Dick’s Sporting Goods, Inc. reported net income for the fourth quarter ended January 29, 2005 of $39.9 million or 75 cents per share. Excluding merger integration and store closing costs, gain on sale of investment, and a lease accounting charge, of $43.4 million, or 81 cents per share as compared to earnings guidance provided on November 18, 2004 of 77 cents – 78 cents per share. This compares to net income of $26.0 million, and earnings per share of 50 cents for the fourth quarter ended January 31, 2004.
The fourth quarter includes after tax merger integration and store closing costs associated with the July 2004 acquisition on Galyan’s that equaled $7.5 million, or 14 cents per share, and gain on sale of investment of $6.6 million, or 12 cents per share and a cumulative lease accounting charge of $2.6 million, or 5 cents per share of which a penny per share was attributable to this year, the Company
The fourth quarter also includes an after tax cumulative lease accounting charge of $2.6 million, or 5 cents per share of which $471,000, or a penny per share, relates to the current year. In connection with the recent attention placed on lease accounting, the Company reviewed and discussed with its independent auditors, and concluded its lease accounting policy was not consistent with accounting standards. The company has changed this policy such that the commencement date of the lease term will be the earlier of the date rent payments begin or the date the Company takes possession of the property for the initial setup of fixtures and merchandise. Further, the Company is continuing to review with its auditors the accounting treatment of tenant allowances.
Total sales for the quarter increased 66% over last year to $788.0 million due to a comparable store sales increase of 1.1%, the opening of new stores and the inclusion of Galyan’s operations in this year’s quarterly results. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the second quarter of 2005.
During the fourth quarter, the Company opened five stores and closed four stores (one Dick’s store and three Galyan’s stores) bringing the total stores opened for the year to 29 and the total stores closed for the year to six (three Dick’s stores and three Galyan’s stores).
The stores that opened in the fourth quarter include: Easton, PA (the 2nd store in the Allentown market); two stores in Indianapolis, IN (our 6th and 7th stores in Indianapolis); West Mifflin, PA (our 9th store in the Pittsburgh market) and Portsmouth, NH. The one Dick’s store that closed was in Cleveland, OH due to its overlap with a Galyan’s store, and the three Galyan’s stores closed were all in Indianapolis, IN.
As of January 29, 2005, the Company operated 234 stores with approximately 13.5 million square feet, in 33 states.
As previously announced in July 29, 2004, the Company acquired 100% of the issued and outstanding common stock of Galyan’s Trading Company, Inc. for $16.75 per share in cash. The Consolidated Statements of Income for the 13 weeks ended January 29, 2005 reflect the results of the combined company for the entire 13 weeks whereas the results for the year ended January 29, 2005 reflect the results of Dick’s Sporting Goods on a stand-alone basis from February 1, 2004 to July 28, 2004 and the combined company from the acquisition date of July 29, 2004 to January 29, 2005. Prior year results include Dick’s Sporting Goods, Inc. on a stand-alone basis.
Full Year Results
Net income for the year ended January 29, 2005, excluding merger integration and store closing costs, gain on sale of investment, and a lease accounting charge, was $75.1 million, or $1.42 per share as compared to earnings guidance provided on November 18, 2004 of $1.37 – $1.39 per share before merger integration and store closing costs. This compares to net income and earnings per share, excluding gain on sale of investment, of $50.7 million, and $1.01 per share, respectively, for the year ended January 31, 2004.
Including after tax merger integration and store closing costs of $12.2 million or $0.23 per share, gain on sale of investment of $6.6 million or $0.12 per share, and a cumulative lease accounting charge of $2.6 million or $0.05 per share of which $0.01 per share is attributable to 2004, the Company reported net income for the year ended January 29, 2005 of $66.9 million or $1.26 per share.
Total sales for the year ended January 29, 2005 increased 43% to $2,109.4 million. Comparable store sales increased 2.6%. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the first half of 2005.
“We are very pleased as a team to have accomplished so much in the fourth quarter,” said Edward W. Stack, Chairman & CEO. “We are reporting another strong quarter of operating results and effective management of our inventory while making considerable progress in the conversion of the Galyan’s stores. Regarding the Galyan’s conversion: we have converted the point of sale systems in the stores, re-signed the stores, converted the warehouse management system in the former Galyan’s distribution center, closed the corporate office and converted all activity onto Dick’s systems. We have also made progress on re- merchandising stores to place more of an emphasis on sporting goods.”
Galyan’s Conversion
The Company anticipates closing 10 stores in conjunction with the conversion. Of these 10 stores, six are Dick’s stores and four are former Galyan’s stores. Four of these stores closed in the fourth quarter of 2004, five are anticipated to close in the first quarter of 2005, and one is expected to close in the second quarter of 2005. This is an increase from the prior expectation of nine stores to be closed and is due to further analysis of the overlap.
The Company also expects total merger integration and store closing costs of approximately $70 million pre-tax to be incurred, of which $20 million was incurred in 2004. The Company estimates future merger costs of $39 million in 2005 with the balance in 2006 and beyond, which relates to future lease payments on closed stores. Merger integration and store closing costs primarily include the expense of closing Dick’s stores, advertising the re- branding of Galyan’s stores, duplicative costs, recruiting and system conversion costs.
2005 Outlook
The Company’s current outlook for 2005 is based on current expectations and includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act as described later in this release. Although the Company believes that comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.
Full Year 2005
Based on an estimated 55 million shares outstanding, the Company anticipates reporting EPS for the full year of $1.79 – $1.84 per share excluding merger integration and store closing costs, unchanged from prior guidance. The Company anticipates reporting $1.36 – $1.41 per share including merger integration and store closing costs. This compares to full year 2004 EPS of $1.42, excluding merger integration and store closing costs, gain on sale of investment and lease accounting charge.
Comparable store sales are expected to increase approximately 1-2%. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the first half of 2005.
The Company expects to open at least 25 new stores in 2005 while closing six stores (five Dick’s stores and one Galyan’s store) due to overlap.
2005 full-year EPS guidance does not reflect the impact of expensing stock options. The company will, however, be required to begin expensing stock options as compensation cost beginning in the third quarter of its fiscal year pursuant to Statement of Financial Accounting Standards 123R. The Company is currently analyzing the impact of expensing stock options, which is based on a number of factors, including the Company’s stock price, and will not be determined until the end of the second quarter. Based on current information, however, the Company anticipates the cost in the second half of the year to be approximately $0.12 – 0.14 per share.
First Quarter 2005
Based on an estimated 54 million shares outstanding, the Company anticipates EPS for the first quarter of $0.18 – $0.20 per diluted share excluding merger integration and store closing costs of approximately $34 million, pre-tax. The Company anticipates reporting a loss of $0.19 – $0.21 per basic share including merger integration and store closing costs. This compares to first quarter 2004 EPS of $0.21, which includes only the results of Dick’s Sporting Goods and not Galyan’s. Proforma, combined company EPS for the first quarter of 2004 was $0.10.
Comparable store sales are expected to increase approximately 1-2%. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the first half of 2005.
The Company expects to open seven new stores in the first quarter, and close four Dick’s stores and one Galyan’s store due to the conversion. The last Dick’s store closure due to the conversion is expected in the
second quarter of 2005.
DICK's SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands, except per share data) 13 Weeks Ended Year Ended ----------------------- ----------------------- January 29, January 31, January 29, January 31, 2005 2004 2005 2004 --------- --------- ---------- ----------- Net sales $788,048 $474,432 $2,109,399 $1,470,845 Cost of goods sold, including occupancy and distribution costs 560,084 334,927 1,521,515 1,063,106 --------- --------- --------- --------- GROSS PROFIT 227,964 139,505 587,884 407,739 Selling, general and administrative expenses 150,912 95,590 443,776 314,885 Pre-opening expenses 6,029 316 16,229 6,528 Merger integration and store closing costs 12,543 - 20,336 - --------- --------- --------- --------- INCOME FROM OPERATIONS 58,480 43,599 107,543 86,326 Gain on sale of investment 10,981 - 10,981 3,536 Interest expense, net 2,953 285 8,009 1,831 Other income - - 1,000 - --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 66,508 43,314 111,515 88,031 Provision for income taxes 26,603 17,326 44,606 35,212 --------- --------- --------- --------- NET INCOME $39,905 $25,988 $66,909 $52,819 ========= ========= ========= ========= EARNINGS PER COMMON SHARE: Basic $0.82 $0.55 $1.39 $1.18 Diluted $0.75 $0.50 $1.26 $1.05
