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Dick's Sporting Goods slides as it warns on margins

Investors took fright at the outlook for the sporting goods retailer’s margins.
Fore! (warned is forearmed)

Dick’s Sporting Goods Inc (NYSE:DKS) opened a mixed bag when it issued its third quarter results.

Earnings were ahead of expectations but the stock retreated in pre-market trading as investors took fright at the outlook for the sporting goods retailer’s margins.

Net income clocked in at US$36.9mln, equivalent to 35 cents a share, which was comfortably above the company’s guidance range of 22 to 30 cents.

The retail raised its full-year earnings guidance to a range spanning from US$2.95 to US$3.07.

Like-for-like sales were down 0.9% year-on-year but overall revenue rose 7.7% to US$1.95bn thanks to the addition of new outlets to the retail estate.

"In the third quarter, we delivered earnings per diluted share and comp sales at the high end of our expectations, with continued double-digit growth in eCommerce. As expected, margins were under pressure in this highly promotional environment, but our strategy for this environment enabled us to continue to capture market share," said Edward Stack, chairman and chief executive officer of Dick’s sporting Goods.

“We plan to make significant investments in our business, which will have a short-term negative impact on our earnings; however, we expect these investments will pay meaningful dividends in the future,” Stack said.

“We plan to increase investments in our eCommerce business, the technology in our stores and store payroll in order to enhance the customer experience. Meaningful investments will also be made to DICK'S Team Sports HQ, and in the development and support of our private brands. Given these investments, continued gross margin pressure and approximately flat comp sales, we expect earnings per diluted share to decline by as much as 20 percent in 2018," he concluded.

Shares dropped nearly 5% to US$25.03 on the day.

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