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Dick's Sporting Goods Plunges, Earnings Forecast Down

By Reuters
Published | Updated

NEW YORK – Dick's Sporting Goods Inc. (DKS) cut its 2005 earnings forecast on Tuesday due to disappointing results from an acquisition, sending its shares down almost 14 percent.

The retailer said it now expects to earn $1.70 to $1.75 per share for the year, down from a previous forecast of $1.82 to $1.87.

It cited lower sales expectations for stores acquired in the takeover of Galyan's Trading Co. Inc. (search) in July 2004. The Galyan stores are lagging expectations for results surpassing those of new Dick's stores, it said.

Analysts had said the integration of the Galyan stores was going smoothly, but signs of bumps in the road triggered questions about the value of the acquisition.

"We still think it was the right move to buy them as it allowed us to get into a number of markets that would have been extremely difficult and expensive to get into, or we wouldn't have gotten into them at all," Dick's Chairman and Chief Executive Ed Stack said in a conference call with analysts.

Stack said the company had simply overshot on its forecast. In June 2004, when Dick's first said it would acquire Galyan's, it said it expected 2005 earnings of $1.70 to $1.75 per share, but it subsequently raised that forecast.

Dick's said it regretted not spending more on advertising in the Galyan's markets and announced it plans to increase advertising in the third and fourth quarters.

The Pittsburgh, Pennsylvania company on Tuesday posted higher second-quarter profit due to the Galyan's acquisition. Net income rose almost 24 percent, to $22.1 million, or 41 cents per share, from $17.9 million, or 34 cents per share, a year earlier.

Sales for the quarter rose 50 percent to $622.0 million, and sales at stores open at least a year rose 0.5 percent.

Dick's said it was lowering its estimate for merger integration and store closing costs to $65 million from $70 million. More than $58 million of those costs were recorded in 2004 and the first two quarters of 2005.

For the third quarter, the company said it expects to earn 6 cents to 8 cents a share, with sales at stores open at least a year up 1 percent to 2 percent.

Including merger integration and store closing costs, the company expects to earn $1.27 to $1.32 per share for 2005.

Dick's shares were among the biggest percentage losers on the New York Stock Exchange (search), down $5.38 to $33.85.