IB Net Payout Yields Model

Dicks Starts Paying Dividends

Dicks Sporting Goods (DKS) has long been a favorite investment pick for Stone Fox Capital. Just search this blog and you'll see plenty of articles. Not to mention the recent post of the store openings in our area.

DKS reported strong earnings this morning and surprising established a dividend. DKS announced a $.50 dividend for 2011 payable on December 28th and plans to start a quarterly dividend in 2012. Does this mean that the growth story is over?

Hopefully is just means that with $483M in cash that DKS is over flowing with money and thinks dividends are the best way to reward shareholders. Unfortunately in the past it has signaled that companies lack growth opportunities to use that cash.

DKS is now in at least 43 states with the entry into Oklahoma at the beginning of November. Little growth opportunities exist in moving into new areas. Maybe it still has growth potential in existing states. The sporting goods industry does remain fragmented and less than 500 stores doesn't appear to be excessive. Looks like I need to undergo some research on this subject.

As an example, the Tulsa area just opened 3 stores and I could see maybe 1-3 more stores. At the least one to the North and one to the South. So if a metro area of less than 1M can support 5 stores than the whole US could support at least 1,000.  1,500 stores if just using a pure 300M population times 5. Something to ponder. 

Back to the earnings of this phenomonal retailer. DKS reported Q3 earnings of $.32 vs expectations of $.26. Easily surpassing estimates yet again. Maybe an investor should only become worried about the growth potential when DKS no longer beats estimates.

Details from the press release:

--Consolidated non-GAAP earnings per diluted share increased 45% to $0.32 per diluted share in the third quarter of 2011 as compared to consolidated non-GAAP earnings per diluted share of $0.22 in the third quarter of 2010
-- Consolidated same store sales increased 4.1% in the third quarter of 2011

-- Company raises full-year estimated non-GAAP earnings range from $1.94 to 1.96 per diluted share to a range of $2.01 to 2.03 per diluted share
-- Company declares an annual $0.50 per share dividend, payable on December 28, 2011
-- Company ended the third quarter of 2011 with $483 million in cash, without any outstanding borrowings under its credit facility

--On November 14, 2011 , the Company's Board authorized and declared an annual dividend for 2011 in the amount of $0.50 per share on the Company's Common Stock and Class B Common Stock.  The dividend is payable in cash on December 28, 2011 to stockholders of record at the close of business on December 7, 2011 . The Company currently intends to begin payments of regular quarterly dividends beginning in 2012; however, the actual declaration of such future dividends and the establishment of the per share amount, record dates and payment dates for such future dividends are subject to the final determination of the Company's Board, and will be dependent upon future earnings, cash flows, financial requirements and other factors.

--Based on an estimated 127 million diluted shares outstanding, the Company currently anticipates reporting consolidated earnings per diluted share of approximately $0.87 to 0.89 in the fourth quarter of 2011. In the fourth quarter of 2010, the Company reported consolidated non-GAAP earnings per diluted share of $0.76 , excluding litigation settlement costs.


Update 4pm - Via Conference Call transcript prepared by Seeking Alpha:

On the store expansion front, we have opened new Dick’s Sporting Goods stores at a rate of 8% this year. We expect this pace to increase slightly next year. Looking at the longer term, we believe we have the potential to open more than 400 additional stores over the next several years, giving us a total of at least 900 stores in the United States.

Guess that partially answers my question on store count. Plenty of room for growth. 

Disclosure: Long DKS. Please review the disclaimer page for more details. 


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