Dick’s Sporting Goods provided a bit more color on the integration costs and efforts associated with its August acquisition of Galyan’s, a merger that will somewhat surprisingly cause the closure of more Dick’s stores than Galyan’s doors. The retailer appears to be reading from its script as management moves to liquidate Galyan’s inventory, align product mix with the Dick’s format, reconcile P&L and balance sheet line items between the two companies, and integrate new employees into the Dick’s culture and operating formula.

Integration and Dick’s store closure costs are expected to reach $70 million, while another $35 million in purchase price adjustment that will not run through the P&L. After the dust settles, DKS will close three Galyan’s stores and six Dick’s stores, with all but one closing by year-end. They also closed two additional Dick’s rooftops in the third quarter, one that was replaced by a new Dick’s store and the other due to poor performance.

DKS has re-signed 16 of the 47 Galyan’s stores and all stores are expected to see new signage and merchandise mix by the end of first half next year.

Chairman and CEO Ed stack said that 60 people remain at Galyan’s Indianapolis headquarters, down from 300 at acquisition. He said roughly 30 to 40 people are in the process of making the move to Dick’s HQ in Pittsburgh. The Galyan’s DC will be converted to Dick’s warehouse management system in the first half as well.

For the third quarter, Dick’s said they saw “favorable results” in Women’s and Kid’s Footwear and Apparel, Team Sports, Cleated Footwear, Sports Games and Bikes. They also got a boost in Licensed product, due primarily to the Red Sox World Series run. Mr. Stack said they were “pleased” with the Golf business and the Fitness business, stating that Dick’s “didn’t have some of the issues in Fitness that some other retailers had.”

Tougher categories included Boots, In-Line Skates, and Cold Weather-related products. Dick’s pulled out the weather card for the first time, stating that the comp sales shortfall was 100% related to the lack of cold weather.

Management was quick to point out that they only mentioned weather in response to a direct question on it and they had no intention to “hide behind the weather”. He did mention that they have an out should the weather not turn as expected, due to “partnership orders” they have in place with vendors that can be canceled if it does not get cold.

Stack said they continue to see positive results in the Women’s business, both in Athletic Apparel and Outdoor Apparel. He also said they see opportunities to chase some energy being generated in Poker category.

Private Label represented roughly 9.6% of sales in the period, up 60 basis points from 9.2% of sales in the year-ago period. Share of sales was certainly impacted by the inclusion of Galyan’s sales for the period. A healthy Athletic Footwear business, which is all branded, was also called out as a reason for Private Label leveling off a bit in the quarter. Galyan’s Private Label sales were not figured into the Private Label piece since it was all in clearance. Nine-month YTD Private Label sales were up 150 basis points to 10.5% of sales.

In Footwear, management called out Nike Shox, Asics Kuyano, and premium New Balance product as key performers in performance. Casual brown shoes not seen as important going forward, but the Field, Hunting, and Hiking boot categories were called out as positive performers.

Mr. Stack said they will clear all the Galyan’s product by the end of January, enabling them to re-set the floors within the Dick’s merchandise plan. Gone will be the Casual and Fashion aspects of the Galyan’s business, replaced by more Team Sports and General Sporting Goods product. He sees a “big upside” in Golf, something SEW has also heard from Galyan’s store managers, and a refocused effort in the Lodge (Fish, Hunt, Camp) business. The private label Walter Hagen Golf products will be added, as will Field & Stream boots.

One area that may get another look is the Ski category. Mr. Stack said they have not made a final decision on Alpine Ski, but that they may well stay in the category in some “very high-volume stores”. He did say they would “stay invested” in the Snowboard category, but will make a decision after the first of the year which Dick’s stores, if any, will get Ski.

Inventory per square foot on a pro forma basis was said to be down 9% from last year.

Dick’s Increases Q4, 2005 Guidance…

The company opened 14 new stores and closed two stores in the third quarter for a total of 22 net new stores year-to-date through October. Eight of the 14 new stores were single-story. DKS has also opened five additional single-story stores in November, which will bring their total store count to 230 stores at year-end including the specified closures.

Two-level stores are expected to have sales of $13.7 million in their full second year and cash flow of $1.2 million, based on a $3 million net cash investment.

Single-story formats are modeled at $8.7 million in sales, with cash flow of $700,000, on a net cash investment of $1.8 million. Both formats are planned for a 40% cash-on-cash return.

DKS still sees the Galyan’s deal as accretive for the year and is estimating full year EPS in the range of $1.37 to 1.39 per diluted share, excluding merger integration and store closing costs, up about two cents from the most recent estimates. Net of merger and store closure expenses, EPS is forecast to be in the 89 cents to 91 cents per diluted share, about 13% to 15% off the $1.05 per share delivered in fiscal 2003. Comparable store sales are expected to be up approximately 2% to 3% for the year.

For fourth quarter, DKS is forecasting EPS in the 77 cents to 78 cents per diluted share range, excluding merger integration and store closing costs of $35 million, on a 1% to 2% same-store sales increase. Including the merger and closure expenses, EPS is seen in the 37 cents to 38 cents range versus 50 cents LY.

Dick’s also increased 2005 earnings expectations. The company still sees about $20 million in cost savings in the Galyan’s deal, with roughly half of it coming out of merchandise margins and the balance coming though advertising leverage and corporate G&A savings. They see adding 20 stores next year, with four slated to be two-level formats, and then moving back to 15% growth in square footage in 2006 and beyond.

Mr. Stack said they still believe they can “just about double” the size of the company east of the Mississippi and in current markets.

>>> It is refreshing to see a company provide pro forma results for a combined entity instead of hiding behind a so-called “lost quarter”…