ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. These statements can be identified as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as
"believe", "anticipate", "expect", "estimate", "predict", "intend", "plan", "project", "goal", "will", "will be", "will continue", "will result", "could", "may", "might"
or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, current expectations; planned strategic investments and growth strategies, including the continued enhancement of our digital capabilities and our eCommerce platform, the development of Dick's Team Sports HQ, investments in our supply chain, and improvements in the customer experience in both stores and online; the operation of our eCommerce platform; projections of our future profitability and results of operation; our plans to open new stores; investments in our associates; the construction of a new distribution facility; plans to exit our electronics business; the effect of proposed changes in corporate income tax laws or tariffs; capital expenditures; plans to return capital to stockholders through dividends or share repurchases; borrowings under our credit facility; and our future financial condition.
The following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results, and could cause actual results for fiscal
2018
and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by our management:
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▪
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The dependence of our business on consumer discretionary spending;
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▪
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Intense competition in the sporting goods industry and in retail, including the level of competitive promotional activity;
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▪
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Omni-channel growth and the increasing utilization of our eCommerce platform producing the anticipated benefits within the expected time frame or at all;
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▪
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Disruptions to our eCommerce platform, including interruptions, delays or downtime caused by high volumes of users or transactions; deficiencies in design or implementation; or platform enhancements;
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▪
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Vendors continuing to sell or increasingly selling their products directly to customers or through broadened or alternative distribution channels;
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▪
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Negative reactions from our customers or vendors regarding changes to our policies related to the sale of firearms and accessories;
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▪
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Risks that our strategic plans and initiatives may initially result in a negative impact on our financial results, or that such plans and initiatives may not achieve the desired results within the anticipated time frame or at all;
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•
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Our ability to predict or effectively react to changes in consumer demand or shopping patterns;
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▪
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Lack of available retail store sites on terms acceptable to us, rising real estate prices and other costs and risks relating to a brick and mortar retail store model;
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▪
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The streamlining of the Company's vendor base and execution of the Company's merchandising strategy failing to produce the anticipated benefits within the expected time frame or at all;
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▪
Unauthorized disclosure of sensitive or confidential customer information;
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▪
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Risks associated with our private brand offerings, including product liability and product recalls; specialty concept stores; and Dick's Team Sports HQ;
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▪
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Disruptions or other problems with our information systems;
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▪
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Our ability to access adequate capital to operate and expand our business and to respond to changing business and economic conditions;
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▪
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Risks and costs relating to changing laws and regulations affecting our business, including consumer products, firearms and ammunition, tax, labor, data protection and privacy;
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▪
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Our relationships with our vendors, disruptions in our or our vendors' supply chains, and increasing product costs, which could be caused by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, foreign political instability or other reasons;
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▪
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Litigation risks for which we may not have sufficient insurance or other coverage;
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▪
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Our ability to secure and protect our trademarks and other intellectual property and defend claims of intellectual property infringement;
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▪
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Our ability to protect the reputation of our Company and our brands;
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▪
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Our ability to attract, train, engage and retain qualified leaders and associates or the loss of Mr. Edward Stack as our Chairman and Chief Executive Officer;
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▪
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Wage increases, which could adversely affect our financial results;
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▪
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Disruption at our supply chain facilities or customer support center;
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▪
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Performance of professional sports teams, professional team lockouts or strikes, or retirement, serious injury or scandal involving sports superstars;
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▪
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Weather-related disruptions and the seasonality of our business, as well as the current geographic concentration of Dick's Sporting Goods stores;
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▪
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Our pursuit of strategic investments or acquisitions, including the timing and costs of such investments and acquisitions; the integration of acquired businesses or companies being more difficult, time-consuming, or costly than expected; or the investments or acquisition failing to produce the anticipated benefits within the expected time frame or at all;
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▪
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We are controlled by our Chairman and Chief Executive Officer and his relatives, whose interests may differ from those of our other stockholders;
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▪
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Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and
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▪
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Our current intention to issue quarterly cash dividends, and our repurchase activity, if any, pursuant to our share repurchase program.
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The foregoing and additional risk factors are described in more detail in other reports or filings filed or furnished by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended
February 3, 2018
, filed on
March 30, 2018
. In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of this date. We do not assume any obligation and do not intend to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise except as may be required by the securities laws.
OVERVIEW
The Company is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through a blend of dedicated associates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy, Field & Stream, and Dick's Team Sports HQ. The Company offers its products through a content-rich eCommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or specifies, any reference to "year" is to the Company's fiscal year.
The primary factors that have historically influenced the Company's profitability include the growth in its number of stores and selling square footage, the integration of eCommerce with its brick and mortar stores, growth in consolidated same store sales, which include the Company's eCommerce business, and its strong gross profit margins. Over the last five years, the Company has grown from
520
Dick's Sporting Goods stores as of
May 4, 2013
to
724
Dick's Sporting Goods stores as of
May 5, 2018
. The Company plans to reduce its rate of new store growth over the next few years in an effort to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal.
On January 29, 2017, we transitioned our eCommerce platform from a third-party provider to a proprietary internal platform that allows us to fully control our customer experience and optimize profitability. The Company’s focus will be to invest in our online experience through faster delivery, better pricing, more targeted marketing and continued improvements in our digital channels. Like our customers, we see retail as an omni-channel experience, where the distinctions between stores and online are becoming increasingly irrelevant. The Company's eCommerce sales penetration to total net sales has increased from approximately 6% to approximately
11%
for the year-to-date periods ended
May 4, 2013
and
May 5, 2018
, respectively. On average, over 80% of the Company's eCommerce sales are generated within brick and mortar store trade areas.
We see meaningful opportunity to drive improvements across our business and are focused on enhancing our omni-channel capabilities and elevating the customer experience across our omni-channel platform. We plan to leverage our financial strength to make critical investments in our business to improve efficiency and earnings over the long term. We will continue to strategically invest in supply chain, digital capabilities, the development of Dick’s Team Sports HQ, improvements in the customer experience in stores and online, the continued development and marketing of our private brands, and continuing to attract and retain knowledgeable and skilled associates.
The Company's senior management focuses on certain key indicators to monitor the Company's performance, including:
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Consolidated same store sales performance – Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the same store sales calculation during the same fiscal period that it commences its 14
th
full month of operations. Stores that were closed or relocated during the applicable period have been excluded from same store sales. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14
th
full month of operations at the new location. See further discussion of our consolidated same store sales in the "Results of Operations and Other Selected Data" section herein.
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▪
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Earnings before taxes and the related operating margin – Our management views these as key indicators of our performance. The key drivers of earnings before taxes are same store sales, gross profit, and our ability to control selling, general and administrative expenses.
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▪
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Cash flows from operating activities – Cash flow generation supports the general liquidity needs of the Company and funds capital expenditures for our omni-channel platform, distribution and administrative facilities, costs associated with continued improvement of information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically generate significant cash flows from operating activities and proportionately higher net income levels in our fourth fiscal quarter in connection with the holiday selling season and sales of cold weather sporting goods and apparel. See further discussion of the Company's cash flows in the "Liquidity and Capital Resources and Changes in Financial Condition" section herein.
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▪
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Quality of merchandise offerings – To measure acceptance of its merchandise offerings, the Company monitors sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps the Company manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.
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▪
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Store productivity – To assess store-level performance, the Company monitors various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.
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CRITICAL ACCOUNTING POLICIES
As discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2018
, filed with the Securities and Exchange Commission on
March 30, 2018
, the Company considers its policies on inventory valuation, vendor allowances, goodwill and intangible assets, impairment of long-lived assets and closed store reserves, self-insurance reserves and stock-based compensation to be the most critical in understanding the judgments that are involved in preparing the Company's consolidated financial statements. There have been no changes in the Company's critical accounting policies during the quarter ended
May 5, 2018
.
RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
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▪
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Earnings per diluted share of
$0.59
in the current quarter increased 13.5% compared to earnings per diluted share of
$0.52
during the
first
quarter of
2017
. Net income in the current quarter totaled
$60.1 million
compared to
$58.2 million
during the
first
quarter of
2017
.
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▪
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Net income in the first quarter of 2017 included $2.2 million, net of tax, or $0.02 per diluted share, of costs incurred by the Company to convert stores acquired from The Sports Authority ("TSA") to Dick's Sporting Goods stores.
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▪
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Net sales
increased
4.6%
to
$1,909.7 million
in the current quarter from
$1,825.3 million
during the
first
quarter of
2017
, which includes a shift in the Company's fiscal calendar that favorably impacted current period net sales comparisons by approximately $32.3 million.
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▪
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eCommerce sales penetration in the current quarter increased to approximately
11%
of total net sales compared to approximately
9%
during the
first
quarter of
2017
, representing an increase of 24% in eCommerce sales.
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▪
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In the
first
quarter of
2018
, the Company:
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▪
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Declared and paid a quarterly cash dividend in the amount of
$0.225
per share on the Company's common stock and Class B common stock.
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▪
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Repurchased
3.3 million
shares of common stock for
$107.9 million
under the currently authorized share repurchase program.
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▪
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The following table summarizes store openings and closings for the periods indicated:
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13 Weeks Ended
May 5, 2018
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13 Weeks Ended
April 29, 2017
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Dick's Sporting Goods
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Specialty Concept Stores
(1)
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Total
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Dick's Sporting Goods
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Specialty Concept Stores
(1)
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Total
|
Beginning stores
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716
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129
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|
|
845
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676
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|
121
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|
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797
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|
Q1 New stores
|
8
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|
|
—
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|
|
8
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|
|
15
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|
|
10
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25
|
|
Closed stores
|
—
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|
|
—
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|
|
—
|
|
|
—
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|
1
|
|
|
1
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|
Ending stores
|
724
|
|
|
129
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|
853
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|
|
691
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|
|
130
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|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
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Relocated stores
|
2
|
|
|
—
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|
|
2
|
|
|
2
|
|
|
—
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|
2
|
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(1)
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Includes the Company's Golf Galaxy, Field & Stream and other specialty concept stores. In some markets, we operate Dick's Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for customers. We refer to this format as a "combo store" and include combo store openings within both the Dick's Sporting Goods and specialty concept store reconciliations, as applicable.
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The following table presents for the periods indicated selected items in the unaudited Consolidated Statements of Income as a percentage of the Company's net sales, as well as the basis point change in the percentage of net sales from the prior year's period. In addition, other data is provided to facilitate a further understanding of our business. This table should be read in conjunction with Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying unaudited Consolidated Financial Statements and related notes thereto.
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Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2018-2017
(A)
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13 Weeks Ended
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|
May 5,
2018
(A)
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April 29,
2017
(A)
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Net sales
(1)
|
100.00
|
%
|
|
100.00
|
%
|
|
N/A
|
Cost of goods sold, including occupancy and distribution costs
(2)
|
70.66
|
|
|
70.31
|
|
|
35
|
Gross profit
|
29.34
|
|
|
29.69
|
|
|
(35)
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Selling, general and administrative expenses
(3)
|
24.63
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|
|
24.07
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|
|
56
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Pre-opening expenses
(4)
|
0.14
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|
|
0.68
|
|
|
(54)
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Income from operations
|
4.57
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|
|
4.93
|
|
|
(36)
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Interest expense
|
0.14
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|
|
0.07
|
|
|
7
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Other expense (income)
|
0.05
|
|
|
(0.16
|
)
|
|
21
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Income before income taxes
|
4.39
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|
|
5.02
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|
|
(63)
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Provision for income taxes
|
1.24
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|
|
1.83
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|
|
(59)
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Net income
|
3.15
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%
|
|
3.19
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%
|
|
(4)
|
|
|
|
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|
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Other Data:
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|
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|
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Consolidated same store sales (decrease) increase
|
(0.9
|
%)
|
|
2.4
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%
|
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Number of stores at end of period
(5)
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853
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|
821
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Total square feet at end of period
(5)
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42,091,412
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|
40,270,917
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(A)
|
Column does not add due to rounding.
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(1)
|
Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the "cards") is deferred and recognized upon the redemption of the cards. These cards have no expiration date. The Company adopted ASU 2014-09 ("Topic 606") on February 4, 2018. The impact of this adoption is further described within Note 6 to the unaudited Consolidated Financial Statements.
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(2)
|
Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost and net realizable value); freight; distribution; shipping; and store occupancy costs. The Company defines merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.
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(3)
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Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with the Company's internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating the Company's Customer Support Center ("CSC").
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(4)
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Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date the Company takes possession of a site through the date of store opening.
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(5)
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Includes Dick's Sporting Goods, Golf Galaxy, Field & Stream and other specialty concept stores.
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13 Weeks Ended May 5, 2018
Compared to the
13 Weeks Ended April 29, 2017
Net Sales
Net sales
increased
4.6%
in the current quarter to
$1,909.7 million
from
$1,825.3 million
for the
quarter ended April 29, 2017
, due primarily to the growth of our store network and a shift in the Company's fiscal calendar, partially offset by a 0.9%
decrease
in consolidated same store sales. Stores that are not yet included in the comparable store base increased net sales by $100.0 million in the current quarter. Due to the 53
rd
week in fiscal 2017, there is a one-week shift in fiscal 2018 results as compared to fiscal 2017. In the current quarter, the seasonal timing resulting from this shift favorably impacted net sales comparisons by $32.3 million. The 0.9% decrease in consolidated same store sales reduced net sales for the
quarter ended May 5, 2018
by $15.6 million. Consolidated same store sales, adjusted for the shifted retail calendar, decreased 2.5%, which includes an increase of 24% in eCommerce sales. eCommerce sales penetration increased to approximately
11%
of total net sales during the current quarter compared to approximately
9%
of total net sales during the
quarter ended April 29, 2017
.
As adjusted for the shifted retail calendar, the decrease in consolidated same store sales was driven by declines in the hunt and electronics categories, partially offset by gains in the fitness equipment, team sports and licensed categories along with our private brand businesses. Our firearms policy changes led to an accelerated decline in our hunt business, which was a challenged category coming into fiscal 2018. We expect the hunt and electronics businesses to remain under significant pressure through the remainder of the year. We are also exiting the majority of our electronics business, which is primarily fitness tracking. Consolidated same store sales results for the current quarter reflect
a decrease
in transactions of approximately
3.7%
partially offset by an increase in sales per transaction of
1.2%
.
Income from Operations
Income from operations
decreased
to
$87.3 million
in the current quarter from
$90.1 million
for the
quarter ended April 29, 2017
.
Gross profit
increased
3.4%
to
$560.4 million
in the current quarter from
$541.9 million
for the
quarter ended April 29, 2017
, but
decreased
as a percentage of net sales by
35
basis points compared to the same period last year. Merchandise margins increased 18 basis points driven by a lower promotions and favorable merchandise mix. This increase, however, was more than offset by higher eCommerce shipping and fulfillment costs, and occupancy deleverage. Occupancy costs
increased
$14.2 million
in the current quarter from the
quarter ended April 29, 2017
. Our occupancy costs, which after the cost of merchandise represent our largest expense within cost of goods sold, are generally fixed in nature and fluctuate based on the number of stores that we operate. As a percentage of net sales, occupancy costs increased at a higher rate than the
4.6%
increase in net sales during the current quarter.
Selling, general and administrative expenses
increased
7.1%
to
$470.3 million
in the current quarter from
$439.3 million
for the
quarter ended April 29, 2017
, and
increased
as a percentage of net sales by
56
basis points. The expense deleverage was primarily driven by higher brand-building marketing expenses related to the Olympics, higher incentive compensation and investments in our growth initiatives to support our long-term strategy.
Pre-opening expenses
decreased
to
$2.7 million
in the current quarter from
$12.5 million
for the
quarter ended April 29, 2017
. Pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations. The quarter ended April 29, 2017 included $3.5 million of costs incurred by the Company to convert TSA stores to Dick's Sporting Goods stores. Pre-opening rent expenses for our self-developed store sites generally exceed those for sites built to our specifications by our landlords, as we commence recognition of rent expense when we take possession of a site as opposed to when we commence occupancy under the lease term.
Other Expense (Income)
Other expense totaled $0.9 million in the current quarter compared to $2.9 million of income for the quarter ended April 29, 2017. The Company recognizes investment income / expense to reflect changes in deferred compensation plan investment values with a corresponding charge / reduction to selling, general and administrative costs for the same amount. The Company recognized an investment loss totaling $1.0 million in the current quarter compared to investment income of $2.8 million for the quarter ended April 29, 2017, primarily driven by an overall decline in the equity markets, which impacted the deferred compensation plan investment values.
Income Taxes
The Company's effective tax rate decreased to
28.3%
for the current quarter from
36.5%
for the
quarter ended April 29, 2017
. The decrease is primarily due to a lower statutory corporate tax rate resulting from the Tax Cuts and Jobs Act (the "Tax Act"), which reduced the corporate federal income tax rate from 35% to 21% partially offset by tax expense in the current period compared to a tax benefit in the prior year period for certain share-based payments resulting from the prior year adoption of ASU 2016-09.
LIQUIDITY AND CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
Overview
The Company has a $1.25 billion senior secured revolving credit facility (the "Credit Facility"), which also provides for up to $150 million in the form of letters of credit. Under the Credit Facility, subject to satisfaction of certain conditions, the Company may request an increase of up to $350 million in additional borrowing availability.
The Company's liquidity and capital needs have generally been met by cash from operating activities supplemented by borrowings under the Company's Credit Facility as seasonally necessary. Cash flow from operations is seasonal in our business. The Company generally utilizes its Credit Facility for working capital needs based primarily on the seasonal nature of its operating cash flows, with the Company's peak borrowing level occurring early in the fourth quarter as the Company increases inventory in advance of the holiday selling season.
Liquidity information for the periods ended (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
May 5,
2018
|
|
April 29,
2017
|
Funds drawn on Credit Facility
|
$
|
692,800
|
|
|
$
|
645,200
|
|
Number of business days with outstanding balance on Credit Facility
|
64 days
|
|
|
61 days
|
|
Maximum daily amount outstanding under Credit Facility
|
$
|
280,100
|
|
|
$
|
152,800
|
|
Liquidity information as of the periods ended (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
May 5,
2018
|
|
April 29,
2017
|
Outstanding borrowings under Credit Facility
|
$
|
280,100
|
|
|
$
|
92,450
|
|
Cash and cash equivalents
|
$
|
104,599
|
|
|
$
|
108,400
|
|
Remaining borrowing capacity under Credit Facility
|
$
|
953,769
|
|
|
$
|
884,737
|
|
Outstanding letters of credit under Credit Facility
|
$
|
16,131
|
|
|
$
|
22,813
|
|
|
|
|
|
The Company intends to allocate capital to invest in its future growth, specifically growing its store network and eCommerce business together to deliver an omni-channel shopping experience, as well as other long-term strategic investments while returning capital to stockholders through share repurchases and dividends.
Capital expenditures
– We expect fiscal 2018 capital expenditures to be approximately $280 million on a gross basis and approximately $250 million on a net basis, which includes tenant allowances provided by landlords. Normal capital requirements primarily relate to the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology. We plan to continue to invest in technology and eCommerce fulfillment to deliver the best omni-channel customer experience in sporting goods. We plan to reduce our new stores growth rate in fiscal 2018 to 19 new Dick's Sporting Goods stores which represents a significant reduction from fiscal 2017. Approximately 50% of our Dick’s Sporting Goods stores will be up for lease renewal at our option over the next five years. We plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal.
Share repurchases
– On March 16, 2016, the Company's Board of Directors authorized a five-year share repurchase program of up to $1 billion of the Company's common stock. During the
13 weeks ended May 5, 2018
, the Company repurchased
3.3 million
shares of its common stock for
$107.9 million
and currently has approximately $648.9 million remaining under its current authorization that extends through 2021. The Company intends to repurchase shares from time-to-time to offset dilution and also may pursue additional repurchases of shares under favorable market conditions. Any future share repurchase programs are subject to the authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
Dividends
– During the
13 weeks ended May 5, 2018
, the Company paid
$23.7 million
of dividends to its stockholders. On May 17, 2018, our Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.225 per share of common stock and Class B common stock payable on June 29, 2018 to stockholders of record as of the close of business on June 8, 2018. The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors, and will be dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.
The Company believes cash flows generated by operations and funds available under its Credit Facility will be sufficient to satisfy capital requirements, including planned capital expenditures, share repurchases and quarterly dividend payments to its stockholders through fiscal
2018
. The Company may require additional funding should the Company pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of historical levels.
Changes in cash and cash equivalents are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
May 5,
2018
|
|
April 29,
2017
|
Net cash (used in) provided by operating activities
|
$
|
(19,099
|
)
|
|
$
|
36,472
|
|
Net cash used in investing activities
|
(49,349
|
)
|
|
(116,236
|
)
|
Net cash provided by financing activities
|
71,816
|
|
|
23,414
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(22
|
)
|
|
(27
|
)
|
Net increase (decrease) in cash and cash equivalents
|
$
|
3,346
|
|
|
$
|
(56,377
|
)
|
Operating Activities
Operating activities consist primarily of net income, adjusted for certain non-cash items and changes in operating assets and liabilities. Adjustments to net income for non-cash items include depreciation and amortization, deferred income taxes and stock-based compensation expense, as well as non-cash gains and losses on the disposal of the Company's assets. Changes in operating assets and liabilities primarily reflect changes in inventories, accounts payable and income taxes payable / receivable, as well as other working capital changes.
Cash provided by operating activities decreased
$55.6 million
for the
13 weeks ended May 5, 2018
compared to the same period last year. The calendar shift caused by the inclusion of a 53
rd
week in fiscal 2017 negatively impacted cash provided by operating activities in the current period.
Cash flows generated for changes in operating assets and liabilities, excluding the timing impact of cash payments for income taxes, decreased $54.5 million period-over-period due primarily to the following:
|
|
▪
|
Changes in inventory and accounts payable decreased operating cash flows by $23.7 million compared to the prior year, primarily due to the timing of rent payments processed prior to the end of fiscal April due to the calendar shift partially offset by lower inventory levels at the end of the current fiscal period compared to the same period last year.
|
|
|
▪
|
Changes in accrued expenses decreased operating cash flows by $17.8 million compared to the prior year, primarily due to year-over-year changes in the timing of payroll caused by the shifted fiscal calendar and incentive compensation accruals and corresponding payments.
|
|
|
▪
|
Changes in deferred construction allowances decreased operating cash flows by $19.4 million compared to the prior year, primarily due to year-over-year changes in the timing and amount of payments received for self-developed stores.
|
Investing Activities
Cash used in investing activities
decreased
$66.9 million
for the
13 weeks ended May 5, 2018
compared to the same period last year primarily due to a $64.5 million decrease in gross capital expenditures. The decrease in gross capital expenditures is primarily driven by the reduction in our new store growth rate in the current period and the construction of our fifth distribution facility during the same period last year.
Financing Activities
Financing activities consist primarily of the Company's capital return initiatives, including its share repurchase program and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility. Cash
provided by
financing activities for the
13 weeks ended May 5, 2018
totaled
$71.8 million
compared to
$23.4 million
for the comparable period of the prior year. The Company had higher net Credit Facility borrowings during the 13 weeks ended May 5, 2018 compared to the same period last year, primarily to fund an increase in share repurchases.
Off-Balance Sheet Arrangements
The Company's off-balance sheet arrangements as of
May 5, 2018
primarily relate to store operating leases and purchase obligations for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with its third-party eCommerce fulfillment provider and technology-related and other ordinary course commitments. The Company has excluded these items from the unaudited Consolidated Balance Sheets in accordance with generally accepted accounting principles. The Company does not believe that any of these arrangements have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or resources.
Contractual Obligations and Other Commercial Commitments
The Company is party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of the Company's contractual obligations and other commercial commitments as of
February 3, 2018
, see the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2018
, filed with the Securities and Exchange Commission on
March 30, 2018
. During the current quarter, there were no material changes with respect to these contractual obligations and other commercial commitments outside the ordinary course of business.