Dick's Sporting Goods, Inc. net income for the third quarter ended October 28, 2006 was $7.8 million and earnings per share was 14 cents, as compared to prior year proforma net income of $0.9 million, or 2 cents per share (which has been adjusted for 6 cents of stock option expense per share as if the Company expensed stock options). Earnings guidance provided on August 15, 2006 was for earnings per share of approximately 3 cents – 4 cents.
On a GAAP basis, net income increased to $7.8 million and earnings per share increased to 14 cents, as compared to prior year net income (excluding stock option expense) of $4.2 million, or 8 cents per share.
Net sales for the quarter increased 22% to $708.3 million while comparable store sales increased 8.9%. The former Galyan's stores are included in the third quarter comparable store sales calculation. Comparable store sales guidance provided on August 15, 2006 was for an increase of approximately 3 – 4%.
“I am very pleased with the performance of our team across all functional areas as measured by a variety of metrics. Earnings per share, comp store sales and inventory per square foot were all noteworthy. It is important to note that the weather was very much in our favor as was new product introductions for football and soccer. Certainly, some of the fourth quarter business shifted to the third quarter. That said, we executed well while opening a record 26 stores in the quarter,” said Edward W. Stack, Chairman and CEO.
New Stores
In the third quarter, the Company opened 26 single-level stores (23 in existing markets and three in new markets) which completes the new store openings for the year. The stores that opened in the third quarter are listed in a table later in the release under the heading “Store Count and Square Footage.”
As of October 28, 2006, the Company operated 294 stores, with approximately 16.7 million square feet, in 34 states.
Year-to-Date Results
Net income for the 39 weeks ended October 28, 2006 increased 48% to $44.9 million and earnings per share increased 46% to $0.82, as compared to prior year proforma net income of $30.3 million, or $0.56 per share (which has been adjusted for $0.19 of stock option expense per share as if the Company expensed stock options, and excludes merger integration and store closing costs and gain on sale of investment).
On a GAAP basis, net income increased to $44.9 million and earnings per share increased to $0.82, as compared to prior year net income of $19.0 million, or $0.35 per share which included $37.8 million pre-tax of merger integration costs and a $1.8 million pre-tax gain on sale of investment.
Net sales increased 18% to $2,088 million while comparable store sales increased 7.7%. The former Galyan's stores are not included in the year-to- date comparable store sales calculation as they were not in the comp store base at the beginning of 2006.
Acquisition of Golf Galaxy, Inc.
Dick's and Golf Galaxy, Inc. (Nasdaq: GGXY – News) have entered into a definitive agreement and plan of merger. Under the terms of the agreement, each outstanding share of Golf Galaxy common stock will be converted into the right to receive $18.82 per share in cash, without interest.
Dick's offer represents a premium of 19% over Golf Galaxy's closing stock price as of November 10, 2006. Based on approximately 11.7 million outstanding Golf Galaxy shares, the transaction would be valued at approximately $225 million. The transaction will be financed using our existing credit facility.
Completion of the transaction is contingent upon various conditions, which are more fully set forth in the merger agreement, and includes, among other things, approval of the transaction by Golf Galaxy's shareholders. The merger transaction is anticipated to be completed not before February 6, 2007, subject to Hart-Scott-Rodino approval under United States antitrust laws and customary closing conditions.
Certain holders of Golf Galaxy's common stock have entered into a voting agreement with Dick's where they have agreed to vote 19.9% of the outstanding common stock in favor of the merger at the special shareholders meeting.
Golf Galaxy currently operates 61 stores in 24 states, ecommerce websites and catalog operations, and generated $250 million in sales during the last 12 months ended August 26, 2006.
Dick's management anticipates that the acquisition will be accretive in fiscal 2007. Earnings guidance will be provided with our year end earnings release in March in connection with our standard practice.
“Golf Galaxy is a rapidly growing, profitable company which we believe is the best in the specialty golf category. The passion with which Dick's Sporting Goods and Golf Galaxy associates serve the enthusiast golfer make this transaction a big win for shareholders and golf enthusiasts alike,” said Edward W. Stack, Chairman and CEO.
Peter J. Solomon Securities Company Limited provided financial advisory services to Dick's Sporting Goods in connection with the transaction.
2006 Outlook
Full Year 2006 Comparisons to Fiscal 2005
- We are increasing earnings guidance for the full year as a result of our third quarter performance. Based on an estimated 55 million shares outstanding, the Company is increasing earnings guidance from the previous guidance of approximately $1.84 – 1.88 to the new guidance of approximately $1.95 – 1.98 per share (which includes $0.26 of stock option expense per share). This represents an approximate 30% increase over fiscal 2005 proforma earnings per share of $1.50 (which has been adjusted for $0.25 of stock option expense per share as if the Company expensed stock options, and excludes merger integration and store closing costs and gain on sale of investment).
- Comparable store sales are expected to increase approximately 6% on a 52-week to 52-week comparative basis.
- The Company opened 39 new stores year-to-date which completes the new store openings for the year. Two stores were relocated in the first quarter of 2006.
Fourth Quarter 2006 – 14 Week Quarter
- Based on an estimated 56 million shares outstanding, the Company is providing earnings guidance of approximately $1.13 – 1.16 per share (which includes $0.06 of stock option expense per share). This represents an approximate 22% increase over fourth quarter 2005 proforma earnings per share of $0.94 (which has been adjusted for $0.06 of stock option expense per share as if the Company expensed stock options).
- Comparable store sales are expected to increase approximately 2 – 3% on a 13-week to 13-week comparative basis.
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)13 Weeks Ended 39 Weeks Ended
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Oct. 28, Oct. 29, Oct. 28, Oct. 29,
2006 2005 2006 2005
-------- -------- ---------- ----------Net sales $708,343 $582,665 $2,087,888 $1,775,480
Cost of goods sold, including
occupancy and distribution
costs 517,008 429,211 1,511,490 1,295,638
-------- -------- ---------- ----------
GROSS PROFIT 191,335 153,454 576,398 479,842Selling, general and
administrative expenses 167,393 136,564 478,868 392,282
Pre-opening expenses 8,333 6,022 14,936 10,259
Merger integration and store
closing costs - - - 37,790
-------- -------- ---------- ----------
INCOME FROM OPERATIONS 15,609 10,868 82,594 39,511Gain on sale of investment - - - (1,844)
Interest expense, net 2,617 3,896 7,772 9,771
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES 12,992 6,972 74,822 31,584Provision for income taxes 5,197 2,789 29,929 12,634
-------- -------- ---------- ----------
NET INCOME $7,795 $4,183 $44,893 $18,950
======== ======== ========== ==========EARNINGS PER COMMON SHARE:
Basic $0.15 $0.08 $0.88 $0.38
Diluted $0.14 $0.08 $0.82 $0.35WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 51,272 50,120 50,812 49,652
Diluted 55,437 53,947 54,973 53,917
