Dick's Sporting Goods, Inc. consolidated same-store sales declined 6.0% for the fiscal first quarter ended May 2, besting the company's own estimate for a 12% to 9% decline for the period. Net sales for the quarter increased by 5.2% to $959.7 million, due primarily to the opening of new stores and the addition of e-commerce sales, partially offset by a 6.0% decrease in comparable store sales. The 6.0% consolidated same-store sales decline consisted of a 4.6% decrease in Dick's Sporting Goods stores and a 19.7% decline in the Golf Galaxy stores.
“We are pleased to have generated better than expected same store sales and earnings results in the first quarter. Considering the continued difficult macro economic environment, our associates have done a great job growing the business while controlling expenses and managing inventory. We have a strong balance sheet, and in 2009 we expect to generate positive net operating cash flow in excess of what was generated last year,” said Edward W. Stack, Chairman and CEO.
Integrations
Costs related to the merger and integration of Chick's Sporting Goods were $4.4 million in the first quarter. Merger and integration costs include duplicative administration costs, management and advertising expenses associated with the store conversions and severance. In the first quarter, the company completed the conversion of one Chick's Sporting Goods store to a Dick's Sporting Goods store. The remaining planned Chick's Sporting Goods store conversions have been completed in the second quarter of 2009.
New Stores
In the first quarter, the company opened nine Dick's Sporting Goods stores and one Golf Galaxy store. Also, one Chick's Sporting Goods store was converted to a Dick's Sporting Goods store.
As of May 2, 2009, the company operated 394 Dick's Sporting Goods stores in 39 states, with approximately 22.0 million square feet, 91 Golf Galaxy stores in 31 states, with approximately 1.5 million square feet, and 13 Chick's Sporting Goods stores in California, with approximately 0.6 million square feet.
Balance Sheet
Long term debt declined by $171.7 million from the end of the first quarter of 2008 to the end of the first quarter of 2009 due to the repayment of $172.5 million for the company's senior convertible notes in the first quarter of this year. The inventory per square foot was 9.7% less at the end of the first quarter 2009 as compared to the end of the first quarter 2008.
Current 2009 Outlook
The company believes that the remainder of the year will continue to be challenging. However, based on the first quarter results and the Company's expectations for the second quarter, it is raising the low end of its annual earnings estimates and increasing the expected same store sales for 2009.
Full Year 2009
Second Quarter 2009
Based on an estimated 116 million diluted shares outstanding, the company anticipates reporting non-GAAP consolidated earnings per diluted share of approximately 28 cents to 31 cents in the second quarter of 2009, excluding merger and integration costs. In the second quarter of 2008, the company reported non-GAAP earnings per diluted share of 38 cents, excluding merger and integration costs.
Cash Flow
In May 2008, the FASB issued FSP APB 14-1, which impacts the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. FSP APB 14-1 impacted the accounting associated with the company's senior convertible notes. This FSP requires the company to recognize additional non-cash interest expense based on the market rate for similar debt instruments without the conversion feature. FSP APB 14-1 is effective for fiscal periods beginning in 2009 and requires retrospective application. The company adopted this accounting standard this quarter, and, accordingly, the prior periods' financial statements included herein have been adjusted. Adoption of this standard reduced previously reported earnings per diluted share for the first quarter and full year fiscal 2008 by 1 cent and 4 cents, respectively.
In the first quarter of 2009, the company repaid the senior convertible notes and thus the effect of the adoption of FSP APB 14-1 is not material for fiscal 2009 but is considered in the 2009 outlook.
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
13 Weeks Ended
-----------------------------------
May 2, % of May 3, % of
2009 Sales(1) 2008 Sales
-------- ------- -------- ---------
Adjusted
Net sales $959,662 100.00% $912,112 100.00%
Cost of goods sold, including
occupancy and distribution costs 709,239 73.91 653,006 71.59
-------- ------- -------- ---------
GROSS PROFIT 250,423 26.09 259,106 28.41
Selling, general and administrative
expenses 226,123 23.56 219,964 24.12
Merger and integration costs 4,354 0.45 - -
Pre-opening expenses 3,029 0.32 4,924 0.54
-------- ------- -------- ---------
INCOME FROM OPERATIONS 16,917 1.76 34,218 3.75
Gain on sale of asset - - (2,356) (0.26)
Interest expense, net 1,591 0.17 3,608 0.40
-------- ------- -------- ---------
INCOME BEFORE INCOME TAXES 15,326 1.60 32,966 3.61
Provision for income taxes 5,105 0.53 13,361 1.46
-------- ------- -------- ---------
NET INCOME $10,221 1.07% $19,605 2.15%
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EARNINGS PER COMMON SHARE:
Basic $0.09 $0.18
Diluted $0.09 $0.17
(1) Column does not add due to rounding