Shares of Dick's Sporting Goods (DKS -0.42%) dropped on Wednesday after the athletic goods retailer reported results for its fiscal second quarter. As of 1:45 p.m. ET, Dick's stock was down 6.7%, but it had been down by nearly 11% earlier in the session.
Higher sales and higher profits
In its fiscal Q2, which ended Aug. 3, Dick's same-store sales grew by 4.5%, which led to nearly 8% growth in its net sales. The company's net sales of $3.5 billion were better than expected, which helped boost profit margins -- a welcome development.
Besides the financial benefits that come from higher sales, Dick's profits also improved thanks to lower levels of shrinkage (inventory losses due to shoplifting, employee theft, and various types of fraud and errors). The company's net income rose by a whopping 48% year over year to $362 million.
In light of its strong Q2 results, management raised Dick's full-year profit outlook. The outlook for same-store sales was modestly higher. Consequently, management now expects earnings per share (EPS) of $13.55 to $13.90 whereas before it expected EPS of $13.35 to $13.75
So why is it down?
Apparently, raising its guidance wasn't enough to please investors looking at Dick's stock. Investors felt like management was being cautious, and given how many other retailers are worried about how the rest of 2024 will go, that left the market feeling pessimistic about Dick's as well.
I think investors are overreacting. The reality is that profits for Dick's were up, in part, because it was charging full price for more of its merchandise rather than relying on discounts. That's a huge deal for the company. Moreover, getting shrinkage under better control is a big deal too, considering other retailers are still struggling with it.
Overall, things look great for Dick's right now, and I believe the stock can return to its recent highs in the near future.
