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 eCommerce platform, investments in our eCommerce fulfillment network, improvements in the customer experience in both stores and online, and inventory investments in key growth categories; the operation of our eCommerce platform; projections of our future profitability and results of operation; plans to open new stores and remodel existing stores; investments in our teammates and their productivity; eliminating non-essential expenses to fund our future strategic investments; the hunt industry remaining under significant pressure; removing hunt merchandise from 125 stores; increasing freight expenses; the effect of changes in corporate income tax laws and tariffs; capital expenditures; plans to return capital to stockholders through dividends or share repurchases; and borrowings under our credit facility.
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
2019
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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▪
|
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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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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▪
|
Vendors continuing to sell or increasingly selling their products directly to customers or through broadened or alternative distribution channels;
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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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▪
|
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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•
|
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 (including new tariffs), currency exchange rate fluctuations, increasing prices for raw materials, foreign political instability or other reasons;
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•
|
Our ability to predict or effectively react to changes in consumer demand or shopping patterns;
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▪
|
Lack of available retail store sites on terms acceptable to us, our ability to leverage the flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as our leases come up for renewal, and other costs and risks relating to a brick and mortar retail store model;
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▪
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Unauthorized disclosure of sensitive or confidential customer information;
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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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▪
|
Disruptions or other problems with our information systems;
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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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▪
|
Risks and costs relating to changing laws and regulations affecting our business, including consumer products, firearms and ammunition, tax, foreign trade, labor, data protection and privacy;
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▪
|
Litigation risks for which we may not have sufficient insurance or other coverage;
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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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▪
|
Our ability to protect the reputation of our Company and our brands;
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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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▪
|
Wage increases, which could adversely affect our financial results;
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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 acquisitions 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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▪
|
The issuance of 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 Item 1A. "Risk Factors" of this Quarterly Report and 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 2, 2019
, filed on
March 29, 2019
. 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 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 our dedicated associates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy and Field & Stream stores 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 continued integration of eCommerce with brick and mortar stores, growth in consolidated same store sales, which include the Company's eCommerce business, and its strong gross profit margins. The Company has grown from
566
Dick's Sporting Goods stores as of
May 3, 2014
to
727
Dick's Sporting Goods stores as of
May 4, 2019
. The Company has reduced its rate of new store growth and intends to continue this strategy over the next few years in an effort to leverage the significant flexibility within its existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal.
In recent years, the Company transitioned to an insourced eCommerce platform, and has continued to innovate its eCommerce websites and applications with customer experience enhancements, new releases of its mobile and tablet apps, and the development of omni-channel capabilities that integrate the Company's online presence with its brick and mortar stores, including ship-from-store; buy-online, pick-up in-store; return-to-store and multi-faceted marketing campaigns. The Company's eCommerce sales penetration to total net sales has increased from approximately 7% to approximately 13% for the year-to-date periods ended
May 3, 2014
and
May 4, 2019
, respectively. Approximately 80% of the Company's eCommerce sales are generated within brick and mortar store trade areas.
The retail industry as a whole is dynamic, and the sporting goods category has faced significant disruption in recent years, as several sporting goods retailers have gone out of business. Vendors have broadened their distribution into department stores and family footwear channels while continuing to grow their direct to consumer business. Weak customer demand for firearms and other hunting merchandise across the industry has resulted in slower growth. We have responded to these challenges by focusing on driving profitable sales, emphasizing a refined merchandise assortment that delivers newness, innovation and exclusivity. We have made strategic investments in our supply chain, digital capabilities, customer experience, private brands and teammates to support these efforts. We are also focused on increasing productivity and eliminating non-essential expenses to fund our future strategic investments.
Effective May 10, 2019, tariff rates on certain products imported from China increased from 10% to 25%. We believe that we will be able to mitigate the impact of this increase through sourcing, merchandising, and pricing actions and do not believe this increase will have a material, adverse impact on our net income for fiscal 2019.
As we look to the future, we are focused on continuing to invest in our business to meet the changing needs of our athletes and increasing their level of engagement with the Company. We plan to further enhance the store experience by optimizing our merchandise assortment, reallocating floor space to regionally relevant and growing merchandise categories and making our stores more experiential. Our primary areas of investment during fiscal 2019 will be to 1) enhance the athlete experience in our stores; 2) improve our eCommerce fulfillment capabilities and 3) implement technology solutions that improve the athlete experience and our teammates’ productivity. We plan to continue to focus on increasing productivity across the business to help fund these investments.
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 results. 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 earnings before taxes and operating margin 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 2, 2019
, filed with the Securities and Exchange Commission on
March 29, 2019
, 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. Our critical accounting policies and estimates did not change materially during the quarter ended
May 4, 2019
, except for the adoption of ASU 2016-02,
"Leases (Topic 842)"
, on February 3, 2019.
RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
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▪
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Earnings per diluted share of
$0.61
in the current quarter increased 3.4% compared to earnings per diluted share of
$0.59
during the
first
quarter of
2018
. Net income in the current quarter totaled
$57.5 million
compared to
$60.1 million
during the
first
quarter of
2018
.
|
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|
▪
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Net income in the current quarter included $5.6 million, net of tax, or $0.06 per diluted share, of a non-cash asset impairment charge and an increase to net income of $4.7 million, net of tax, or $0.05 per diluted share, resulting from the settlement of a litigation contingency previously accrued during fiscal 2017.
|
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▪
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Net sales
increased
0.6%
to
$1,920.7 million
in the current quarter from
$1,909.7 million
during the
first
quarter of
2018
.
|
|
|
▪
|
Consolidated same store sales were flat, which included an increase of approximately 15% in eCommerce sales.
|
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▪
|
eCommerce sales penetration increased to approximately 13% of total net sales during the current quarter compared to approximately 11% of total net sales during the first quarter of 2018.
|
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▪
|
In the
first
quarter of
2019
, the Company:
|
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|
▪
|
Declared and paid a quarterly cash dividend in the amount of
$0.275
per share on the Company's common stock and Class B common stock.
|
|
|
▪
|
Repurchased
3.0 million
shares of common stock for a total of
$107.3 million
under the currently authorized share repurchase program.
|
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▪
|
The following table summarizes store openings and closings for the periods indicated:
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13 Weeks Ended
May 4, 2019
|
|
13 Weeks Ended
May 5, 2018
|
|
Dick's Sporting Goods
|
|
Specialty Concept Stores
(1)
|
|
Total
|
|
Dick's Sporting Goods
|
|
Specialty Concept Stores
(1)
|
|
Total
|
Beginning stores
|
729
|
|
|
129
|
|
|
858
|
|
|
716
|
|
|
129
|
|
|
845
|
|
Q1 New stores
|
—
|
|
|
1
|
|
|
1
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Closed stores
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending stores
|
727
|
|
|
130
|
|
|
857
|
|
|
724
|
|
|
129
|
|
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocated stores
|
1
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
(1)
|
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.
|
The following tables present 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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|
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|
|
|
|
|
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|
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2018-2019
(A)
|
|
13 Weeks Ended
|
|
|
May 4, 2019
(A)
|
|
May 5,
2018
(A)
|
|
Net sales
(1)
|
100.00
|
%
|
|
100.00
|
%
|
|
N/A
|
Cost of goods sold, including occupancy and distribution costs
(2)
|
70.65
|
|
|
70.66
|
|
|
(1)
|
Gross profit
|
29.35
|
|
|
29.34
|
|
|
1
|
Selling, general and administrative expenses
(3)
|
25.36
|
|
|
24.63
|
|
|
73
|
Pre-opening expenses
(4)
|
0.03
|
|
|
0.14
|
|
|
(11)
|
Income from operations
|
3.96
|
|
|
4.57
|
|
|
(61)
|
Interest expense
|
0.16
|
|
|
0.14
|
|
|
2
|
Other (income) expense
|
(0.35
|
)
|
|
0.05
|
|
|
(40)
|
Income before income taxes
|
4.15
|
|
|
4.39
|
|
|
(24)
|
Provision for income taxes
|
1.16
|
|
|
1.24
|
|
|
(8)
|
Net income
|
3.00
|
%
|
|
3.15
|
%
|
|
(15)
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
Consolidated same store sales decrease
|
—
|
%
|
|
(0.9
|
%)
|
|
|
Number of stores at end of period
(5)
|
857
|
|
|
853
|
|
|
|
Total square feet at end of period
(5)
|
42,176,411
|
|
|
42,091,412
|
|
|
|
|
|
(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. The cards have no expiration date.
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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)
|
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.
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(4)
|
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)
|
Includes Dick's Sporting Goods, Golf Galaxy, Field & Stream and other specialty concept stores.
|
13 Weeks Ended May 4, 2019
Compared to the
13 Weeks Ended May 5, 2018
Net Sales
Net sales
increased
0.6%
in the current quarter to
$1,920.7 million
from
$1,909.7 million
for the
quarter ended May 5, 2018
, due primarily to the growth of our store network. Consolidated same store sales were flat, which included an increase of approximately 15% in eCommerce sales. eCommerce sales penetration increased to approximately 13% of total net sales during the current quarter compared to approximately 11% of total net sales during the
quarter ended May 5, 2018
.
Our flat consolidated same store sales were driven by gains in athletic and outdoor apparel and footwear categories, offset by a decline in the hunt category. We believe that our firearms policy changes have contributed to a continuing decline in our hunt business, and the broader hunt industry also remains challenged. We continue to evaluate our strategy for the hunt business and remain on track to remove hunt merchandise from approximately 125 Dick's Sporting Goods stores where the category under-performs and is less relevant in the local market, and utilize this space for categories that are under-served based on the needs of that particular market. Consolidated same store sales results for the current quarter reflected
a decrease
in transactions of approximately
1.0%
, partially offset by an increase in sales per transaction of
1.0%
.
Income from Operations
Income from operations
decreased
to
$76.1 million
in the current quarter from
$87.3 million
for the
quarter ended May 5, 2018
.
Gross profit
increased
0.6%
to
$563.8 million
in the current quarter from
$560.4 million
for the
quarter ended May 5, 2018
, and
increased
as a percentage of net sales by
1
basis point compared to the same period last year. This slight improvement was driven by merchandise margins, which increased 20 basis points primarily driven by fewer promotions and favorable merchandise mix, as our hunt business has traditionally had significantly lower merchandise margin rates compared to other categories, and lower occupancy expense as a percent of net sales. These benefits were largely offset by higher freight and eCommerce shipping and fulfillment costs. Occupancy costs
decreased
$0.9 million
in the current quarter from the
quarter ended May 5, 2018
. 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.
Selling, general and administrative expenses
increased
3.6%
to
$487.2 million
in the current quarter from
$470.3 million
for the
quarter ended May 5, 2018
, and
increased
as a percentage of net sales by
73
basis points. The quarter ended May 4, 2019 included $7.6 million for a non-cash impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value and $6.6 million of expenses associated with changes in the Company's deferred compensation plan investment values, for which the corresponding investment income was recognized in other income. These expenses were offset by a $6.4 million settlement of a previously accrued litigation contingency. The remaining increase was driven by investments in our growth initiatives to support our long-term strategy.
Pre-opening expenses
decreased
to
$0.6 million
in the current quarter from
$2.7 million
for the
quarter ended May 5, 2018
. Pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations. We opened one new store in the current quarter compared to eight new stores during the quarter ended May 5, 2018.
Other (Income) Expense
Other income totaled $6.7 million in the current quarter compared to $0.9 million of expense for the quarter ended May 5, 2018. The Company recognizes investment income / expense to reflect changes in its deferred compensation plan investment values with a corresponding charge / reduction to selling, general and administrative costs for the same amount. The Company recognized investment income totaling $6.6 million in the current quarter compared to an investment loss totaling $1.0 million for the quarter ended May 5, 2018, primarily driven by an overall improvement in the equity markets, which impacted its deferred compensation plan investment values.
Income Taxes
The Company's effective tax rate decreased to
27.9%
for the current quarter from
28.3%
for the
quarter ended May 5, 2018
.
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.
On August 3, 2018, the Company amended the Credit Facility to provide that all terms of an accounting or financial nature and all computations of financial amounts and ratios referenced in the Credit Facility will be made without giving effect to any lease obligation recorded pursuant to FASB ASU 2016-02,
"Leases (Topic 842)"
, to the extent such obligation would not have been recorded as a capital lease obligation prior to adoption of ASU 2016-02.
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. 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 4,
2019
|
|
May 5,
2018
|
Funds drawn on Credit Facility
|
$
|
635,300
|
|
|
$
|
692,800
|
|
Number of business days with outstanding balance on Credit Facility
|
62 days
|
|
|
64 days
|
|
Maximum daily amount outstanding under Credit Facility
|
$
|
369,500
|
|
|
$
|
280,100
|
|
Liquidity information as of the periods ended (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
May 4,
2019
|
|
May 5,
2018
|
Outstanding borrowings under Credit Facility
|
$
|
369,500
|
|
|
$
|
280,100
|
|
Cash and cash equivalents
|
$
|
92,423
|
|
|
$
|
104,599
|
|
Remaining borrowing capacity under Credit Facility
|
$
|
864,369
|
|
|
$
|
953,769
|
|
Outstanding letters of credit under Credit Facility
|
$
|
16,131
|
|
|
$
|
16,131
|
|
|
|
|
|
The Company intends to allocate capital to invest in its future growth, specifically growing and remodeling 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 2019 capital expenditures to be approximately $230 million on a gross basis and approximately $200 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 reduced our new stores growth rate in fiscal 2019 to seven new Dick's Sporting Goods stores, which represents a significant reduction from fiscal 2018. Approximately two-thirds 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. The Company also plans to continue to invest in improving its eCommerce fulfillment network and corporate information technology capabilities.
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 4, 2019
, the Company repurchased
3.0 million
shares of its common stock for
$107.3 million
, and as of May 4, 2019 has approximately $326.1 million remaining under its current authorization that extends through 2021. During the first three weeks of the second quarter, the Company repurchased additional shares of its common stock for a total cost of $78.5 million. As of May 24, 2019, the Company has approximately $248 million remaining under its authorization. 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 4, 2019
, the Company paid
$27.0 million
of dividends to its stockholders. On May 24, 2019, the Company's Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.275 per share of common stock and Class B common stock payable on June 28, 2019 to stockholders of record as of the close of business on June 14, 2019. 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 through 2019, including planned inventory investments in key growth categories, capital expenditures, share repurchases, and quarterly dividend payments to its stockholders. 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 4,
2019
|
|
May 5,
2018
|
Net cash used in operating activities
|
$
|
(222,152
|
)
|
|
$
|
(19,099
|
)
|
Net cash used in investing activities
|
(46,882
|
)
|
|
(49,349
|
)
|
Net cash provided by financing activities
|
247,823
|
|
|
71,816
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(19
|
)
|
|
(22
|
)
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(21,230
|
)
|
|
$
|
3,346
|
|
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 used in operating activities increased
$203.1 million
for the
13 weeks ended May 4, 2019
compared to the same period last year due primarily to the following:
|
|
•
|
Changes in inventory levels at the end of the current fiscal period decreased operating cash flows by $205.0 million compared to the same period last year, primarily due to strategic investments in key growth categories.
|
|
|
•
|
Changes in accounts receivable at the end of the current fiscal period decreased operating cash flows by $13.0 million compared to the same period last year, primarily due to the timing of collections for vendor receivables year-over-year.
|
|
|
•
|
Changes in deferred construction allowances at the end of the current fiscal period increased operating cash flows by $10.7 million compared to the same period last 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
$2.5 million
for the
13 weeks ended May 4, 2019
compared to the same period last year, due to a decrease in gross capital expenditures. The decrease in gross capital expenditures was 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, offset by higher store enhancements and technology investments in the current 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 4, 2019
totaled
$247.8 million
compared to
$71.8 million
for the comparable period of the prior year. The Company had higher net Credit Facility borrowings during the 13 weeks ended May 4, 2019 compared to the same period last year, for inventory investments in key categories.
Off-Balance Sheet Arrangements
The Company's off-balance sheet arrangements as of
May 4, 2019
primarily relate to 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 2, 2019
, see the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
, filed with the Securities and Exchange Commission on
March 29, 2019
. 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.