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Dick's beats expectations, but golf sinks profits

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Women's and youth apparel helped drive sales higher at Dick's Sporting Goods in the second quarter, although continued declines in the golf and hunting business cut into profits.

The Findlay-based sporting goods retailer said net income declined 17.5 percent to $69.5 million, or 57 cents per share, in the three months ended Aug. 2, from $84.2 million, or 67 cents, in the same period a year ago.

The decline in profits occurred despite a 10.3 percent increase in net sales and 3.2 percent growth in same store sales, a key measure of a retailer's performance, because it doesn't count revenue gains from new stores. Total sales rose to $1.69 billion from $1.53 billion a year ago.

The results came in “at the high end of our expectations,” CEO Edward Stack said in a statement, and were better than many analysts expected. Dick's shares rose $0.70, or 1.61 percent, to $44.21.

“They're doing all right,” said Paul Swinand, an analyst at Morningstar.

Still, the company is struggling against headwinds in golf and hunting businesses. Sales at its Golf Galaxy stores fell 9.3 percent. The company recorded pre-tax charges of $20.4 million from restructuring its golf business. That included a $3.7 million severance charge related to laying off golf professionals at its Dick's stores.

In July, the PGA of America said that 478 of its members were laid off from Dick's stores as the company struggled with flagging sales of golf equipment and merchandise that was caused, in part, by the long winter that cut into spring business.

The PGA professionals were part of a strategy to offer in-store expertise and differentiate Dick's from competitors. But the golf pros resulted in no “meaningful difference” between stores that had them and those that didn't, Stack told analysts in a conference call on Tuesday. The company had to adjust to what it believes is a “structural decline” in the golf retail business.

“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,” Stack said. “We're taking those dollars and reallocating those in the areas of our business that are doing extremely well, such as the women's area, youth area, the team sports area, and I think it will serve the company well.”

The number of golfers dropped from 30 million in 2002 to 23 million in 2013, according to Pellucid Corp., a golf business analyst in Buffalo Grove, Ill. The estimated number of golf rounds played nationwide fell 2.1 percent through the first half of 2014 compared to the same period last year, according to the National Golf Foundation.

Golf will remain important to Dick's for the time being, but looks like it will become less so in the next few years, said Efraim Levy, equity analyst at S&P Capital IQ.

“Right now, they do have a problem with the golf business,” Levy said. “It doesn't look like it's going away, but over time, its importance will shrink to the company.”

Levy and Swinand said the Dick's expansion in other areas was promising. Women's and youth apparel has been strong and will be an area where the company reinvests money from cuts on the golf side, Stack said. Excluding the golf and hunting losses, Dick's had a 7.8 percent increase in same store sales.

Women's athletic apparel is “way under-penetrated,” Swinand said, as sports retailers traditionally focused on men. And a rise in the intensity and competitiveness within youth sports has spawned demand for specialty gear beyond jerseys and shorts for kids.

“The performance intensity of all the little doohickeys has just increased immensely,” he said. “There's just a lot of little details.”

Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or cfleisher@tribweb.com.

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