Dick's Sporting Goods, Inc. saw a net loss of $104.4 million, or 93 cents a share, in the fourth quarter after a non-cash impairment charge and costs related to the Golf Galaxy and Chick's Sporting Goods integration. Excluding the special items, non-GAAP earnings were down 13.4% and came in at the high-end of projections provided on Feb. 5.
Non-GAAP net income for the fourth quarter ended Jan. 31, 2009 of $63.4 million, or 55 cents a share, compared with net earnings of $73.2 million, or 62 cents, a year ago. On Feb. 5, DSG said it expected earnings to come in between 49 cents to 56 cents.
Net sales for the quarter decreased by 0.4% to $1,207.5 million due primarily to an 8.6% decrease in comparable store sales partially offset by the opening of new stores. The 8.6% consolidated same store sales decline consisted of an 8.1% decrease in Dick's Sporting Goods stores and a 20.7% decline in the Golf Galaxy stores. Chick's Sporting Goods, acquired on Nov. 30, 2007, is excluded from the comparable store sales calculation.
“We continued to execute well in the fourth quarter in spite of the challenging environment. We ended the quarter without any balance outstanding on our line of credit, which is an indication of our strong cash flow and balance sheet position. Additionally, we successfully reduced inventory levels and leveraged S,G & A expenses,” said Edward W. Stack, Chairman and CEO. “As we plan our business for 2009, we are not anticipating any improvement in the macro economic conditions compared to what we experienced in the fourth quarter. We will continue to remain focused on servicing core athletes and outdoor enthusiasts, carefully managing inventory levels, tightly controlling expenses, and modestly growing our store base.”
Integrations
Costs related to the merger and integration of Golf Galaxy and Chick's Sporting Goods were $9.9 million in the fourth quarter and $18.4 million for the full year. Merger and integration costs include the expense of severance, retention, duplicative administration costs, office closure and related taxes. The company has completed the integration of Golf Galaxy's operations and initiated the integration of Chick's Sporting Goods. The remaining planned store conversions of Chick's Sporting Goods stores to Dick's Sporting Goods stores are expected to be completed in the second quarter of 2009.
Non-cash Impairment Charge
In the fourth quarter, the company recorded a pre-tax non-cash impairment charge of $193.4 million that decreased net income by $161.7 million or $1.44 per diluted share for the full year. The company said the deterioration of the economy, combined with projections of a continuing trend, has created a shortfall in the fair value estimations for certain assets, such as goodwill, property and equipment, and other intangible assets below their current book value.
The pre-tax non-cash impairment charge consisted of $164.3 million for goodwill and other intangible assets acquired as part of the Golf Galaxy acquisition in February 2007 and $29.1 million for the write-down of Golf Galaxy, Dick's Sporting Goods, and Chick's Sporting Goods store assets.
New Stores
In the fourth quarter, the company opened four Golf Galaxy stores. As of January 31, 2009, the company operated 384 Dick's Sporting Goods stores in 39 states, with approximately 21.4 million square feet, 89 Golf Galaxy stores in 31 states, with approximately 1.5 million square feet, and 14 Chick's Sporting Goods stores in California, with approximately 0.7 million square feet.
Full Year Results
The company reported non-GAAP net income for the 52 weeks ended Jan. 31, 2009 of $138.9 million, or $1.19 per diluted share. For the 52 weeks ended Feb. 2, 2008, net income and earnings per diluted share were $155.0 million and $1.33, respectively.
On a GAAP basis, the company reported a loss for the 52 weeks ended January 31, 2009 of $35.1 million, or $0.31 per diluted share.
Net sales increased 6% to $4,130.1 million primarily due to the opening of new stores, the inclusion of Chick's Sporting Goods in this year's results, partially offset by a comparable store sales decrease of 4.8%. Full year comparable store sales exclude Golf Galaxy and Chick's Sporting Goods. Golf Galaxy will be included in the full year comparable store base beginning in fiscal 2009. Chick's Sporting Goods stores will be included in the full year comparable store base in the fiscal year following the 13 month anniversary of the conversion to Dick's Sporting Goods.
Balance Sheet
The company believes its strong balance sheet, which included $74.8 million in cash and cash equivalents, no outstanding borrowing under its $440 million Credit Agreement at fiscal 2008 year end, and the inventory per square foot reduction of 13.9% compared to 2007 year end, increases its financial flexibility and further strengthens its ability to successfully manage through the economic environment.
Current 2009 Outlook
Due to the lack of visibility created by the current economic environment, particularly into the back half of the year, the company believes it is appropriate to provide estimates based on the continuation of trends from the fourth quarter of 2008 into fiscal 2009. In light of the expected comparable store sales decline and the anticipated need to be even more value driven in 2009, the company is expecting lower consolidated gross margin levels than were generated in 2008. To partially offset the lower gross margins, the company will maintain its focus on expense management. Specifically, over the course of 2009, the company expects to reduce operating costs by approximately $50 million through payroll, advertising and pre-opening expense reductions.
Full Year 2009
Based on an estimated 116 million diluted shares outstanding, the
On a GAAP basis, the company is anticipating reporting earnings per
Comparable store sales are expected to decrease approximately 12
The company currently expects to open approximately 19 new Dick's
First Quarter 2009
Based on an estimated 116 million diluted shares outstanding, the
Comparable store sales are expected to decrease approximately 12
The company expects to open approximately nine new Dick's Sporting
Cash Flow
In 2009, the company anticipates producing positive operating cash
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
13 Weeks Ended
---------------------------------------
January 31, % of February 2, % of
2009 Sales(1) 2008 Sales(1)
---------- ------- ---------- -------
Net sales $1,207,531 100.00% $1,212,615 100.00%
Cost of goods sold, including
Occupancy and distribution costs 855,348 70.83 836,295 68.97
---------- ------- ---------- -------
GROSS PROFIT 352,183 29.17 376,320 31.03
Selling, general and
administrative expenses 241,676 20.01 250,356 20.65
Impairment of goodwill and other
intangible assets 164,255 13.60 - -
Impairment of store assets 29,095 2.41 - -
Merger and integration costs 9,903 0.82 - -
Pre-opening expenses 126 0.01 1,314 0.11
---------- ------- ---------- -------
INCOME (LOSS) FROM OPERATIONS (92,872) (7.69) 124,650 10.28
Interest expense, net 3,973 0.33 2,730 0.23
---------- ------- ---------- -------
INCOME (LOSS) BEFORE INCOME TAXES (96,845) (8.02) 121,920 10.05
Provision for income taxes 7,532 0.62 48,749 4.02
---------- ------- ---------- -------
NET INCOME (LOSS) $(104,377) (8.64%) $73,171 6.03%
========== ======= ========== =======
EARNINGS (LOSS) PER COMMON SHARE:
Basic $(0.93) $0.66
Diluted $(0.93) $0.62
