Quarterly Report (10-q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 31, 2020


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-31463

DICK’S SPORTING GOODS, INC.

(Exact name of registrant as specified in its charter)


Delaware						16-1241537
(State or Other Jurisdiction of						(I.R.S. Employer
Incorporation or Organization)						Identification No.)

345 Court Street, Coraopolis, PA 15108

(Address of Principal Executive Offices)

(724) 273-3400

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, $0.01 par value

DKS

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of November 20, 2020, DICK’S Sporting Goods, Inc. had 65,733,042 shares of common stock, par value $0.01 per share, and 23,865,633 shares of Class B common stock, par value $0.01 per share, outstanding.


Table of Contents

INDEX TO FORM 10-Q


			Page Number

PART I. FINANCIAL INFORMATION			3

Item 1. Financial Statements			3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27

PART II. OTHER INFORMATION			29

Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36

Item 6. Exhibits			37


INDEX TO EXHIBITS			37

SIGNATURES			38


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)


	13 Weeks Ended				39 Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Net sales	$	2,412,112	$	1,962,204	$	6,458,712	$	6,142,093
Cost of goods sold, including occupancy and distribution costs	1,569,938		1,381,562		4,460,336		4,320,571

GROSS PROFIT	842,174		580,642		1,998,376		1,821,522

Selling, general and administrative expenses	591,117		531,704		1,537,371		1,539,934

Pre-opening expenses	4,964		3,313		9,728		4,887

INCOME FROM OPERATIONS	246,093		45,625		451,277		276,701


(Gain) loss on sale of subsidiaries	—		(33,779)		—		(33,779)
Interest expense	12,769		4,278		35,496		12,909
Other (income) expense	(3,746)		(2,020)		(4,731)		(10,340)

INCOME BEFORE INCOME TAXES	237,070		77,146		420,512		307,911

Provision for income taxes	59,854		19,562		109,875		80,268

NET INCOME	$	177,216	$	57,584	$	310,637	$	227,643

EARNINGS PER COMMON SHARE:
Basic	$	2.10	$	0.68	$	3.69	$	2.57
Diluted	$	1.84	$	0.66	$	3.44	$	2.53

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	84,422		85,048		84,095		88,671
Diluted	96,571		86,601		90,430		90,130

See accompanying notes to unaudited consolidated financial statements.


Table of Contents

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	13 Weeks Ended				39 Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
NET INCOME	$	177,216	$	57,584	$	310,637	$	227,643
OTHER COMPREHENSIVE INCOME:



Foreign currency translation adjustment, net of tax	16		6		6		4
TOTAL OTHER COMPREHENSIVE INCOME	16		6		6		4
COMPREHENSIVE INCOME	$	177,232	$	57,590	$	310,643	$	227,647

See accompanying notes to unaudited consolidated financial statements.


Table of Contents

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)


	October 31, 2020		February 1, 2020		November 2, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,059,994	$	69,334	$	87,622
Accounts receivable, net	77,212		53,173		70,463
Income taxes receivable	5,453		5,762		17,122
Inventories, net	2,319,992		2,202,275		2,573,250
Prepaid expenses and other current assets	82,648		79,472		128,458

Total current assets	3,545,299		2,410,016		2,876,915


Property and equipment, net	1,336,676		1,415,728		1,436,975
Operating lease assets	2,177,006		2,313,846		2,378,399

Intangible assets, net	91,585		94,768		123,855
Goodwill	245,857		245,857		245,857

Deferred income taxes	27,717		14,412		16,033
Other assets	141,350		133,933		128,965

TOTAL ASSETS	$	7,565,490	$	6,628,560	$	7,206,999

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,394,904	$	1,001,589	$	1,097,564
Accrued expenses	449,304		415,501		379,774
Operating lease liabilities	474,803		422,970		417,912
Income taxes payable	24,805		10,455		2,519
Deferred revenue and other liabilities	193,956		225,959		183,876
Total current liabilities	2,537,772		2,076,474		2,081,645
LONG-TERM LIABILITIES:

Revolving credit borrowings	—		224,100		719,300
Convertible senior notes due 2025	411,256		—		—
Long-term operating lease liabilities	2,310,318		2,453,346		2,509,866


Deferred income taxes	—		9,187		8,530
Other long-term liabilities	184,505		133,855		178,756
Total long-term liabilities	2,906,079		2,820,488		3,416,452
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock	608		593		597
Class B common stock	239		243		243
Additional paid-in capital	1,415,909		1,253,867		1,240,864
Retained earnings	2,873,263		2,645,281		2,599,495
Accumulated other comprehensive loss	(114)		(120)		(116)
Treasury stock, at cost	(2,168,266)		(2,168,266)		(2,132,181)
Total stockholders' equity	2,121,639		1,731,598		1,708,902
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,565,490	$	6,628,560	$	7,206,999

See accompanying notes to unaudited consolidated financial statements.


Table of Contents

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


											Accumulated
				Class B			Additional				Other
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Treasury
	Shares	Dollars		Shares	Dollars		Capital		Earnings		Loss		Stock		Total
BALANCE, February 1, 2020	59,256	$	593	24,291	$	243	$	1,253,867	$	2,645,281	$	(120)	$	(2,168,266)	$	1,731,598
Equity component value of convertible note issuance	—	—		—	—		160,693		—		—		—		160,693
Purchase of convertible note hedge	—	—		—	—		(161,057)		—		—		—		(161,057)
Sale of common stock warrants	—	—		—	—		105,225		—		—		—		105,225
Restricted stock vested	745	7		—	—		(7)		—		—		—		—
Minimum tax withholding requirements	(185)	(2)		—	—		(3,388)		—		—		—		(3,390)
Net loss	—	—		—	—		—		(143,422)		—		—		(143,422)
Stock-based compensation	—	—		—	—		9,235		—		—		—		9,235

Foreign currency translation adjustment, net of taxes of $20	—	—		—	—		—		—		(63)		—		(63)



Cash dividend declared, $0.3125 per common share	—	—		—	—		—		(26,794)		—		—		(26,794)
BALANCE, May 2, 2020	59,816	$	598	24,291	$	243	$	1,364,568	$	2,475,065	$	(183)	$	(2,168,266)	$	1,672,025

Exchange of Class B common stock for common stock	200	2		(200)	(2)		—		—		—		—		—
Exercise of stock options	28	—		—	—		939		—		—		—		939
Restricted stock vested	26	1		—	—		(1)		—		—		—		—
Minimum tax withholding requirements	(8)	—		—	—		(294)		—		—		—		(294)
Net income	—	—		—	—		—		276,843		—		—		276,843
Stock-based compensation	—	—		—	—		8,214		—		—		—		8,214
Foreign currency translation adjustment, net of taxes of $(17)	—	—		—	—		—		—		53		—		53

Cash dividend declared, $0.3125 per common share	—	—		—	—		—		(27,484)		—		—		(27,484)
BALANCE, August 1, 2020	60,062	$	601	24,091	$	241	$	1,373,426	$	2,724,424	$	(130)	$	(2,168,266)	$	1,930,296
Exchange of Class B common stock for common stock	225	2		(225)	(2)		—		—		—		—		—
Exercise of stock options	515	5		—	—		24,528		—		—		—		24,533
Restricted stock vested	14	—		—	—		—		—		—		—		—
Minimum tax withholding requirements	(4)	—		—	—		(227)		—		—		—		(227)
Net income	—	—		—	—		—		177,216		—		—		177,216
Stock-based compensation	—	—		—	—		18,182		—		—		—		18,182
Foreign currency translation adjustment, net of taxes of $(5)	—	—		—	—		—		—		16		—		16

Cash dividend declared, $0.3125 per common share	—	—		—	—		—		(28,377)		—		—		(28,377)
BALANCE, October 31, 2020	60,812	$	608	23,866	$	239	$	1,415,909	$	2,873,263	$	(114)	$	(2,168,266)	$	2,121,639

See accompanying notes to unaudited consolidated financial statements.


Table of Contents

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(in thousands)

(Unaudited)


											Accumulated
				Class B			Additional				Other
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Treasury
	Shares	Dollars		Shares	Dollars		Capital		Earnings		Loss		Stock		Total
BALANCE, February 2, 2019	69,305	$	693	24,541	$	245	$	1,214,287	$	2,455,192	$	(120)	$	(1,766,136)	$	1,904,161
Adjustment for cumulative effect from change in accounting principle (ASU 2016-02)	—	—		—	—		—		(7,953)		—		—		(7,953)
Exchange of Class B common stock for common stock	50	—		(50)	—		—		—		—		—		—
Exercise of stock options	6	—		—	—		213		—		—		—		213
Restricted stock vested	520	6		—	—		(6)		—		—		—		—
Minimum tax withholding requirements	(158)	(1)		—	—		(5,858)		—		—		—		(5,859)
Net income	—	—		—	—		—		57,525		—		—		57,525
Stock-based compensation	—	—		—	—		11,907		—		—		—		11,907
Foreign currency translation adjustment, net of taxes of $6	—	—		—	—		—		—		(19)		—		(19)
Purchase of shares for treasury	(2,968)	(30)		—	—		—		—		—		(107,275)		(107,305)
Cash dividend declared, $0.275 per common share	—	—		—	—		—		(26,635)		—		—		(26,635)
BALANCE, May 4, 2019	66,755	$	668	24,491	$	245	$	1,220,543	$	2,478,129	$	(139)	$	(1,873,411)	$	1,826,035
Exercise of stock options	2	—		—	—		60		—		—		—		60
Restricted stock vested	21	—		—	—		—		—		—		—		—
Minimum tax withholding requirements	(7)	—		—	—		(453)		—		—		—		(453)
Net income	—	—		—	—		—		112,534		—		—		112,534
Stock-based compensation	—	—		—	—		11,175		—		—		—		11,175
Foreign currency translation adjustment, net of taxes of $(5)	—	—		—	—		—		—		17		—		17
Purchase of shares for treasury	(4,486)	(45)		—	—		—		—		—		(159,274)		(159,319)
Cash dividend declared, $0.275 per common share	—	—		—	—		—		(24,963)		—		—		(24,963)
BALANCE, August 3, 2019	62,285	$	623	24,491	$	245	$	1,231,325	$	2,565,700	$	(122)	$	(2,032,685)	$	1,765,086
Exchange of Class B common stock for common stock	200	2		(200)	(2)		—		—		—		—		—
Exercise of stock options	29	—		—	—		887		—		—		—		887
Restricted stock vested	1	—		—	—		—		—		—		—		—
Minimum tax withholding requirements	—	—		—	—		(8)		—		—		—		(8)
Net income	—	—		—	—		—		57,584		—		—		57,584
Stock-based compensation	—	—		—	—		8,660		—		—		—		8,660
Foreign currency translation adjustment, net of taxes of $(2)	—	—		—	—		—		—		6		—		6
Purchase of shares for treasury	(2,838)	(28)		—	—		—		—		—		(99,496)		(99,524)
Cash dividend declared, $0.275 per common share	—	—		—	—		—		(23,789)		—		—		(23,789)
BALANCE, November 2, 2019	59,677	$	597	24,291	$	243	$	1,240,864	$	2,599,495	$	(116)	$	(2,132,181)	$	1,708,902

See accompanying notes to unaudited consolidated financial statements.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	39 Weeks Ended
	October 31, 2020		November 2, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	310,637	$	227,643
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization, and other	239,666		244,163

Amortization of convertible notes discount and issuance costs	14,345		—
Non-cash lease costs	(1,199)		(43,011)
Deferred income taxes	(22,492)		(3,438)
Stock-based compensation	35,631		31,742




Gain on sale of subsidiaries	—		(33,779)

Changes in assets and liabilities:
Accounts receivable	(12,099)		(22,636)
Inventories	(121,435)		(758,016)
Prepaid expenses and other assets	(384)		3,822
Accounts payable	381,383		168,259
Accrued expenses	30,035		11,424
Income taxes payable / receivable	14,659		(28,610)
Deferred construction allowances	42,314		25,598
Deferred revenue and other liabilities	6,454		(35,936)
Net cash provided by (used in) operating activities	917,515		(212,775)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(156,444)		(165,703)
Proceeds from sale of subsidiaries, net of cash sold	—		40,387
Proceeds from sale of other assets	—		4,103


Deposits and purchases of other assets	(96)		(1,000)
Net cash used in investing activities	(156,540)		(122,213)
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving credit borrowings	1,291,700		1,778,750
Revolving credit repayments	(1,515,800)		(1,059,450)
Proceeds from issuance of convertible notes	575,000		—

Payments for purchase of bond hedges	(161,057)		—
Proceeds from issuance of warrants	105,225		—
Transaction costs paid in connection with convertible notes issuance	(17,396)		—
Payments on other long-term debt and finance lease obligations	(612)		(3,965)


Proceeds from exercise of stock options	25,472		1,160

Minimum tax withholding requirements	(3,911)		(6,320)
Cash paid for treasury stock	—		(366,148)
Cash dividends paid to stockholders	(80,874)		(74,540)
Increase in bank overdraft	11,932		39,466
Net cash provided by financing activities	229,679		308,953
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	6		4
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	990,660		(26,031)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	69,334		113,653
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,059,994	$	87,622

Supplemental disclosure of cash flow information:

Accrued property and equipment	$	36,523	$	22,905

Cash paid for interest	$	19,459	$	12,427
Cash paid for income taxes	$	119,734	$	112,458

See accompanying notes to unaudited consolidated financial statements.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

DICK’S Sporting Goods, Inc. (together with its subsidiaries, referred to as “the Company”, “we”, “us” and “our” unless specified otherwise) is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through its dedicated teammates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy and Field & Stream specialty stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. The Company offers its products through an 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 otherwise specifies, any reference to a “year” is to the Company’s fiscal year.

Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements for Quarterly Reports on Form 10-Q and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim consolidated financial statements are unaudited and have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, such unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim financial information.

The unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 1, 2020 as filed with the Securities and Exchange Commission on March 20, 2020. Operating results for the 13 and 39 weeks ended October 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 2021 or any other period.

Reclassifications

Certain reclassifications have been made to prior year amounts within the unaudited consolidated financial statements to conform to the current year presentation. The Company reclassified non-cash lease costs from depreciation, amortization and other as a separate line within the consolidated statements of cash flows.

COVID-19 Update

In March 2020, the World Health Organization declared the disease caused by the novel strain of coronavirus (“COVID-19”) a pandemic. In response to the public health crisis posed by COVID-19, the Company prioritized the health and safety of its teammates and athletes by temporarily closing its stores to the public, with all stores being re-opened by the end of June 2020. The Company also closed its corporate office, using its business continuity plans to operate corporate support functions under remote work arrangements that currently remain in place.

In response to the potential impacts and uncertainty about the duration of the COVID-19 pandemic, the Company took precautionary measures to increase and maintain its liquidity, which included reducing planned operating expenses, inventory receipts and capital expenditures, negotiating rent deferrals with landlords, amending its Credit Facility to increase borrowing capacity and issuing $575 million of convertible senior notes due 2025 (“Convertible Senior Notes”). As a result of the Company’s precautionary measures and its operating results since the re-opening of all of its stores, the Company had $1.06 billion of cash and cash equivalents and no borrowings outstanding on its Credit Facility as of October 31, 2020.

On March 27, 2020, the United States Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, promulgated various income tax provisions, including but not limited to, modifications for net operating losses, an accelerated time frame for refunds associated with prior minimum taxes and modifications of the limitation on business interest. The CARES Act also provides for refundable employee retention tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and the deferral of the employer-paid portion of social security taxes. Through October 31, 2020, employee retention tax credits provided under the CARES Act reduced the Company’s operating expenses by approximately $16.9 million, substantially all of which related to wages and benefits the Company paid to teammates during the period of its temporary store closures earlier in the fiscal year. In addition, the Company has deferred qualifying payroll and other tax payments of approximately $41.4 million in the current year as permitted by the CARES Act.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company continues to consider and assess the potential impact that the COVID-19 pandemic could have on its operations, as well as the assumptions and estimates used to prepare interim financial statements such as inventory valuations, fair value measurements and potential asset impairment charges. These assumptions and estimates may change in the future as new events occur and additional information is obtained. If the COVID-19 pandemic causes another period of store closures or a change in customer behavior, such future events may have a material adverse impact on the Company's results of operations, financial position and liquidity.

As a result of the actions taken to support its teammates as well as the impacts of temporary store closures, the Company incurred approximately $48 million and $124 million of incremental compensation and safety costs for the quarterly and year-to-date periods ended October 31, 2020, respectively.

Recently Adopted Accounting Pronouncements

Financial Instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. The Company adopted ASU 2016-13 during the first quarter of fiscal 2020. The adoption did not have a significant impact on the Company’s financial condition, results of operations, cash flows and disclosures.

Intangible Assets

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted Subtopic 350-40 during the first quarter of fiscal 2020 using a prospective approach; the adoption did not have a significant impact on the Company's financial statements.

Recently Issued Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standard Codification (“ASC”) 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact of adoption on the Company’s financial condition, results of operations, cash flows and disclosures, which is not expected to be significant.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU can be applied anytime between the first quarter of fiscal 2020 and the fourth quarter of fiscal 2022 and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The impact of Topic 848 on the Company's financial statements and related disclosures is not expected to be significant.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Convertible Instruments

In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years, and it permits the use of either the modified retrospective or fully retrospective method of transition. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the timing of adoption as well as the impact that the adoption of ASU 2020-06 will have on the Company's financial statements, but it anticipates that it will result in a reduction in non-cash interest expense related to the Convertible Senior Notes.

2. Earnings Per Common Share

Basic earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock outstanding, plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 6 for further discussion) and stock-based awards, such as stock options and restricted stock.

The computations for basic and diluted earnings per common share were as follows for the periods presented (in thousands, except per share data):


	13 Weeks Ended				39 Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Net income	$	177,216	$	57,584	$	310,637	$	227,643

Weighted average common shares outstanding - basic	84,422		85,048		84,095		88,671
Dilutive effect of stock-based awards	5,248		1,553		3,662		1,459
Dilutive effect of Convertible Senior Notes and warrants	6,901		—		2,673		—
Weighted average common shares outstanding - diluted	96,571		86,601		90,430		90,130

Earnings per common share - basic	$	2.10	$	0.68	$	3.69	$	2.57
Earnings per common share - diluted	$	1.84	$	0.66	$	3.44	$	2.53

Potentially dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. Anti-dilutive options and restricted stock awards excluded from the calculation of earnings per share for the 13 weeks ended October 31, 2020 and November 2, 2019 were 0.5 million and 3.2 million, respectively. Anti-dilutive options and restricted stock awards excluded from the calculation of earnings per share for the 39 weeks ended October 31, 2020 and November 2, 2019 were 2.2 million and 3.2 million, respectively. Shares to be provided to the Company from its bond hedge purchased concurrently with its issuance of Convertible Senior Notes are anti-dilutive and are not included in its diluted earnings per common share calculation.

3. Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures, outlines a valuation framework and creates a fair value hierarchy for assets and liabilities as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Recurring

The Company measures its deferred compensation plan assets held in trust at fair value on a recurring basis using Level 1 inputs. Such assets consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plans. As of October 31, 2020 and February 1, 2020, the fair value of the Company’s deferred compensation plans was $111.2 million and $99.7 million, respectively, as determined by quoted prices in active markets. The Company’s policy for recognition of transfers between levels of the fair value hierarchy is to recognize any transfer at the end of the fiscal quarter in which the determination to transfer was made.

The Company bases the fair value of its Convertible Senior Notes on Level 2 inputs, specifically their quoted price in an inactive market on the last trading day in a reporting period. On October 31, 2020, the fair value of the Convertible Senior Notes was approximately $1.0 billion, compared to their carrying value of $411.3 million. The carrying value excluded amounts classified within additional paid-in capital and any unamortized discounts. See Note 6 for additional information.

Due to the short-term nature of these instruments, the fair value of cash and cash equivalents, accounts receivable, accounts payable, borrowings under the Credit Facility and certain other liabilities approximated their carrying values at both October 31, 2020 and February 1, 2020.

Nonrecurring

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include property and equipment, goodwill and other intangible assets, equity and other assets. These assets are required to be assessed for impairment when events or circumstances indicate that the carrying value may not be recoverable, and at least annually for goodwill and indefinite-lived intangible assets. In the event that an impairment is required, the asset is adjusted to fair value, using Level 3 inputs. The Company did not record any such impairment charges during fiscal 2020.

4. Leases

The Company leases all of its stores, three of its distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2033. The Company’s stores generally have initial lease terms of 10 to 15 years and contain multiple five-year renewal options and rent escalation provisions. The lease agreements provide primarily for the payment of minimum annual rentals, costs of utilities, property taxes, maintenance, common areas and insurance.

In response to the COVID-19 pandemic, the FASB issued interpretive guidance in April 2020, which provided entities the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. The Company did not elect this option; accordingly, any rent deferrals or concessions that were granted by landlords during fiscal 2020 were treated as lease modifications and not as variable rent reductions. Since lease modification accounting generally requires recognition of changes in rent payments over the lease term, the Company’s earnings were not materially impacted in the 13 or 39 weeks ended October 31, 2020 by rent deferrals or concessions.

Supplemental cash flow information related to operating leases for the 39 weeks ended October 31, 2020 and November 2, 2019 were as follows (in millions):


	39 weeks ended
	October 31, 2020		November 2, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	441.8	$	491.5
Non-cash operating lease assets and liabilities obtained in exchange for new or modified leases	$	219.0	$	174.2


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Revolving Credit Facility

On March 27, 2020, the Company amended its senior secured revolving credit facility, which matures on June 28, 2024, to increase aggregate commitments to $1.855 billion (the “Credit Facility”). The amended Credit Facility includes the ability to issue letters of credit up to $150.0 million in the aggregate. After giving effect to the amendment, the Credit Facility allows the Company, upon the satisfaction of certain conditions, to request an increase of up to approximately $245.0 million in additional borrowing availability, subject to existing or new lenders agreeing to provide additional revolving commitments. The Credit Facility is secured by a first priority security interest in certain property and assets, including receivables, inventory, deposit accounts, securities accounts and other personal property of the Company and is guaranteed by the Company’s domestic subsidiaries.

The annual interest rates applicable to loans under the Credit Facility are, at the Company’s option, equal to a base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. The March 27, 2020 amendment increased the applicable margins on base rate loans and LIBOR rate loans to the highest level under the existing pricing grid, or from 0.125% to 0.375% for base rate loans and from 1.125% to 1.375% for adjusted LIBOR rate loans. These margin percentages will be in effect until the Company elects to lower the aggregate commitments under the Credit Facility so that they no longer exceed $1.6 billion. Other modifications included introducing a LIBOR “floor” of 0.75% for purposes of calculating the interest rate on LIBOR based loans and modifying the borrowing base definition so that certain junior liens do not automatically disqualify eligible receivables and inventory from inclusion in the borrowing base.

As of October 31, 2020, there were no borrowings outstanding under the Credit Facility. As of October 31, 2020 and February 1, 2020, total remaining borrowing capacity, after subtracting letters of credit, was $1.84 billion and $1.36 billion, respectively.

The Credit Facility contains a covenant that requires the Company to maintain a minimum adjusted availability of 7.5% of its borrowing base. The Credit Facility also contains certain covenants that could, within specific predefined circumstances, limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; pay distributions on, redeem or repurchase capital stock; redeem or repurchase subordinated debt; make certain investments; sell assets; or consolidate, merge or transfer all or substantially all of the Company’s assets. Other than in certain limited conditions, the Company is permitted under the Credit Facility to continue to pay dividends and repurchase shares pursuant to its stock repurchase program.

6. Convertible Senior Notes

Overview

In April 2020, the Company issued in a private offering an aggregate $575.0 million of 3.25% Convertible Senior Notes due 2025 in two closing transactions, including the exercise of a $75.0 million over-allotment option. The Company received proceeds from the issuance and sale of the Convertible Senior Notes of $557.6 million, net of $17.4 million of transaction fees and other third-party offering expenses. The Convertible Senior Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020 and will mature on April 15, 2025, unless earlier repurchased, redeemed or converted.

The Convertible Senior Notes are the Company’s unsecured, unsubordinated obligations and are equal in right of payment with the Company’s existing and future unsecured, unsubordinated indebtedness; senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and preferred equity, if any, of the Company’s subsidiaries.

Prior to the close of business on the business day immediately preceding December 2, 2024, noteholders may convert their Convertible Senior Notes into shares of the Company’s common stock at their option only in the following circumstances:

•during any calendar quarter commencing after the calendar quarter ended September 30, 2020, if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, exceeds 130% of the conversion price then in effect on each applicable trading day;


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

•during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

•upon the occurrence of certain corporate events or distributions on the Company’s common stock, including but not limited to a fundamental change; or

•if the Company calls all or any Convertible Senior Notes for redemption.

On or after December 2, 2024, until the close of business on the second scheduled trading day immediately before the maturity date of the Convertible Senior Notes, noteholders may convert their Convertible Senior Notes at their option at any time, regardless of the foregoing conditions.

The Company may redeem the Convertible Senior Notes at its option at any time on or after April 17, 2023 at a cash redemption price equal to the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Convertible Senior Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Senior Note, in which case the conversion rate applicable to the conversion of that Convertible Senior Note will be increased in certain circumstances if it is converted after it is called for redemption.

Upon the occurrence of a fundamental change prior to the maturity date of the Convertible Senior Notes, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Upon issuance of the Convertible Senior Notes in April 2020, the initial conversion rate was 28.2618 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, which represented an initial conversion price of approximately $35.38 per share. The conversion rate is subject to customary adjustments upon the occurrence of certain events, such as the payment of dividends. In addition, upon the occurrence of a fundamental change prior to the maturity of the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate by a specified number of additional shares for a holder that elects to convert the Convertible Senior Notes in connection with such a fundamental change. As of October 31, 2020, the conversion rate for the Convertible Senior Notes was 28.6375, which represents a conversion price of $34.92 per share. The difference between the initial conversion rate and the conversion rate as of October 31, 2020 is due to dividends that have been declared on shares of the Company’s common stock following the issuance of the Convertible Senior Notes.

Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s stock, or a combination thereof, at the Company’s option. The Company also has the ability to irrevocably elect to settle the Convertible Senior Notes in cash without amending the indentures or the Notes themselves. The Company currently intends to settle the principal amount of the Convertible Senior Notes in cash and any conversion premium in shares of its common stock.

Convertible debt instruments that may be settled in cash are required to be separated into liability and equity components. The allocation to the liability component is based on the fair value of a similar instrument that does not contain an equity conversion option. Based on this debt to equity ratio, debt issuance costs are then allocated to the liability and equity components in a similar manner. Accordingly, at issuance the Company allocated $396.9 million to the debt liability and $160.7 million to additional paid in capital.

The difference between the principal amount of the Convertible Senior Notes and the liability component, inclusive of issuance costs, represents the debt discount, which the Company will amortize to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 11.6%. During the 13 and 39 weeks ended October 31, 2020, the Company recognized $11.3 million and $24.4 million, respectively, of total interest expense related to the Convertible Senior Notes, of which $6.7 million and $14.3 million, respectively, was attributed to non-cash amortization of the debt discount.


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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary as of October 31, 2020 of the gross carrying amount, unamortized debt discount including debt issuance costs, and net carrying value of the liability component of the Convertible Senior Notes is as follows:


(in millions)
Par value	$	575.0
Debt discount	$	(163.7)
Carrying amount	$	411.3
Equity component (*)	$	160.7

(*) Included in additional paid-in capital on the consolidated balance sheets.

Convertible Note Hedge and Warrant Transactions

In connection with the sale of the Convertible Senior Notes, the Company purchased a bond hedge designed to mitigate the potential dilution to shareholders from the conversion of the Convertible Senior Notes. Under the five-year term of the bond hedge, upon a conversion of the bonds the Company will receive shares of common stock equal to the shares issued under the conversion feature of the Convertible Senior Notes. The aggregate number of shares that the Company could be obligated to issue upon conversion of the Convertible Senior Notes, and that the Company would receive under the bond hedge, is equal to the number of shares underlying the Convertible Senior Notes, or approximately 16.5 million shares.

The cost of the bond hedge was partially offset by the Company’s sale of warrants to acquire approximately 16.5 million shares of the Company’s common stock. The warrants were initially exercisable at a price of at least $52.42 per share and are subject to customary adjustments upon the occurrence of certain events, such as the payment of dividends. As of October 31, 2020, the warrants were exercisable at a price of at least $51.73 per share. The difference between the initial and current exercise price is due to dividends that have been declared on shares of the Company’s common stock following the issuance of the warrants.

The bond hedge and warrant transactions effectively increased the conversion price associated with the Convertible Senior Notes during the term of these transactions from 35% to 100% at their issuance, thereby reducing the dilutive economic effect to shareholders upon actual conversion. There would be dilution from the conversion of the Convertible Senior Notes to the extent that the then-market price per share of the common stock exceeds the exercise price of the warrants at the time of conversion.

The bond hedges and warrants are indexed to, and potentially settled in shares of, the Company’s common stock. The net cost of $55.8 million for the purchase of the bond hedges and sale of the warrants was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

At issuance, the Company recorded a deferred tax liability of $42.7 million related to the Convertible Senior Notes debt discount and a deferred tax asset of $42.8 million related to the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded net within deferred income taxes in the unaudited consolidated balance sheets.

7. Subsequent Event

On November 20, 2020, the Company's Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.3125 per share on the Company's common stock and Class B common stock payable on December 29, 2020 to stockholders of record as of the close of business on December 11, 2020.


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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, the impact of the coronavirus (“COVID-19”) pandemic on the business, including store closures, changes to consumer demand and store traffic, and supply chain disruptions; that our efforts to increase and maintain liquidity will continue to be sufficient to operate during the disruption caused by the COVID-19 pandemic; plans to provide a 15% pay premium to our store and distribution center teammates for the remainder of the calendar year; plans to remove the hunt department from the remaining 180 stores by the end of fiscal 2021; plans to reduce our store growth rate and leverage our real estate portfolio to capitalize on future opportunities in the near and intermediate term as our existing leases come up for renewal; investments in our teammates and their productivity; the impact of the issuance of the Convertible Senior Notes, entering into the bond hedge and warrant transactions, and our intention to repay the principal outstanding amounts of the Convertible Senior Notes in cash; eliminating non-essential expenses to fund our future strategic investments; the reduction in our planned capital expenditures; future dividends and 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 2020 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:

▪The impact of the duration and scope of the COVID-19 pandemic on our business, operations and financial results, including additional waves of infections or periods of increases in the number of COVID-19 cases in areas in which we operate, and the restrictions that might be imposed by federal, state, or local governments in response to the pandemic, including restrictions impacting school closures and remote learning requirements, sporting events and local sports leagues and programs;

▪The impact an economic downturn resulting from the COVID-19 pandemic might have on our business and consumer demand for our products;

▪The dependence of our business on consumer discretionary spending and our ability to predict or effectively react to changes in consumer demand or shopping patterns, including changes due to the COVID-19 pandemic and any consequential economic downturn, and the extent to which these changes will continue after the initial impact of the COVID-19 pandemic subsides;

▪Store closures due to the COVID-19 pandemic or civil disturbances;

▪Intense competition in the sporting goods industry and in retail, including the level of competitive promotional activity;

▪Our vendor relationships, disruptions in our or our vendors’ supply chains (including those resulting from the COVID-19 pandemic), increasing direct competition from vendors, 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;

▪Lawsuits or other claims arising from our response to the COVID-19 pandemic;

▪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;

▪Vendors continuing to sell or increasingly selling their products directly to customers or through broadened or alternative distribution channels;

▪Negative reactions from our customers or vendors regarding changes to our policies related to the sale of firearms and accessories;

▪The impact of the strategic review of our hunt business, including Field & Stream, and our hunt restructuring strategy;


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▪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;

•Our ability to manage the impact of new tariffs or increased rates on existing tariffs;

•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;

▪Unauthorized disclosure of sensitive or confidential customer information;

▪Risks associated with our vertical brand offerings, including product liability and product recalls, specialty concept stores, and GameChanger;

▪Disruptions or other problems with our information systems;

▪Our ability to access adequate capital to operate and expand our business and to respond to changing business and economic conditions;

▪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;

▪Litigation risks for which we may not have sufficient insurance or other coverage;

▪Our ability to secure and protect our trademarks and other intellectual property and defend claims of intellectual property infringement;

▪Our ability to protect the reputation of our Company and our brands;

▪Our ability to attract, train, engage and retain qualified leaders and associates or the loss of Mr. Edward Stack as an executive officer;

▪Wage increases, which could adversely affect our financial results;

▪Disruption at our supply chain facilities or customer support center;

▪Disruption or cancellation of organized youth and adult sports programs as a result of the pandemic;

▪Poor performance of professional sports teams, professional team lockouts or strikes, retirement, serious injury or scandal involving key athletes, and disruptions to or cancellations of sports leagues and major sporting events due to the COVID-19 pandemic or otherwise;

▪Weather-related disruptions and the seasonality of our business, as well as the current geographic concentration of DICK’S Sporting Goods stores;

▪Our pursuit of strategic investments or acquisitions, including the timing and costs of such investments and acquisitions;

▪We are controlled by our Chairman and Chief Executive Officer and his relatives, whose interests may differ from those of our other stockholders;

▪Risks related to our indebtedness, including the Convertible Senior Notes and the related bond hedge and warrant transactions;

▪Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and

▪The issuance of quarterly cash dividends, and our repurchase activity, if any, pursuant to our share repurchase program.

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 1, 2020, filed on March 20, 2020. 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 the date hereof. 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.


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OVERVIEW

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through our teammates, in-store services and unique specialty shop-in-shops. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy and Field & Stream specialty stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. We also offer our products through an eCommerce platform that is integrated with our store network and provides athletes 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 our fiscal year.

Our profitability is primarily influenced by our number of store locations and selling square footage, the continued integration of eCommerce with our brick and mortar stores, the growth in consolidated same store sales, which includes our eCommerce business, the strength of our gross profit margins, and our ability to manage expenses. We have grown from 645 DICK’S Sporting Goods stores as of October 31, 2015 to 732 DICK’S Sporting Goods stores as of October 31, 2020. Our current real estate strategy has resulted in a reduction in the rate at which we open new stores in recent years. We intend to continue this strategy over the next few years, which will allow us to continue to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities as leases come up for renewal. We deploy an insourced eCommerce platform, which allows for continued innovation and enhancements to our eCommerce websites and applications, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that integrate our online presence with our brick and mortar stores, including ship-from-store; buy-online, pick-up in store and multi-channel marketing campaigns. In addition, we implemented curbside pickup and returns as additional alternatives for our athletes in response to the COVID-19 pandemic.

Our eCommerce sales penetration to total net sales increased from approximately 9% in fiscal 2014 to approximately 16% in fiscal 2019. Since the COVID-19 pandemic began, eCommerce sales growth accelerated. On a year-to-date basis, eCommerce sales, which included the curbside pickup service that we implemented in the first quarter, increased 135% compared to the prior year period and represented approximately 28% of our total sales.

Industry Challenges

The retail industry as a whole is dynamic, and sporting goods retail in particular 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 businesses. We have responded to these challenges by reallocating floor space to growing categories while focusing on driving profitable sales, emphasizing a refined merchandise assortment that delivers newness, innovation and exclusivity. We have also made strategic investments in our supply chain, digital capabilities, customer experience, vertical brands and teammates to support these efforts and have focused on increasing productivity, while eliminating non-essential expenses, which has enabled us to fund our future strategic investments.

COVID-19 Update

In March 2020, the World Health Organization declared the disease caused by the novel strain of coronavirus (“COVID-19”) a pandemic. In response to the public health crisis posed by the COVID-19 pandemic, we prioritized the health and safety of our teammates and athletes and temporarily closed our stores to the public, with all stores being re-opened by the end of June 2020. We also closed our customer support center, using our business continuity plans to operate our corporate support functions under remote work arrangements, which remain in place.

During the period of store closures, we continued to serve our athletes through our eCommerce platform, which experienced accelerated sales growth since our temporary store closures. We leveraged our store network for ship-from-store and curbside pickup capabilities, which allowed us to sell through inventory in stores and provide service to our athletes who preferred to pick up their merchandise without entering one of our stores. Additionally, we took precautionary measures to increase and maintain our liquidity, which included reducing planned operating expenses, inventory receipts and capital expenditures, negotiating rent deferrals with landlords, amending our Credit Facility to increase borrowing capacity and issuing par value $575 million convertible senior notes (the “Convertible Senior Notes”), among other actions.


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We experienced higher sales growth following our store re-openings. Capitalizing on favorable shifts in consumer demand due to our diverse category portfolio, which includes golf, outdoor activities, home fitness and active lifestyle, our consolidated same store sales increased 23.2% during the quarter ended October 31, 2020 compared to the prior year quarter. Since the COVID-19 pandemic began, eCommerce sales growth accelerated, increasing 95% during the third fiscal quarter compared to the prior year quarter. Approximately 70% of online sales in the third quarter were fulfilled directly by our stores, which serve as localized points of distribution, and our stores drove 90% of our third quarter sales growth through fulfillment and sales. Although these favorable trends have continued into our fourth fiscal quarter, they have been partially offset by warmer weather that has negatively impacted sales in important cold-weather categories.

In response to the COVID-19 pandemic, we implemented additional safety and cleaning protocols at our stores, distribution centers and corporate offices. We also provided a 15% pay premium to our store and distribution center teammates, which we intend to keep in place for the remainder of the calendar year. As a result of these and other actions we took to prioritize the health and well-being of our teammates and athletes, we incurred pre-tax teammate compensation and safety costs of approximately $48 million and $124 million, respectively, for the quarterly and year-to-date periods ended October 31, 2020.

Although the ongoing COVID-19 pandemic did not adversely affect our year-to-date results compared to the prior year period, the ongoing and long-term health and economic impacts of the COVID-19 pandemic remain uncertain. The duration and severity of the COVID-19 pandemic, actions that may be taken to contain its spread, its impact on consumer discretionary spending and the longer-term economic recovery when the pandemic subsides all remain unknown. Therefore, we currently are not able to estimate the full impact that the COVID-19 pandemic may have on our financial condition and future results of operations. We will continue to actively monitor the impact that the COVID-19 pandemic has on our business; another period of store closures or a change in customer behavior would require us to re-evaluate our current business assumptions and estimates. Such conditions would likely result in lower future net sales and cash flows, which could lead to impairments of our store and other assets and increase the risks associated with excess inventory.

Hunt Restructuring Update

In connection with our previously disclosed strategic review of our hunt business, we removed hunt category merchandise from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment in an effort to drive growth. In the fourth quarter of fiscal 2019, we announced a plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores in fiscal 2020. During fiscal 2020, we removed the hunt department from approximately 260 DICK’S Sporting Goods stores and we plan to remove the hunt department from an additional 180 stores by the end of fiscal 2021, which would leave the hunt department in approximately 100 DICK’S Sporting Goods stores.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance, including:

▪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 14th full month of operations. Stores that were permanently 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 14th 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.

▪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.

▪Cash flows from operating activities – Cash flow generation supports our general liquidity needs 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 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 our cash flows in the “Liquidity and Capital Resources” section herein.


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▪Quality of merchandise offerings – To measure acceptance of its merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us 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.

▪Store productivity – To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.

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 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020, we consider our policies on inventory valuation, business development allowances, goodwill and intangible assets, impairment of long-lived assets, self-insurance reserves and stock-based compensation to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

RESULTS OF OPERATIONS AND OTHER SELECTED DATA

Executive Summary

▪Earnings per diluted share of $1.84 increased 179% compared to earnings per diluted share of $0.66 during the third quarter of 2019. Net income in the current quarter totaled $177.2 million compared to $57.6 million during the third quarter of 2019.

•Current quarter net income included approximately $48 million of pre-tax expenses, or $0.37 per diluted share, net of tax, of teammate compensation and safety costs resulting from the COVID-19 pandemic.

•Net income in the current quarter also included $4.9 million of non-cash interest expense, net of tax, and earnings per diluted share included 6.0 million shares related to our Convertible Senior Notes that will be offset at conversion by our bond hedge. Together, these decreased current quarter earnings per diluted share by $0.17.

•Net income for the quarter ended November 2, 2019 included a gain of $25.0 million, net of tax, or $0.29 per diluted share, related to the sale of two of our technology subsidiaries, a charge of $6.6 million, net of tax, or $0.08 per diluted share, related to our exit from eight Field & Stream stores, and a non-cash impairment charge of $5.6 million, net of tax, or $0.07 per diluted share, to reduce the carrying value of a corporate aircraft that is held for sale to its current fair market value.

•Net sales increased 22.9% to $2,412.1 million in the current quarter from $1,962.2 million during the third quarter of 2019.

▪Consolidated same store sales increased 23.2% from the third quarter of 2019.

▪Since the COVID-19 pandemic began, eCommerce sales growth has accelerated, increasing approximately 95% in the current quarter compared to the prior year quarter. eCommerce sales penetration was approximately 21% of total net sales during the quarter ended October 31, 2020 compared to approximately 13% of total net sales during the third fiscal quarter of 2019.

•In addition, during the quarter ended October 31, 2020 we declared and paid a quarterly cash dividend in the amount of $0.3125 per share on our common stock and Class B common stock, compared to a $0.275 per share cash dividend in the third quarter of 2019.


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•The following table summarizes store openings and permanent store closures for the periods indicated:


	39 Weeks Ended October 31, 2020			39 Weeks Ended November 2, 2019
	Dick’s Sporting Goods	Specialty Concept Stores (1)	Total	Dick’s Sporting Goods	Specialty Concept Stores (1)	Total
Beginning stores	726	124	850	729	130	859
Q1 New stores	1	2	3	—	1	1
Q2 New stores	—	3	3	2	2	4
Q3 New stores	6	5	11	6	1	7

Closed stores	1	5	6	4	9	13
Ending stores	732	129	861	733	125	858

Relocated stores	12	3	15	3	2	5

(1) Includes our Golf Galaxy, Field & Stream and outlet 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 selected information from the unaudited consolidated statements of income as a percentage of net sales and the changes in the percentage of net sales from the prior year period, and other data, and is provided to facilitate a further understanding of our business. These tables 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.


					Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2019-2020
	13 Weeks Ended
	October 31, 2020 (A)		November 2, 2019 (A)
Net sales (1)	100.00	%	100.00	%	N/A
Cost of goods sold, including occupancy and distribution costs (2)	65.09		70.41		(532)
Gross profit	34.91		29.59		532
Selling, general and administrative expenses (3)	24.51		27.10		(259)
Pre-opening expenses (4)	0.21		0.17		4
Income from operations	10.20		2.33		787

(Gain) loss on sale of subsidiaries (5)	—		(1.72)		172
Interest expense	0.53		0.22		31
Other (income) expense	(0.16)		(0.10)		(6)
Income before income taxes	9.83		3.93		590
Provision for income taxes	2.48		1.00		148
Net income	7.35	%	2.93	%	442


Other Data:
Consolidated same store sales increase (6)	23.2	%	6.0	%
Number of stores at end of period (7)	861		858
Total square feet at end of period (7)	42,353,087		42,226,630


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					Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2019-2020 (A)
	39 Weeks Ended
	October 31, 2020		November 2, 2019 (A)
Net sales (1)	100.00	%	100.00	%	N/A
Cost of goods sold, including occupancy and distribution costs (2)	69.06		70.34		(128)
Gross profit	30.94		29.66		128
Selling, general and administrative expenses (3)	23.80		25.07		(127)
Pre-opening expenses (4)	0.15		0.08		7
Income from operations	6.99		4.50		249

(Gain) loss on sale of subsidiaries (5)	—		(0.55)		55
Interest expense	0.55		0.21		34
Other (income) expense	(0.07)		(0.17)		10
Income before income taxes	6.51		5.01		150
Provision for income taxes	1.70		1.31		39
Net income	4.81	%	3.71	%	110


Other Data:
Consolidated same store sales increase (6)	5.8	%	3.1	%
Number of stores at end of period (7)	861		858
Total square feet at end of period (7)	42,353,087		42,226,630

(A) Column does not add due to rounding.

(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.

(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. We define 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.

(3)Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our customer support center.

(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 we take possession of a site through the date of store opening.

(5)Represents the gain recorded in connection with the sale of two technology subsidiaries, Blue Sombrero and Affinity Sports, in the third quarter of 2019.

(6)Consolidated same store sales include stores that were temporarily closed during fiscal 2020 as a result of the COVID-19 pandemic. The method of calculating consolidated same store sales varies across the retail industry, including as to the treatment of temporary store closures as a result of the COVID-19 pandemic. Accordingly, our method of calculating this metric may not be the same as other retailers’ methods. For additional information on consolidated same store sales, please see our most recent Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020.

(7)Includes our DICK’S Sporting Goods, Golf Galaxy, Field & Stream and outlet stores.


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13 Weeks Ended October 31, 2020 Compared to the 13 Weeks Ended November 2, 2019

Net Sales

Net sales totaled $2,412.1 million in the current quarter compared to $1,962.2 million for the quarter ended November 2, 2019, an increase of 22.9%. The net sales increase was primarily due to a $434.5 million, or 23.2%, increase in consolidated same store sales, which was broad-based across hardlines, apparel and footwear and included a 3.6% increase in transactions and a 19.6% increase in sales per transaction. Since the COVID-19 pandemic began, eCommerce sales growth has accelerated, increasing approximately 95% in the current quarter compared to the prior year quarter. As a result, eCommerce sales penetration increased to approximately 21% of total net sales during the current quarter compared to approximately 13% of total net sales during the third quarter of 2019.

Income from Operations

Income from operations increased to $246.1 million in the current quarter compared to $45.6 million for the quarter ended November 2, 2019.

Gross profit increased 45.0% to $842.2 million in the current quarter from $580.6 million for the quarter ended November 2, 2019, an increase as a percentage of net sales of 532 basis points due primarily to merchandise margin expansion and occupancy leverage, partially offset by higher eCommerce shipping costs. Merchandise margins increased 277 basis points, primarily driven by fewer promotions. 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. Our occupancy costs decreased $3.2 million in the current quarter compared to the quarter ended November 2, 2019, which increased gross profit by 259 basis points. These improvements were partially offset by higher eCommerce shipping costs as a result of the growth and increased penetration of eCommerce sales compared to total net sales. Approximately $4 million of COVID-related compensation and safety costs was included within gross profit.

Selling, general and administrative expenses increased 11.2% to $591.1 million in the current quarter from $531.7 million for the quarter ended November 2, 2019, but decreased as a percentage of net sales by 259 basis points due primarily to the current quarter increase in net sales. The current quarter included approximately $43 million of teammate compensation and safety costs incurred in response to the COVID-19 pandemic. The quarter ended November 2, 2019 included an $8.9 million charge associated with our exit from eight Field & Stream stores and a $7.6 million non-cash fixed asset impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value. Apart from these items, selling, general and administrative expenses increased approximately $32.9 million due primarily to higher store payroll costs incurred to support the increase in net sales.

Pre-opening expenses increased to $5.0 million in the current quarter from $3.3 million for the quarter ended November 2, 2019. Pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations. We opened eleven new stores in the current quarter compared to seven new stores during the quarter ended November 2, 2019.

Interest

Interest expense was $12.8 million in the current quarter compared to $4.3 million in the prior year quarter. The increase was primarily related to approximately $11.3 million of interest related to the Convertible Senior Notes, which included non-cash amortization of $6.7 million related to the debt discount.

Gain on Sale of Subsidiaries

In the prior year quarter, we sold two technology subsidiaries for net proceeds of $40.4 million. In connection with the sale we recognized a pre-tax gain of $33.8 million.

Other Income

Other income totaled $3.7 million in the current quarter compared to approximately $2.0 million in the prior year quarter. Substantially all of the change was related to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.

Income Taxes

Our effective tax rate was 25.2% in the current quarter and 25.4% in the quarter ended November 2, 2019.


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39 Weeks Ended October 31, 2020 Compared to the 39 Weeks Ended November 2, 2019

Net Sales

Net sales were $6,458.7 million in the current period, a 5.2% increase from net sales of $6,142.1 million reported for the prior year period. The net sales increase was primarily due to a $342.9 million, or 5.8%, increase in consolidated same store sales, which included a 9.7% decrease in transactions offset by a 15.5% increase in sales per transaction. The remaining $26.3 million sales decrease was primarily attributable to store closures, partially offset by new stores. Since the COVID-19 pandemic began, eCommerce sales growth accelerated, increasing approximately 135% in the current year-to-date period compared to the prior year-to-date period. As a result, eCommerce sales penetration increased to approximately 28% of total net sales during the current year-to-date period compared to approximately 13% of total net sales during the prior year period.

Income from Operations

Income from operations increased to $451.3 million in the current period from $276.7 million for the period ended November 2, 2019.

Gross profit increased 9.7% to $1,998.4 million for the current period from $1,821.5 million for the period ended November 2, 2019, an increase as a percentage of net sales of 128 basis points. The increase in gross profit was due primarily to merchandise margin expansion and occupancy leverage, partially offset by higher eCommerce shipping and fulfillment costs. Merchandise margins increased 135 basis points, primarily driven by fewer promotions. 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. Occupancy costs decreased $14.6 million in the current period compared to the prior year period, which increased gross profit by 85 basis points. eCommerce shipping and fulfillment costs decreased gross profit by 107 basis points due primarily to sales growth and a higher penetration of eCommerce sales as well as the fixed costs from two dedicated eCommerce fulfillment centers that were opened in the third quarter of 2019. Approximately $19 million of COVID-related compensation and safety costs was included within gross profit during the current year-to-date period.

Selling, general and administrative expenses decreased 0.2% to $1,537.4 million in the current period from $1,539.9 million for the period ended November 2, 2019, a decrease as a percentage of net sales of 127 basis points due primarily to the current period increase in net sales. The period ended November 2, 2019 included a $15.3 million non-cash fixed asset impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value and an $8.9 million charge associated with our exit from eight Field & Stream stores, partially offset by a $6.4 million settlement of a previously accrued litigation contingency. The remaining $15.3 million net increase included approximately $105 million of teammate compensation and safety costs incurred in response to the COVID-19 pandemic, net of a $16.9 million benefit from employee retention tax credits provided by the CARES Act. This increase was partially offset by net operating expense reductions following our temporary store closures.

Pre-opening expenses increased to $9.7 million in the current period from $4.9 million for the period ended November 2, 2019. Pre-opening expenses in any period fluctuate depending on the timing and number of new store openings and relocations. We opened 17 new stores in the current period compared to 12 new stores, including outlet stores, during the prior year period.

Interest Expense

Interest expense was $35.5 million for the current period compared to $12.9 million for the period ended November 2, 2019. Substantially all of the increase was due to interest expense of approximately $24.4 million related to the Convertible Senior Notes, which included non-cash amortization of $14.3 million related to the debt discount.

Gain on Sale of Subsidiaries

In the prior year, we sold two technology subsidiaries for net proceeds of $40.4 million. In connection with the sale we recognized a pre-tax gain of $33.8 million.

Other Income

Other income totaled $4.7 million in the current period compared to $10.3 million for the period ended November 2, 2019. Substantially all of the change is related to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.

Income Taxes

Our effective tax rate was 26.1% for both the current year period and the period ended November 2, 2019.


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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital needs have generally been met by net cash provided by operating activities, supplemented by borrowings under our senior secured revolving credit facility (the “Credit Facility”) as necessary. We generally utilize our Credit Facility for working capital needs based primarily on the seasonal nature of our operating cash flows, as well as to fund share buybacks, dividends and capital expenditures. Historically, our peak borrowing level has occurred early in the fourth quarter as we increase inventory in advance of the holiday selling season.

In response to the COVID-19 pandemic, we took various actions to preserve and fortify our liquidity, which included reducing planned operating expenses, inventory receipts and capital expenditures, negotiating rent deferrals with landlords, exercising the accordion feature within our Credit Facility to provide $255 million of additional borrowing capacity and issuing the Convertible Senior Notes, which added over $500 million of net proceeds to our cash position. As a result of these actions and our operating results following the re-opening of all of our stores, we had cash and cash equivalents of $1.06 billion and no borrowings outstanding on our Credit Facility at October 31, 2020.

We believe that we have sufficient cash flows from operations to operate our business for at least the next 12 months, supplemented by funds available under our Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of historical levels.

Credit Facility

We have a $1.855 billion Credit Facility, which includes a maximum amount of $150 million to be issued in the form of letters of credit. Under the terms of the Credit Facility, subject to satisfaction of certain conditions, we may request an increase of up to $245 million in additional borrowing availability. Interest on outstanding borrowings is payable on a monthly basis and accrues, at our option, at a rate equal to a variable base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. As of October 31, 2020, we have total remaining borrowing capacity, after adjusting for letters of credit, of $1.84 billion. See Note 5 to the unaudited Consolidated Financial Statements for additional details.

Credit Facility information for the year-to-date periods ended:


(in millions)	October 31, 2020		November 2, 2019
Funds drawn on Credit Facility	$	1,291.7	$	1,778.8
Number of business days with outstanding balance on Credit Facility	97 days		188 days
Maximum daily amount outstanding under Credit Facility	$	1,429.0	$	719.3

Liquidity information as of the following dates:


(in millions)	October 31, 2020		November 2, 2019
Outstanding borrowings under Credit Facility	$	—	$	719.3
Cash and cash equivalents	$	1,060.0	$	87.6
Remaining borrowing capacity under Credit Facility	$	1,839.2	$	864.6
Outstanding letters of credit under Credit Facility	$	16.1	$	16.1

Convertible Senior Notes due 2025

As of October 31, 2020, we have an aggregate principal amount of $575 million of Convertible Senior Notes outstanding. Cash interest accrues at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15. We anticipate being able to repay the principal amount of the Convertible Senior Notes in cash, whether in connection with an early conversion of such notes or repayment at maturity, using excess cash, free cash flow and borrowings on our Credit Facility to minimize dilution. However, we may need to pursue additional sources of liquidity to repay the Convertible Senior Notes in cash at their maturity date or upon early conversion, as applicable. There can be no assurance as to the availability of capital to fund such repayments, or that if capital is available through additional debt issuances or refinancing of the Convertible Senior Notes, that such capital will be available on terms that are favorable to us. See Note 6 to the unaudited Consolidated Financial Statements for additional details.


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Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have strived to continuously improve our supply chain and corporate technology capabilities. For the current year-to-date period, capital expenditures totaled $156.4 million on a gross basis, and tenant allowances provided by landlords were $42.3 million.

Share Repurchases

On March 16, 2016, our Board of Directors authorized a five-year share repurchase program of up to $1 billion of our common stock. Under the 2016 program, we have repurchased $968.8 million of common stock and have $31.2 million remaining under this authorization. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock.

We temporarily suspended our share repurchase programs in April 2020 in response to the impact of the COVID-19 pandemic. We may choose to resume opportunistic share repurchases under our existing authorizations.

Dividends

During the 39 weeks ended October 31, 2020 and November 2, 2019, we paid $80.9 million and $74.5 million, respectively, of dividends to our stockholders. 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 are dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.

Cash Flows

Changes in cash and cash equivalents are as follows:


	39 Weeks Ended
(in millions)	October 31, 2020		November 2, 2019
Net cash provided by (used in) operating activities	$	917.5	$	(212.8)
Net cash used in investing activities	(156.5)		(122.2)
Net cash provided by financing activities	229.7		309.0
Net increase (decrease) in cash and cash equivalents	$	990.7	$	(26.0)

Operating Activities

Cash flows from operating activities increased $1,130.3 million for the 39 weeks ended October 31, 2020 compared to the same period in the prior year. The increase was due primarily to changes in inventory levels and accounts payable between the periods, which increased operating cash flows by $849.7 million. These changes reflect last year’s strategic inventory investments in key growth categories including footwear, apparel, baseball and golf. Inventory has since decreased approximately 9.8% as of October 31, 2020 compared to November 2, 2019, reflecting precautionary reductions in inventory receipts following the COVID-19 pandemic and our 5.2% year-to-date increase in sales compared to the prior year period. The remaining increase in operating cash flows was primarily due to the timing of cash payments for income taxes and other precautionary liquidity measures we took in response to the COVID-19 pandemic, including reductions in operating expenses and deferrals of rent and qualified payroll tax payments as permitted by the CARES Act. We anticipate that future operating cash flows will include comparably higher cash payments for income taxes, inventory replenishment and rent payments over the next 12 months.

Investing Activities

Cash used in investing activities increased $34.3 million for the 39 weeks ended October 31, 2020 compared to the prior year period, which included $40.4 million of proceeds received from the sale of two technology subsidiaries. Current year capital expenditures were $9.3 million less than the prior year period due to a reduction in planned investments, primarily related to the COVID-19 pandemic.


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Financing Activities

Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility. Changes in financing cash flows between periods included net proceeds from the issuance of our Convertible Senior Notes, a reduction in share repurchases due to our temporary suspension of that program in response to the COVID-19 pandemic and lower net Credit Facility borrowings in the current period resulting from the increase in our operating cash flows year-to-date.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of October 31, 2020 primarily relate to purchase obligations for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with our third-party eCommerce fulfillment provider and technology-related and other ordinary course commitments. We have excluded these items from the unaudited Consolidated Balance Sheets in accordance with U.S. GAAP. We do 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

We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of February 1, 2020, see our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020. With the exception of the issuance of the Convertible Senior Notes, bond hedge and warrants in the first quarter of fiscal 2020, there were no material changes with respect to contractual obligations and other commercial commitments outside the ordinary course of business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as identified below, there have been no material changes to the Company’s market risk exposures from those reported in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020.

Credit Risk

In April 2020, the Company issued the Convertible Senior Notes due 2025. In connection with the issuance of the Convertible Senior Notes, the Company also entered into five-year convertible bond hedges and five-year separate warrant transactions with several parties (“the counterparties”) and/or certain of their affiliates. Subject to the movement in the Company’s common stock price, the Company could be exposed to credit risk arising out of net settlement of the convertible bond hedges and separate warrant transactions in its favor. Based on the Company’s review of the possible net settlements and the credit strength of the counterparties and their affiliates, the Company believes that it does not have a material exposure to credit risk as a result of these transactions.

ITEM 4. CONTROLS AND PROCEDURES

As a result of the COVID-19 pandemic, the majority of the Company’s customer support center employees began working remotely in March 2020. These changes to the working environment did not materially affect the Company’s internal controls over financial reporting during the fiscal quarter ended October 31, 2020. The Company continues to monitor, assess, and minimize the impact of the COVID-19 pandemic on its internal controls design and operating effectiveness. During the third quarter of fiscal 2020, there were no changes in the Company’s internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

During the quarter, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, October 31, 2020.


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There are inherent limitations in the effectiveness of any control system, including the potential for human error and the circumvention or overriding of the controls and procedures. Additionally, judgments in decision making can be faulty and breakdowns can occur because of simple errors or mistakes. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies and procedures.


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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various proceedings that are incidental to the normal course of its business. As of the date of this Quarterly Report on Form 10-Q, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A. RISK FACTORS

Except as identified below, there have been no material changes to the risk factors affecting the Company from those disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended February 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020. The discussion of risk factors sets forth the material risks that could affect the Company’s financial condition and operations.

The novel coronavirus (COVID-19) pandemic has impacted and is expected to continue to have an impact on our business and results of operations.

In late 2019, COVID-19 was first detected in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world implemented various measures to reduce the spread of COVID-19. Many of these measures adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. After the close of business on March 18, 2020, we temporarily closed our physical stores but continued to operate our eCommerce business, including curbside pickup and ship-from-store. Furthermore, we furloughed a significant number of the workforce at our stores, distribution centers, and corporate headquarters effective April 12, 2020, due to the uncertainty surrounding the length of our store closures. We re-opened all of our stores and returned our teammates from furlough during the second quarter of 2020.

We are unable to predict the long-term impact that the COVID-19 pandemic will have on our business due to a number of uncertainties, including the duration of the COVID-19 pandemic, the long-term health and economic impact of the COVID-19 pandemic, changes in consumer demand and shopping patterns, and the impact of governmental regulations that might be imposed in response to the pandemic. In addition to an increase in eCommerce penetration, the COVID-19 pandemic has driven an increase in demand in certain categories due to the perceived importance of health and fitness, participation in socially-distant and outdoor activities, and a shift toward athletic apparel and active lifestyle products. It is uncertain whether or the extent to which these trends will continue or whether new trends will emerge after the impact of the COVID-19 pandemic subsides.

While the pandemic continues, future governmental interventions could, among other things, require that we close some or all of our stores or our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our eCommerce business. Numerous state and local jurisdictions have imposed, and in the future may impose or re-impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders and restrictions have resulted and in the future may result in temporary store closures; work stoppages, slowdowns and delays; school closures and remote learning requirements; travel restrictions; and cancellation of events, among other effects, which would likely negatively impact our business. We may also be adversely impacted by the disruption or cancellation of various professional leagues and sporting events, local sports leagues, and other organized youth and adult sports programs as a result of the pandemic. Another period of store closures, changes in consumer behavior, and health concerns causing a reduction in consumer demand for our products and traffic at our stores would likely have a significant adverse effect on our financial condition and results of operations.

The Company continues to consider and assess the potential impact that the COVID-19 pandemic could have on the Company’s operations, including the assumptions and estimates used to prepare its interim financial statements such as the Company’s inventory valuations, deferred tax valuation allowances, fair value measurements and potential asset impairment charges. These assumptions and estimates may change in the future as new events occur and additional information is obtained. If economic conditions caused by the COVID-19 pandemic deteriorate and negatively impact consumer spending, such future changes may have a material adverse impact on the Company's results of operations, financial position and liquidity.


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To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in “Risk Factors” under Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, that we filed with the Securities and Exchange Commission on March 20, 2020 and the risks described herein, including risks relating to change in consumer demand or shopping patterns, our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, our ability to comply with the covenants contained in the agreements that govern our indebtedness, availability of adequate capital, our ability to execute our strategic plans, our real estate portfolio, disruptions to our supply chain and third-party delivery service providers, our ability to access adequate quantities of materials and in-demand products, tariffs, and regulatory restrictions.

Intense competition in the sporting goods industry and in retail could limit our growth and reduce our profitability.

The market for sporting goods retailers is highly fragmented and intensely competitive. Our current and prospective competitors include many large companies, some of which have greater market presence (both brick and mortar and online), name recognition and financial, marketing and other resources than we do. Further, the ability of consumers to compare prices in real-time through the use of smartphones and digital technology puts additional pressure on us to maintain competitive pricing. We compete with retailers from multiple categories and in multiple channels, including large formats; traditional and specialty formats; mass merchants; department stores and catalog; internet-based and direct-sell retailers; and vendors that sell directly to customers. We cannot be sure that we will be able to continue to effectively compete in our markets due to the disruptions caused by COVID-19 or that any of our competitors are not in a better position to either respond to the disruptions caused by the COVID-19 pandemic or capitalize on potential displaced market share, including vendors with whom we compete accelerating their existing efforts to sell directly to consumers. An inability to respond to competitive pressures could have a material effect on our results of operations or reputation. Our responses to competitive pressures could also have a material effect on our results or reputation, including as it relates to pricing, quality, assortment, advertising, service, locations, and online and in-store shopping experiences.

If we are unable to predict or effectively react to changes in consumer demand or shopping patterns, we may lose customers and our sales may decline.

Our success depends in part on our ability to anticipate and respond in a timely manner to changing consumer demand, preferences, and shopping patterns, which cannot be predicted with certainty and are subject to continual change and evolution. Our business has become increasingly omni-channel as we strive to deliver a seamless shopping experience to our customers through both online and in-store shopping experiences. For example, we must meet customers’ expectations with respect to, among other things, creating appealing and consistent online experiences; offering differentiated and premium products and regionally relevant products; delivering elevated customer service; and providing desirable in-store experiences, fast and reliable delivery, and convenient return options. Furthermore, consumer preferences and shopping patterns have been impacted

significantly by COVID-19, and the ongoing uncertainty surrounding the COVID-19 pandemic poses challenges regarding our

ability to anticipate and be proactive with respect to consumer preferences and shopping patterns. Our customers have expectations about how they shop in stores or through eCommerce or more generally engage with businesses across different channels or media (through online and other digital or mobile channels or particular forms of social media), which may vary across demographics and may evolve rapidly.

We often make commitments to purchase products from our vendors several months in advance of the proposed delivery, which may make it more difficult for us to adapt to changes in consumer preferences. Furthermore, supply chain challenges due to the COVID-19 pandemic have made it more difficult to obtain certain in-demand products. Our sales may decline significantly if we misjudge the market for our new merchandise, which may result in significant merchandise markdowns and lower margins, missed opportunities for other products, or inventory write-downs, and could have a negative impact on our reputation and profitability. Changes in consumer shopping habits, including decreases in traffic at retail locations and traditional shopping centers, financial difficulties of other retail tenants and other shopping center vacancy issues, all of which could be further exacerbated by the continued impacts of the COVID-19 pandemic, could lead to a decline in our financial condition.

Harm to our reputation could adversely impact our ability to attract and retain customers and employees.

Negative publicity or perceptions involving the Company or our brands, products, vendors, spokespersons, or marketing and other partners may negatively impact our reputation and adversely impact our ability to attract and retain customers and employees. Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact our reputation, business, results of operations, and financial condition. Issues that might pose a reputational risk include an inability to provide an omni-channel experience that meets the expectations of consumers; failure of our cyber-security measures to protect against data breaches; product liability, product recalls, and


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product boycotts; our response to COVID-19, including decisions to open physical stores to the public and the manner in which we operate those stores that have been permitted to reopen; our social media activity; failure to comply with applicable laws and regulations; our policies related to the sale of firearms and accessories; public stances on controversial social or political issues; product sponsorship relationships, including those with celebrity spokespersons, influencers or group affiliations; and any of the other risks enumerated in these risk factors. In addition, our sales could be negatively impacted by negative publicity or perception involving professional sports leagues or individual teams in relation to decisions made by them relating to their response to the COVID-19 pandemic. Furthermore, the prevalence of social media may accelerate and increase the potential scope of any negative publicity we or others might receive and could increase the negative impact of these issues on our reputation, business, results of operations, and financial condition.

An inability to execute our real estate strategy could affect our financial results.

Our financial performance depends on our ability to optimize our store lease portfolio, including opening new stores and relocating existing stores in desirable locations, renewing leases for existing stores, restructuring leases for existing stores to obtain more favorable renewal terms, refreshing and remodeling existing stores, and, if necessary, closing underperforming stores.

There is no assurance that we will be able to locate desirable real estate for new stores or relocations of existing stores, or that an existing store will continue to be profitable in its current location. Additionally, our ability to negotiate favorable lease terms on a new store location or a relocation of an existing store, or in connection with an expiring lease, remodel, consolidation, or closing depends on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, and other factors that are not within our control. We may incur lease costs that are excessive and cause operating margins to be below acceptable levels if we are unable to negotiate appropriate terms for new leases, relocations or extensions. We may also make term commitments that are too long or too short, without the option to exit early or extend.

If an existing store is not profitable, we might be required to record an impairment charge and we may not be able to terminate the lease associated with the underperforming store. Our leases generally do not allow for termination prior to the end of the lease term without economic consequences. As a result, if we decide to close a store, we are generally required to continue to perform all obligations under the applicable lease, including the payment of rent, for the balance of the lease term and might also incur termination charges. Even if we are able to assign or sublease the closed locations where our lease cannot be terminated, we may remain liable for certain lease obligations if the assignee or sublessee does not perform.

Furthermore, the success of our stores depends on a number of factors including the sustained success of the shopping center where the store is located, consumer demographics, and consumer shopping habits and patterns. Changes in consumer shopping habits and patterns, reduced customer traffic in the shopping centers where our stores are located, financial difficulties of our landlords, anchor tenants or a significant number of other retailers, and shopping center vacancies or closures could impact the profitability of our stores and increase the likelihood that our landlords fail to fulfill their obligations and conditions under our lease agreements. While we have certain remedies and protections under our lease agreements, the loss of business that could result if a shopping center should close or if customer traffic were to significantly decline as a result of lost tenants or improper care of the facilities or due to macroeconomic effects, including the impact of COVID-19, could have a material adverse effect on our financial position, results of operations, and cash flows.

These factors cannot be predicted with complete accuracy and may change over time. There is no assurance that we will be able to reverse any decline in customer traffic or that increases in online sales will offset any decline in store traffic. We may need to respond to declines in customer traffic or conversion rates by increasing markdowns or promotions to attract customers, which could adversely impact our financial results. Failure to secure desirable new store locations and relocation sites, successfully renew or modify existing leases, or effectively manage the profitability of our existing stores could have a material adverse effect on our operations and financial results.

Our business relies on our distribution and fulfillment network and our customer support center. An inability to optimize this network or a disruption to the network, including delays or failures by independent third-party transportation providers, could cause us to lose merchandise, be unable to effectively deliver merchandise to our stores and customers, and could adversely affect our financial condition and results of operations.

We own a distribution center and eCommerce fulfillment center in Conklin, New York and a distribution center in Goodyear, Arizona. We lease distribution centers near Atlanta, Georgia; Plainfield, Indiana; and Smithton, Pennsylvania, and we utilize third-party logistics fulfillment centers near Rialto, California and Louisville, Kentucky. We also own a customer support center in Coraopolis, Pennsylvania that serves as our corporate headquarters. The ability to optimize our distribution and fulfillment network depends on general economic and real estate conditions which are beyond our control.


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We may not be able to maintain our existing distribution and fulfillment centers if the cost of the facilities increase or the location of a facility is no longer desirable. In those cases, we may not be able to locate suitable alternative sites or modify or enter into new leases on acceptable terms. Furthermore, we may need to locate new sites for additional eCommerce fulfillment centers to satisfy omni-channel demand. If we cannot locate suitable locations for these fulfillment centers on acceptable terms, we will need to rely on our store network, third-party logistic fulfillment centers, our distribution centers, and vendors to help meet our fulfillment needs.

An inability to optimize our distribution and fulfillment network, including the expiration of a lease or an unexpected lease termination at one of our facilities (without timely replacement of the applicable facility) or serious disruptions (including natural disasters or closures of distribution and fulfillment centers due to COVID-19) at any of these facilities might impair our ability to adequately stock our stores, process returns of products to vendors and fulfill eCommerce orders at the speed expected by customers, increase costs associated with shipping and delivery, damage a material portion of our inventory, and otherwise negatively affect our operations, sales, profitability, and reputation.

In addition, we rely on independent third-party transportation providers for substantially all of our merchandise shipments, including shipments to our stores and directly to customers through our eCommerce platform. Our use of third-party delivery services for shipments subjects us to risks, including increased fuel prices, which would increase our shipping costs, and labor issues, inclement weather, and disruptions due to COVID-19, which could impact a shipper’s ability to provide delivery services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could adversely impact deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently use, which could have a material adverse impact on our business, operational results, financial position and cash flows.

We are subject to costs and risks associated with a complex regulatory, compliance and legal environment, including increased or changing laws and regulations affecting our business, particularly those relating to the sale of consumer products and firearms and ammunition, and those relating to data protection and privacy.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our operations and financial results. New laws that have been recently enacted may require considerable resources to ensure timely and ongoing compliance. For example, the California Consumer Privacy Act of 2018 that came into effect in January of 2020 gives new data privacy rights to California residents and requires expenditure of considerable resources to establish the necessary internal infrastructure to allow for the monitoring and other compliance requirements.

In addition, laws at the federal, state or local level may change, sometimes significantly and unexpectedly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include those relating to consumer products, product liability and consumer protection; reducing the spread of COVID-19, including local store closure requirements, restrictions on the number of customers permitted in store locations, and enhanced local health and safety protocols for stores that are permitted to operate; eCommerce, data protection and privacy, including data protection laws passed by many states regarding notification to data subjects and/or regulators when there is a security breach of personal data; advertisement and marketing; labor and employment; taxes, including changes to tax rates and new taxes, tariffs, and surcharges; firearms, ammunition, knives, food items or other regulated products; accounting, corporate governance and securities; custom or import; and intellectual property.

In addition to potential damage to our reputation and brand, failure to comply with applicable federal, state and local laws and regulations such as those outlined above may result in our being subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to various types of litigation and other claims, and our insurance may not be sufficient to cover damages related to those claims.

From time-to-time the Company or its subsidiaries may be involved in lawsuits or other claims arising in the ordinary course of business, including those related to federal or state wage and hour laws, product liability, consumer protection, advertising, employment, intellectual property, tort, privacy and data protection, disputes with landlords and vendors due to the disruptions caused by COVID-19, claims from customers or employees alleging failure to maintain safe premises with respect to protocols relating to COVID-19, and other matters.


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We sell firearms and ammunition. These products are associated with an increased risk of injury and related lawsuits with respect to our compliance with Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and state laws and regulations. Any improper or illegal use by our customers of ammunition or firearms sold by us could have a negative impact on our reputation and business. We may incur losses due to lawsuits, including potential class actions, relating to our performance of background checks on firearms purchases and compliance with other sales laws as mandated by state and federal law and related to our policies on the sale of firearms and ammunition. We may also incur losses from lawsuits relating to the improper use of firearms or ammunition sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from manufacturers and retailers of firearms and ammunition.

We may incur losses relating to claims filed against us, including costs associated with defending against such claims, and there is risk that any such claims or liabilities will exceed our insurance coverage, or affect our ability to retain adequate liability insurance in the future. Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any such assertions could adversely affect our reputation. Due to the inherent uncertainties of litigation and other claims, we cannot accurately predict the ultimate outcome of any such matters.

Poor performance of professional sports teams within our core regions of operation, as well as league-wide lockouts or strikes, retirement of or serious injury to key athletes or scandals involving such athletes could adversely affect our financial results.

We sell a significant amount of professional sports team merchandise, the success of which may be subject to fluctuations based on the success or failure of such teams or their key players. Poor performance by the professional sports teams within our core regions of operations; league-wide lockouts or strikes; and disruptions to, cancellations of, or negative publicity regarding sports leagues and major sporting events due to the COVID-19 pandemic and related protocols, could cause our financial results to fluctuate year over year. In addition, to the extent we use individual athletes to market our products and advertise our stores or we sell merchandise branded by one or more athletes, the retirement or injury of such athletes or scandals in which they might be implicated could negatively impact our financial results.

We cannot provide any guaranty of future dividend payments or that we will continue to repurchase our common stock pursuant to our stock repurchase program.

Any determination to pay cash dividends on our common stock in the future will be based upon our financial condition, results of operations, business requirements, and the continuing determination from our Board of Directors that the declaration of dividends is in the best interests of our stockholders and is in compliance with all laws and agreements applicable to the dividend. Furthermore, although our Board of Directors has authorized a five-year $1.0 billion share repurchase program, we are not obligated to make any purchases under the program and we may discontinue it at any time. During the first quarter of 2020, the Company briefly suspended the payment of dividends and stock repurchases to bolster its cash position and maximize flexibility in response to uncertainty caused by the COVID-19 pandemic.

We may not be able to generate sufficient cash to service all of our indebtedness. We may be forced to take certain actions to satisfy our obligations under our indebtedness or we may experience a financial failure.

Our ability to make scheduled payments on or to refinance our debt obligations and the Convertible Senior Notes, will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the Convertible Senior Notes. We may not be able to take any of these actions, these actions may not be successful and permit us to meet our scheduled debt service obligations and these actions may not be permitted under the terms of our future debt agreements. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations then due.


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Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations.

Our current and future indebtedness could have negative consequences for our business, results of operations and financial condition by, among other things:

•increasing our vulnerability to adverse economic and industry conditions;

•limiting our ability to obtain additional financing;

•requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

•limiting our flexibility to plan for, or react to, changes in our business;

•diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Convertible Senior Notes; and

•placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

As noted above, our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Convertible Senior Notes, and our cash needs may increase in the future. In addition, our Credit Facility contains, and any future indebtedness that we may incur may contain, restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the Convertible Senior Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Convertible Senior Notes or pay cash upon their conversion.

Noteholders may, subject to certain conditions, require us to repurchase their notes following a fundamental change at a cash repurchase price generally equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Convertible Senior Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including our current Credit Facility, may restrict our ability to repurchase the Convertible Senior Notes or pay the cash amounts due upon conversion. Our inability to satisfy our obligations under the Convertible Senior Notes could harm our reputation and affect the trading price of our common stock.

Our failure to repurchase the Convertible Senior Notes or to pay the cash amounts due upon conversion when required will constitute a default under the Indenture. A default under the Indenture or the occurrence of the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Convertible Senior Notes.

Provisions in the Convertible Senior Notes and the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the Convertible Senior Notes and the Indenture could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their Convertible Senior Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the Convertible Senior Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.


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The convertible note hedge and warrant transactions may affect the value of our common stock.

In connection with the issuance of the Convertible Senior Notes, we entered into privately negotiated convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Senior Notes. Concurrently with the entry into the convertible note hedge transactions, we entered into separate, privately negotiated warrant transactions with the hedge counterparties collectively relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments, and for which we will receive premiums to partially offset the cost of entering into the hedge transactions.

The convertible note hedge transactions are intended to reduce the potential dilution with respect to our common stock or offset any potential cash payments we are required to make in excess of the principal amount of converted Convertible Senior Notes, as the case may be, upon any conversion of the Convertible Senior Notes. The warrant transactions could have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants evidenced by the warrant transactions. In connection with establishing and maintaining their initial hedge positions with respect to the convertible note hedge transactions and the warrant transactions, we understand that the hedge counterparties or their respective affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time-to-time by purchasing or selling shares of our common stock or the Convertible Senior Notes in privately negotiated transactions or open-market transactions or by entering into or unwinding various over-the-counter derivative transactions with respect to our common stock.

The effect, if any, of these activities on the trading price of our common stock will depend on a variety of factors, including market conditions, and is uncertain at this time. Any of these activities could, however, adversely affect the trading price of our common stock.

We are subject to counterparty risk with respect to the convertible note hedge transactions.

The hedge counterparties are financial institutions, and we will be subject to the risk that they might default under certain of the convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties will not be secured by any collateral. Global economic conditions have from time-to-time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that hedge counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any hedge counterparty.

Conversion of the Convertible Senior Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders, including noteholders who have previously converted their notes.

At our election, we may settle Convertible Senior Notes tendered for conversion entirely or partly in shares of our common stock. Furthermore, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the Convertible Senior Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion of the Convertible Senior Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Senior Notes may encourage short selling by market participants because the conversion of the Convertible Senior Notes could depress the price of our common stock.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth repurchases of our common stock during the third quarter of 2020:


Period	Total Number of Shares Purchased (a)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b)
August 2, 2020 to August 29, 2020	1,770	$	47.08	—	$	1,031,207,525
August 30, 2020 to October 3, 2020	2,138	$	61.00	—	$	1,031,207,525
October 4, 2020 to October 31, 2020	218	$	60.76	—	$	1,031,207,525
Total	4,126	$	55.02	—

(a)Includes shares withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock during the period.

(b)Shares repurchased as part of our previously announced five-year $1.0 billion share repurchase program authorized by the Board of Directors on March 16, 2016. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock. The 2016 program will remain available for purchases until it is exhausted or expires, after which time we may repurchase shares under the 2019 program.


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ITEM 6. EXHIBITS

The following exhibits are filed or furnished (as noted) as part of this Quarterly Report on Form 10-Q.

Exhibit Number

Description of Exhibit

Method of Filing

31.1

Certification of Edward W. Stack, Chairman and Chief Executive Officer, dated as of November 25, 2020 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31.2

Certification of Lee J. Belitsky, Executive Vice President - Chief Financial Officer, dated as of November 25, 2020 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.1

Certification of Edward W. Stack, Chairman and Chief Executive Officer, dated as of November 25, 2020 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

32.2

Certification of Lee J. Belitsky, Executive Vice President - Chief Financial Officer, dated as of November 25, 2020 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

101.INS

XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

XBRL Taxonomy Calculation Linkbase Document

Filed herewith

101.DEF

XBRL Taxonomy Definition Linkbase Document

Filed herewith

101.LAB

XBRL Taxonomy Label Linkbase Document

Filed herewith

101.PRE

XBRL Taxonomy Presentation Linkbase Document

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

Filed herewith


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on November 25, 2020 on its behalf by the undersigned, thereunto duly authorized.