had a bit of a carnival, if you will, which certainly helped drive traffic into our store.”

A quarterly profit of $69.5 million, or 57 cents per share, compared to $84.2 million, or 67 cents per share, earned during the same period a year ago. Adjusted for charges taken to restructure the struggling golf business, net income of $81.7 million, or 67 cents per share, exceeded by 2 cents the average analyst estimate as calculated by Thomson Financial.

Dick’s took a $20.4 million pretax charge, in part to pay severance costs, but also to write down golf-related inventory and to acknowledge the reduced value of trademarks and store assets used in the golf business. The company said it has merged the back office operations of the Dick’s golf business and of its Golf Galaxy chain.

A few years ago, Mr. Stack said, golf represented 20 percent of the company’s business, including Golf Galaxy stores. Now that is down to about 15 percent, he said, and could drop to 10 percent in the next three or four years as sales in other areas grow.

He also said roughly 63 percent of Golf Galaxy leases come due in the next three years, which gives the company flexibility if it needs to close stores.

Total Dick’s sales hit $1.69 billion during the quarter versus $1.53 billion last year. Sales at stores carrying the Dick’s name open at least a year rose 4.1 percent, while the Golf Galaxy stores reported a comparable-store sales decline of 9.3 percent.

Mr. Stack emphasized that outside of the golf category and the hunting area — where ammunition sales can’t compare to previous quarters’ boosted as many gun owners rushed nationally to stock up — Dick’s did better. He said, excluding those two areas, sales in stores open at least a year rose 7.8 percent.

Women’s and youth athletic apparel sales have been strong, and the company expects to invest more there as it dials down its golf focus.

The retail industry is now in the midst of the back-to-school season and heading into the holiday season, two important parts of the sales year. CFO Andre J. Hawaux’s prepared remarks noted company officials expect consumers to stay cautious and retailers to keep offering promotions to win them over as the year progresses.

Dick’s still has golf inventory to clear out — good news for customers looking for deals on a club.

Mr. Stack, meanwhile, is embracing sports that offer new sales opportunities. Seven Field & Stream stores targeting outdoor activities like camping and fishing are slated to open in the third quarter — including one in the Old Mill Shopping Center in Washington, Pa. — bringing the chain to a total of 10 locations just a year after the company opened its first version in Cranberry.

Soccer also may have room to grow, based on sales this year tied to that sport’s championship event held once every four years. Mr. Stack said, “Our aggressive merchandising strategies resulted in average store sales of World Cup merchandise that were more than double the sales on an average store basis of the World Cup held in 2010.”

Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018. First Published August 19, 2014 9:21 AM

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