The most recent earnings report from DICK'S Sporting Goods, Inc. (NYSE:DKS) was disappointing for shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, DICK'S Sporting Goods issued 12% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of DICK'S Sporting Goods' EPS by clicking here.

How Is Dilution Impacting DICK'S Sporting Goods' Earnings Per Share (EPS)?

Unfortunately, DICK'S Sporting Goods' profit is down 17% per year over three years. And even focusing only on the last twelve months, we see profit is down 22%. Sadly, earnings per share fell further, down a full 26% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If DICK'S Sporting Goods' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the US$436m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect DICK'S Sporting Goods to produce a higher profit next year, all else being equal.

Our Take On DICK'S Sporting Goods' Profit Performance

DICK'S Sporting Goods suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Given the contrasting considerations, we don't have a strong view as to whether DICK'S Sporting Goods's profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into DICK'S Sporting Goods, you'd also look into what risks it is currently facing.

Our examination of DICK'S Sporting Goods has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.