Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

 

 

 

 

 

 

 

FORM 10-Q

 

þ

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

 

For the Quarterly Period Ended May 4, 2013

 

OR

 

o

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, Pennsylvania 15108

(Address of Principal Executive Offices)

 

(724) 273-3400

(Registrant’s Telephone Number, including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

 

(Do not check if a smaller reporting company)

 

 

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

Yes o No þ

 

The number of shares of common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, outstanding as of May 24, 2013, was 100,329,775 and 24,900,870, respectively.

 

1



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

11

Item 3. Quantitative and Qualitative Disclosures About Market Risk

18

Item 4. Controls and Procedures

18

PART II. OTHER INFORMATION

19

Item 1. Legal Proceedings

19

Item 1A. Risk Factors

19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 6. Exhibits

19

SIGNATURES

20

INDEX TO EXHIBITS

21

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(Amounts in thousands, except per share data)

 

 

 

13 Weeks Ended

 

 

May 4,
2013

 

April 28,
2012

Net sales

 

$

 1,333,701

 

$

 1,281,704

Cost of goods sold, including occupancy and distribution costs

 

922,047

 

887,097

GROSS PROFIT

 

411,654

 

394,607

Selling, general and administrative expenses

 

312,708

 

296,131

Pre-opening expenses

 

1,329

 

2,741

INCOME FROM OPERATIONS

 

97,617

 

95,735

Interest expense

 

669

 

3,449

Other income

 

(6,204)

 

(1,865)

INCOME BEFORE INCOME TAXES

 

103,152

 

94,151

Provision for income taxes

 

38,331

 

36,994

NET INCOME

 

$

 64,821

 

$

 57,157

EARNINGS PER COMMON SHARE:

 

 

 

 

Basic

 

$

 0.53

 

$

 0.47

Diluted

 

$

 0.52

 

$

 0.45

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

Basic

 

122,702

 

121,514

Diluted

 

125,862

 

127,003

Cash dividend declared per share

 

$

 0.125

 

$

 0.125

 

See accompanying notes to unaudited consolidated financial statements.

 

3



Table of Contents

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(Dollars in thousands)

 

 

 

13 Weeks Ended

 

 

May 4,
2013

 

April 28,
2012

 

 

 

 

 

NET INCOME

 

$

64,821

 

$

57,157

OTHER COMPREHENSIVE (LOSS) INCOME:

 

 

 

 

Unrealized gain on securities available-for-sale, net of tax

 

 

3,614

Foreign currency translation adjustment, net of tax

 

(6)

 

7

COMPREHENSIVE INCOME

 

$

64,815

 

$

60,778

 

See accompanying notes to unaudited consolidated financial statements.

 

4



Table of Contents

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands)

 

 

 

May 4,
2013

 

February 2,
2013

 

April 28,
2012

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

 113,889

 

$

 345,214

 

$

 520,967

Accounts receivable, net

 

46,064

 

34,625

 

42,025

Income taxes receivable

 

3,250

 

15,737

 

4,053

Inventories, net

 

1,312,737

 

1,096,186

 

1,201,753

Prepaid expenses and other current assets

 

84,275

 

73,838

 

69,302

Deferred income taxes

 

42,707

 

30,289

 

18,400

Total current assets

 

1,602,922

 

1,595,889

 

1,856,500

Property and equipment, net

 

876,734

 

840,135

 

779,191

Construction in progress - leased facilities

 

 

 

4,477

Intangible assets, net

 

98,380

 

98,903

 

70,300

Goodwill

 

200,594

 

200,594

 

200,594

Other assets:

 

 

 

 

 

 

Deferred income taxes

 

3,798

 

4,382

 

9,264

Other

 

155,447

 

147,904

 

134,820

Total other assets

 

159,245

 

152,286

 

144,084

TOTAL ASSETS

 

$

 2,937,875

 

$

 2,887,807

 

$

 3,055,146

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

 658,626

 

$

 507,247

 

$

 654,596

Accrued expenses

 

246,652

 

269,900

 

230,230

Deferred revenue and other liabilities

 

120,767

 

146,362

 

107,254

Income taxes payable

 

18,469

 

68,746

 

28,091

Current portion of other long-term debt and leasing obligations

 

8,407

 

8,513

 

138,590

Total current liabilities

 

1,052,921

 

1,000,768

 

1,158,761

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Other long-term debt and leasing obligations

 

7,137

 

7,762

 

14,446

Non-cash obligations for construction in progress - leased facilities

 

 

 

4,477

Deferred income taxes

 

5,788

 

7,413

 

Deferred revenue and other liabilities

 

295,487

 

284,540

 

281,294

Total long-term liabilities

 

308,412

 

299,715

 

300,217

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Common stock

 

977

 

981

 

950

Class B common stock

 

249

 

249

 

250

Additional paid-in capital

 

894,237

 

874,236

 

721,702

Retained earnings

 

961,517

 

911,704

 

974,587

Accumulated other comprehensive income

 

106

 

112

 

3,739

Treasury stock, at cost

 

(280,544)

 

(199,958)

 

(105,060)

Total stockholders’ equity

 

1,576,542

 

1,587,324

 

1,596,168

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

 2,937,875

 

$

 2,887,807

 

$

 3,055,146

 

See accompanying notes to unaudited consolidated financial statements.

 

5



Table of Contents

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - UNAUDITED

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Class B

 

Additional

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

Shares

 

Dollars

 

Shares

 

Dollars

 

Capital

 

Earnings

 

Income

 

Stock

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, February 2, 2013

 

98,104,692

 

$

981

 

24,900,870

 

$

249

 

$

874,236

 

$

911,704

 

$

112

 

$

(199,958)

 

$

1,587,324

Exercise of stock options

 

720,333

 

7

 

 

 

12,902

 

 

 

 

12,909

Restricted stock vested

 

887,418

 

9

 

 

 

(9)

 

 

 

 

Minimum tax withholding requirements

 

(274,364)

 

(3)

 

 

 

(12,770)

 

 

 

 

(12,773)

Net income

 

 

 

 

 

 

64,821

 

 

 

64,821

Stock-based compensation

 

 

 

 

 

7,085

 

 

 

 

7,085

Total tax benefit from exercise of stock options

 

 

 

 

 

12,793

 

 

 

 

12,793

Foreign currency translation adjustment, net of taxes of $4

 

 

 

 

 

 

 

(6)

 

 

(6)

Purchase of shares for treasury

 

(1,700,000)

 

(17)

 

 

 

 

 

 

(80,586)

 

(80,603)

Cash dividend declared

 

 

 

 

 

 

(15,008)

 

 

 

(15,008)

BALANCE, May 4, 2013

 

97,738,079

 

$

977

 

24,900,870

 

$

249

 

$

894,237

 

$

961,517

 

$

106

 

$

(280,544)

 

$

1,576,542

 

See accompanying notes to unaudited consolidated financial statements.

 

6



Table of Contents

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)

 

 

 

13 Weeks Ended

 

 

 

May 4,
2013

 

 

April 28,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

64,821

 

 

$

57,157

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

32,808

 

 

27,656

 

Deferred income taxes

 

(13,459

)

 

(5,123

)

Stock-based compensation

 

7,085

 

 

7,092

 

Excess tax benefit from exercise of stock options

 

(12,709

)

 

(8,945

)

Tax benefit from exercise of stock options

 

84

 

 

139

 

Other non-cash items

 

145

 

 

(231

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

(4,880

)

 

(4,452

)

Inventories

 

(216,551

)

 

(186,756

)

Prepaid expenses and other assets

 

(10,455

)

 

(4,299

)

Accounts payable

 

152,061

 

 

129,726

 

Accrued expenses

 

(28,000

)

 

(28,548

)

Income taxes payable / receivable

 

(25,081

)

 

7,604

 

Deferred construction allowances

 

7,095

 

 

8,192

 

Deferred revenue and other liabilities

 

(28,316

)

 

(16,982

)

Net cash used in operating activities

 

(75,352

)

 

(17,770

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

(33,954

)

 

(41,251

)

Purchase of JJB Sports convertible notes and equity securities

 

 

 

(31,986

)

Deposits and purchases of other assets

 

(34,674

)

 

(25,210

)

Net cash used in investing activities

 

(68,628

)

 

(98,447

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Payments on other long-term debt and leasing obligations

 

(731

)

 

(7,142

)

Construction allowance receipts

 

 

 

 

Proceeds from exercise of stock options

 

12,909

 

 

10,960

 

Excess tax benefit from exercise of stock options

 

12,709

 

 

8,945

 

Minimum tax withholding requirements

 

(12,773

)

 

(5,185

)

Cash paid for treasury stock

 

(80,603

)

 

(103,857

)

Cash dividend paid to stockholders

 

(18,168

)

 

(15,418

)

(Decrease) increase in bank overdraft

 

(682

)

 

14,472

 

Net cash used in financing activities

 

(87,339

)

 

(97,225

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

(6

)

 

7

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(231,325

)

 

(213,435

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

345,214

 

 

734,402

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

113,889

 

 

$

520,967

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Construction in progress - leased facilities

 

$

 

 

$

2,339

 

Accrued property and equipment

 

$

28,605

 

 

$

17,595

 

Cash paid for interest

 

$

517

 

 

$

3,296

 

Cash paid for income taxes

 

$

83,733

 

 

$

35,543

 

 

See accompanying notes to unaudited consolidated financial statements.

 

7



Table of Contents

 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  Basis of Presentation

 

Dick’s Sporting Goods, Inc. (together with its subsidiaries, the “Company”) is an authentic full-line sports and fitness omni-channel retailer offering a broad assortment of high-quality brand name sporting goods equipment, apparel and footwear in a specialty store environment.  When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or unless otherwise specified, any reference to “year” is to our fiscal year and the terms “we”, “us”, “the Company” and “our” refer to Dick’s Sporting Goods, Inc. and its wholly-owned subsidiaries.

 

The accompanying unaudited consolidated financial statements have been prepared by us 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 (“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.  This unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended February 2, 2013 as filed with the Securities and Exchange Commission on March 22, 2013.  Operating results for the 13 weeks ended May 4, 2013 are not necessarily indicative of the results that may be expected for the year ending February 1, 2014 or any other period.

 

Recently Adopted Accounting Pronouncements

 

Reclassifications Out of Accumulated Other Comprehensive Income

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to the related note to the financial statements where additional details about the effect of the reclassifications are disclosed. This ASU is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 during the first quarter of 2013.  The adoption of this guidance did not impact the Company’s Consolidated Financial Statements.

 

Indefinite-Lived Intangible Assets Impairment

 

In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This update amended the procedures for testing the impairment of indefinite-lived intangible assets by permitting an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible assets are impaired. An entity’s assessment of the totality of events and circumstances and their impact on the entity’s indefinite-lived intangible assets will then be used as a basis for determining whether it is necessary to perform the quantitative impairment test as described in ASC 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill.” ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  The Company adopted ASU 2012-02 during the first quarter of 2013.  The adoption of this guidance did not impact the Company’s Consolidated Financial Statements.

 

2.  Store Closings

 

The calculation of accrued store closing and relocation reserves primarily includes future minimum lease payments, maintenance costs and taxes from the date of closure or relocation to the end of the remaining lease term, net of contractual or estimated sublease income.  The liability is discounted using a credit-adjusted risk-free rate of interest.  The assumptions used in the calculation of the accrued store closing and relocation reserves are evaluated each quarter.

 

8



Table of Contents

 

The following table summarizes the activity in fiscal 2013 and 2012 (in thousands):

 

 

 

13 Weeks Ended

 

 

 

May 4,
2013

 

 

April 28,
2012

 

Accrued store closing and relocation reserves, beginning of period

 

  $

31,785

 

 

  $

36,121

 

Expense charged to earnings

 

 

 

 

Cash payments

 

(2,496

)

 

(1,572

)

Interest accretion and other changes in assumptions

 

(1,008

)

 

1,900

 

Accrued store closing and relocation reserves, end of period

 

28,281

 

 

36,449

 

Less: current portion of accrued store closing and relocation reserves

 

(6,675

)

 

(7,959

)

Long-term portion of accrued store closing and relocation reserves

 

  $

21,606

 

 

  $

28,490

 

 

The current portion of accrued store closing and relocation reserves is included within accrued expenses and the long-term portion is included within long-term deferred revenue and other liabilities on the unaudited Consolidated Balance Sheets.

 

3.  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, plus the effect of dilutive potential common shares outstanding during the period, using the treasury stock method.  Dilutive potential common shares include outstanding stock options, restricted stock and warrants.

 

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

 

 

 

13 Weeks Ended

 

 

 

May 4,
2013

 

 

April 28,
2012

 

Net income

 

 $

64,821

 

 

 $

57,157

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (for basic calculation)

 

122,702

 

 

121,514

 

Dilutive effect of stock-based awards

 

3,160

 

 

5,489

 

Weighted average common shares outstanding (for diluted calculation)

 

125,862

 

 

127,003

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

 $

0.53

 

 

 $

0.47

 

Earnings per common share - diluted

 

 $

0.52

 

 

 $

0.45

 

 

For the 13 weeks ended May 4, 2013 and April 28, 2012, 0.7 million and 0.9 million shares, respectively, were attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per common share because their inclusion would have been anti-dilutive.

 

4.  Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).  ASC 820, “Fair Value Measurement and Disclosures”, outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures, and prioritizes the inputs used in measuring fair value 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.

 

9



Table of Contents

 

Assets measured at fair value on a recurring basis as of May 4, 2013 and February 2, 2013 are set forth in the table below (in thousands):

 

Description

 

Level 1

 

Level 2

 

Level 3

 

As of May 4, 2013

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Deferred compensation plan assets held in trust (1)

 

 $

44,541

 

 $

 

 $

 

Total assets

 

 $

44,541

 

 $

 

 $

 

 

 

 

 

 

 

 

 

As of February 2, 2013

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Deferred compensation plan assets held in trust (1)

 

 $

36,871

 

 $

 

 $

 

Total assets

 

 $

36,871

 

 $

 

 $

 

 

(1)             Consists of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plan.

 

The fair value of cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximated book value due to the short-term nature of these instruments at both May 4, 2013 and February 2, 2013.

 

The Company uses quoted prices in active markets to determine the fair value of the aforementioned assets determined to be Level 1 instruments.  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.  There were no transfers between Level 1 and 2 during the 13 weeks ended May 4, 2013.  The Company did not hold any Level 3 financial assets or liabilities as of May 4, 2013 and February 2, 2013.

 

5. Income Taxes

 

During the first quarter of 2013, the Company determined that it would recover $4.3 million of its investment in JJB Sports, which it had previously fully impaired.  There is no related tax expense, as the Company reversed a portion of the deferred tax valuation allowance it had previously recorded for net capital loss carryforwards it did not expect to realize at the time its investment in JJB Sports was fully impaired.

 

6. Subsequent Event

 

On May 20, 2013, our Board of Directors declared a quarterly cash dividend in the amount of $0.125 per share of common stock and Class B common stock payable on June 28, 2013 to stockholders of record as of the close of business on June 7, 2013.

 

10



Table of Contents

 

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. You can identify these statements 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, our expectations, our growth strategies, including our plans to open new stores, our efforts to increase profit margins and return on invested capital, plans to grow our private brand business, projections of our future profitability, results of operations, capital expenditures, plans to return capital to stockholders through dividends or share repurchases, our financial condition or other “forward-looking” information and include statements about revenues, earnings, spending, margins, costs, liquidity, store openings, eCommerce, operations, inventory, private brand products, or our actions, plans or strategies.

 

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 2013 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our management:

 

¡                 Our business is dependent on the general economic conditions in our markets and the ongoing economic and financial uncertainties may cause a decline in consumer spending;

 

¡                 Intense competition in the sporting goods industry;

 

¡                 Our ability to predict or effectively react to changes in consumer demand or shopping patterns;

 

¡                 Lack of available retail store sites on terms acceptable to us, rising real estate prices and other costs and risks relating to our stores, or our inability to open new stores;

 

¡                 Unauthorized disclosure of sensitive or confidential customer information;

 

¡                 Risks associated with our private brand offerings, including product recalls and protection of proprietary rights;

 

¡                 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; product liability; product recalls; and the regulation of and other hazards associated with certain products we sell, such as firearms and ammunition;

 

¡                 Disruptions in our or our vendors’ supply chain that could be caused by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials and foreign political instability;

 

¡                Litigation risks for which we may not have sufficient insurance or other coverage, including risks relating to the sale of firearms and ammunition;

 

¡                 Our relationships with our vendors, including potential increases in the costs of their products and our ability to pass those cost increases on to our customers, their ability to maintain their inventory and production levels and their ability or willingness to provide us with sufficient quantities of products at acceptable prices;

 

¡                 The loss of our key executives, especially Edward W. Stack, our Chairman and Chief Executive Officer;

 

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

 

¡                 Disruption of or other problems with the services provided by our primary eCommerce services provider;

 

¡                 Disruption of or other problems with our information systems;

 

¡                 Any serious disruption at our distribution facilities;

 

¡                 Performance of professional sports teams, professional team lockouts or strikes, or retirement or scandal involving sports superstars;

 

11



Table of Contents

 

¡                 The seasonality of our business;

 

¡                 Regional risks because our stores are generally concentrated in the eastern half of the United States;

 

¡                 Our pursuit of strategic investments or acquisitions, including costs and uncertainties associated with combining businesses and/or assimilating acquired companies;

 

¡                 Our ability to meet our labor needs;

 

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

 

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

 

¡                 Our current intention to issue 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 other reports or filings filed or furnished by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended February 2, 2013.  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 report are made as of the date of this report. We do not assume any obligation and do not intend to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise except as may be required by the securities laws.

 

OVERVIEW

 

Dick’s is an authentic full-line sports and fitness omni-channel retailer offering a broad assortment of high-quality brand name sporting goods equipment, apparel and footwear in a specialty store environment.  The Company also owns and operates Golf Galaxy, LLC, a golf specialty retailer (“Golf Galaxy”).  When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or unless otherwise specified, any reference to “year” is to our fiscal year and the terms “we”, “us”, “the Company” and “our” refer to Dick’s Sporting Goods, Inc. and its wholly-owned subsidiaries.

 

As of May 4, 2013, we operated 520 Dick’s stores in 44 states and 81 Golf Galaxy stores in 30 states, with approximately 29.7 million square feet on a consolidated basis, the majority of which are located throughout the eastern half of the United States.

 

Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year.  Our revenue and earnings are typically greater during our fiscal fourth quarter, which includes the majority of the holiday selling season.

 

The primary factors that have historically influenced the Company’s profitability and success have been the growth in its number of stores and selling square footage, positive same store sales and its strong gross profit margins.  In the last five years, the Company has grown from 363 Dick’s stores as of May 3, 2008 to 520 Dick’s stores as of May 4, 2013.  The Company continues to expand its presence through the opening of new stores and believes it has the potential to reach approximately 1,100 Dick’s locations including smaller-market locations across the United States.

 

In order to monitor the Company’s success, the Company’s senior management monitors certain key performance indicators, including:

 

¡                 Consolidated same store sales performance – For the 13 weeks ended May 4, 2013, the Company’s consolidated same store sales decreased 1.7% compared to an 8.4% increase during the same period in fiscal 2012.  The Company believes that its ability to consistently deliver increases in consolidated same store sales will be a key factor in achieving its targeted levels of earnings per share growth and continuing its store expansion and omni-channel development programs.

 

¡                 Operating cash flow – Net cash used in operations totaled $75.4 million for the 13 weeks ended May 4, 2013, while the Company used $17.8 million during the same period in fiscal 2012.  We typically generate significant positive operating cash flows in our fiscal fourth quarter in connection with the holiday selling season and proportionately higher net income levels.  See further discussion of the Company’s cash flows in the “Liquidity and Capital Resources and Changes in Financial Condition” section herein.  The Company believes that a key strength of its business has been the ability to consistently generate positive cash flow from operations.  Strong cash flow generation is critical to the future success of the Company, not only to support the general operating needs of the Company, but also to fund capital expenditures related to its store network, distribution and administrative facilities, costs associated with continued improvement of information

 

12



Table of Contents

 

technology tools, costs associated with potential strategic acquisitions or investments that may arise from time to time and stockholder return initiatives, including cash dividends and share repurchases.

 

¡                 Quality of merchandise offerings – To monitor and maintain acceptance of its merchandise offerings, the Company monitors sell-throughs, inventory turns, gross margins and markdown rates on a department and style level.  This analysis helps the Company manage inventory levels to reduce cash flow 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, the Company monitors various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.  New store productivity compares the sales increase for all stores not included in the same store sales calculation with the increase in square footage.

 

CRITICAL ACCOUNTING POLICIES

 

As discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013, the Company considers its policies on inventory valuation, vendor allowances, goodwill and intangible assets, impairment of long-lived assets and closed store reserves, self-insurance reserves, stock-based compensation and uncertain tax positions to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements.  There have been no changes in the Company’s critical accounting policies during the period ended May 4, 2013.

 

RESULTS OF OPERATIONS AND OTHER SELECTED DATA

 

Executive Summary

 

¡                 Net income for the current quarter increased 13% to $64.8 million, or $0.52 per diluted share, as compared to net income of $57.2 million, or $0.45 per diluted share, for the 13 weeks ended April 28, 2012.  Net income for the 13 weeks ended May 4, 2013 includes $4.3 million, net of tax, or $0.04 per diluted share related to an estimated partial recovery from the Company’s previously impaired investment in JJB Sports.

 

¡                 Net sales increased 4% to $1.3 billion in the current quarter due primarily to the growth of our store network, partially offset by a 1.7% decrease in consolidated same store sales.  Due to the 53rd week in fiscal 2012, there is a one-week shift in fiscal 2013 results as compared to fiscal 2012. In the current quarter, the seasonal timing change resulting from this shift favorably impacted net sales comparisons by approximately $31 million. Consolidated same store sales, adjusted for the shifted retail calendar, decreased 3.8%.  eCommerce sales penetration was approximately 5.8% of total sales.

 

¡                 Gross profit increased 8 basis points to 30.87% as a percentage of net sales for the 13 weeks ended May 4, 2013, due primarily to higher merchandise margins, partially offset by deleverage of fixed occupancy costs and higher freight and distribution costs.

 

¡                 In the first quarter, the Company:

 

¡                 Declared and paid a quarterly cash dividend of $0.125 per common share and Class B common share.

 

¡                 Repurchased 1.7 million shares of common stock for approximately $80.6 million.  The Company funded the repurchase program from cash on hand.

 

¡                 We ended the first quarter with no outstanding borrowings under our current senior secured credit agreement (the “Credit Agreement”).

 

The following represents a reconciliation of beginning and ending stores for the periods indicated:

 

 

 

13 Weeks Ended
May 4, 2013

 

13 Weeks Ended
April 28, 2012

 

 

Dick’s Sporting
Goods

 

Golf Galaxy

 

Total

 

Dick’s Sporting
Goods

 

Golf Galaxy

 

Total

Beginning stores

 

518

 

81

 

599

 

480

 

81

 

561

Q1 New stores

 

2

 

 

2

 

6

 

 

6

Ending stores

 

520

 

81

 

601

 

486

 

81

 

567

 

 

 

 

 

 

 

 

 

 

 

 

 

Remodeled stores

 

 

 

 

 

 

Relocated stores

 

 

 

 

1

 

 

1

 

13



Table of Contents

 

The following table presents for the periods indicated selected items in the unaudited Consolidated Statements of Income as a percentage of the Company’s net sales, as well as the basis point change in the percentage of net sales from the prior year’s period.  In addition, other selected data are provided to facilitate a further understanding of our business.  This table should be read in conjunction with the following Management’s Discussion and Analysis of Financial Condition and Results of Operations and the unaudited Consolidated Financial Statements and related notes thereto.

 

 

 

13 Weeks Ended

 

Basis Point
Increase /
(Decrease) in
Percentage of
Net Sales from 

 

 

 

May 4,
2013 
(A)

 

April 28,
2012 
(A)

 

Prior Year
2012-2013 
(A)

 

Net sales (1)

 

100.00

 %

 

100.00

%

 

N/A

 

Cost of goods sold, including occupancy and distribution costs (2)

 

69.13

 

 

69.21

 

 

(8

)

 

Gross profit

 

30.87

 

 

30.79

 

 

8

 

 

Selling, general and administrative expenses (3)

 

23.45

 

 

23.10

 

 

35

 

 

Pre-opening expenses (4)

 

0.10

 

 

0.21

 

 

(11

)

 

Income from operations

 

7.32

 

 

7.47

 

 

(15

)

 

Interest expense (5)

 

0.05

 

 

0.27

 

 

(22

)

 

Other income (6)

 

(0.47

)

 

(0.15

)

 

(32

)

 

Income before income taxes

 

7.73

 

 

7.35

 

 

38

 

 

Provision for income taxes

 

2.87

 

 

2.89

 

 

(2

)

 

Net income

 

4.86

 %

 

4.46

%

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

Consolidated same store sales (decrease) increase (7)

 

(1.7

)%

 

8.4

%

 

 

 

 

Number of stores at end of period (8)

 

601

 

 

567

 

 

 

 

 

Total square feet at end of period (8)

 

29,663,526

 

 

27,856,605

 

 

 

 

 

 

 

(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 is recognized upon shipment of merchandise.  Service-related revenue is recognized as the services are performed.  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”) are deferred and recognized upon the redemption of the cards.  These cards have no expiration date.  Income from unredeemed cards is recognized on the unaudited Consolidated Statements of Income in selling, general and administrative expenses at the point at which redemption becomes remote.  The Company performs an evaluation of the aging of the unredeemed cards, based on the elapsed time from the date of original issuance, to determine when redemption is remote.

 

(2)       Cost of goods sold includes the cost of merchandise, inventory shrinkage and obsolescence, freight, distribution and store occupancy costs.  Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, store maintenance, utilities, depreciation, fixture lease expenses and certain insurance expenses.

 

(3)       Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating the Company’s corporate headquarters.

 

(4)      Pre-opening expenses consist primarily of rent, marketing, payroll and recruiting costs incurred prior to a new or relocated store opening which are expensed as incurred.

 

(5)       Interest expense for 2012 includes rent payments under the Company’s financing lease obligation for its corporate headquarters building, which the Company purchased on May 7, 2012.

 

(6)       Results primarily from gains and losses associated with changes in deferred compensation plan investment values and interest income earned on highly liquid instruments purchased with a maturity of three months or less at the date of purchase.  During the first quarter of 2013, the Company determined it would recover $4.3 million of its investment in JJB Sports, which is reflected herein.

 

14



Table of Contents

 

(7)       Stores are included in the same store sales calculation in the same fiscal period that it commences its 14th full month of operations.  Stores that were closed or relocated during the applicable period have been excluded from same store sales.  Each relocated store is returned to the same store base in the fiscal period that it commences its 14th full month of operations at that new location.  The Company’s eCommerce business is included in the same store sales calculation.

 

(8)    Store count and square footage amounts do not include our True Runner stores.

 

13 Weeks Ended May 4, 2013 Compared to the 13 Weeks Ended April 28, 2012

 

Net Income

 

The Company reported net income of $64.8 million for the current quarter, or $0.52 per diluted share, compared to net income of $57.2 million, or $0.45 per diluted share, for the 13 weeks ended April 28, 2012.  Net income for the 13 weeks ended May 4, 2013 includes $4.3 million, net of tax, or $0.04 per diluted share related to an estimated partial recovery from its previously impaired investment in JJB Sports.

 

Net Sales

 

Net sales for the current quarter increased 4% to $1.3 billion, due primarily to the growth of our store network, partially offset by a 1.7% decrease in consolidated same store sales.  The 1.7% consolidated same store sales decrease consisted of a 1.3% decrease at Dick’s Sporting Goods, and a 7.4% decrease at Golf Galaxy.  eCommerce sales penetration was approximately 5.8% of total sales.  Due to the 53rd week in fiscal 2012, there is a one-week shift in fiscal 2013 results as compared to fiscal 2012. In the current quarter, the seasonal timing change resulting from this shift favorably impacted net sales comparisons by approximately $31 million.  Consolidated same store sales, adjusted for the shifted retail calendar, decreased 3.8%, consisting of a 3.2% decrease at Dick’s Sporting Goods and an 11.8% decrease at Golf Galaxy.

 

The decrease in consolidated same store sales, as adjusted for the shifted retail calendar, was primarily driven by declines in our golf, fitness and baseball businesses and, to a lesser extent, in select outdoor businesses, such as bicycles, paddle sports and camping.  The fitness category reflects our continued divestiture of the LIVESTRONG brand, which we expect to materially complete in the Company’s third quarter of fiscal 2013.  The same store sales decrease at Dick’s Sporting Goods was attributable to an increase of 2.0% in sales per transaction and a 5.2% decrease in transactions.  Every 1% change in same store sales would have impacted earnings before income taxes for the current quarter by approximately $4 million.

 

Income from Operations

 

Income from operations increased to $97.6 million for the current quarter from $95.7 million for the 13 weeks ended April 28, 2012.  The increase was primarily due to a $17.1 million increase in gross profit, partially offset by a $16.6 million increase in selling, general and administrative expenses.

 

Gross profit increased 4% to $411.7 million for the current quarter from $394.6 million for the 13 weeks ended April 28, 2012.  The 8 basis point increase as a percentage of net sales was due primarily to merchandise margin expansion of 84 basis points due to our continued inventory management efforts, partially offset by a 47 basis point increase in fixed occupancy costs that increased as a percentage of sales as a result of the 1.7% decrease in consolidated same store sales and a 26 basis point increase in freight and distribution costs, driven by the increase in eCommerce sales.  Freight and distribution costs for eCommerce sales are higher as a percentage of sales than for sales made in our brick and mortar stores.  Every 10 basis point change in merchandise margin would have impacted the earnings before income taxes for the current quarter by approximately $1 million.

 

Selling, general and administrative expenses increased 6% to $312.7 million for the current quarter from $296.1 million for the 13 weeks ended April 28, 2012, and increased as a percentage of net sales by 35 basis points. The increase in administrative expenses was primarily due to increased payroll costs for planned growth initiatives.

 

Pre-opening expenses decreased to $1.3 million for the quarter from $2.7 million for the 13 weeks ended April 28, 2012.  Pre-opening expenses were for the opening of two new Dick’s stores during the quarter as compared to the opening of six new Dick’s stores during last year’s first quarter.  Pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations.

 

Interest Expense

 

Interest expense was $0.7 million for the current quarter and $3.4 million for the 13 weeks ended April 28, 2012. Interest expense for the 13 weeks ended April 28, 2012 included $2.7 million related to rent payments under the Company’s financing lease for its corporate headquarters building and the decrease in interest expense year over year reflects the Company’s purchase of its corporate headquarters building on May 7, 2012.

 

15



Table of Contents

 

Income Taxes

 

The Company’s effective tax rate was 37.2% for the 13 weeks ended May 4, 2013 as compared to 39.3% for the same period last year.  During the first quarter of 2013, the Company determined that it would recover an estimated $4.3 million of its investment in JJB Sports, which it had previously fully impaired.  There is no related tax expense, as the Company reversed a portion of the deferred tax valuation allowance it had previously recorded for net capital loss carryforwards it did not expect to realize at the time its investment in JJB Sports was fully impaired.

 

LIQUIDITY AND CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

 

Overview

 

The Company’s liquidity and capital needs have generally been met by cash from operating activities.  The Company ended the first quarter of 2013 with $113.9 million in cash and cash equivalents as compared to $521.0 million at the end of the first quarter of 2012.  Over the course of the past twelve months, the Company utilized capital to fund shares purchased pursuant to share repurchase programs, pay quarterly dividends, purchase its store support center, acquire intellectual property rights to the Field & Stream brand, build a distribution center and fund its $246 million special dividend.

 

Net cash used in operating activities for the 13 weeks ended May 4, 2013 was $75.4 million compared to $17.8 million for the 13 weeks ended April 28, 2012.  Net cash from operating, investing and financing activities are discussed further below.

 

The Company has a $500 million revolving credit facility, including up to $100 million in the form of letters of credit, in the event further liquidity is needed.  Under the Credit Agreement governing the facility (the “Credit Agreement”), subject to the satisfaction of certain conditions, the Company may request an increase of up to $250 million in borrowing availability.

 

The Credit Agreement, which matures on December 5, 2016, is secured by a first priority security interest in certain property and assets, including receivables, inventory, deposit accounts and other personal property of the Company and is guaranteed by the Company’s domestic subsidiaries.

 

The interest rates per annum applicable to loans under the Credit Agreement are, at the Company’s option, a base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage.  The applicable margin percentage for base rate loans is 0.20% to 0.50% and for adjusted LIBOR rate loans is 1.20% to 1.50%, depending on the borrowing availability of the Company.

 

The Credit Agreement contains certain covenants that limit the ability of the Company to, among other things: incur or guarantee additional indebtedness; pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; make certain investments; sell assets; and consolidate, merge or transfer all or substantially all of the Company’s assets.  In addition, the Credit Agreement contains a covenant that requires the Company to maintain a minimum adjusted availability of 7.5% of its borrowing base.  As of May 4, 2013, the Company was in compliance with the terms of the Credit Agreement.

 

There were no outstanding borrowings under the Credit Agreement as of May 4, 2013 or February 2, 2013.  As of May 4, 2013 and February 2, 2013, total remaining borrowing capacity, after subtracting letters of credit, was $487.0 million and $488.7 million, respectively.

 

Normal capital requirements consist primarily of capital expenditures related to the addition of new stores, remodeling and relocating existing stores, enhancing information technology and improving distribution infrastructure.  The Company has a capital appropriations committee that approves all capital expenditures in excess of certain amounts and groups and prioritizes all capital projects among required, discretionary and strategic categories.

 

Store and omni-channel infrastructure - The Company currently plans to make substantial capital investments in its business in fiscal 2013 compared to fiscal 2012.  These investments include growing our omni-channel platform, implementing new systems, developing new retail concepts and store-related capital expenditures.  Store-related capital expenditures are expected to nearly double from fiscal 2012, due to anticipated investments in new and relocated stores and further upgrades to some of our existing stores to improve the shopping experience for our customers.

 

¡              The Company plans to open approximately 40 new Dick’s stores and relocate one Dick’s store during fiscal 2013.  The Company also expects to open one new Golf Galaxy store and relocate one Golf Galaxy store in fiscal 2013, both of which

 

16



Table of Contents

 

will be in a new, larger format.  The Company plans to lease all of these stores.

 

¡               The Company expects to open two new True Runner stores and two new Field & Stream stores in 2013.  The Company plans to lease all of these stores.

 

¡               The Company plans to fully remodel four Dick’s stores in 2013.  We did not remodel any stores in 2012 as we were finalizing our new prototype store.

 

¡               The Company plans to partially remodel 75 Dick’s stores in 2013.  The partial remodels will focus on strategic growth categories, and when completed, will feature Nike and Under Armour shops.

 

¡               In 2013, we plan to accelerate the pace of new vendor shops by adding approximately 120 Nike Fieldhouse shops, 70 Under Armour All American shops and 65 adidas shops within our existing Dick’s Sporting Goods stores.  We are also working closely with The North Face to add new shops in conjunction with store remodels as well as elevate their branding in our seasonally expanded shops.

 

¡               We plan to install shared service footwear decks in all new and fully remodeled stores in 2013.

 

Share repurchases - On March 7, 2013, the Company’s Board of Directors authorized a five-year share repurchase program of up to $1 billion of the Company’s common stock.  During the 13 weeks ended May 4, 2013, the Company repurchased 1.7 million shares of its common stock for $80.6 million.  The Company funded the repurchases from cash on hand.

 

Dividends - During the 13 weeks ended May 4, 2013, the Company paid $18.2 million of dividends to its 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 the final determination of our Board of Directors, and will be dependent upon future earnings, cash flows, financial requirements and other factors.

 

Event Subsequent to Quarter-end

 

Dividend - On May 20, 2013, the Company’s Board of Directors authorized and declared a quarterly dividend in the amount of $0.125 per share on the Company’s common stock and Class B common stock. The dividend is payable in cash on June 28, 2013 to stockholders of record at the close of business on June 7, 2013.

 

The Company currently believes that cash flows generated by operations and funds available under the Credit Agreement will be sufficient to satisfy our current capital requirements through fiscal 2013.  Other investment opportunities, such as potential strategic acquisitions, investments or store expansion rates in excess of those presently planned, may require additional funding.

 

The change in cash and cash equivalents is as follows (in thousands):

 

 

 

13 Weeks Ended

 

 

 

May 4,
2013

 

April 28,
2012

 

Net cash used in operating activities

 

 $

(75,352)

 

 $

(17,770)

 

Net cash used in investing activities

 

(68,628)

 

(98,447)

 

Net cash used in financing activities

 

(87,339)

 

(97,225)

 

Effect of exchange rate changes on cash and cash equivalents

 

(6)

 

 

Net decrease in cash and cash equivalents

 

 $

(231,325)

 

 $

(213,435)

 

 

Operating Activities

 

Cash flow from operations is seasonal in our business.  Typically, we use cash flow from operations to increase inventory in advance of peak selling seasons, with the pre-Christmas inventory increase being the largest.  In the fourth quarter, inventory levels are reduced in connection with Christmas sales and this inventory reduction, combined with proportionately higher net income, typically produces significant positive cash flow.

 

Operating activities consist primarily of net income, adjusted for certain non-cash items and changes in operating assets and liabilities.  Adjustments to net income for non-cash items include depreciation and amortization, deferred income taxes, stock-based compensation expense, tax benefits on stock options as well as non-cash gains and losses on the disposal of the

 

17



Table of Contents

 

Company’s assets, including impairment charges.  Changes in operating assets and liabilities primarily reflect changes in inventories, accounts payable, income taxes payable/receivable as well as other working capital changes.

 

Cash used in operating activities increased $57.6 million for the 13 weeks ended May 4, 2013 compared to the same period last year, primarily due to higher income tax payments in the current quarter.  Income tax payments in fiscal 2012 were favorably impacted by the timing of implementation of a tax election to deduct certain repair and maintenance costs.

 

Investing Activities

 

Cash used in investing activities for the 13 weeks ended May 4, 2013 decreased by $29.8 million to $68.6 million from the same period of fiscal 2012.  The Company’s gross capital expenditures were $34.0 million during the current period compared to $41.3 million during the 13 weeks ended April 28, 2012, which relates primarily to the opening of new and relocated stores and investment in existing store locations and information systems.  The 13 weeks ended April 28, 2012 also included capital expenditures related to the construction of the Company’s distribution center in Goodyear, Arizona.  The Company opened two new Dick’s stores during the 13 weeks ended May 4, 2013 as compared to opening six new Dick’s stores during the 13 weeks ended April 28, 2012.  The remaining decrease in cash used is due primarily to the Company’s $32.0 million investment in JJB Sports and $20.0 million purchase of the Top-Flite brand in the first quarter of fiscal 2012, partially offset by a $29.7 million lease buyout of corporate aircraft in the current quarter.

 

Financing Activities

 

Cash used in financing activities for the 13 weeks ended May 4, 2013 totaled $87.3 million, compared to $97.2 million of cash used in the same period of fiscal 2012.  The decrease in cash used primarily reflects lower share repurchase activity during the 13 weeks ended May 4, 2013 compared to the same period last year.

 

Off-Balance Sheet Arrangements, Contractual Obligations and Other Commercial Commitments

 

The Company’s off-balance sheet contractual obligations and commercial commitments as of May 4, 2013 primarily relate to operating lease obligations, future minimum guaranteed contractual payments and letters of credit.  The Company has excluded these items from the unaudited Consolidated Balance Sheets in accordance with generally accepted accounting principles. The Company does not believe that any of these arrangements have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or resources. There have been no significant changes in the Company’s off-balance sheet contractual obligations or commercial commitments since the end of fiscal 2012.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in the Company’s market risk exposures from those reported in our Annual Report on Form 10-K for the year ended February 2, 2013 filed March 22, 2013.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

During the first quarter of fiscal 2013, 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 report (May 4, 2013).

 

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 error or mistake.  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 error or fraud.  Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to

 

18



Table of Contents

 

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.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

Dick’s Sporting Goods and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, 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

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended February 2, 2013 as filed with the Securities and Exchange Commission on March 22, 2013, which could materially affect our business, financial condition, financial results or future performance.  Reference is also made to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” of this report, which is incorporated herein by reference.

 

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

 

On March 7, 2013, the Company’s Board of Directors authorized a share repurchase program of up to $1 billion of the Company’s common stock over the next five years.  The Company will finance the repurchases from cash on hand, future cash flows from operations or from borrowings under the Company’s credit facility.  Pursuant to the stock repurchase program, the Company repurchased 1.7 million shares of common stock for $80.6 million during the first quarter of 2013.  As of May 4, 2013, $919.4 million remained available under this program.  The Company may suspend or terminate the share repurchase program at any time.

 

The following table sets forth repurchases of our common stock during the first quarter of 2013:

 

Period

 

Total Number of
Shares

Purchased

 

Average Price
Paid Per

Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs

 

Dollar Value of
Shares That May
Yet be Purchased
Under the Plan or
Program

 

 February 3, 2013 to March 2, 2013

 

869

(a)

 $

48.76

 

 

 $

 

 March 3, 2013 to April 6, 2013

 

1,969,301

(b)

 $

47.29

 

1,700,000

 

 $

919,397,541

 

 April 7, 2013 to May 4, 2013

 

4,194

(a)

 $

48.04

 

 

 $

919,397,541

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1,974,364

 

 $

47.29

 

1,700,000

 

 

 

 

(a)       Represents shares of our common stock transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock during the period.

 

(b)       Includes 269,301 shares of our common stock transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock and 1.7 million shares repurchased as part of the Company’s previously announced five year $1 billion share repurchase program.

 

ITEM 6.  EXHIBITS

 

(a) Exhibits.  The Exhibits listed in the Index to Exhibits, which appears on page 21 and is incorporated herein by reference, are filed or furnished (as noted) as part of this Form 10-Q.

 

19



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on May 31, 2013 on its behalf by the undersigned, thereunto duly authorized.

 

 

DICK’S SPORTING GOODS, INC.

 

By:

/s/   EDWARD W. STACK

 

 

Edward W. Stack

 

Chairman and Chief Executive Officer

 

 

By:

/s/   TIMOTHY E. KULLMAN

 

 

Timothy E. Kullman

 

Executive Vice President – Finance, Administration, Chief Financial Officer

 

(principal financial officer)

 

 

By:

/s/   JOSEPH R. OLIVER

 

 

Joseph R. Oliver

 

Senior Vice President – Chief Accounting Officer

 

(principal accounting officer)

 

20



Table of Contents

 

INDEX TO EXHIBITS

 

Exhibit Number

 

Description of Exhibit

 

 Method of Filing

 

 

 

 

 

10.1

 

Offer Letter between the Company and André J. Hawaux, Executive Vice President- Finance, Administration and Chief Financial Officer

 

Filed herewith

 

 

 

 

 

10.2

 

Form of Performance-Based Restricted Stock Award Agreement granted under the Dick’s Sporting Goods, Inc. 2012 Stock and Incentive Plan

 

Filed herewith

 

 

 

 

 

31.1

 

Certification of Edward W. Stack, Chairman and Chief Executive Officer, dated as of May 31, 2013 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 Timothy E. Kullman, Executive Vice President – Finance, Administration and Chief Financial Officer, dated as of May 31, 2013 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 May 31, 2013 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 Timothy E. Kullman, Executive Vice President – Finance, Administration and Chief Financial Officer, dated as of May 31, 2013 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

 

Filed herewith

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

Filed herewith

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document

 

Filed herewith

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document

 

Filed herewith

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document

 

Filed herewith

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Definition Linkbase Document

 

Filed herewith

 

21