Dicks Sporting Goods Surges On Stock Buyback

After trading down 2% in after hours due to a warning from competitor Big 5 Sports (BGFV), Dicks Sporting Goods (DKS) is up 11% now based on the announcement of a $200M stock buyback and reiterating of Q4 guidance.

It appears that most market participants were expecting at the least a earnings miss. Instead they got a big buyback to support the stock price. This is what happens when investors focus too much on the weak competition. Difficult to extrapolate too much especially when it's just a regional player as well.

DKS did lower the upper guidance by $0.01, but that wasn't a shock. Comps are now expected to be flat versus the original expectation of slightly up.

The buyback is interesting as I don't see DKS stock as incredibly cheap, but the company is one of the few retailers that has the cash on hand.


Per DKS PR:

• announced today that its Board of Directors has authorized a share repurchase program of up to $200 million of the Company's common stock over the next 12 months. (roughly 4%)
• expects consolidated earnings per diluted share to be $0.87 to 0.88 for the fourth quarter of 2011. 
• For full year 2011, non-GAAP consolidated earnings per diluted share are expected to be $2.01 to 2.02. The Company's fourth quarter and full year 2011 revised expectations compare to original guidance of $0.87 to 0.89 and $2.01 to 2.03, respectively, as previously disclosed in its press release dated November 15, 2011.
• expects fourth quarter 2011 consolidated same store sales to be slightly negative to slightly positive compared to the original outlook of flat to an increase of 1%.

With this news the stock is back over $40 and approaching the $41 closing highs from back in mid November. The gap is concerning, but many stocks lately are forming gaps and not filling them. At least not immediately. See Liz Claiborne (LIZ). 

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