Dick’s Sporting Goods Inc. (DKS) The Henry Fund March 31, 2016

The Henry Fund
Henry B. Tippie School of Management
Nihar Patel [[email protected]]
Dick’s Sporting Goods Inc. (DKS)
Stock Rating
Consumer Discretionary—Specialty Retail—Sports
Investment Thesis
The specialty retailer industry is subject to the same risks and trends as the
retail industry at large, but certain sectors have shown more resilience.
Clothing, shoes, and expensive equipment remain products that consumers
tend to go into the store for, and those are Dick’s product categories. However,
the internet is still taking share away from brick-and-mortar as e-commerce
retailers try to change these consumer habits. Showrooming remains
prevalent. The sports retail industry has been a difficult one, and while Dick’s
remains the best in class the stock is fully valued, and in the long run may just
be the final victim of a shift online. Free shipping and free returns is
contributing to clothing and other sales moving online at a faster rate.
Risks to Valuation
 Dick’s has continued expanding as a way to drive revenue. This topline
growth with a fairly stable cost structure has not gone unnoticed and the
current price includes future store openings.
 Same store sales for 2016 are projected to be flat to growing by 2%. In 2015
same store sales declined 2% due to a warmer than expected winter. The
weak same store gains will become problematic if expansion stalls or is less
than successful.1
 Dick’s share price reacted positively, after an initial shock, to Sports
Authority going bankrupt. One less competitor and the chance for Dick’s to
pick up Sports Authority’s best locations. However, it is more likely to be
the case that Sports Authority’s decline was due to industry trends and not
due to being defeated by Dick’s.
 Vestis Retail Group, owner of Sport Chalet and other brands, has also
declared bankruptcy2 and Big 5 Sporting Goods has been closing stores.
Drivers to Valuation
 Dick’s has launched online stores for their brands. However, these remain
small compared to physical store sales. If online sales rise dramatically it
could shift the company into higher levels of growth.
 Cost of goods and Selling, General, and Administrative expenses have been
edging up. We model as a percentage of revenues at the end of the
forecast, COGS at 67.5% and SG&A at 23.5%. A decrease in these costs
would drastically change the trajectory of profits and share price.
Year
EPS
Growth
2013
$2.69
8.05%
Earnings Estimates
2014
$2.96
10.03%
2015
$2.83
-4.33%
2016E
$3.11
9.95%
2017E
$3.22
3.38%
12 Month Performance
DKS
10%
0%
2018E
$3.30
2.70%
S&P 500 TR
-10%
-20%
-30%
-40%
-50%
-60%
A
M
J
Data Source: Factset
J
A
S
O
N
March 31, 2016
D
J
F
Sell
Target Price
Henry Fund DCF
Henry Fund DDM
Relative PE (EPS15)
$44.00-$45.00
$44.40
$73.67
$51.37
Price Data
Current Price
52wk Range
Consensus 1yr Target
Key Statistics
Market Cap (B)
Shares Outstanding (M)
Institutional Ownership
Five Year Beta (Bloomberg)
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Book (mrq)
Profitability
Operating Margin
Profit Margin
Return on Assets (TTM)
Return on Equity (TTM)
DKS
BGFV
CAB
25
18.0
15.815.4
11.17
0
P/E
Data Source: FactSet
18.3
$47.09
$33.42-59.64
$49.29
$5.13
114.9
94%
0.851
1.4
12.0%
15.77
15.1
2.8
HIBB
7.47%
4.54%
9.45%
18.25%
18.25
7.8
10.4
ROE
11.88
7.5
8.1
2.6
Operating Margin
Company Description
Dick’s Sporting Goods Inc. is a retailer of sporting
equipment under its Dick’s Sporting Goods brand.
It also owns Field & Stream, Golf Galaxy, and True
Runner as specialized brands. Dick’s sells sporting
equipment, footwear, and apparel in its main
stores. Field & Stream has fishing gear and other
outdoor sporting equipment. Golf Galaxy sells
specialized golf products. True Runner sells
running gear. The Dick’s Sporting Goods branded
stores make up the vast majority of total stores of
the company. Dick’s is primarily focused on the
eastern United States.
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY
We believe Dick’s Sporting Goods Inc. is currently a sell.
Positive expectations are priced in, particularly after the
bankruptcy of Sports Authority. Despite an initial negative
reaction, the prospect of Dick’s receiving favorable terms
in picking up the best locations of Sport’s Authority as well
as less competition is seen as a positive. The current price
encapsulates this expectation, and if it does not pan out
the stock should decline.
Specialty retailers are not immune from the shift away
from brick-and-mortar stores. Shopping for clothes in
physical stores has remained commonplace. The shipping
expense of large and heavy equipment, such as weights,
has also kept people coming to stores. However,
ecommerce sites have been looking for ways to move
people online. Shipping costs have fallen, and websites
have been very detailed with their sizing information. With
free returns on clothing items, many retailers are hoping
to capture consumers looking for the convenience of
shopping online. This industry trend works against Dick’s,
whose e-commerce business is new and small. It is likely
that Sports Authority was a victim of this trend, as opposed
to being outplayed by a competitor.
Dick’s has been driving growth by expanding, which we
believe is priced in. Same store sales are fairly
unimpressive, and if Dick’s runs out of prime locations to
expand into growth would be dramatically reduced. This
expansion comes with costs of its own. Dick’s may be
expanding into a shrinking market. Sport Chalet’s owner is
considering bankruptcy in the wake of Sports Authority.
The positive trend in Dick’s individual performance and the
expectations for the future are priced in, but the industry
as a whole is showing weakness. Even the best companies
eventually succumb to the industry trend if they do not
change. For those reasons we are confident in our sell
rating for Dick’s Sporting Goods.
branded stores, and the company does not report these
separately. Dick’s offers a higher-end shopping experience
than competitors such as Sports Authority and Big 5
Sporting Goods.
Graphic: Dick’s Store Locations
Source: Bank of America Merrill Lynch Consumer and Retail Conference
Presentation – Dick’s Sporting Goods Investor Relations March 15, 2016
Revenue is broken into four buckets: hardlines, apparel,
footwear, and other. Hardlines comprises equipment such
as weights, workout machines, bats, and other equipment.
This is the largest portion of revenues. Apparel covers all
types of clothing sports, cold weather, workout, etc.
Apparel is the second largest portion of revenues.
Footwear covers the sneakers, running shoes, and other
sports shows. Other is just the catch all for other items
such as the impulse buy electrolyte gum and other
products that do not fit the other categories. Other is not
a significant part of the revenues, nor is the year-over-year
growth notable.
COMPANY DESCRIPTION
Dick’s Sporting Goods Inc. is a specialty retailer that sells
sports equipment, footwear, and apparel. The main brand
is Dick’s Sporting Goods of which there are 644 stores
nationwide. The three other brands are Field & Stream an
outdoor recreation store, True Runner for running gear,
and Golf Galaxy for golf equipment. These three specialty
brands comprise of 97 stores in total.3 Each segment
comprises a small part of revenues compared to Dick’s
Page 2
Dick's Revenue Breakdown 2015
19.30%
0.70%
44.89%
35.11%
Hardlines
Apparel
Source: Dick's Sporting Goods 10-k 2015
Footwear
Other
The highest concentration of stores is in the eastern
United States, though considering the population density
of the east compared to the Midwest and west coast it is
not surprising. Dick’s started off as an eastern US brand,
but now is in 47 states. The number of stores in California
is 41 and more are planned. However, only one of the
distribution centers is in the west, Arizona. Dick’s can be
considered a nationwide business.
In 2015, Dick’s opened 44 Dick’s branded stores and closed
3, and 11 new specialty stores with 8 closed down among
the specialty brands.3 With same store sales declining
around 2.5% in 2015, 100% of the revenue gains can be
attributed to new stores. We model 36 stores being added
in 2016. The company did indicate that it would open more
specialty retailers in addition to those 36.12 However, we
chose to assume a lower number this year on the
assumption that the recent bankruptcies will give the
company some pause. We will have to wait till the next
conference call to verify this.
In 2017 we model 45 stores based on integration of Sports
Authority stores and some other new store openings. The
auction will take place later in 2016, but we have those
stores contributing to revenues in 2017. By the last year of
our forecast period we are down to 5. The industry faces
severe pressure and constant openings of new stores will
give way to optimization of the existing store operations
and locations.
Number of Stores
900
Last year a smaller sports retailer called City Sports went
out of business after expanding into the suburbs.5 In the
wake of Sports Authority’s announcement, Vestis Retail
Group the parent company of Sport Chalet and a few other
brands announced that it sought bankruptcy protection. 2
This is occurring against a backdrop of Dick’s expansion.
Dick’s might be expanding in all the right places, but the
trends in the industry are working against the long-term
viability of the company. While bankruptcies present nearterm opportunities to add high value stores, the long-term
trends point to more business moving online.
Chelsea Collective
In 2015, Dick’s announced a new line of stores geared
toward women called Chelsea Collective, of which there
are 2. During the 4Q2015 earnings call the company did
not mention any expansion planned for this line. An
analyst asked about the line, and management gave no
indication of plans to open more stores. The company
does look to those stores to find successful brands for the
mainline Dick’s stores.1 The initial idea was for a dedicated
store for the fast growing female fitness segment. Dick’s
seemed to want to capture some of the sales that
Lululemon enjoyed, but the future of this line remains
unknown.
2015 Earnings Highlights
850
800
Dick’s saw revenue increase with all the new stores
opened, but same store sales fell by 2.5% in FY2015. This
was attributed to a warmer winter.1 Profits also declined
due to increased SG&A expenses associated with special
deals. Dick’s sought to drive volume to turnover inventory.
The warm weather meant people desired less winter gear.
The increase in SG&A does not appear to be a direct
response to competitors.
750
700
650
600
come out of bankruptcy due to its $1.1 billion debt.4 The
current plan is to sell or close one third, about 140, of the
stores.7 The company pointed out that losing sales to
online stores and failing to react to the decline in
popularity of golf as the reasons for its decline.
2013
2014
2015
2016
2017
2018
2019
Historical Data Source: Dick's Sporting Goods 2015 and 2014 10-K
2020
RECENT DEVELOPMENTS
Bankruptcies
The bankruptcy of Sports Authority,4 at one time the
largest sports retailer, has been the biggest news for the
industry. There is no guarantee that Sports Authority can
Dick’s ecommerce platform performed well growing by
19% and contributing $748 million to revenue.1 This is a
significant but small portion, 10.29% of total revenues. It
remains to be seen how much Dick’s can grow the online
business. Established online retailers such as Amazon do
Page 3
offer many of the same products, however the online
platform of a store like Dick’s is more focused.
With a net margin of around 4.5% in 2015 for Dick’s a few
sales lost to the internet in a locality can turn the location
unprofitable. If a competitor comes to town this can
happen even quicker. Credit Suisse recently noted that the
sports retail industry was over-saturated.6 Many retailers
have many stores, and Dick’s is still rapidly expanding.
Retailer
Dick’s Sporting Goods
Big 5 Sporting Goods
Cabela’s
Hibbett Sports
Sportsman’s Warehouse
Holdings
Sports Authority
Sport Chalet (All closed)
Eastern Mountain Sports
Source: Bank of America Merrill Lynch Consumer and Retail Conference
Presentation – Dick’s Sporting Goods Investor Relations March 15, 2016
INDUSTRY TRENDS
# of Stores
644
434
60
1025
66
460
51
65
# of States
47
11
31 + Canada
32
20
45
4
12
Source: Dick’s Sporting Goods 2015 10-k, Big 5 Sporting Goods
Company website, Cabela’s company website, Hibbett Sports
company website, Sportsman’s Warehouse Holdings 2015 10-k,
Sports Authority Company website, Sport Chalet company
website, and Eastern Mountain Sports company website
Even though Dick’s continues to expand into new markets
with physical stores it has been investing in ecommerce,
which is the main direction of the retail sector as a whole.
No Differentiation and Oversaturation
Sports retailers do not have much in the way of
differentiation. Dick’s offered a slightly higher end
shopping experience, the cost of which is incorporated
into SG&A, by having nicer interiors than Sport’s
Authority.11 Most of the sports stores are very large. Big 5
has smaller locations in strip malls, but Sports Authority,
Dick’s, Sport Chalet, and others tend to be larger. These
large stores need to be stocked with inventory, and
represent a substantial initial and ongoing expense. At the
same time the internet is a competitor in every location.
Offering different interiors, a better refund policy, or
better customer service are limited differentiators. The
products remain similar. Brands such as Nike and Under
Armour are in most stores. There are not many ways to
differentiate a 45lb weight plate between stores, when
each store carries a variety. A store like REI that has a
membership policy and functions as a co-op can
differentiate itself, but this is not replicable. The
membership model will also drive those members to REI’s
online platform if they decide not to go into the store.
Source: Bank of America Merrill Lynch Consumer and Retail Conference
Presentation – Dick’s Sporting Goods Investor Relations March 15, 2016
The number of potential stores that Dick’s thinks the US
can support seems excessive given the inability of
competitors to keep their doors open. No word is given on
how that number was derived, though it seems like an
estimate based on where it should fit into the list.
The United States is large, but there are a lot of players in
the sports retail industry. Dick’s is one of the most
successful, but its drive to expand opens itself up to a lot
of risk. Positive growth expectations are already priced
Page 4
into Dick’s stock, unless Dick’s bucks the industry trend
and does even better than expected with its expansion
plans there is no more upside to be had. Doing worse than
expected on the other hand would see the share price
decline further below our current negative target price.
Keeping in mind that Dick’s leases all of its locations it
would not have property sales to fall back on for liquidity
like Kmart did.
(1) DICK’S market share includes FY2014 sales from Golf Galaxy and
Field & Stream.
(2) Estimated $67 billion U.S. sporting goods market based on 2013
NSGA Equipment, Footwear and Apparel sales and 2013 NBDA Bike
sales.
Source: Dick’s Sporting Goods Investor Relations – Company
Information
Shift to ecommerce
Brick-and-mortar retailers have been struggling with the
shift to the internet for years now. Specialty retailers have
proven more resilient due to logistical issues and
consumer habits. However, these have started to shift.
Online retailers have tried to make shopping for clothing
online better by offering detailed sizing information as well
as free returns. Sports apparel is varied, but the aim is
function with fashion coming second. The barrier to
moving these sales online is probably lower than moving
other types of clothing online.
There also tends to be more innovation for sports apparel
and online platforms are better for pushing these more
experimental lines. For example, Columbia released a shirt
online that combined wicking technology with rubber
polymers sewn in which made the shirt feel cooler than
ambient temperature.
The shipping charges associated with heavy sporting
equipment also kept consumers coming to physical stores.
These charges are still an impediment to ordering
equipment online for cost conscious people, but more and
more retailers are offering free shipping. Costs of shipping
these items have also fallen dramatically due to the
agreements that retailers have made with shippers.
Amazon had implemented a way to schedule a specific day
and time window to receive large shipments from
specialized consignment shippers. These forms of
shipments are slower, sometimes taking a few weeks, but
the cost is far lower than traditional shippers like UPS. This
trend is realized via lost sales not increasing costs. Dick’s
does not have to offer better deals to compete with free
shipping, but it is more difficult to get a customer in the
store to make the sale.
Dick’s will probably offer free shipping via its online store
if it want to compete with the existing players. This will
lead to pressure on margins if it involves the large and
heavy hardline business. Apparel and footwear will not
have massive shipping charges. The greater risk is from lost
sales not declining gross margins, but if the company starts
competing on price those shipping perks could severely
damage the company’s finances. Differentiation will
continue to be an issue when online retailers like Amazon
and Walmart maintain a massive variety of options for
most products.
The trend in the industry is towards more ecommerce not
less. Dick’s recognizes this with their launching of online
platforms for their brands. The growth has also been
strong. The online space is extremely crowded as well.
Retailers like Amazon dominate the landscape. Walmart
has physical stores, but it sells many items online including
sports equipment that is not available in stores. Online
platforms allow these companies to simply act as
middlemen, processing the transaction between
consumer and manufacturer. Amazon does this through
the marketplace making it easy to order specific items
through Amazon’s online platform. Dick’s is focused on
opening new physical stores, and it has an uphill battle
online. The current share price incorporates a rosier
picture of the future than we believe is appropriate, hence
our sell recommendation.
Page 5
differentiation makes it hard to see how Dick’s will close
the gap in the online retail space.
Peer Comparisons
Dick’s is the largest of the sports retailers. Dick’s operates
nationally like Sports Authority did. Many of the other
companies focus regionally.
Source: Bank of America Merrill Lynch Consumer and Retail Conference
Presentation – Dick’s Sporting Goods Investor Relations March 15, 2016
MARKETS AND COMPETITION
Sports retail is in a precarious position. Online retailers are
extremely varied, but can compete just as effectively in the
industry. Additionally, manufacturers like Nike also
maintain their own stores to sell their products. The
suppliers of some of the products at Dick’s compete with
Dick’s directly for sales.
The internet has also allowed manufacturers to transact
directly with consumers. By cutting out the middlemen
they can offer favorable terms in price and shipping costs,
while potentially seeing more profit go directly to them.
No new entrants in the physical retail market are likely to
crop up, though that does not mean that existing retailers
cannot expand their product line to compete with
specialty stores like Dick’s. High competition among
retailers and numerous channels for suppliers to make
sales increases costs to the retailers. Dick’s is entirely in
the United States and pays a 35%+ tax rate due to state
taxes.3
When one considers how much power buyers have the
industry looks perilous. Even if brick-and-mortar
competitors fall away the power of suppliers and buyers in
this industry is likely to keep a cap on margins. Dick’s
appears to be growing successfully, but these broader
trends are a serious risk into the future. The lack of
Revenue and Profitability
Revenue
Net
($M)
Income
($M)
Dick’s Sporting Goods 7,270.97 356.93
Big 5 Sporting Goods
1,029.10
13.84
Cabela’s
3,997.70 189.33
Hibbett Sports
943.10
73.04
Sportsman’s
729.91
19.55
Warehouse Holdings
Sports Authority
Est.
3,200
Net
Margin
4.91%
1.34%
4.74%
7.74%
2.68%
Source: Yahoo! Finance
Margins as a whole for the industry are pretty low.
Considering the number of stores Dick’s has its margin is
impressive. For every store there are costs normally
included in SG&A but also expenses associated with
inventory management. In chasing topline growth Dick’s
runs the risk of sacrificing profitability. The sports retail
industry on the one hand looks saturated with a slew of
bankruptcies, but Dick’s continues to have success with its
expansion without compression margins drastically.
Cabela’s has a similar net margin, but far fewer stores
fittings its narrower focus. Hibbett operates smaller stores
and in small and mid-sized markets not served by the other
stores. That allows them to retain a little bit more margin,
but limits growth.
Dick’s Sporting Goods
Big 5 Sporting Goods
Cabela’s
Hibbett Sports
Sportsman’s
Warehouse Holdings
Source: Factset
Page 6
Key Stats
P/E
15.77
15.43
18.03
11.17
18.58
Operating
ROE
Margin
7.47% 18.25%
2.64% 7.77%
8.11% 10.39%
11.88% 22.19%
8.25%
N/A
Key statistics show that the companies in the space do not
differ drastically from one another, except for Big 5. This is
not surprising as Big 5 has been shrinking the number of
its stores.10 As Dick’s continues to expand west it will likely
place additional pressure on Big 5. Big 5 could be the next
company to suffer due to the broader industry trends.
Hibbett Sports has impressive net and operating margins,
but the market ascribes a lower value to the company. This
is likely due to the limited expansion opportunities for
Hibbett. It can be seen as a guide for what can occur when
a company reaches its saturation point. Hibbett aims for
small and mid-sized markets that are underserved. With so
many retailers expanding there may not be much growth
for Hibbett to capture in the future.
ECONOMIC OUTLOOK
The sports retail industry is subject to the same economic
forces that the retail industry is affected by.
Unemployment, wage growth, inflation, consumer
sentiment, and the price of oil have an impact. Since Dick’s
is focused only in the United States, it is the only market
that needs to be considered.
The US economy has been improving despite the turmoil
in the stock market following every Federal Reserve
meeting. The labor market is improving, though the
headline unemployment rate can be misleading. Job
growth can be significant, but the unemployment rate
might stay high due to more people coming back into the
work force. There are signs that the United States is
showing real wage growth, which would be a dramatic
shift from the previous decade. All that bodes well for
retailers, and should bolster consumer sentiment.
The low price of oil has a two-fold impact of increasing
consumer discretionary income as well as lowering the
transportation cost of goods. Oil is not likely to have a
massive immediate effect with its fluctuations, but savings
for the average consumer can translate into increased
spending. We see the price of oil stabilizing at $40-$50,
which should continue to gives consumers some extra
money to spend.
It would be difficult to predict the specific trends affecting
sports retail. It would be pure speculation to assume that
people will start playing more sports. While the long-term
health issues plaguing the United States population
continue to be high on the agenda, there is no way to tell
if this will have an impact on spending in the sports stores.
One of the other economic indicators to keep an eye on is
home purchases, construction, as well as square footage.
The major hardlines business consists of sports equipment
that would be used to create a home gym as well as
equipment needed to play sports. People are not likely to
spend substantially creating any kind of home gym in an
apartment aside from an individual machine. However, if
the trend among the next generation is smaller houses or
condominiums it could be a sign of the consumer side of
exercise equipment falling out of favor.
CATALYSTS
Purchase of Sports Authority stores could lead to
increased costs for Dick’s as it remakes the stores to fit its
image. Though this would primarily involve assumption of
the lease so Dick’s can take over the location, and possibly
the inventory. More information about the auction will be
available as it gets closer. Dick’s does not own its stores or
build new buildings to suit its needs and there is no reason
to assume it would start now.
Promotions to drive traffic to these newly branded stores
could also eat into profits. If costs continue to increase,
and same store sales growth remains lax the company
could see increased pressure on its margins.
Dick’s present price has no upside given its fundamentals,
and interest rate policy will not change that. The risks
highlighted here might be realized and send the share
price falling. The current price incorporates positive trends
as if they had already happened, unless the reality
outpaces the expectation there is only downside to be had.
We believe that expectations are on the mark or below,
which supports a sell recommendation.
The Summer Olympics are in 2016, and this may see a
renewed interest in sports and exercise that could present
a windfall for Dick’s. As the major sports retailer it could
capture significant revenue from a population entranced
by the games. However, there is no way to project the
impact that the games would have.
The last games were in 2012, and nothing about the
revenue seems out of the trend compared to the year
before and the year after. We will not go out on a limb and
think that the Olympic Games will create so much
additional revenue as to transform Dick’s into a
Page 7
monstrously profitable firm. The likelihood is that it will
create a strong quarter of revenue, but the annual trend
will remain intact.
INVESTMENT POSITIVES
 Dick’s continues to expand aggressively compared to its
competition, and has seen revenue grow with each new
store. Margin has not been sacrificed to achieve this.
 The expansion strategy has been successful at
consistently growing revenues despite same store sales
being flat. That points to a solid process in evaluating
new locations.
 Competitors are facing many difficulties, and the recent
bankruptcies have removed competitors. Dick’s may
have to offer fewer and lesser promotions in the future
removing one of the largest costs for the company. At
the same time Dick’s can pick up the best locations of
previous competitors at lower cost.8
 The ecommerce platform is growing strongly. The shift
online is critical as the internet presents the greatest
existential threat to the brick-and-mortar stores. A
strong online presence is needed if the company is to
survive. However, the flexibility of online platforms
means that competitors in that space are varied and
already entrenched.
INVESTMENT NEGATIVES
 A slew of bankruptcies are driven by shifts of sales
online as well as changes in underlying trend. Online
platforms have the benefit of carrying less inventory,
but Dick’s big box stores cannot remain empty in case
the trend changes. This presents a risk to physical
stores not shared by online retailers. Fewer
competitors might make the industry easier to navigate
for the remaining players, but the likelihood is that the
pie is shrinking as the internet sales pie grows.
 Margins in the industry are extremely thin. The power
of sellers and buyers is significant. Dick’s cost of goods
sold has been edging up. Suppliers present competitors
as well. Many have their own physical stores, and most
have online stores. This overlap keeps a lid on how
much margin Dick’s can squeeze out, as does the ability
of buyers to shop at different outlets. Promotions are
very common and necessary in retail. Every holiday
presents the chance for a sale to try and drive profits by
volume instead of margin. However if that volume fails
to materialize it can create problems. In apparel and
footwear excess inventory can quickly become out of
date inventory that takes up space on clearance racks
generating almost not profit for the company, while
cannibalizing higher margin sales.
 The industry as a whole is overloaded with stores.
Dick’s has done well with opening new stores, but the
recent slew of bankruptcies raise concerns about the
viability of continued expansion. Some companies like
Big 5 have almost as many stores as Dick’s but in a
narrower region. Others like Hibbett capture
consumers from smaller markets where a big retailer
like Dick’s cannot be located in. If Dick’s continues
expanding beyond the saturation point it could see
significant declines in profitability.
 The current share price has priced in a rosy picture of
the future where Dick’s continues expanding with less
competition, while picking up stores from defeated
rivals. There is still a chance of failure from these
endeavors. Continued expansion may compress
margins further as Dick’s meets with less success. The
market seems positive on Dick’s and the stock market
as a whole after the Fed’s policy shift. We believe the
upside is priced in, therefore our recommendation is a
sell to benefit from this expectation even if it fails to
materialize.
VALUATION
Revenue Growth
Dick’s revenue growth tends to fluctuate. This can be due
to many different factors. In 4Q2015 a warm winter was
blamed for declining same store sales. New store revenue
helped boost the growth rate for the year. The model
reflects opportunities and threats from the recent slew of
bankruptcies by having less stores open as time moves
forward. We also forecast revenue per store staying very
close to current levels. New growth from expansion tapers
off and same store sales do not increase significantly.
Some of the store expansion can be seen as a stand in for
the growth of the online business. Given how Dick’s
currently reports its revenue it would be difficult to add
online revenue as a part of the existing revenue forecast.
2013
2014
2015
Dick’s Revenue Growth
Source: Dick’s Sporting Goods 2015 10-K
Page 8
6.46%
9.67%
6.71%
The irregular pattern makes forecasting a trend a little
difficult, but we have taken an approach of assuming a
revenue growth rate that declines steadily. The
bankruptcies in the industry point to limited expansion in
the future, and same store sales are weak. We projected a
5.65% growth rate in 2016.

Revenue Growth Rates
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Hardlines
Apparel

Footwear
Source of Historical Data: Dick's Sporting Goods 10-k 2015, 2014, 2013
Revenue growth rates are based on the number of new
stores, as well as product segment revenue per store. This
method treats all stores as equal, and gives new stores
revenue attributed to existing stores. To compensate for
this we limit same store sales. Management has signaled
that same store sales are expected to be 0% to 2%. We
assume a very modest rise in product segment per store.
It is the store number that is the key to revenue growth, as
explained in an earlier section. Note that inventory is also
a function of new stores and inventory per store, about $2
million inventory per store.


Revenue by Product Segment per Store ($M)
2016 (Beg Forecast) 2020 (End Forecast)
Hardlines
4.45
4.50
Apparel
3.45
3.50
Footwear
1.91
2.00
Other
0.07
0.08
Historical Data Source: Dick’s Sporting Goods 2015 10-K
Key to Revenues:

Growth in hardlines has been strong, and that revenue
bucket is the largest. For 2015, the growth rate was
9.09% and for 2016 we project 5.93%.
Apparel has been a strong driver of revenue growth
and is the second largest bucket. However, in 2015
growth declined to 3.74% from 12.68% in 2014. We
project 2016 growth at 5.0% due to the number of
stores opened and the sales per store in apparel. This
number tapers to 2% by the end of the forecasting
period. Apparel might be considered an opportunity
by some analysts, but we do not feel it will stand out.
We may be giving too much weight to the most recent
results and the warmer than expected winter in 2015.
However, while the winter was on average slightly
warmer it was one of heavy snow in the northeast. It
was cold enough to require winter weather gear. It
was not a winter of above freezing temperature
throughout. Considering that future growth is taking
place in the West and Southwest winter is likely to play
a smaller role. If Dicks relies on winter gear sales that
heavily it will likely not see such large percentages in
the future now that its exposure to states with real
winters is lessened.
Footwear growth is projected to be 6% in 2016, down
from 6.61%% in 2015. This is in and around the trend
set previously, and we project a slowly declining
growth rate at first to a larger decline later. Footwear
is rapidly shifting online, and companies like Nike are
offering a whole suite of tools to choose and
customize shoes online. This trend is only likely to
intensify going forward.
Other revenues were not significant as a percentage of
the total and we simply had the rate decline to fall in
line with our long term growth rate over the 5-year
forecasting period.
Store growth is based on the company’s own
projections, modified to meet our expectations. 2016
is shaking out to be a more conservative year for store
growth due to the bankruptcies. Dick’s expects to
acquire some Sports Authority stores, but we do not
expect these stores to become relevant until 2017,
since the auction is happening later in the year and it
will take some time to make it a Dick’s branded store.
For 2016, we expect 36 stores, and 2017 we expect 45.
Since we assume that each store makes revenue like a
veteran store as soon as its opened we have to be
careful in how we space out the expansion.
Cost of Goods Sold
Unlike revenue growth, cost of goods sold as a percentage
of revenues has a more stable trend. In 2015, COGS were
Page 9
67.32% of revenues up from 66.71% in 2014 and 66.26% in
2013. That slow uptick in COGS as a percentage of
revenues appears small, but sensitivity analysis shows that
profit and target share price are changed if we alter the
number slightly. This is especially true of the assumed
continuing COGS/Revenue percentage. A 0.1% change in
this rate changes the target share price by about $1.
We project COGS increasing to 67.5% for our forecasting
horizon. Notice that these assumptions show no increases
in the rate contrary to the historical year to year increases.
We have created the model under the assumption that
Dick’s will start to manage costs more carefully. In the
wake of the recent bankruptcies the company cannot
simply pursue expansion across the country as the only
way to drive performance.
Selling, General, and Administrative Expense
SG&A is a major expense for the company. All promotions
that are not encompassed in cost of goods sold are
accounted for here. All of Dick’s stores are also under longterm operating leases, and SG&A includes these costs as
well. When Dick’s wants to relocate or close a store it must
wait for the lease to expire, sublease, or assign the lease
to another party. Their lease contracts may have buyout
clauses as well. The absence of significant cost related
information regarding relocated or closed stores signals
that it is not a significant impediment to the company’s
efforts to optimize.
SG&A expense as a percentage of revenue in 2013 was
22.61%, 22.44% in 2014, and 22.66% in 2015. Our
projections only increase this number slightly to 22.75% in
2016. Sensitivity analysis shows that small changes do
have a significant impact. In just the final year a 0.25%
change in SG&A expense has an impact of over $2 on the
target share price. We are comfortable with a small
increase due to the weak growth in 4Q2015. The company
is likely to do more promotions in 2016 to avoid having
such an issue again. Also, the Olympics are likely to see
some additional promotions over the summer to capitalize
on the games. In 2017 and beyond, we project a 23% rate
for SG&A/Revenue. This is to incorporate an increasingly
difficult environment as sales shift to the internet. Dick’s
will have to do more to drive people to their stores.
The SG&A forecast makes small but significant
assumptions. We keep projecting a worsening cost
structure, though one managed by the company. We also
negate any benefits on the side of costs associated with
fewer competitors. It is our belief that the other
companies were damaged by the industry trend, and not
due to aggressive tactics by players such as Dick’s.
Property, Plant and Equipment
Dick’s Net PPE number if calculated by taking the 2015 Net
PPE number and dividing it by stores at the end of 2015.
This amounts to $1.82 million per store. We increase this
to $1.85 and peg balance sheet Net PPE to number of
stores. This number has been edging up from about $1.60
million per store in 2013 to $1.70 million per store in 2014,
but much like the COGS assumption we assume that this
number will flatten out as Dick’s manages costs better. For
Net PPE for each new store to increase indefinitely is not a
realistic assumption.
Continuing Growth Assumptions
Using the McKinsey approach to valuation, net operating
profit less adjusted taxes (NOPLAT) feeds into the
discounted cash flow model that is used to derive the
target price. After the forecast period we estimate a
continuing NOPLAT growth amount. We estimate NOPLAT
growth at 1% due to the pressures on the company, and
the likelihood that it would grow below the US GDP rate.
Competition from its own suppliers and the shift to the
internet will continue to weigh on Dick’s.
Sensitivity analysis shows us that raising the rate to 2%
gives us a target price of $52.48. If the rate is 0%, assuming
no growth, the target price falls to $39.32. The continuing
growth rate is absolutely critical. The projection for same
store sales in 2016 is 0% to 2% growth. By the end of our
forecast period, there will be limited to no expansion that
same stores sales number will be critical. It should be
noted that in the company’s results the same store growth
rate does include online platforms. We feel that the 1.75%
growth rate is a realistic one. However, if pressed to
choose if it was optimistic or pessimistic the likelihood that
the rate is too high is greater than the likelihood of it being
too low. We feel comfortable with that statement due to
the difficulties facing the industry.
Consensus
According to Factset’s aggregation of analyst estimates,
the target price is $49.29. Our model has a lower target
than this due to our incorporating more pessimistic
Page 10
assumptions about the future, though we argue these are
more realistic. Our valuation model’s sales forecast is
below the consensus estimates, and the divergence
increases the further into the forecast. This is also true for
EPS, though that can be affected by forecasted buybacks.
Analyst consensus estimates seem to project improving
margins further into the forecast, contrary to the historical
trend. We feel it is more realistic to flatten them out, since
there is no evidence that they can decline or to what level.
An assumption that management will try to boost margins
must be balanced against the likelihood that it can be
done. Given the difficulties facing the industries if margins
can be boosted by simple desire many would have done
so. The rapid expansion of Dick’s will also make it hard to
boost margins without lowering the costs of goods sold.
Dick’s avoids overlapping their store territories. Expansion
without cannibalization is the goal.
Once leases are signed the company will have little ability
to reduce these expenses. The company has to pressure
suppliers or charge more, and nothing about the industry
suggests that it has the clout to do either.
Alternative Valuations
The dividend discount model gives us a price target of
$73.67, which suggests a lot of upside Due to the
forecasting of EPS being shifted by buybacks and options,
the DDM model must be taken with some salt. We assume
that the dividend will grow 10% in 2016 just like 2015,
which is a significant assumption since the 10% increase
was the first of its kind. Many prior years had no such
increase. For the three years stretching from 2017-2019
we assume a 5% increase per year. The final year has a 3%
growth rate and this is the continuing value we assume.
There is no reason to assume greater growth rates given
the difficulties facing the industry. The 3% continuing
growth rate was chosen as an ideal nominal GDP growth
rate for the country, which the dividend would try to keep
pace with. The dividend payout ratio in 2015 was 19.59%,
and by the end of the forecasting period in 2020 the ratio
increased slightly to 21.12%.
Relative valuation can offer some insight. The comparison
companies were Best Buy, Staples, Bed Bath & Beyond,
Office Depot, Big 5, Barnes & Noble, Cabela, and Hibbett
Sports using Factset consensus data for EPS growth and 5
year growth for those companies. There are some issues
when using these estimates, particularly the shifts in EPS
due to buybacks. Dick’s announced a $1 billion buyback
plan during the 2015 earnings to be completed over the
next 5 years. There is also about $187 million remaining on
the last buyback plan, which must be completed by the
end of the current year.9
Implied Value:
Relative P/E (EPS15)
Relative P/E (EPS16)
PEG Ratio (EPS15)
PEG Ratio (EPS16)
Data for Estimates: FactSet
$
$
$
$
49.93
41.81
32.17
29.10
The DCF method is the best method to value Dick’s.
Relative valuation gives a price fairly close to the current
price, and not so far above our DCF target price. Relative
valuation presents some issues, but it is useful to note that
it does not suggest that Dick’s is extremely over- or undervalued.
KEYS TO MONITOR
More bankruptcies would be the most significant news in
the near term. While investors and traders may have
eventually seen the positive side in Sports Authority’s
chapter 11 if more companies follow suit it might signal a
deeper issue. We believe that deeper issue is already
playing itself out, and Dick’s is currently outpacing this
trend. Eventually it will fall in line with it unless something
changes.
Keeping an eye on revenue growth and costs is important.
The model shows that Dick’s share price is very sensitive
to changes in these. If costs continue to rise as a
percentage of revenues it would present massive
problems for the company. Margins are already low and
rising costs could start bleeding away profits.
We have not extensively looked at inventory levels, since
they appear to be managed well. However, a significant
increase in inventory levels coupled with falling profit
could pose a significant problem. The balance sheet does
not show a lot of liquid assets to cover costs if inventory
starts turning over slower. Dick’s is not a company that can
take significant hits to cash flow on a regular basis. Should
it misstep in its expansion or find itself on the wrong end
of another winter it would raise a small warning flag.
However, a liquidity crisis is not imminent. The company
does have a $1 billion revolving line of credit it can tap.3
Page 11
A decaying US economy would also be a major cause for
concern, though if the economy starts growing even more
rapidly it is an open question whether Dick’s would benefit
at the same rate. When it comes to macroeconomics it is
likely that Dick’s experiences an asymmetrical effect. Bad
news is always felt, but good news may not lead to
windfalls.
It is not certain what would cause Dick’s to become a buy.
This story is not one of failure. Instead, Dick’s has done
well and the market has recognized this. The future is
priced into the stock, so there is no more upside to be
gained by holding the stock. If expectations regarding new
stores, revenue, and costs are exceeded it would suggest
a higher target price. We find this unlikely.
REFERENCES
1. Dick’s Sporting Goods Q4 2015 Results - Earnings Call
Transcript: http://seekingalpha.com/article/3956792dicks-sporting-goods-dks-edward-w-stack-q4-2015results-earnings-call-transcript?part=single
2. Vestis Retail Group Initiates Chapter 11 Proceedings
by Lillian Rizzo and Jacqueline Palank – The Wall
Street Journal – Apr 18, 2016:
http://www.wsj.com/articles/vestis-retail-groupinitiates-chapter-11-proceedings-1460981518
3. Dick’s Sporting Goods 10-k for 2015:
http://api40.10kwizard.com/cgi/convert/pdf/DKS20160325-10K20160130.pdf?ipage=10837204&xml=1&quest=1&rid
=23&section=1&sequence=-1&pdf=1&dn=1
4. Sports Authority files for bankruptcy protection – USA
Today – March 2, 2016:
http://www.usatoday.com/story/money/2016/03/02
/sports-authority-files-chapter-11bankruptcy/81199502/
5. City Sports’ move into suburbs to blame for
bankruptcy, CEO says – Boston Globe – November 5,
2015:
https://www.bostonglobe.com/business/2015/11/05
/city-sports-move-into-suburbs-blame-for-millionbankruptcy-sale-ceosays/hMauRBO0VHLzZPBnsJYoMO/story.html
6. There are too many sporting goods stores and not
enough customers – MarketWatch – April 7, 2016:
http://www.marketwatch.com/story/how-muchdoes-dicks-sporting-goods-benefit-when-rivals-shutstores-2016-04-06?siteid=yhoof2
7. Sports Authority is bankrupt and closing 140 stores –
CNN Money – March 2, 2016:
http://money.cnn.com/2016/03/02/news/companies
/sports-authority-bankruptcy/
8. Dick's Considers Buying Sports Authority Stores March 8, 2016:
http://www.foxbusiness.com/features/2016/03/08/d
icks-considers-buying-sports-authority-stores.html
9. Bank of America Merrill Lynch Consumer and Retail
Conference Presentation – Dick’s Sporting Goods
Investor Relations March 15, 2016:
http://investors.dicks.com/~/media/Files/D/DicksSports-IR/reports-and-presentations/baml-2016presentation.pdf
10. Why Shares of Big 5 Sporting Goods Corp. Slumped
Today – Motley Fool – March 2, 2016:
http://www.fool.com/investing/general/2016/03/02/
why-shares-of-big-5-sporting-goods-corp-slumpedto.aspx
11. Why the Sports Authority Bankruptcy Is Good News –
Fortune – March 2, 2016:
http://fortune.com/2016/03/02/bankruptcy-sportsauthority/
12. Dick’s Sporting Goods touts omnichannel success and
new store growth by Mike Troy – Chain Store Age –
Mar 8, 2016:
http://www.chainstoreage.com/article/dickssporting-goods-touts-omnichannel-success-and-newstore-growth
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Page 12
Fund may hold a financial interest in the companies
mentioned in this report.
Page 13
Dicks Sporting Goods
Revenue Decomposition
Fiscal Years Ending Jan. 30
Hardlines
% of Revenues
YoY Growth
Apparel
% of Revenues
YoY Growth
Footwear
% of Revenues
YoY Growth
Other
% of Revenues
YoY Growth
Total Revenues
YoY Growth Revenue
Cogs %
SG&A %
Number of Stores
# of Stores Opened
Growth of Stores
Hardlines Rev per Store
Apparel Rev per Store
Footwaer Rev per Store
Other Rev Per Store
PV of Operating Leases
+PV of Interest on Op Leases
PV of Operating Leases/Stores
PV of Interest on Op Leases/PV of Op Leases
$
$
$
$
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2,763.00
44.47%
-6.78%
2,184.00
35.15%
29.61%
1,222.00
19.67%
6.26%
44.00
0.71%
19%
6,213.00
6.46%
66.26%
22.61%
2,992.00
43.91%
8.29%
2,461.00
36.12%
12.68%
1,316.00
19.31%
7.69%
45.00
0.66%
2%
6,814.00
9.67%
66.71%
22.44%
3,264.00
44.89%
9.09%
2,553.00
35.11%
3.74%
1,403.00
19.30%
6.61%
51.00
0.70%
13%
7,271.00
6.71%
67.32%
22.66%
3,457.65
45.01%
3,657.90
44.86%
3,834.00
45.05%
3,901.50
45.00%
3,924.00
44.65%
2,680.65
34.89%
2,835.90
34.78%
2,939.40
34.54%
2,991.15
34.50%
3,052.00
34.73%
1,487.18
19.36%
1,598.14
19.60%
1,670.96
19.63%
1,710.28
19.72%
1,744.00
19.84%
56.61
0.74%
62.56
0.77%
66.36
0.78%
67.92
0.78%
68.87
0.78%
7,682.09
5.65%
67.50%
22.75%
8,154.50
6.15%
67.50%
23.00%
8,510.72
4.37%
67.50%
23.25%
8,670.84
1.88%
67.50%
23.50%
8,788.87
1.36%
67.50%
23.50%
642
694
52
8.1%
$
4.31
$
3.55
$
1.90
$
0.06
2,894.16
609.73
4.17
21.07%
741
47
6.8%
$
4.40
$
3.45
$
1.89
$
0.07
3,072.84
661.59
4.15
21.53%
777
36
4.9%
$
4.45
$
3.45
$
1.91
$
0.07
3,185.70
685.89
4.10
21.53%
822
45
5.8%
$
4.45
$
3.45
$
1.94
$
0.08
3,370.20
725.61
4.10
21.53%
852
30
3.6%
$
4.50
$
3.45
$
1.96
$
0.08
3,493.20
752.09
4.10
21.53%
867
15
1.8%
$
4.50
$
3.45
$
1.97
$
0.08
3,554.70
765.34
4.10
21.53%
872
5
0.6%
4.50
3.50
2.00
0.08
3,575.20
769.75
4.10
21.53%
4.30
3.40
1.90
0.07
2,815.61
602.81
4.39
21.41%
5.93%
5.00%
6.00%
11.00%
5.79%
5.79%
7.46%
10.52%
4.81%
3.65%
4.56%
6.06%
1.76%
0.58%
1.76%
2.03%
2.35%
1.97%
2.35%
1.40%
$
$
$
$
Dicks Sporting Goods
Income Statement
Fiscal Years Ending Jan. 30
Income Statement
Sales
COGS excluding D&A
Depreciation & Amortization
Gross Income
SG&A Expense
EBIT (Operating Income)
Other Income (Expense)
Interest Expense
Unusual Expense - Net
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
6,213.17
6,814.48
7,270.97
154.93
179.43
193.59
7,682.09
5,185.41
216.84
2,279.84
1,747.68
532.16
532.16
200.97
331.19
8,154.50
5,504.29
231.25
2,418.96
1,875.54
543.43
543.43
205.22
338.20
8,510.72
5,744.73
244.64
2,521.34
1,978.74
542.60
542.60
204.91
337.69
8,670.84
5,852.82
253.57
2,564.45
2,037.65
526.80
526.80
198.95
327.86
8,788.87
5,932.49
258.04
2,598.35
2,065.38
532.96
532.96
201.27
331.69
3.11
106.48
0.61
3.22
105.18
0.64
3.30
102.26
0.67
3.29
99.58
0.70
3.42
97.12
0.72
4,116.60
4,545.98
4,894.48
1,941.65
2,089.07
2,182.89
536.81
560.03
535.19
1,404.84
12.22
2.93
0.00
1,529.04
19.60
3.22
20.40
1,647.70
-0.31
4.01
0.00
Pretax Income
546.11
556.01
530.88
Net Income
337.60
344.20
330.39
2.69
2.96
2.83
Income Taxes
EPS (recurring)
Total Shares Outstanding
Dividends per Share
208.51
120.97
0.50
211.82
118.11
0.50
200.48
111.80
0.55
Dicks Sporting Goods
Balance Sheet
Fiscal Years Ending Jan. 30
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Cash & Short-Term Investments
Short-Term Receivables
Inventories
Other Current Assets
Total Current Assets
181.73
68.05
1,232.07
138.22
1,620.07
221.68
94.59
1,390.77
143.35
1,850.38
118.94
66.83
1,527.19
99.74
1,812.69
189.95
70.68
1,554.00
99.74
1,914.37
389.00
75.02
1,644.00
105.38
2,213.41
478.77
78.30
1,704.00
111.86
2,372.92
575.69
79.77
1,734.00
116.75
2,506.21
712.97
80.86
1,744.00
118.94
2,656.77
Net Property, Plant & Equipment
Net Goodwill
Net Other Intangibles
Deferred Tax Assets
Other Assets
Total Assets
1,084.53
200.59
98.26
2.48
65.56
3,071.49
1,203.38
200.59
110.16
1.86
69.81
3,436.20
1,347.89
200.59
109.44
6.17
82.56
3,559.34
1,437.45
200.59
87.55
4.93
87.23
3,732.13
1,520.70
200.59
65.66
3.70
92.59
4,096.66
1,576.20
200.59
43.78
2.47
96.64
4,292.60
1,603.95
200.59
21.89
1.23
98.46
4,432.33
1,613.20
200.59
0.00
99.80
4,570.36
Liabilities & Shareholders' Equity
ST Debt & Curr. Portion LT Debt
Accounts Payable
Income Tax Payable
Other Current Liabilities
Total Current Liabilities
0.90
562.44
19.83
419.42
1,002.59
0.54
614.51
73.85
429.93
1,118.83
0.59
677.86
39.84
473.39
1,191.68
0.00
729.80
39.93
500.15
1,269.88
0.00
774.68
40.78
530.91
1,346.37
0.00
808.52
40.71
554.10
1,403.34
0.00
823.73
39.53
564.53
1,427.79
0.00
834.94
39.99
572.21
1,447.15
Long-Term Debt*
Deferred Tax Liabilities
Other Liabilities
Total Liabilities
6.48
38.62
331.63
1,379.31
5.91
44.49
426.16
1,603.97
5.32
6.45
566.70
1,770.15
0.00
5.16
598.74
1,873.79
0.00
3.87
635.56
1,985.80
0.00
2.58
663.32
2,069.24
0.00
1.29
675.80
2,104.88
0.00
685.00
2,132.15
Common Equity
Retained Earnings
Other Appropriated Reserves
Treasury Stock
Total Shareholders' Equity
Total Liabilities & Shareholders' Equity
960.15
1,187.51
0.02
-455.51
1,692.18
3,071.49
1,016.59
1,471.18
-0.07
-655.47
1,832.23
3,436.20
1,064.82
1,737.21
-0.18
-1,012.67
1,789.19
3,559.34
1,254.15
2,003.98
-1,399.79
1,858.34
3,732.13
1,435.28
2,275.37
-1,599.79
2,110.86
4,096.66
1,478.30
2,544.85
-1,799.79
2,223.36
4,292.60
1,524.28
2,802.97
-1,999.79
2,327.45
4,432.33
1,573.41
3,064.59
-2,199.79
2,438.21
4,570.36
Assets
*Assume Debt is paid off due to small amount to make
forecasting simpler, since these are not bonds nor line of credit
Dicks Sporting Goods
Historical Cash Flow Statement
Fiscal Years Ending Jan. 30
Operating Activities
Net Income / Starting Line
Depreciation, Depletion & Amortization
Deferred Taxes & Investment Tax Credit
Receivables
Inventories
Accounts Payable
Income Taxes Payable
Other Assets/Liabilities
Net Operating Cash Flow
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
337.60
154.93
24.56
-9.69
-135.88
11.68
-13.36
40.35
403.87
344.20
179.43
-6.26
1.80
-158.70
81.33
32.48
115.08
605.98
330.39
193.59
9.24
-6.41
-136.42
34.23
7.16
183.45
643.51
331.19
216.84
-0.06
-3.85
-26.81
51.93
0.10
54.14
623.49
338.20
231.25
-0.06
-4.35
-90.00
44.88
0.85
56.57
577.35
337.69
244.64
-0.06
-3.28
-60.00
33.84
-0.06
40.43
593.20
327.86
253.57
-0.06
-1.47
-30.00
15.21
-1.19
16.20
580.13
331.69
258.04
-0.06
-1.09
-10.00
11.21
0.46
13.35
603.60
Investing Activities
Capital Expenditures
Net Investing Cash Flow
-285.67
-339.18
-349.01
-305.02
-370.03
-372.43
-284.52
-284.52
-292.61
-292.61
-278.25
-278.25
-259.43
-259.43
-245.40
-245.40
Financing Activities
Cash Dividends Paid
Change in Capital Stock
Issuance/Reduction of Debt, Net
Net Financing Cash Flow
-64.43
-212.12
34.52
-228.09
-61.26
-173.88
-30.18
-260.91
-64.72
-336.66
28.58
-373.72
-64.42
-197.62
-5.91
-267.95
-66.82
-18.87
0.00
-85.68
-68.21
-156.98
0.00
-225.19
-69.74
-154.02
0.00
-223.77
-70.06
-150.87
0.00
-220.93
Net Change in Cash
-163.48
39.95
-102.74
71.02
199.05
89.76
96.93
137.27
Cash Beg. Year
Change in BS Cash
Cash End. Year
345.21
-163.48
181.73
181.73
39.95
221.68
221.68
-102.74
118.94
118.94
71.02
189.95
189.95
199.05
389.00
389.00
89.76
478.77
478.77
96.93
575.69
575.69
137.27
712.97
Dicks Sporting Goods
Common Size Income Statement
Fiscal Years Ending Jan. 30
Income Statement
Sales
COGS excluding D&A
Depreciation & Amortization
Gross Income
SG&A Expense
Other Operating Expense
EBIT (Operating Income)
Nonoperating Interest Income
Other Income (Expense)
Interest Expense
Unusual Expense - Net
Pretax Income
Income Taxes
Net Income
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
100.00%
66.26%
2.49%
31.25%
22.61%
0.00%
8.64%
0.00%
0.20%
0.05%
0.00%
8.79%
3.36%
5.43%
100.00%
66.71%
2.63%
30.66%
22.44%
0.00%
8.22%
0.00%
0.29%
0.05%
0.30%
8.16%
3.11%
5.05%
100.00%
67.32%
2.66%
30.02%
22.66%
0.00%
7.36%
0.00%
0.00%
0.06%
0.00%
7.30%
2.76%
4.54%
100.00%
67.50%
2.82%
29.68%
22.75%
0.00%
6.93%
0.00%
0.00%
0.00%
0.00%
6.93%
2.62%
4.31%
100.00%
67.50%
2.84%
29.66%
23.00%
0.00%
6.66%
0.00%
0.00%
0.00%
0.00%
6.66%
2.52%
4.15%
100.00%
67.50%
2.87%
29.63%
23.25%
0.00%
6.38%
0.00%
0.00%
0.00%
0.00%
6.38%
2.41%
3.97%
100.00%
67.50%
2.92%
29.58%
23.50%
0.00%
6.08%
0.00%
0.00%
0.00%
0.00%
6.08%
2.29%
3.78%
100.00%
67.50%
2.94%
29.56%
23.50%
0.00%
6.06%
0.00%
0.00%
0.00%
0.00%
6.06%
2.29%
3.77%
Dicks Sporting Goods
Balance Sheet
Fiscal Years Ending Jan. 30
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
Cash & Short-Term Investments
Short-Term Receivables
Inventories
Other Current Assets
Total Current Assets
2.92%
1.10%
19.83%
2.22%
26.07%
3.25%
1.39%
20.41%
2.10%
27.15%
1.64%
0.92%
21.00%
1.37%
24.93%
2.47%
0.92%
20.23%
1.30%
24.92%
4.77%
0.92%
20.16%
1.29%
27.14%
5.63%
0.92%
20.02%
1.31%
27.88%
6.64%
0.92%
20.00%
1.35%
28.90%
8.11%
0.92%
19.84%
1.35%
30.23%
Net Property, Plant & Equipment
Net Goodwill
Net Other Intangibles
Deferred Tax Assets
Other Assets
Total Assets
17.46%
3.23%
1.58%
0.04%
1.06%
49.44%
17.66%
2.94%
1.62%
0.03%
1.02%
50.42%
18.54%
2.76%
1.51%
0.08%
1.14%
48.95%
18.71%
2.61%
1.14%
0.06%
1.14%
48.58%
18.65%
2.46%
0.81%
0.05%
1.14%
50.24%
18.52%
2.36%
0.51%
0.03%
1.14%
50.44%
18.50%
2.31%
0.25%
0.01%
1.14%
51.12%
18.36%
2.28%
0.00%
0.00%
1.14%
52.00%
Liabilities & Shareholders' Equity
ST Debt & Curr. Portion LT Debt
Accounts Payable
Income Tax Payable
Other Current Liabilities
Total Current Liabilities
0.01%
9.05%
0.32%
6.75%
16.14%
0.01%
9.02%
1.08%
6.31%
16.42%
0.01%
9.32%
0.55%
6.51%
16.39%
0.00%
9.50%
0.52%
6.51%
16.53%
0.00%
9.50%
0.50%
6.51%
16.51%
0.00%
9.50%
0.48%
6.51%
16.49%
0.00%
9.50%
0.46%
6.51%
16.47%
0.00%
9.50%
0.46%
6.51%
16.47%
Long-Term Debt
Deferred Tax Liabilities
Other Liabilities
Total Liabilities
0.10%
0.62%
5.34%
22.20%
0.09%
0.65%
6.25%
23.54%
0.07%
0.09%
7.79%
24.35%
0.00%
0.07%
7.79%
24.39%
0.00%
0.05%
7.79%
24.35%
0.00%
0.03%
7.79%
24.31%
0.00%
0.01%
7.79%
24.28%
0.00%
0.00%
7.79%
24.26%
CS Par + Addl Paid-in Cap
Retained Earnings
Other Appropriated Reserves
Treasury Stock
Total Shareholders' Equity
Total Liabilities & Shareholders' Equity
15.45%
19.11%
0.00%
-7.33%
27.24%
49.44%
14.92%
21.59%
0.00%
-9.62%
26.89%
50.42%
14.64%
23.89%
0.00%
-13.93%
24.61%
48.95%
16.33%
26.09%
0.00%
-18.22%
24.19%
48.58%
17.60%
27.90%
0.00%
-19.62%
25.89%
50.24%
17.37%
29.90%
0.00%
-21.15%
26.12%
50.44%
17.58%
32.33%
0.00%
-23.06%
26.84%
51.12%
17.90%
34.87%
0.00%
-25.03%
27.74%
52.00%
Assets
Dicks Sporting Goods
Value Driver Estimation
Fiscal Years Ending Jan. 30
Sales
COGS excluding D&A
Depreciation & Amortization
SG&A
+PV of Interest on Op Leases
EBITA
Pre Tax Income
Total Income Tax Provision (inc. tax)
Tax Rate = Pre Tax/Total Inc. Provision.
Plus Tax Shield on Interest Expense
Plus Tax on Lease Interest
Plus Tax Shield on Amortized Goodwill
Minus Tax on Non-Operating Income (Plus
in this formula) (Nonop Int. Income+Other
Inc)
Less Adjusted Taxes
Plus Change in Deferred Taxes
Equals NOPLAT
NOPLAT Growth %
Normal Cash (2% * Sales)
Short-Term Receivables
Inventory
Operating Current Assets
Accounts Payable
Income Tax Payable
Non Interest-Bearing Current Liabilities
Net Operating Working Capital
Plus Net PPE
PV of Operating Leases
Net Other Intangibles
Other Current Assets
Other Assets
Plus Net Other Operating Assets
Less other Liab. (BS line items)
Invested Capital
WACC
NOPLAT
Beg Invested Capital
End Invested Capital
ROIC (NOPLAT/Beg IC)
FCF (NOPLAT - Change in IC)
EP (Beg IC * (ROIC-WACC))
2013
6,213.17
4,116.60
154.93
1,404.84
125.71
662.52
-40.89%
2014
6,814.48
4,545.98
179.43
1,529.04
129.80
689.83
4.12%
2015
7,270.97
4,894.48
193.59
1,647.70
133.42
668.61
-3.08%
2016E
7,682.09
5,185.41
216.84
1,747.68
141.66
673.82
0.78%
2017E
8,154.50
5,504.29
231.25
1,875.54
146.86
690.29
2.44%
2018E
8,510.72
5,744.73
244.64
1,978.74
155.37
697.96
1.11%
2019E
8,670.84
5,852.82
253.57
2,037.65
161.04
687.84
-1.45%
2020E
8,788.87
5,932.49
258.04
2,065.38
163.87
696.83
1.31%
546.11
208.51
38.18%
1.12
48.00
-
556.01
211.82
38.10%
1.22
49.45
7.77
530.88
200.48
37.76%
1.52
50.39
-
532.16
200.97
37.76%
53.50
-
543.43
205.22
37.76%
55.46
-
542.60
204.91
37.76%
58.67
-
526.80
198.95
37.76%
60.82
-
532.96
201.27
37.76%
61.89
-
4.67
7.47
(0.12)
-
-
-
-
-
262.29
277.73
33.11
6.49
433.33691 418.59678
-36.00%
-3.40%
252.27
(42.34)
374.00
-10.65%
254.47
(0.06)
419.30
12.11%
260.69
(0.06)
429.54
2.44%
263.59
(0.06)
434.32
1.11%
259.76
(0.06)
428.02
-1.45%
263.16
(0.06)
433.62
1.31%
124.26
68.05
1,232.07
1,424.38
562.44
19.83
582.26
842.12
1,084.53
2,815.61
98.26
138.22
65.56
4,202.18
751.05
4,293.25
136.29
94.59
1,390.77
1,621.64
614.51
73.85
688.36
933.28
1,203.38
2,894.16
110.16
143.35
69.81
4,420.87
856.09
4,498.06
145.42
66.83
1,527.19
1,739.43
677.86
39.84
717.70
1,021.73
1,347.89
3,072.84
109.44
99.74
82.56
4,712.47
1,040.08
4,694.12
153.64
70.68
1,554.00
1,778.32
729.80
39.93
769.73
1,008.59
1,437.45
3,185.70
87.55
99.74
87.23
4,897.67
1,098.89
4,807.37
163.09
75.02
1,644.00
1,882.11
774.68
40.78
815.45
1,066.66
1,520.70
3,370.20
65.66
105.38
92.59
5,154.54
1,166.47
5,054.73
170.21
78.30
1,704.00
1,952.51
808.52
40.71
849.23
1,103.28
1,576.20
3,493.20
43.78
111.86
96.64
5,321.68
1,217.42
5,207.53
173.42
79.77
1,734.00
1,987.19
823.73
39.53
863.26
1,123.93
1,603.95
3,554.70
21.89
116.75
98.46
5,395.74
1,240.33
5,279.34
175.78
80.86
1,744.00
2,000.63
834.94
39.99
874.93
1,125.70
1,613.20
3,575.20
118.94
99.80
5,407.14
1,257.21
5,275.63
12.48%
11.24%
5.39%
5.39%
5.39%
5.39%
5.39%
5.39%
433.34
3,936.87
4,293.25
11.01%
76.97
(57.98)
418.60
4,293.25
4,498.06
9.75%
213.78
(63.96)
374.00
4,498.06
4,694.12
8.31%
177.94
131.53
419.30
4,694.12
4,807.37
8.93%
306.05
166.26
429.54
4,807.37
5,054.73
8.94%
182.19
170.40
434.32
5,054.73
5,207.53
8.59%
281.52
161.85
428.02
5,207.53
5,279.34
8.22%
356.21
147.31
433.62
5,279.34
5,275.63
8.21%
437.33
149.04
CV
5.39%
437.95
5,275.63
8.30%
153.57
Dicks Sporting Goods
Weighted Average Cost of Capital (WACC) Estimation
2015
2.61%
5.00%
0.851
6.87%
4.61%
0
37.76%
Risk Free Rate (30yr T-Bond as of 3/31/16)
Market Risk Premium (Henry Fund Team Choice)
Beta (Bloomberg)
Cost of Equity (Risk Free + (Beta * Mkt Risk)
Cost of Debt (From the longest maturity USD Bond)
Cost of Preferred Shares
Marginal Tax Rate (Effective)
Total Shares Outstanding
Price
Mkt Value of Equity ( E )
FMV of Debt
Operating Leases (PV)
Mkt Value of Debt ( D )
Mkt Value of Preferred (Pfd)
$
$
$
$
$
$
111.80
47.09
5,264.66
6
3,072.84
3,079
-
Mkt Value of Firm (E+D+PfD) (V)
$
8,343.41
Equity Portion of WACC (Cost of Equity * E/V)
Debt Portion of WACC (cost of Debt* (1-t) * D/V)
Preferred Portion of WACC (Cost of Preferred * Pfd/V)
WACC
$
4.33%
1.06%
5.39%
Dicks Sporting Goods
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV NOPLAT Growth
CV ROIC
WACC
Cost of Equity
Fiscal Years Ending Jan. 30
DCF Model
NOPLAT
Beg IC
End IC
ROIC
DCF CV (NOPLAT*(1- g/ROIC)/(WACC-g))
FCF (NOPLAT - Change in IC)
PV of FCF
1.00%
8.50%
5.39%
6.87%
Beg IC 2016
Shares Outstanding
4,694.12
111.80
2016E
2017E
2018E
2019E
2020E
CV (Beg 2021)
419.30
4,694.12
4,807.37
8.93%
429.54
4,807.37
5,054.73
8.94%
434.32
5,054.73
5,207.53
8.59%
428.02
5,207.53
5,279.34
8.22%
433.62
5,279.34
5,275.63
8.21%
437.95
5,275.63
306.05
290.39
182.19
164.03
281.52
240.49
356.21
288.74
437.33
336.36
419.30
4,694.12
4,807.37
9%
429.54
4,807.37
5,054.73
9%
434.32
5,054.73
5,207.53
9%
428.02
5,207.53
5,279.34
8%
433.62
5,279.34
5,275.63
8%
166.26
157.76
170.40
153.42
161.85
138.26
147.31
119.41
149.04
114.63
2
3
4
5
8.50%
8,801.56
6,769.44
V of Oper (Sum of PV of FCF)
8,089.45
Cash
118.94
Normal Cash (Sales * Normal Cash %) (2%)
145.42
Excess Cash (Cash-Normal Cash)
V of Non-Oper
-V of Debt = FMV of Debt (From WACC sheet)
3,078.75
-PV of ESOP
89.51
V of Equity
4,921.19
Shares Outstanding
111.80
Target Price (V of Equity/Shares)
$
44.02
To Today's Value
$
44.60
EP Model
NOPLAT
Beg IC
End IC
ROIC
EP CV
EP (Beg IC * (ROIC-WACC))
Discounted EP
V of Oper (Beg IC 2015 + Sum of PV of EP)
8,067.87
V of Non-Oper
-V of Debt = FMV of Debt (From WACC sheet)
3,078.75
-PV of ESOP
89.51
V of Equity
$ 4,899.60
Shares Outstanding
111.80
Target Price (V of Equity/Shares)
$
43.82
To Today's Value
$
44.40
For Discounting:
Number of Periods
Today
Elapsed Year Fraction
1
3/31/2016
0.249
437.95
5,275.63
8%
3,497.87
153.57
2,690.28
Dicks Sporting Goods
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
1
2016E
Fiscal Years Ending Jan. 30
EPS
$
Key Assumptions
Growth
CV Growth
ROE
Cost of Equity
3.11 $
2
2017E
3.22 $
3
2018E
3.30 $
4
2019E
3.29 $
9.95%
3.38%
2.70%
-0.30%
17.78%
6.87%
15.69%
6.87%
15.21%
6.87%
14.51%
6.87%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
$
0.61 $
0.64 $
Discounted Cash Flows
$
0.57 $
0.56 $
Intrinsic Value
$
72.71
To Today's Price
$
73.67
5
2020E
3.42
3.73%
3.25%
13.45%
6.87%
0.67 $
$
$
0.70 $
23.04
3.53
97.54
0.72
0.55 $
0.54 $
70.50
Dicks Sporting Goods
Relative Valuation Models
Direct Competitors
Ticker
BBY
BBBY
ODP
BGFV
BKS
CAB
HIBB
DKS
Company
Best Buy
Bed Bath & Beyond
Office Depot
Big 5 Sporting Goods
Barnes & Noble
Cabela
Hibbett Sports Inc.
Dicks Sporting Goods
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
PEG Ratio (EPS16)
PEG Ratio (EPS17)
Price
$32.44
$49.64
$7.10
$11.11
$12.36
$48.69
$32.61
$47.09
$
$
$
$
EPS
2016E
$2.87
$5.00
$0.47
$0.71
$0.33
$3.18
$3.00
EPS
2017E
$3.09
$5.12
$0.51
$0.75
$0.62
$3.56
$3.19
Average
P/E 16
11.3
9.9
15.1
15.6
37.5
15.3
10.9
16.5
P/E 17
10.5
9.7
13.9
14.8
19.9
13.7
10.2
13.3
3.11
3.22
15.1
14.6
51.37
42.61
18.10
14.88
Est. 5yr
EPS gr.
10.2
6.2
26.0
12.5
10.0
12.7
9.7
3.8
PEG 16
1.11
1.60
0.58
1.25
3.75
1.21
1.12
1.5
PEG 17
1.03
1.56
0.54
1.19
1.99
1.08
1.05
1.2
3.9
3.8
Dicks Sporting Goods
Sensitivity Analysis
DCF Target Price
As of
Risk Free
Rate
Market Risk
Rate
Terminal
Cogs/Rev
$
44.40
3/31/2016
2.00%
2.15%
2.30%
2.45%
2.60%
0.451
89.40
85.40
81.66
78.15
74.64
0.551
77.03
73.80
70.76
67.89
65.00
0.651
66.98
64.32
61.79
59.40
56.99
0.751
58.64
56.41
54.28
52.26
50.21
4.00%
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
5.75%
6.00%
30.00%
63.76
60.69
57.81
55.11
52.57
50.17
47.91
45.77
43.74
32.00%
61.52
58.50
55.67
53.01
50.51
48.16
45.93
43.83
41.85
35.00%
58.09
55.14
52.38
49.80
47.36
45.08
42.92
40.88
38.95
36.00%
56.93
54.01
51.27
48.71
46.30
44.03
41.90
39.88
37.97
67.10%
67.20%
67.30%
67.40%
67.50%
67.60%
67.70%
67.80%
67.90%
1.00
56.89
55.97
55.05
54.13
53.21
52.29
51.37
50.45
49.53
1.25
54.69
53.77
52.85
51.93
51.01
50.09
49.17
48.25
47.32
1.50
52.49
51.57
50.65
49.73
48.81
47.88
46.96
46.04
45.12
2.75%
2.90%
3.05%
3.20%
71.75
68.82
66.06
63.45
62.61
60.18
57.87
55.67
54.97
52.92
50.96
49.09
48.49
46.73
45.05
43.43
Beta
0.851
51.62
49.72
47.90
46.17
44.40
42.92
41.40
39.93
38.53
Tax Rate
37.76%
54.85
51.97
49.29
46.77
44.40
42.18
40.08
38.10
36.22
0.951
45.61
43.98
42.41
40.91
39.37
1.051
40.43
39.00
37.64
36.32
34.97
1.151
35.90
34.65
33.45
32.29
31.09
1.251
31.92
30.81
29.74
28.71
27.65
38.00%
54.57
51.70
49.02
46.51
44.15
41.93
39.83
37.86
35.99
39.00%
53.38
50.53
47.88
45.39
43.06
40.86
38.79
36.84
34.99
40.00%
52.17
49.36
46.73
44.27
41.96
39.79
37.74
35.81
33.99
41.00%
50.95
48.17
45.57
43.14
40.85
38.70
36.68
34.78
32.97
2.50
43.68
42.76
41.84
40.92
40.00
39.07
38.15
37.23
36.31
2.75
41.48
40.56
39.63
38.71
37.79
36.87
35.95
35.03
34.11
3.00
39.27
38.35
37.43
36.51
35.59
34.67
33.75
32.83
31.91
38.08
36.75
35.47
34.23
Inventory to Rev (Last year)
1.75
2.00
2.25
50.29
48.08
45.88
49.37
47.16
44.96
48.44
46.24
44.04
47.52
45.32
43.12
46.60
44.40
42.20
45.68
43.48
41.28
44.76
42.56
40.36
43.84
41.64
39.44
42.92
40.72
38.52
33.84
32.66
31.53
30.43
30.09
29.04
28.03
27.06
26.75
25.81
24.91
24.03
Normal
Cash %
SG&A
Expense/
Revenue
(Final
Year)
Terminal
Cogs/Rev
38.00%
39.00%
40.00%
41.00%
42.00%
2.50%
46.12
45.89
45.65
45.49
45.42
3.00%
45.74
45.51
45.27
45.11
45.04
3.50%
45.45
45.22
44.99
44.83
44.76
Pre-Tax Cost of Debt
4.00%
4.61%
45.24
45.08
45.01
44.85
44.78
44.62
44.62
44.47
44.56
44.40
5.00%
45.02
44.79
44.56
44.41
44.35
5.50%
45.00
44.77
44.54
44.39
44.33
6.00%
45.02
44.79
44.57
44.41
44.35
6.50%
45.08
44.86
44.63
44.48
44.42
22.50%
22.75%
23.00%
23.25%
23.50%
23.75%
24.00%
24.25%
24.50%
0.00%
46.82
44.94
43.07
41.19
39.32
37.44
35.57
33.69
31.82
0.25%
48.27
46.30
44.33
42.37
40.40
38.44
36.47
34.50
32.54
0.50%
49.87
47.80
45.73
43.67
41.60
39.53
37.47
35.40
33.33
NOPLAT CV Growth
0.75%
1.00%
51.64
53.61
49.46
51.31
47.28
49.00
45.10
46.70
42.92
44.40
40.75
42.10
38.57
39.80
36.39
37.49
34.21
35.19
1.25%
55.82
53.38
50.94
48.50
46.06
43.61
41.17
38.73
36.29
1.50%
58.31
55.72
53.12
50.52
47.92
45.32
42.73
40.13
37.53
1.75%
61.15
58.37
55.60
52.82
50.05
47.27
44.49
41.72
38.94
2.00%
64.41
61.43
58.44
55.46
52.48
49.50
46.52
43.54
40.56
67.10%
67.20%
67.30%
67.40%
67.50%
67.60%
67.70%
67.80%
67.90%
0.00%
41.31
40.71
40.11
39.52
38.92
38.33
37.73
37.13
36.54
0.50%
44.54
43.90
43.25
42.60
41.96
41.31
40.66
40.02
39.37
1.00%
48.33
47.63
46.92
46.22
45.51
44.81
44.10
43.40
42.69
CV Div Growth
2.00%
3.00%
58.24
73.28
57.38
72.19
56.53
71.10
55.67
70.01
54.81
68.92
53.95
67.83
53.09
66.74
52.23
65.65
51.38
64.55
4.00%
98.82
97.33
95.85
94.36
92.88
91.39
89.90
88.42
86.93
5.00%
151.75
149.44
147.14
144.83
142.53
140.22
137.92
135.61
133.31
6.00%
327.05
322.03
317.01
312.00
306.98
301.96
296.95
291.93
286.91
7.00%
(2,094.69)
(2,062.24)
(2,029.80)
(1,997.35)
(1,964.90)
(1,932.45)
(1,900.00)
(1,867.56)
(1,835.11)
43.00%
44.00%
45.00%
46.00%
DDM Target Price
As of
45.34
45.27
45.20
45.13
$ 73.67
3/31/2016
44.97
44.90
44.83
44.76
44.69
44.62
44.56
44.49
44.49
44.42
44.36
44.29
44.34
44.27
44.20
44.14
44.28
44.22
44.15
44.09
44.26
44.20
44.14
44.07
44.29
44.23
44.17
44.10
44.36
44.30
44.24
44.18
Dicks Sporting Goods
Key Management Ratios
Fiscal Years Ending Jan. 30
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
1.62
1.43
1.65
1.46
1.52
1.42
1.51
1.36
1.64
1.36
1.69
1.35
1.76
1.35
1.84
1.34
0.39
0.21
0.41
0.21
0.24
0.14
0.28
0.13
0.42
0.13
0.48
0.14
0.54
0.14
0.63
0.14
0.40
0.54
0.54
0.49
0.43
0.42
0.41
0.42
2.02
2.15
3.34
1.98
2.12
3.27
2.04
2.11
3.20
2.06
2.17
3.34
1.99
2.20
3.35
1.98
2.23
3.37
1.96
2.25
3.38
1.92
2.28
3.40
Financial Leverage Ratios
Debt Ratio = Total Liab/Total Assets
Debt Ratio ex Cash
Equity Ratio = Total Equity/Total Assets
Equity Ratio ex Cash
44.91%
47.73%
55.09%
58.56%
46.68%
49.90%
53.32%
57.00%
49.73%
51.45%
50.27%
52.01%
50.21%
52.90%
49.79%
52.46%
48.47%
53.56%
51.53%
56.93%
48.20%
54.26%
51.80%
58.30%
47.49%
54.58%
52.51%
60.35%
46.65%
55.27%
53.35%
63.21%
Profitability Ratios
Gross Margin Ratio= (Sales-COGS-SG&A)/Sales
Profit Margin Ratio = Net Income/Sales
ROA = Net Income/Avg Total Assets
ROE= Net Income/Shareholder Equity
11.13%
5.43%
11.33%
19.95%
10.85%
5.05%
10.58%
18.79%
10.02%
4.54%
9.45%
18.47%
9.75%
4.31%
9.08%
17.82%
9.50%
4.15%
8.64%
16.02%
9.25%
3.97%
8.05%
15.19%
9.00%
3.78%
7.52%
14.09%
9.00%
3.77%
7.37%
13.60%
Payout Policy Ratios
Dividend Payout Ratio
Payout Ratio = Div+Repurchase/Net Income
19.09%
94.78%
17.80%
75.89%
19.59%
127.70%
19.45%
136.34%
19.76%
78.89%
20.20%
79.43%
21.27%
82.27%
21.12%
81.42%
Liquidity Ratios
Current Ratio = Current Assets/Current Liabilities
Current Ratio ex Cash = Curr Assets ex Cash/Curr Liab
Quick Ratio = (Cash+Marketable Securities+Accounts
Receivables)/Current Liabilities
Quick Ratio ex Cash
Operating Cash Flow Ratio = Cash Flow From
Operations/Current Liabilities
Activity or Asset-Management Ratios
Total Assets Turnover = Sales/Total Assets
Total Assets Turnover ex Cash
Inventory Turnover
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
3.97
1.89
2.10
$
24.99
6.87%
$47.09
2016E
2017E
2018E
2019E
2020E
2.10
24.99 $
53
1.87
24.99 $
47
0.00
24.99 $
-
0.00
24.99 $
-
0.00
24.99
-
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
387
$47.09 $
8.22
200
50.32 $
3.97
200
53.78 $
3.72
200
57.47 $
3.48
200
61.41
3.26
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Plus Estimated New Grants
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
111.80
2.10
0.80
8.22
106.48
106
1.87
0.80
3.97
105.18
105
0.00
0.80
3.72
102.26
102
0.00
0.80
3.48
99.58
100
0.00
0.80
3.26
97.12
$
2021E
2022E
Dicks Sporting Goods
Valuing Leases
Present Value of Operating Lease Obligations
2015
Operating
Leases
536.011
532.823
482.351
430.619
382.222
1370.404
3734.430
661.59
3072.84
Fiscal Years Ending Jan. 30
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Final calcs in (Millions)
Lease
Commitment
536.011
532.823
482.351
430.619
382.222
382.222
Present Value of Operating Lease Obligations
2014
Operating
Leases
505.519
511.223
470.053
416.897
363.854
1236.347
3503.893
609.73
2894.16
Fiscal Years Ending Jan. 30
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.61%
3.6
PV Lease
Payment
512.4
486.9
421.4
359.6
305.1
987.5
3072.84
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
505.519
511.223
470.053
416.897
363.854
363.854
Present Value of Operating Lease Obligations
2013
Operating
Leases
469.583
479.56
456.977
415.395
362.633
1234.277
3418.425
603
2816
Fiscal Years Ending Jan. 30
2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.61%
3.4
PV Lease
Payment
483.2
467.2
410.6
348.1
290.4
894.6
2894.16
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
469.583
479.56
456.977
415.395
362.633
362.633
Present Value of Operating Lease Obligations
2012
Operating
Leases
432.329
442.861
430.219
407.243
365.614
1245.643
3323.909
597
2727
Fiscal Years Ending Jan. 30
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.61%
3.4
PV Lease
Payment
448.9
438.2
399.2
346.9
289.5
893.0
2815.6
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
432.329
442.861
430.219
407.243
365.614
365.614
4.61%
3.4
PV Lease
Payment
413.3
404.7
375.8
340.1
291.8
901.1
2726.8
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
Unvested
Vested/Exercisable
Number
of Shares
1,421,208
2,553,304
Total
3,974,512 $
DKS
$47.09
2.61%
1.21%
29.55%
Average
Exercise
Price
17.03
29.42
24.99
Average
Remaining
Life (yrs)
2.57 $
1.51 $
1.89 $
B-S
Option
Price
29.78 $
18.48 $
Value
of Options
Granted
42,323,828
47,187,788
23.56 $ 89,511,616
$
89.51