Dick’s SG Finds the Right Formula for the Galyan’s Doors and Outdoor Business…

November 21, 2005
SGB Update

Dick's Sporting Goods reported its second full quarter since it completed the conversion of the acquired Galyan’s stores to the Dick’s Sporting Goods format, and the first since it moved to support those stores with the marketing spend generally committed to the legacy Dick’s stores in new markets. The shift has apparently helped to bring the former Galyan’s stores more into line with expectations. It is also the first quarter that GAAP results include the operations of both companies.

Total sales were up 7.7% to $582.7 million on a 2.9% comp store sales increase. Increased ticket size was the big driver for the gain. Excluding the impact of more than $4.6 million in after-tax merger and integration expenses in the year-ago period, net income still increased 55.6% for the quarter.

DKS Chairman and CEO Ed Stack said the performance of the former Galyan’s stores was “significantly better” than it was in the first and second quarters, an improvement he attributed to a marketing plan that was more in synch with the Dick’s legacy stores.

Mr. Stack said the retailer saw “favorable results” in golf, athletic footwear, and apparel, partially offset by hockey and paintball weakness. Golf was described as “very good,” as was the athletic footwear business. Perhaps the big surprise came in the retailer’s lodge business, which houses the outdoor, hunting, and fishing categories. Comps here were flat for Q3, but management saw it as a real win against its peer group that continues to see weakness.

Private label represented about 11% of sales for the quarter, compared to 7.8% of sales last year for the combined Galyan’s and Dick’s stores. They still see private label in the 15% neighborhood long-term, but feel that it will be closer to 12% for 2005.

The 80 basis point increase in GM was due in part to improved merchandise margins, better buying, and an increase in private label sales, partially offset by higher freight costs.

Private label GM is running about 600 to 700 basis points higher than other goods. The 40 basis point improvement in SG&A expenses was due to savings in corporate administrative expenses, offset in part by higher advertising costs and costs associated with the company’s physical inventories.

The comp sales results for the third quarter do not include the 44 re-assorted former Galyan’s stores. The former Galyan’s stores will not become part of the comp sales mix until the 2006 second quarter.

DKS opened 26 new stores in the third quarter for a total of 255 stores with approximately 14.7 million square feet in operation in 34 states at the end of the period. Three of the new stores in Q3 were two-story formats, while six of the 26 new stores for the year were of the two-story variety. They expect to open 40 new stores next year.

Going forward, they see 80% to 85% of all new stores opening in the single-story format.

For the fourth quarter, the retailer is estimating an approximate 20% increase in earnings per diluted share to a range of 95 cents to $1.00 per share. Comparable store sales are expected to increase approximately 1% to 2% for the period on top of a 1.1% gain last year.

DKS continues to anticipate diluted EPS in the $1.70 to $1.75 per share range for the full year, which would represent a 48% increase over full year 2004 pro forma combined company earnings per share of $1.17, excluding merger integration and store closing costs and gain on sale of investment. Comparable store sales are expected to increase approximately 2% for the year.


>>> Why are we not surprised these guys found a way to stabilize the outdoor business…

>>> Notice the Dick’s/TSA rumors are ramping up again now that Federated/May Co. is done…

Dick’s SG Finds the Right Formula for the Galyan’s Doors and Outdoor Business…

SGB Update

Dick's Sporting Goods reported its second full quarter since it completed the conversion of the acquired Galyan’s stores to the Dick’s Sporting Goods format, and the first since it moved to support those stores with the marketing spend generally committed to the legacy Dick’s stores in new markets. The shift has apparently helped to bring the former Galyan’s stores more into line with expectations. It is also the first quarter that GAAP results include the operations of both companies.

Total sales were up 7.7% to $582.7 million on a 2.9% comp store sales increase. Increased ticket size was the big driver for the gain. Excluding the impact of more than $4.6 million in after-tax merger and integration expenses in the year-ago period, net income still increased 55.6% for the quarter. (View Chart)

DKS Chairman and CEO Ed Stack said the performance of the former Galyan’s stores was “significantly better” than it was in the first and second quarters, an improvement he attributed to a marketing plan that was more in synch with the Dick’s legacy stores.

Mr. Stack said the retailer saw “favorable results” in golf, athletic footwear, and apparel, partially offset by hockey and paintball weakness. Golf was described as “very good,” as was the athletic footwear business. Perhaps the big surprise came in the retailer’s lodge business, which houses the outdoor, hunting, and fishing categories. Comps here were flat for Q3, but management saw it as a real win against its peer group that continues to see weakness.

Private label represented about 11% of sales for the quarter, compared to 7.8% of sales last year for the combined Galyan’s and Dick’s stores. They still see private label in the 15% neighborhood long-term, but feel that it will be closer to 12% for 2005.

The 80 basis point increase in GM was due in part to improved merchandise margins, better buying, and an increase in private label sales, partially offset by higher freight costs.

Private label GM is running about 600 to 700 basis points higher than other goods. The 40 basis point improvement in SG&A expenses was due to savings in corporate administrative expenses, offset in part by higher advertising costs and costs associated with the company’s physical inventories.

The comp sales results for the third quarter do not include the 44 re-assorted former Galyan’s stores. The former Galyan’s stores will not become part of the comp sales mix until the 2006 second quarter.

DKS opened 26 new stores in the third quarter for a total of 255 stores with approximately 14.7 million square feet in operation in 34 states at the end of the period. Three of the new stores in Q3 were two-story formats, while six of the 26 new stores for the year were of the two-story variety. They expect to open 40 new stores next year.

Going forward, they see 80% to 85% of all new stores opening in the single-story format.

For the fourth quarter, the retailer is estimating an approximate 20% increase in earnings per diluted share to a range of 95 cents to $1.00 per share. Comparable store sales are expected to increase approximately 1% to 2% for the period on top of a 1.1% gain last year.

DKS continues to anticipate diluted EPS in the $1.70 to $1.75 per share range for the full year, which would represent a 48% increase over full year 2004 pro forma combined company earnings per share of $1.17, excluding merger integration and store closing costs and gain on sale of investment. Comparable store sales are expected to increase approximately 2% for the year.


>>> Why are we not surprised these guys found a way to stabilize the outdoor business…

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Select U.S. Sporting Goods Retailers 
Fiscal Third Quarter Results
($ millions)  Dick’s Sporting Goods The Sports Authority Hibbett Sporting Goods 
2005 2004 Change 2005 2004 Change 2005 2004 Change
Total Sales $582.7 $541.0 7.7% $560.0 $545.0 2.7% $110.6 $92.1 20.0%
Gr. Margin 26.3% 25.6% +80 bps 27.7% 26.9% +90 bps 33.6% 33.5% flat
SG&A % 23.4% 23.1% +40 bps 25.6% 25.6% flat 19.8% 20.4% -60 bps
Net Income $4.2  ($2.0) vs. loss $3.5  ($2.8) vs. loss $8.2  $6.1  33.6%
Diluted EPS 8¢ (4¢) vs. loss 13¢ (11¢) vs. loss 24¢ 17¢ 41.2%
Inventories* $674.9  $625.0  +8.0%